West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-13C - Business Investment And Jobs Expansion Tax Credit, Corporation Headquarters Relocation Tax Credit, Sma
Section 110-13C-7a - Small business credit
Current through Register Vol. XLI, No. 38, September 20, 2024
7a.1. For purposes of these regulations and W. Va. Code '11-13C-7a the term small business is defined in Section 3.26 and the subsections thereof of these regulations. The annual gross payroll and annual gross receipts amounts described in Section 3.26 of these regulations shall be prescribed by increasing the amount of each by the cost-of-living adjustment for such calendar year. Such increase shall be calculated based upon the statutory annual payroll and annual gross receipts amounts prescribed for the period of July 1, 1987 to December 31, 1988. The annual gross payroll, annual gross receipts and median annual compensation requirements of this Section and Section 3.26 of these regulations shall first be determined for any taxpayer in the year when qualified investment is first placed in service or use as determined in accordance with Section 4 and the subsections thereof of the regulations.
7a.2. Amount of credit allowed.
7a.3. New jobs. - The term "new jobs" has the meaning ascribed to it in Section 3 of these regulations: Provided, That the median compensation of such new jobs shall not be less than eleven thousand dollars ($11,000) per year and that beginning January 1, 1989, and each January 1st thereafter, the Tax Commissioner shall adjust the median annual compensation specified in this section by increasing the amount thereof by the annual cost-of-living adjustment determined under Section 7a.1 of these regulations and the subsections thereof.
|
Period |
Median Annual Compensation Not Less Than |
|
July 1, 1987 to December 31, 1988 |
$11,000 |
|
January 1, 1989 to December 31, 1989 |
$11,450 |
|
January 1, 1990 to December 31, 1990 |
$12,000 |
EXAMPLE 1:
An employer has fifteen employees each of whom has an annual compensation as follows:
Annual Compensation
|
Employee 1 |
12,000 |
|
Employee 2 |
14,545 |
|
Employee 3 |
100,250 |
|
Employee 4 |
50,123 |
|
Employee 5 |
28,189 |
|
Employee 6 |
32,047 |
|
Employee 7 |
8,000 |
|
Employee 8 |
16,030 |
|
Employee 9 |
75,176 |
|
Employee 10 |
60,000 |
|
Employee 11 |
9,800 |
|
Employee 12 |
10,111 |
|
Employee 13 |
11,111 |
|
Employee 14 |
15,207 |
|
Employee 15 |
17,000 |
The range of elements from lowest to highest is:
Rank
The median element or the "middle number" in the range is the 8th ranked element. In this example, the median compensation of the business is $15,207. Out of 15 elements, 7 elements are ranked below the 8th element and 7 elements are ranked above the 7th element. Median compensation is $16,030.
EXAMPLE 2:
A business has 12 employees, each of whom is annually compensated as follows:
Annual Compensation
|
Employee 1 |
9,542 |
|
Employee 2 |
10,121 |
|
Employee 3 |
175,007 |
|
Employee 4 |
21,068 |
|
Employee 5 |
19,270 |
|
Employee 6 |
15,500 |
|
Employee 7 |
12,418 |
|
Employee 8 |
10,000 |
|
Employee 9 |
10,125 |
|
Employee 10 |
9,166 |
|
Employee 11 |
270,000 |
|
Employee 12 |
11,125 |
The range of elements from lowest to highest is:
Rank
11,125 + 12,418 = $11,771.50 2
median
The average of the highest ranked element of the lower half of the range and the lowest ranked element of the upper half of the range is $11,771.50. This is the median for the given range.
EXAMPLE 3:
A part-time employee of a business works 27 hours per week, 50 weeks per year, and is not entitled to paid vacation. The normal work week of a full-time employee of the business is 40 hours per week, and full-time employees are paid for 52 weeks per year, including 2 weeks paid vacation. The part-time employee makes $6.00 per hour. The number of hours in a normal work year for full-time employees is:
40 Hr./Week X 52 Weeks Per Year = 2080 Hr./Year
Although the part-time employee works only 1350 hours per year for total annual gross compensation of $8,100, the annualized compensation of the part-time employee would be 2080 Hr./Year X $6.00 Per Hour = $12,480.
The figure to be used in the range of numbers determining median compensation is $12,480, and not $8,100. However, for purposes of finding annual gross payroll for the determination of whether a business has annual gross receipts and annual gross payroll in amounts which are less than the threshold amounts specified by W. Va. Code ''11-13C-7a, '11-13C-14 and Section 3.26 and this Section of these regulations for qualification of a business as a small business, the actual payroll, which would include only eight thousand one hundred dollars ($8,100) for this employee, would be used.
7a.4. New jobs percentage. - The annual new jobs percentage is based on the number of new jobs created in this State by the taxpayer that is directly attributable to taxpayer's qualified investment.
After the close of the taxable year for years two (2) through ten (10), annual returns are filed reconciling the estimated tax paid in the monthly and quarterly filings throughout the year and the actual amount of annual tax due based upon the actual new jobs percentage for the year determined at the end of the year.
For Example:
A small business taxpayer commences business on August 1, 1990, and places its first item of property purchased or leased for business expansion into service or use on that date. The small business elects to file its federal and state income taxes and other taxes on a calendar year basis.
The small business taxpayer will be required to file its annual federal and state tax returns for its first tax year based upon a short taxable year for the period from August 1, 1990 to December 31, 1990. However, the small business taxpayer's qualified investment upon which credit will be based will be the qualified investment attributable to property purchased or leased for business expansion placed in service or use by the small business taxpayer over the three hundred sixty-five (365) day period from August 1, 1990 to July 31, 1991, notwithstanding the fact that the taxpayer's tax year ended on December 31, 1990.
The determination of annual gross payroll and annual gross income shall be made at the end of the short tax year (ending December 31, 1990) under Section 3.26.2 of these regulations. The determination of median compensation and the determination of the number of new jobs in place attributable to qualified investment shall all be made on July 31, 1991 based upon the preceding three hundred sixty-five (365) days, including July 31, 1991.
The amount of qualified investment actually in service or use in the short tax year shall be the qualified investment upon which credit for that year shall be based, i.e., property placed in service or use from August 1, 1990 to December 31, 1990. Total qualified investment in service or use on July 31, 1991 shall be the amount of qualified investment upon which the 1991 and subsequent year's credit shall be based.
The current tax year of the taxpayer during which the three hundred sixty-five (365) day period ends (on July 31, 1991) is the tax year of January 1 to December 31, 1991.
The annual payroll, annual gross receipts and annual median compensation requirements which must be initially met by the taxpayer in order to qualify for the small business credit are the requirements in effect for calendar year 1990, the year during which the taxpayer first placed its qualified investment into service or use. See Section 7a.3 of these regulations.
For the calendar year 1990 these requirements were as follows:
|
annual payroll |
$1,700,000 |
|
annual gross receipts |
$5,500,000 |
|
annual median compensation |
$ 12,000 |
The taxpayer will qualify as a small business taxpayer for the short tax year of August 1, 1990 to December 31, 1990 if annual payroll and annual gross receipts, both measured over the period of August 1, 1990 to December 31, 1990, and computed in accordance with Section 3.26.2 of these regulations are both, respectively, less than $1,700,000 and $5,500,000.
If the taxpayer qualifies as a small business taxpayer under these annual gross payroll and annual gross receipts criteria, the taxpayer would go on to determine its entitlement to credit. If it does not qualify as a small business, it would not be eligible for small business credit and could obtain business investment and jobs expansion tax credit only if it met the fifty (50) jobs requirement as set forth in W. Va. Code '11-13C-7 and other requirements of the statute.
Assuming the taxpayer qualifies as a small business, as described above, it will next determine whether it is entitled to small business credit. If the taxpayer created at least ten (10) new jobs attributable to qualified investment, based upon a monthly average (as described under Section 7.6.4.2 or 7.6.4.3, should the Tax Commissioner specify an alternative method, of these regulations), over the period of August 1, 1990 to July 31, 1991, and if the median compensation of new jobs over the period of August 1, 1990 to July 31, 1991 was at least twelve thousand dollars ($12,000), then the taxpayer will be entitled to take the small business tax credit against its tax liabilities for the short tax year of August 1, 1990 to December 31, 1990 and against its tax liabilities for the tax year of January 1, 1991 to December 31, 1991. Presuming the taxpayer estimated the amount of tax credit which would be available to it correctly, it would have filed its monthly and quarterly tax returns and its short year annual tax returns for 1990 taking the credit against tax in the accurate amounts, and will file annual tax returns for 1991 reflecting the amount of credit available.
If the taxpayer failed to qualify for the credit or if it estimated the amount of credit inaccurately in its quarterly and monthly filings and in its short year annual tax returns, the taxpayer would be required to file amended 1990 annual tax returns for the short tax year and would pay taxes due with interest and a ten percent (10%) penalty (which can be waived in certain circumstances, see Section 7.6 of these regulations); or the taxpayer would take a greater amount of credit if it were entitled to more credit than was taken in the short tax year. The taxpayer will likewise file its annual tax returns for January 1, 1991 to December 31, 1991 and pay more tax or take more credit, as appropriate, so as to reconcile the total amount of monthly and quarterly tax remittance made throughout the year with the actual amount of tax owed, if any, for the tax year.
For the January 1, 1992 to December 31, 1992 tax year, the taxpayer will calculate the annual gross payroll, annual gross receipts, median compensation and new jobs in place attributable to qualified investment based upon actual measurements of these amounts over the year from January 1, 1992 to December 31, 1992. However, monthly and quarterly tax payments for 1992 would be made based upon estimates which use the annual gross payroll and annual gross receipts determinations of Section 3.26.2 of these regulations based on the January 1, 1991 to December 31, 1991 tax year and actual measurements for median compensation and new jobs in place in the 1991 calendar year. Such estimates for 1993 monthly and quarterly payments would be based upon the January 1, 1992 to December 31, 1992 measurements. Refer to Section 7a.4.2.1 of these regulations, which prescribes use of the prior year's measurements for current year estimates.
The taxpayer will take credit for a ten (10) year period (or longer if rebate credit on multiple year project provisions are applicable). The ten (10) year credit period (disregarding any possible longer period or election to delay the beginning of the taking of credit by one (1) year pursuant to West virginia Code '11-13C-4) would end on July 31, 2000. The taxpayer would take credit against taxes accrued for the period of January 1, 2000 to July 31, 2000, and credit would be taken on monthly and quarterly returns filed for that period, and on the annual return filed for the period of January 1, 2000 to December 31, 2000. But credit would be taken only against the portion of the annual tax liability attributable to the January 1 to July 31 portion of the year.
7a.5. Certification of new jobs. - With the annual income tax return filed under this chapter for each taxable year during the ten (10) year credit period, the taxpayer shall certify:
7a.6. Small business project. - A small business may apply to the Tax Commissioner under W. Va. Code '11-13C-4b for certification of a W. Va. Code '11-13C-4b(a)(1) project if that project will create at least ten (10) new jobs. Only multiple year projects may be certified for small business tax credit takers. Multiple party projects may not be certified for small tax credit takers.
7a.7. Regulations. - W. Va. Code '11-13C-7a states that the Tax Commissioner shall prescribe such regulations as he may deem necessary in order to determine the amount of credit allowed under W. Va. Code '11-13C-7a to a taxpayer; to verify taxpayer's continued entitlement to claim such credit; and to verify proper application of the credit allowed. The Tax Commissioner may, by regulation, require a taxpayer intending to claim credit under this Section to file with the Tax Commissioner a notice of intent to claim this credit, before the taxpayer begins reducing his monthly or quarterly installment payments of estimated tax for the credit provided in this section.
7a.8. Effective date. - The credit provided in W. Va. Code '11-13C-7a shall be allowed for qualified investment property purchased or leased after June 30, 1987.
