Current through Register Vol. XLI, No. 38, September 20, 2024
5.1. In general. - The aggregate annual
credit allowance for the current taxable year is an amount equal to the sum of:
5.1.1. The one-tenth part allowed under W.
Va. Code '11-13C-4
for qualified investment placed into service or use during a prior taxable
year, plus
5.1.2. The one-tenth
part allowed under W. Va. Code '11-13C-4
for qualified investment placed into service or use during the current taxable
year, plus
5.1.3. The one-tenth
part allowed under W. Va. Code '11-13C-4a
for locating corporate headquarters in this State; or the amount allowed under
W. Va. Code '11-13C-7a
for the taxable year.
5.2. Application of current year annual
credit allowance. - The amount determined under Section 5.1 shall be allowed as
a credit against that portion of the taxpayer's State tax liability which is
attributable to and the direct result of the taxpayer's qualified investment,
and shall be applied as provided in W. Va. Code '11-13C-5(c)
through (k), both inclusive, and in Sections
5.3 through 5.11, both inclusive, of these regulations and the subsections
thereof.
5.3. Business and
occupation taxes.
5.3.1. that portion of the
allowable credit attributable to qualified investment in a business or other
activity subject to the taxes imposed by W. Va. Code '11-13 et seq. shall first
be applied to reduce up to eighty percent (80%) of the taxes imposed by W. Va.
Code '11-13 et seq. for the taxable year (determined before application of
allowable credits against tax and the annual exemption).
5.3.2. If the taxes due under said article
thirteen are not solely attributable to and the direct result of the taxpayer's
qualified investment in a business or other activity taxable under W. Va. Code
'11-13 et seq. the amount of such taxes, which are so attributable, shall be
determined by multiplying the amount of taxes due under said article thirteen,
for the taxable year (determined before application of any allowable credits
against tax and the annual exemption), by a fraction, the numerator of which is
all wages, salaries and other compensation paid during the taxable year to all
employees of the taxpayer employed in this State, whose positions are directly
attributable to the qualified investment in a business or other activity
taxable under article thirteen of this chapter. The denominator of the fraction
shall be the wages, salaries and other compensation paid during the taxable
year to all employees of the taxpayer, employed in this State, whose positions
are directly attributable to the business or other activity of the taxpayer,
that is taxable under the said article thirteen.
5.3.3. The annual exemption allowed by
Section three of said article thirteen, plus any credits allowable under W. Va.
Code ''11-13D and 11-13E et seq. of shall be applied against and reduce only
the portion of article thirteen taxes not apportioned to the qualified
investment under W. Va. Code '11-13C et seq.: Provided, That any excess
exemption or credits may be applied against the amount of article thirteen
taxes apportioned to the qualified investment under W. Va. Code '11-13C et
seq., that is not offset by the amount of annual credit against such taxes
allowed under W. Va. Code '11-13C et seq. for the taxable year, unless their
application is otherwise prohibited by W. Va. Code Chapter 11.
5.4 Carrier income taxes.
5.4.1. That portion of the allowable credit
attributable to qualified investment in a business or other activity subject to
the taxes imposed by W. Va. Code '11-12a et seq., shall first be applied to
reduce up to eighty percent of the taxes imposed by W. Va. Code '11-12a et
seq., for the taxable year.
5.4.2.
If the taxes due under said Article 12A are not solely attributable to and the
direct result of the taxpayer's qualified investment in a business or other
activity taxable under said Article 12A, the amount of such taxes, which are so
attributable, shall be determined by multiplying the amount of taxes due under
said Article 12A, for the taxable year, by a fraction, the numerator of which
is all wages, salaries and other compensation paid during the taxable year to
all employees of the taxpayer employed in this State, whose positions are
directly attributable to the qualified investment in a business or other
activity taxable under said Article 12A. The denominator of the fraction shall
be the wages, salaries and other compensation paid during the taxable year to
all employees of the taxpayer, employed in this State, whose positions are
directly attributable to the business or other activity of the taxpayer, that
is taxable under said Article 12A.
5.5. Severance taxes.
5.5.1. On and after July 1, 1987, for
investment placed in service or use prior to March 10, 1990 or investment
subject to the transition rules set forth in W. Va. Code '11-13C-14(c)(2),
that portion of the allowable credit attributable to qualified investment in a
business or other activity subject to the tax imposed by W. Va. Code '11-13A et
seq., and qualified investment in a business or activity that was subject to
the tax imposed by said Article 13 of this chapter prior to said first day of
July, but on and after said first day of July, is subject to the tax imposed by
W. Va. Code '11-13A et seq., shall first be applied to reduce up to eighty
percent (80%) of the taxes imposed by said Article 13 of this chapter prior to
said July 1, but on and after said July 1, is subject to the tax imposed by W.
Va. Code '11-13A et seq., shall first be applied to reduce up to eighty percent
(80%) of the taxes imposed by said Article 13A for the taxable year (determined
before application of any allowable credits against tax and the annual
exemption credit.)
5.5.2. If the
taxes due under said Article 13A are not solely attributable to and the direct
result of the taxpayer's qualified investment in a business or other activity
taxable under said Article 13A, the amount of such taxes, which are so
attributable, shall be determined by multiplying the amount of taxes due under
said Article 13A, for the taxable year (determined before application of any
allowable credits against tax), by a fraction, the numerator of which is all
wages, salaries and other compensation paid during the taxable year to all
employees of the taxpayer employed in this State, whose positions are directly
attributable to the qualified investment in a business or other activity
taxable under said Article 13A. The denominator of the fraction shall be the
wages, salaries and other compensation paid during the taxable year to all
employees of the taxpayer, employed in this State, whose positions are directly
attributable to the business or other activity of the taxpayer, that is taxable
under said Article 13A.
5.5.3. Any
credits allowable under W. Va. Code ''11-13D and 11-13E et seq., shall be
applied against and reduce only the portion of Article 13A taxes not
apportioned to the qualified investment under W. Va. Code '11-13C et seq.:
Provided, That any excess credits may be applied against the amount of Article
13 taxes apportioned to the qualified investment under W. Va. Code '11-13C et
seq., that is not offset by the amount of annual credit against such taxes
allowed under W. Va. Code '11-13C et seq. for the taxable year, unless their
application is otherwise prohibited by W. Va. Code '11-13C et seq.
5.6. Telecommunications taxes.
5.6.1. On and after July 1, 1987, that
portion of the allowable credit attributable to qualified investment in a
business or other activity subject to the taxes imposed by W. Va. Code '11-13B
et seq., shall first be applied to reduce up to eighty percent (80%) of the
taxes imposed by W. Va. Code '11-13B et seq. for the taxable year (determined
before application of allowable credits against tax) and qualified investment
in a business or activity that was subject to the taxes imposed by W. Va. Code
'11-12A et seq. prior to said July 1, but on and after said July 1, is subject
to the tax imposed by W. Va. Code '11-13B et seq.
5.6.2. If the taxes due under said Article
13B are not solely attributable to and the direct result of the taxpayer's
qualified investment in a business or other activity taxable under W. Va. Code
'11-13B et seq., the amount of such taxes, which are so attributable, shall be
determined by multiplying the amount of taxes due under said W. Va. Code
'11-13B et seq., for the taxable year (determined before application of any
allowable credits against tax), by a fraction, the numerator of which is all
wages, salaries and other compensation paid during the taxable year to all
employees of the taxpayer employed in this State, whose positions are directly
attributable to the qualified investment in a business or other activity
taxable under W. Va. Code '11-13B et seq.. The denominator of the fraction
shall be the wages, salaries and other compensation paid during the taxable
year to all employees of the taxpayer, employed in this State, whose positions
are directly attributable to the business or other activity of the taxpayer,
that is taxable under W. Va. Code '11-13B et seq.
5.7. Business franchise tax.
5.7.1. On and after July 1, 1987, that
portion of the allowable credit attributable to qualified investment in a
business or activity subject to the taxes imposed by W. Va. Code '11-23 et
seq., and qualified investment in a business or activity that was subject to
the taxes imposed by W. Va. Code '11-13 et seq. prior to said July 1, but on
and after said July 1, is subject to the tax imposed by W. Va. Code '11-23 et
seq., shall first be applied to reduce up to eighty percent (80%) of the taxes
imposed by said Article 23 for the taxable year (determined after application
of the credits against tax provided in W. Va. Code '11-23-17,
but before application of any other allowable credits against tax).
5.7.2. If the taxes due under said Article 23
are not solely attributable to and the direct result of the taxpayer's
qualified investment in a business or other activity taxable under Article 23,
for the taxable year (determined after application of the credits against tax
provided in Section seventeen of said Article 23, but before application of any
other allowable credits), by a fraction, the numerator of which is all wages,
salaries and other compensation paid during the taxable year to all employees
of the taxpayer employed in this State, whose positions are directly
attributable to the qualified investment in a business or other activity
taxable under W. Va. Code '11-23 et seq. The denominator of the fraction shall
be wages, salaries and other compensation paid during the taxable year to
employees of the taxpayer, employed in this State, whose positions are directly
attributable to the business or other activity of the taxpayer that is taxable
under W. Va. Code '11-23 et seq.
5.7.3. Any credits allowable under W. Va.
Code ''13D and 13E et seq. shall be applied against and reduce only the portion
of Article 23 taxes not apportioned to the qualified investment under W. Va.
Code '11-13C et seq. Provided, That any excess exemption or credits may be
applied against the amount of Article 23 taxes apportioned to the qualified
investment under W. Va. Code '11-13C et seq. that is not offset by the amount
of annual credit against such taxes allowed under W. Va. Code '11-13C et seq.
for the taxable year, unless their application is otherwise prohibited by W.
Va. Code Chapter '11.
5.8. Corporation net income taxes.
5.8.1. After application of W. Va. Code
''11-13C-5(c)
through (g), both inclusive, and Sections 5.3 through 5.7, both inclusive, of
these regulations and the subsections thereof, any unused credit shall next be
applied to reduce up to eighty percent (80%) of the taxes imposed by W. Va.
Code '11-24 et seq. for the taxable year (determined before application of
allowable credits against tax).
5.8.2. If the taxes due under said Article 24
(determined before application of allowable credits against tax) are not solely
attributable to and the direct result of the taxpayer's qualified investment,
the amount of such taxes which are so attributable, shall be determined by
multiplying the amount of taxes due under said Article 24 for the taxable year
(determined before application of allowable credits against tax), by a
fraction, the numerator of which is all wages, salaries and other compensation
paid during the taxable year to all employees of the taxpayer employed in this
State, whose positions are directly attributable to the qualified investment.
The denominator of the fraction shall be the wages, salaries and other
compensation paid during the taxable year to all employees of the taxpayer,
employed in this State.
5.8.3. Any
credit allowable under W. Va. Code '11-24 et seq. shall be applied against and
reduce only the amount of Article 24 taxes not apportioned to the qualified
investment under W. Va. Code '11-13C et seq.: Provided, That any excess credits
may be applied against the amount of Article 24 taxes apportioned to the
qualified investment under W. Va. Code '11-13C et seq. that is not offset by
the amount of annual credit against such taxes allowed under W. Va. Code
'11-13C et seq. for the taxable year, unless their application is otherwise
prohibited by W. Va. Code Chapter 11.
5.9. Personal income taxes.
5.9.1. If the person making the qualified
investment is an electing small business corporation (as defined in Section
1361 of the United States Internal Revenue Code of 1954, as amended), a
partnership or a sole proprietorship, then any unused credit (after application
of Sections 5.3, 5.4, 5.5, 5.6 and 5.7 and the subsections thereof of these
regulations shall be allowed as a credit against up to eighty percent of the
taxes imposed by W. Va. Code '11-21 et seq. on the income from business or
other activity subject to tax under W. Va. Code ''11-12A, 11-13, 11-13A, 11-13B
or 11-23 et seq.
5.9.2. Electing
small business corporations, partnerships and other unincorporated
organizations shall allocate the credit allowed by this article among its
members in the same manner as profits and losses are allocated for the taxable
year.
5.9.3. If the amount of taxes
due under W. Va. Code '11-21 et seq. (determined before application of
allowable credits against tax), that is attributable to business, is not solely
attributable to and the direct result of the qualified investment of the
electing small business corporation, partnership, other unincorporated
organization or sole proprietorship, the amount of such taxes which are so
attributable shall be determined by multiplying the amount of taxes due under
said Article 21 (determined before application of allowable credits against
tax), that is attributable to business by a fraction, the numerator of which is
all wages, salaries and other compensation paid during the taxable year to all
employees of the electing small business corporation, partnership, other
unincorporated organization or sole proprietorship employed in this State,
whose positions are directly attributable to the qualified investment. The
denominator of the fraction shall be the wages, salaries and other compensation
paid during the taxable year to all employees of the taxpayer.
5.9.4. No credit shall be allowed under this
Section against any employer withholding taxes imposed by said Article 21.
5.9.4.1. If the individual's personal income
is solely attributable to a distribution of income from a qualified entity
entitled to business investment and jobs expansion credit then the individual
may either apply the credit against either eighty percent (80%) of his/her West
Virginia personal income tax liability, if the income is solely attributable to
and the direct result of the qualified investment, or eighty percent (80%) of
his/her West Virginia personal income tax liability as apportioned under
Section 5.9.3 of these regulations, if the income is not solely attributable to
and the direct result of the qualified investment.
5.9.4.2. If the individual's personal income
is not solely attributable to a distribution of income from a qualified entity
entitled to business investment and jobs expansion credit then the individual
must determine the portion of his/her West Virginia adjusted gross income
attributable to the qualified income distribution in addition to possibly
apportioning his/her income distribution as required under Section 5.9.3 of
these regulations.
For example:
John received $1,000,000 in taxable income distributions from
the MM Small Business Corporation, a business entitled to the business
investment and jobs expansion credit. MM has a total West Virginia payroll of
$12,000,000 but only $6,000,000 of payroll is directly attributable to the
qualified investment. Therefore MM's payroll apportionment factor is 50%
($6,000,000/$12,000,000).
In addition to his $1,000,000 distribution from MM, John also
received $100,000 in wage and salary income, $200,000 in capital gains, $50,000
in dividends and $250,000 from an oil and gas partnership. John's total West
Virginia adjusted gross income is $1,600,000 ($1,000,000 + $100,000 + $200,000
+ $50,000 + $250,000). John's pre-credit West Virginia personal income tax
liability equals $102,745.
John determines the portion of his tax subject to business
investment and jobs expansion tax credit offset by multiplying his pre-credit
tax liability ($102,745) by both MM's payroll apportionment factor (50%) and by
the fraction of his total West Virginia adjusted gross income directly
attributable to the qualified income distribution from MM (62.5% or
$1,000,000/$1,600,000). John may then apply any unused credit (remaining after
applications of Sections 5.3, 5.4, 5.5, 5.6 and 5.7 and the subsections thereof
of these regulations) against up to 80% ($25,686) of his personal income tax
($32,108) attributable to the qualified investment by MM Small Business
corporation.
5.10. Sales and use taxes.
On and after July 1, 1987, for purchases of tangible personal
property and taxable services made on or after that date, that portion of the
allowable credit, which is attributable to qualified investment in a business
or activity subject to the taxes imposed by W. Va. Code '11-15 and 11-15A et
seq. on purchases for use or consumption in the conduct of such business or
activity, shall be applied to reduce up to eighty percent (80%) of the taxes
imposed by W. Va. Code ''11-15 and 11-15A on purchases that are directly used
or consumed in the qualified investment activity. When property and services
purchased for use or consumption are not solely used or consumed in the
qualified investment activity, the cost thereof shall be apportioned between
such activities. Only that amount apportioned to purchases directly used or
consumed in the qualified investment activity shall be included when applying
the credit allowable under this Section.
5.10.1. W. Va. Code '11-13C-5 sets forth the
taxes, in order, against which the business investment and jobs expansion tax
credit can be taken.
The sales tax and use tax are set out in the order of taxes
against which the credit will apply subsequent to business and occupation
taxes, carrier income taxes, severance taxes, telecommunications taxes,
business franchise tax, corporation net income taxes and personal income
taxes.
Before the credit may be applied against the consumers sales
and service tax and use tax liabilities, it is necessary that the annual
liabilities for the preceding taxes and the amount of credit available against
those taxes be determined. Therefore, the business investment and jobs
expansion tax credit must be taken against the consumers sales and service tax
and use tax liabilities through a request for refund filed with the Tax
Department at the end of each tax year.
5.10.2. In no case shall this credit offset
any amount of sales or use tax which was included in the measure of investment
in property purchased or leased for business expansion upon which qualified
investment was based.
5.10.3. The
credit may offset only the sales and use tax liabilities of the taxpayer
claiming the credit. The credit shall never offset any portion of sales or use
tax collected from customers of a taxpayer entitled to credit and held in trust
by such taxpayer for remittance to the State.
5.11. Ad valorem property taxes; unemployment
taxes and workers' compensation premiums.
5.11.1. After application of W. Va. Code
''11-13C-5(a) through (i), both inclusive, and Sections 5.3 through 5.9, both
inclusive, of these regulations and the subsections thereof, any unused credit
shall be applied for payment of the sum of the following amounts as a rebate
against the remaining twenty percent (20%) of the taxes enumerated in Sections
5.3 through 5.9 of these regulations and the subsections thereof. This does not
include the remaining twenty percent (20%) of the taxes enumerated in W. va.
Code '11-13C-5(j)
or Section 5.10 of these regulations (the consumers sales and service tax and
the use tax):
5.11.1.1. Eighty percent (80%)
of the ad valorem property taxes imposed by levying bodies pursuant to W. Va.
Code '11-8 et seq. for the taxable year (including payments in lieu of such
taxes), on property of the taxpayer that is directly attributable to the
qualified investment (including property having a useful life of less than four
(4) years) of the taxpayer, in the new or expanded business facility of the
taxpayer resulting in new jobs; plus
5.11.1.2. Eighty percent (80%) of the taxes
imposed by W. Va. Code '21A-5, for the taxable year attributable to the
compensation of new employees filling the new jobs that are directly
attributable to the qualified investment; plus
5.11.1.3. Twenty percent (20%) of the
workers' compensation premiums imposed by W. Va. Code '23-2 et seq. for the
taxable year attributable to the compensation paid new employees filling the
new jobs that are directly attributable to the qualified investment.
5.11.2. Ad valorem property tax
against which the rebate credit may be taken is the property tax paid on plant
and equipment type items. Property tax on inventory and on accounts receivable
should be excluded from the measure of ad valorem property tax against which
the rebate credit will apply.
5.11.2.1. Only
ad valorem property taxes paid as a result of an actual assessment of ad
valorem property tax issued upon qualified investment property on or subsequent
to the date such property was placed in service or use will qualify for rebate
credit.
5.11.2.2. In most instances
the qualifying property is either new or is being placed into service for the
first time. Such property is assessed on the first July 1st following the date
placed into service. The resulting tax levy is then due during the year
following the year of assessment. Due to a one (1) year delay between the
assessment of tax and the actual payment of such tax, there is no property tax
rebate available during the first year of business under this credit.
Therefore, a typical business has only nine (9) years worth of property tax
rebate unless that business elects to delay the beginning of the credit
application for one (1) year.
5.11.2.3. A taxpayer is not entitled to
rebate credit based upon ad valorem property tax paid on qualified investment
property for periods prior to the placement of such property into service or
use for purposes of this credit.
5.11.2.4. Payments into the catastrophe
hazard and second injury hazard surplus fund by taxpayers who are workers'
compensation self insurers under W. Va. Code '23-2-9
may be offset by the rebate credit under W. Va. Code '11-13C-5(j)(1)(c)
as workers' compensation premiums.
5.11.3. A taxpayer eligible to claim this
rebate shall apply either the amount of the unused credit or the sum determined
under Subsections 5.11.1 through 5.11.1.3 of these regulations, whichever is
less, against the remaining twenty percent (20%) of the taxes imposed by W. Va.
Code ''11-12A, 13, 13A, 13B, 21, 23 and 24 et seq. attributable to the
qualified investment under W. Va. Code '11-13C et seq. If any amount of rebate
remains after its application against the remaining twenty percent (20%) of
taxes as aforesaid, the amount remaining shall be carried forward to each
ensuing tax year until used or expiration of the twelfth tax year subsequent to
the tax year in which the qualified investment was placed in service or use in
this State by the taxpayer.
5.11.3.1. The
rebate credit carryforward can be applied in any taxable year from year two (2)
to year thirteen (13) inclusive. It can reduce the business taxes, except for
the sales and use taxes, to zero (0) without limitation to a percentage.
Obviously, no credit carryforward would be available in year
one (1). However, credit could carry forward from year one (1) to year two (2)
and thereafter. Any credit carryforward remaining unused at the end of year
thirteen (13) would be forfeited by operation of law. No carryover rebate
credit would be available in year fourteen (14) or thereafter.
5.12. Unused
credit forfeited. - If any credit remains after application of Section 5.2
through Section 5.11, both inclusive, of these regulations and subsections of
such sections, the amount thereof shall be forfeited. No carryover to a
subsequent taxable year or carryback to a prior taxable year shall be allowed
for the amount of any unused portion of any annual credit allowance except as
specifically provided in Section 5.11 and the subsections thereof.
5.13. Payroll factor. - The term "all
employees of the taxpayer employed in this state" for purposes of the W. Va.
Code '11-13C-5(c),
(d), (e), (f), (g), (h), (i), (j)(1)(B) and
(j)(1)(C) payroll factor determinations of
taxes attributable to and the direct result of qualified investment must be
interpreted to mean all full-time but not part-time employees employed by the
taxpayer in West Virginia without regard to domicile on residency. For payroll
factors applicable to certified projects under W. Va. Code '11-13C-4b,
refer to Section 4b.3.4 through 4b.3.4.6.d.2 of these regulations.
5.14. Taking of credit.
5.14.1. The business investment and jobs
expansion tax credit can only be taken against taxes actually paid or payable
by a taxpayer entitled to credit. No shifting of tax burdens by agreement would
alter this disposition. No shifting of credit among entities, other than
multiple party certified project participants, is allowed under the business
investment and jobs expansion tax credit statute.
5.14.2. No prior certification by the Tax
Commissioner is needed in order to take the business investment and jobs
expansion tax credit under the nonproject provisions of the credit statute,
except that for investment placed in service or use on or after January 1,
1990, an application for credit must be filed with the Tax Commissioner in
accordance with W. Va. Code '11-13C-14(f)
and Section 14.6 and the subsections thereof of these regulations.
5.14.3. In the case of a subsidiary of a West
Virginia parent corporation which files a consolidated return, it will be
necessary to apportion the tax liabilities of the consolidated filer by a
payroll factor with a numerator equal to the West Virginia payroll directly
attributable to the qualified investment and a denominator equal to the total
West Virginia payroll of the consolidated filer. Exceptions to this requirement
may be granted by the Tax Commissioner, upon request, but only if the taxpayer
creates a pro forma separate filing for the subsidiary entitled to the business
investment and jobs expansion tax credit for purposes of determining the amount
of credit available. That credit may then be offset against the tax due under
the consolidated filing. This latter method does not generally work for
consolidated multistate taxpayers subject to tax under W. Va. Code ''11-23 and
11-24 et seq. In no case shall the apportionment factor be applied in such a
manner as to apply credit to shelter income not attributable to qualified
investment from tax.
5.14.4. Credit
would flow through to S corporation shareholders.
If an S corporation paid the business franchise tax or any
other tax directly as an entity, then the shareholders themselves could not
obtain any pass through credit against any liability for the same tax. The
amount of credit remaining after the entity had taken credit would flow through
to the shareholders in proportion to their ownership percentages precisely as
would income of the S corporation. For multiple party projects, the
shareholders should use the same payroll allocation percentage as the S
corporation under W. Va. Code '11-13C-4b(c)(3)
and Sections 4b.3.4 through 4b.3.4.5.d.2 or Section 5.9.4.1, if applicable, of
these regulations for determining the amount of personal income tax against
which the business investment and jobs expansion tax credit for the project can
be taken. In the case of nonproject credit or a multiple year project, as
opposed to a multiple party project, the numerator of the allocation fraction
would be the West Virginia payroll of the S corporation attributable to
qualified investment, and the denominator would be the total West Virginia
payroll of the S corporation. This allocation percentage or the allocation
percentage described under Section 5.9.4.1 of these regulations, which is
applicable, should be multiplied by the S corporation shareholders' personal
income tax on income flowing through the S corporation as a conduit. This would
determine the amount of personal income tax against which the credit can be
taken by the S corporation shareholder.
5.14.5. Credit would flow through to
partnership partners.
In the situation where partnerships take the credit, the
procedure for the subsequent taking of the credit by the partners of the
partnership is as follows. If the partnership paid business and occupation tax
or any other tax directly as an entity, then the partners themselves cannot
obtain the credit against any liability for the same tax. The partners should
use the same payroll allocation percentage as the partnership. Generally, for a
nonproject credit or a multiple year, nonmultiple party project, the numerator
is West Virginia payroll of the partnership attributable to qualified
investment and the denominator is West Virginia payroll of the partnership.
That partnership payroll allocation percentage or the allocation percentage
described under Section 5.9.4.1 of these regulations, whichever is applicable,
should be multiplied by the partner's share of tax on income flowing through
the partnership as a conduit. This will determine the amount of tax against
which the credit can be taken by the partner. The payroll factor would be
determined for the business entity in accordance with these regulations.
5.15. Notwithstanding
any provision of these regulations to the contrary, the taking of the credit
set forth in W. Va. Code '11-13C et seq. shall be subject to the provisions of
W. Va. Code '11-12B et seq.
5.16.
Determination of Tax Solely Attributable to and the Direct Result of Qualified
Investment.
Under W. Va. Code '11-13C-5(b),
the credits allowable under W. Va. Code '11-13C et seq. can offset only tax
attributable to and the direct result of qualified investment. For those taxes
enumerated in W. Va. Code '11-13C-5
which can be offset by W. Va. Code '11-13C et seq. credits, the determination
of what portion of the taxpayer's total tax liability for each such tax that is
"tax solely attributable to and the direct result of qualified investment" is
typically made by multiplying the total liability for each tax by a payroll
factor. The payroll factor typically consists of a fraction, the numerator of
which is annual payroll of the taxpayer solely attributable to and the direct
result of qualified investment, and the denominator of which is total annual
West Virginia payroll of the taxpayer. As discussed in section 4b.3.4 et seq.,
Section 5.13, Section 5.14.3 of these regulations, and other provisions of
these regulations, the payroll factor may be adjusted to accommodate multiple
party or multiple year project status for taxpayers, or to accommodate
circumstances where taxpayers have gained entitlement to one or more
concurrently applicable tax credits under W. Va. Code '11-13C et seq., and to
accommodate circumstances where there is a single, consolidated, composite or
unitary tax filing unit.
W. Va. Code '11-13C-5(j)
provides that for tax years beginning after December 31, 1992 and thereafter,
if the payroll formula provisions of W. Va. Code '11-13C-5(c)
through (i), inclusive, do not fairly
represent the taxes solely attributable to and the direct result of the
taxpayer's qualified investment, and that of all other project participants in
the business or activity subject to tax, the Tax Commissioner may require the
use of an alternative method of determining tax so attributable that will
effectuate an equitable attribution of the tax.
The enumerated methods are:
1) Separate accounting or identification;
or
2) Adjustment to the wages
formula to reflect all components of the tax liability; or
3) The inclusion of one or more additional
factors which will fairly represent the taxes solely attributable to and the
direct result of the qualified investment of the taxpayer and all other project
participants in the businesses or other activities subject to tax; or
4) The employment of any other method to
effectuate an equitable attribution of the taxes.
5.16.1. Reasons for Alternate Apportionment.
The purpose of the Business Investment and Jobs Expansion Tax
Credit is to promote net employment growth within West Virginia. In return for
net employment growth (e.g. 50 new jobs) through capital investment, the State
provides tax credits to offset the additional taxes directly attributable to
the qualified investment and new jobs. In no case should credits attributable
to one qualified project apply to tax liability unrelated to that project. The
purpose behind a mathematical formula (e.g. payroll factor) is to arrive at tax
liability attributable to qualified investment or new jobs in situations where
that amount is not clearly identifiable. If a mathematical formula (e.g. a
payroll factor) fails to accomplish this result, then an alternative
apportionment method may be prescribed by the Tax Commissioner. Examples where
use of an alternative apportionment formula may be necessary are as follows.
These examples are not intended to be all inclusive.
5.16.1.1. The amount of tax liability
attributable to the qualified investment, calculated through use of the payroll
factor or alternative apportionment method proposed by the taxpayer(s) is
greater than the tax liability actually generated by the project, facility or
operation directly related to the qualified investment and new jobs on which
the credit is based.
5.16.1.2. Use
of a payroll factor or other method of allocation results in credit being made
available to offset the liabilities of the taxpayer in an amount larger than
the amount of qualified investment made by the taxpayer.
5.16.1.3. There is payroll factor
manipulation or mismatch. The payroll factor can sometimes be mismatched with
relation to operations or tax generating activities resulting from qualified
investment when compared to total overall operations or tax generating
activities of a taxpayer. Mismatching can be the result of the inadvertent
structural configuration of a taxpayer's operations, or it can result from
deliberate manipulation of this configuration.
For example: Under prior Business investment and Jobs
Expansion Tax Credit Law, the West Virginia Severance Tax could be offset by
the business investment and jobs expansion tax credit, and it can still be
offset by taxpayers qualified under the transition rules of W. Va. Code
'11-13C-14.
A severance taxpayer "a mineral owner" could have a multitude
of mineral properties producing a severance tax liability for the
taxpayer.
1) If the taxpayer were to
structure its operations so that all of its mineral properties were under
production by contract miners, and
2) If the taxpayer formed a business
investment and jobs expansion tax credit multiple party project out of only one
producing property (one of the many mineral properties owned by the taxpayer
under production and causing a severance tax liability for the taxpayer),
and
3) If the participants in the
project consist only of the taxpayer and the contract miners working
exclusively on the business investment and jobs expansion tax credit operation,
and
4) If the employees of the
contractors are exclusively employed in the business investment and jobs
expansion tax credit operation, and
5) If the severance taxpayer had no West
Virginia employees or only employees working on the business investment and
jobs expansion tax credit project property,
then the payroll factor attributable to the qualified
investment would be 100%.
The only employees attributable to qualified investment would
be the West Virginia employees of the contract miners (and the project
employees of the taxpayer, if applicable). All other mineral operations of the
taxpayer generating the severance tax liability of the taxpayer would be
operated by contract miners which are not participants in the project. Thus,
the payroll attributable to these operations would not be included in the
denominator of the payroll factor for the project participants.
The result of this structural configuration (whether
inadvertent or deliberate) would be to create a payroll factor of 100%, which
would allow the taxpayer to offset 100% of its severance tax liability, even
though only a small part of its severance tax liability would in fact be
attributable to qualified investment.
5.16.2. Alternate Methods for Determining Tax
Attributable to Qualified Investment in Lieu of, or in Modification of, the
Payroll Factor Method.
Under W. Va. Code '11-13C-5(j),
if application of the payroll factor does not fairly represent the taxes solely
attributable to and the direct result of qualified investment of the taxpayer
and all other project participants in the business or other activities subject
to the tax, the Tax Commissioner may require, in respect to all or any part of
the taxpayer's businesses or activities, if reasonable, any of the following
methods or any combination thereof, for determining tax so attributable. These
alternate methods shall be used when required by the Tax Commissioner in lieu
of the payroll apportionment method, and where required, in lieu of the payroll
apportionment methods prescribed in Section 4b of these regulations, and the
subsections thereof, or any methods prescribed in any other sections of these
regulations.
5.16.2.1. Separate
Accounting or Identification.
This method entails the specific identification and
quantification of tax solely attributable to and the direct result of qualified
investment of the taxpayer or project participants. Required use of the
separate accounting or identification method may result in total exclusion of
one or more particular taxes from offset by the credit, and specific accounting
or use of other apportionment methods as to other taxes.
Separate accounting may be based upon taxes specifically
related to identifiable qualified investment property, operations arising from
a facility constituting qualified investment property, operations directly
identifiable with employees employed to exclusively operate qualified
investment property or equipment or to perform operations on a facility
constituting qualified investment property, or upon any other basis; and such
determination can be made upon a separate entity, unitary, composite or
consolidated basis, and upon the basis of the affiliated group for all domestic
affiliates or all domestic and foreign affiliates of a given taxpayer or of the
participants in a business investment and jobs expansion tax credit
project.
5.16.2.2.
Adjustment to the wages formula to reflect all components of the tax liability.
This adjustment may entail the creation and application of a
payroll factor which includes all or part of the payroll of all or some
contractors and all or some contract labor for all or some entities which
operate facilities for or otherwise produce income for the taxpayer whose tax
attributable to and the direct result of qualified investment is to be
determined. The payroll factor can be adjusted to create a payroll factor as
discussed above, or otherwise as determined by the Tax Commissioner, determined
on a separate entity, unitary, composite or consolidated basis, and upon the
basis of the affiliated group for all domestic affiliates or all domestic and
foreign affiliates of a given taxpayer or of the participants in a business
investment and jobs expansion tax credit project.
5.16.2.3. The inclusion of one or more
additional factors which fairly represent the taxes solely attributable to and
the direct result of the qualified investment of the taxpayer and all other
project participants in the businesses or other activities subject to tax.
5.16.2.3.1. In addition to, or in lieu of,
the application of the payroll factor or an adjusted payroll factor or separate
accounting or identification, or any combination thereof, as described in these
regulations, the Tax Commissioner may prescribe application of a property
factor.
The property factor is a fraction, the numerator of which is
the average value of the individual taxpayer's or project participant's real
and tangible personal property owned or rented by it in this State during the
taxable year which constitutes property purchased or leased for business
expansion as defined in W. Va. Code '11-13C-3(b)
and in which qualified investment has been made, or which constitutes property
purchased or leased for business expansion as defined in W. Va. Code
'11-13C-14(e)
in which qualified investment has been made; and the denominator of which is
the average value of the individual taxpayer's or project participant's real
and tangible personal property owned or rented and used by it in this State
during the taxable year.
For purposes of calculating the property factor, property
owned by the taxpayer or participant shall be valued at its original cost,
adjusted by subsequent capital additions or improvements thereto and partial
disposition thereof by reason of sale, exchange, abandonment, etc. Property
rented by the taxpayer or participant from others shall be valued at eight (8)
times the annual rental rate. The annual rental rate is the annual rent paid
directly or indirectly, by the taxpayer or participant for its benefit, in
money or other consideration for the use of property. This would include any
amount payable for the use of real or tangible personal property or any part
thereof, whether designated as a fixed sum of money or as a percentage of
sales, profits or otherwise. It would also include any amount payable in
additional rent or in lieu of rents, such as interest, taxes, insurance,
repairs or any other items which are required to be paid by the terms of the
lease or other arrangement, not including amounts paid as service charges, such
as utilities charges, janitor service charges, etc. If a payment includes rent
and other charges unsegregated, the amount of rent shall be determined by
consideration of the relative values of the rent and other items.
The value of movable tangible personal property used both
within and without this State shall be included in the denominator to the
extent of its utilization in this State. The extent of such utilization is
determined by multiplying the original cost of such property by a fraction, the
numerator of which is the number of days of physical location of the property
in this State during the taxable period, and the denominator of which is the
number of days of physical location of the property everywhere during the
taxable year. The number of days of physical location of the property may be
determined on a statistical basis or by such other reasonable method that is
acceptable to the Tax Commissioner.
Leasehold improvements are treated as property owned by the
taxpayer or participant regardless of whether the taxpayer or participant is
entitled to remove the improvements or the improvements revert to the lessor
upon expiration of the lease. Leasehold improvements are included in the
property factor at their original cost.
The average value of property is determined by averaging the
values at the beginning and end of the taxable year. The Tax Commissioner may
require the averaging of monthly values during the taxable year if substantial
fluctuations in the values of the property exist during the taxable year, or
where property is acquired after the beginning of the taxable year or is
disposed of, or the rental contract ceases before the end of the taxable
year.
5.16.2.3.1.2. The
property factor can be applied alone, on in combination with one or more other
factors or methods of allocation, as prescribed by the Tax Commissioner.
In the case of a simple direct application of the property
factor not in combination with one or more other factors, the taxpayer's or
participant's total tax liability for a given tax would be multiplied by the
property factor.
Typically, where the property factor would be applied in
combination with one other factor, the property factor would be added to the
other factor, and the sum of the two factors would then be divided by two. The
total tax liability would then be multiplied by the result in order to
determine the amount of the tax liability solely attributable to and the direct
result of qualified investment.
The Tax Commissioner can prescribe alternate methods for
combining the property factor with other factors or other methods of
determining tax solely attributable to and the direct result of qualified
investment.
5.16.2.4. The employment of any other method
to effectuate an equitable attribution of the taxes to reflect tax solely
attributable and the direct result of qualified investment.
5.16.3. Under W. Va. Code
'11-13C-5(j),
with regard to investment placed into service or use prior to April 10, 1993,
taxpayers having a specific written determination from the Tax Commissioner
that the taxpayer is authorized or required to take credit against tax not
attributable to qualified investment shall not be subject to the alternative
allocation of credit provided for under W. Va. Code '11-13C-5(j).
This exception shall not be applicable if the taxpayer failed to provide
information requested by the Department of Tax and Revenue, or its predecessor,
the West Virginia Tax Department, or if the taxpayer had knowledge or should
have had knowledge of information necessary for the Department of Tax and
Revenue to make an informed analysis and determination pertaining to the actual
application of the credit but failed to disclose such information to the
Department.
