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-8 - Forfeiture of unused tax credits; redetermination of credit allowed

Universal Citation: 110 WV Code of State Rules 110-13C-8

Current through Register Vol. XLI, No. 38, September 20, 2024

8.1. Disposition of property or cessation for use. - If during any taxable year, property with respect to which a tax credit has been allowed under W. Va. Code '11-13C et seq.:

8.1.2. Is disposed of prior to the end of its useful life, as determined under W. Va. Code '11-13C-6; or

8.1.3. Ceases to be used in an eligible business of the taxpayer in this State prior to the end of its useful life, as determined under said W. Va. Code '11-13C-6, then the unused portion of the credit allowed for such property shall be forfeited for the taxable year and all ensuing years. Additionally, except when the property is damaged or destroyed by fire, flood, storm or other casualty, or is stolen, the taxpayer shall redetermine the amount of credit allowed in all earlier years by reducing the applicable percentage of cost of such property allowed under said W. Va. Code '11-13C-6, to correspond with the percentage of cost allowable for the period of time that the property was actually used in this State in the new or expanded business of the taxpayer. Taxpayer shall for periods prior to July 1, 1987 then file a reconciliation statement with its annual business and occupation tax return or carrier income tax return, for the year in which the forfeiture occurs and pay any additional taxes owed due to reduction of the amount of credit allowable for such earlier years, plus interest and any applicable penalties. For taxable periods beginning on or after July 1, 1987, such reconciliation statement shall be filed with the annual return for the primary tax for which the taxpayer is liable under W. Va. Code ''11-13, 11-13A, 11-13B or 11-23 et seq. Taxpayers not subject to tax under any of these articles shall file such statement with the annual return filed for the tax due under W. Va. Code '11-21 et seq.

8.2. Cessation of operation of business facility. - If during any taxable year the taxpayer ceases operation of a business facility in this State for which credit was allowed under W. Va. Code '11-13C et seq., before expiration of the useful life of property with respect to which tax credit has been allowed under W. Va. Code '11-13C et seq., then the unused portion of the allowed credit shall be forfeited for the taxable year and all ensuing years. Additionally, except when the cessation is due to fire, flood, storm or other casualty, the taxpayer shall redetermine the amount of credit allowed in earlier years by reducing the applicable percentage of cost of such property allowed under W. Va. Code '11-13C-6, to correspond with the percentage of cost allowable for the period of time that the property was actually used in this State in a business of the taxpayer that was taxable under W. Va. Code ''11-12A or 11-13 et seq. prior to July 1, 1987 or W. Va. Code ''11-13, 11-13A, 11-13B or 11-23 et seq. on and after July 1, 1987. Taxpayer shall for periods prior to July 1, 1987 then file a reconciliation statement with its annual business and occupation tax return or carrier income tax return for the year in which the forfeiture occurs, and pay any additional taxes owed due to reduction of the amount of credit allowable for such earlier years, plus interest and any applicable penalties. For taxable periods beginning on or after July 1, 1987, such reconciliation statement shall be filed with the annual return for the primary tax for which the taxpayer is liable under W. Va. Code ''11-13, 11-13A, 11-13B or 11-23 et seq. Taxpayers not subject to tax under any of these articles shall file such statement with the annual return filed for the tax due under W. Va. Code '11-21 et seq.

8.3. Reduction in number of employees. - If during any taxable year subsequent to the taxable year in which the new jobs percentage is redetermined as provided in W. Va. Code '11-13C-7, the average number of employees of the taxpayer, for the then current taxable year, employed in positions created because of and directly attributable to the qualified investment falls below the minimum number of new jobs created upon which the taxpayer's annual credit allowance is based, the taxpayer shall calculate what his annual credit allowance would have been had his new jobs percentage been, determined based upon the average number of employees, for the then current taxable year, employed in positions created because of and directly attributable to the qualified investment. The difference between the result of this calculation and the taxpayer's annual credit allowance for the qualified investment as determined under W. Va. Code '11-13C-4, shall be forfeited for the then current taxable year, and for each succeeding taxable year unless for such succeeding taxable year the taxpayer's average employment in positions directly attributable to the qualified investment once again meets the level required to enable the taxpayer to utilize its full annual credit allowance for that taxable year. Such treatment shall also apply for small business credit takers under W. Va. Code '11-13C-7a.

8.3.1. This forfeiture causes a loss of the credit in the forfeiture year, and all forfeiture years shall be counted in the ten (10) year credit period (which may extend to thirteen (13) years or longer by reason of carryover rebate credit, the taking of credit arising from nonqualified investment or other factors), so that the ten (10) year (or longer) period shall be shortened by one (1) year with the passage of a forfeiture year. In no case shall the occurrence of a forfeiture year be interpreted to toll or delay the running of the ten (10) year (or longer) credit period.

8a. Recapture of credit, recapture tax. -

8a.1. When recapture tax applies. - Any person who places business investment and jobs expansion tax credit property (or other property resulting in a credit under W. Va. Code '11-13C-1 et seq.) in service or use after March 12, 1994, and who fails to use the qualified investment property for at least the period of its useful life (determined as of the time the property was placed in service or use), or the period of time over which tax credits allowed under W. Va. Code '11-13C-1 et seq. with respect to the property are applied under W. Va. Code '11-13C-1 et seq., whichever period is less, and who reduces the number of its employees filling new jobs in its business in this State, which were created and are directly attributable to the qualified investment property, after the third taxable year in which the qualified investment property was placed in service or use, or fails to continue to employ individuals in all the new jobs created as a direct result of the qualified investment property and used to qualify for the credit allowed by W. Va. Code '11-13C-1 et seq., prior to the end of the tenth taxable year after the qualified investment property was placed in service or use, such person shall pay the recapture tax imposed by W. Va. Code '11-13C-1 et seq.

8a.1.1. The term "the period of time over which tax credits allowed under W. Va. Code '11-13C-1 et seq. with respect to such property are applied under W. Va. Code '11-13C-1 et seq." means all years during which the credit is taken or during which the credit could have been taken, and all years during which the credit could have been taken if at least fifty (50) or more new jobs had remained in place, and all qualified investment property had remained in service, including all years during which any carryover credit is or would have been available, either based on a single year credit or upon an extended credit period resulting from multiple year business investment and jobs expansion tax credit project status.

8a.1.2. Recapture applies only where both a loss of jobs and a premature cessation of use of qualified investment property occurs. - The recapture tax imposed under W. Va. Code '11-13C-8a applies only where there has been a premature cessation of the use of qualified investment property and a loss of new jobs. The loss of jobs alone without a premature cessation of use of qualified investment property, or a premature cessation of the use of qualified investment property without a loss of jobs is subject to the provisions of W. Va. Code '11-13C-8, and other applicable provisions of W. Va. Code '11-13C-1 et seq., but shall not result in the imposition of the recapture tax under W. Va. Code '11-13C-8a.

Example 1:

(1) Taxpayer, Company A, placed a qualified investment into service in year 1 (subsequent to March 12, 1994), which resulted in the creation of sixty (60) new jobs in West Virginia, and entitlement to the business investment and jobs expansion tax credit.

If, in year 6, Company A terminates fifteen (15) employees employed by Company A anywhere in West Virginia, then Company A will lose all entitlement to the business investment and jobs expansion tax credit prospectively, under W. Va. Code '11-13C-8(c), but is not subject to the recapture tax imposed under W. Va. Code '11-13C-8a.

If the number of employees at the facility increases to a level which exceeds the fifty (50) new jobs threshold for any year during the remainder of the ten (10) year credit application period, then the credit entitlement will be reestablished for the remainder of the ten (10) year credit period, calculated by subtracting from that ten (10) year period those years during which the entitlement was lost.

Example 2:

Given the same facts as set forth in Example 1, above, except that, in addition to terminating fifteen (15) employees in year six (6), Company A also removed an item of qualified investment property from service or use prior to the end of the useful life of the item of property established under W. Va. Code '11-13C-6, then Company A will lose all entitlement to the business investment and jobs expansion tax credit and is liable for the recapture tax imposed under W. Va. Code '11-13C-8a.

8a.1.3. For purposes of the determination of whether a recapture tax liability is due, in no case shall the new employees allowed for purposes of this credit exceed the total increase in the taxpayer's employment in this State pursuant to the requirements of W. Va. Code ''11-13C-3(b)(13), 11-13C-4b(d)(1) and 11-13C-14(e)(4)(A).

Example 1:

(1) Company A has a manufacturing facility in West Virginia which employs eighty (80) persons. That facility has been in operation for several years, and investment in the facility, and jobs in place in the facility have never resulted in the availability of the business investment and jobs expansion tax credit.

(2) Company A places a qualified investment in service in West Virginia in year one (1) (which is subsequent to March 12, 1994), and reates sixty (60) new jobs at the new facility. Company A becomes entitled to the business investment and jobs expansion tax credit based upon the qualified investment and new jobs attributable to the new facility.

(3) Company A applies the business investment and jobs expansion tax credit against its tax liabilities in years one (1) through four (4), then in year five (5), Company A shuts down the old manufacturing facility, and the eighty (80) persons employed there lose their jobs.

Company A is subject to the requirements of W. Va. Code '11-13C-8(c) for the reduction in the number of employees, even though the employees whose jobs are attributable to the new facility are still in place.

The number of new jobs in place is zero based upon the loss of eighty (80) jobs which were in place at the old facility.

Sixty (60) jobs at the new facility - eighty (80) jobs lost = zero new jobs

Example 2:

Given the same facts as set forth in Example 1 of this subsection, except that, in addition to the shut down of the old manufacturing facility, Company A incidentally removes an item of qualified investment property from service at the new facility prior to the end of its useful life, as determined under W. Va. Code '11-13C-6.

Company A is now liable for the recapture tax imposed by W. Va. Code '11-13C-8a, based upon the premature cessation of use of qualified investment property and the loss of new jobs.

8a.1.4. The provisions of this Section 8a and the subsections thereof shall not apply to a transferor of qualified investment to which W. Va. Code '11-13C-9 applies. However, the successor, or the successors, and the person, or persons, who previously claimed credit under W. Va. Code '11-13C-1 et seq. with respect to the qualified investment property and the new jobs attributable thereto, are jointly and severally liable for payment of any recapture tax subsequently imposed under W. Va. Code '11-13C-8a with respect to the qualified investment property and new jobs.

8a.2. The recapture tax imposed by W. Va. Code '11-13C-8a shall be the amount determined as follows:

8a.2.1. Full Recapture. - If a taxpayer prematurely removes qualified investment property, which was placed in service after March 12, 1994, (when considered as a class), from economic service in the taxpayer's qualified investment business activity in this State, and the number of employees filling the new jobs created by that person falls below fifty, that taxpayer is liable for a recapture tax in the amount of credit claimed under W. Va. Code '11-13C-5 for the taxable year, and all preceding taxable years, on qualified investment property which has been prematurely removed from service.

8a.2.2. Partial Recapture. - If a taxpayer prematurely removes qualified investment property, which was placed in service after March 12, 1994, (when considered as a class), from economic service in the taxpayer's qualified investment business activity in this State, and the number of employees filling the new jobs created by that taxpayer remains fifty (50) or more, but falls below the number necessary to sustain continued application of credit determined by use of the new job percentage upon which such taxpayer's one-tenth annual credit allowance was determined under W. Va. Code '11-13C-4 or 7a, the taxpayer is liable for a recapture tax in an amount equal to the difference between:

8a.2.2.1. the amount of credit claimed under W. Va. Code '11-13C-5 for the taxable year and all preceding taxable years, and

8a.2.2.2. the amount of credit that would have been claimed in such years if the amount of credit allowable under W. Va. Code '11-13C-4 or 7a had been determined based on the qualified investment property which remains in service using the average number of new jobs filled by employees in the taxable year for which recapture occurs.

8a.3. Additional Recapture. - If after a partial recapture under subdivision 8a.2.2 of this subsection, the taxpayer further reduces the number of employees filling new jobs below fifty (50), the taxpayer is liable for an additional recapture tax in the amount determined as provided under subdivision 8a.2.1 of this subsection.

8a.4. Payment of recapture tax. - The amount of tax recaptured under this Section 8a are due and payable on the day the taxpayer's annual return is due for the taxable year in which this section applies, under W. Va. Code ''11-21-1 et seq. or 11-24-1 et seq. When the taxpayer is a partnership, or S corporation, for federal income tax purposes, the recapture tax shall be paid by those persons who are partners in the partnership, or shareholders in the S corporation in the taxable year in which recapture occurs under this Section 8a, and is a joint and several liability of the partners and shareholders.

8a.5. Application of recapture tax under W. Va. Code '11-13C-8a to multiple credit entitlements or "stacked" credits. - The situation may arise where a taxpayer may make a qualified investment and create new jobs and so become entitled to a business investment and jobs expansion tax credit or other credits provided under W. Va. Code '11-13C-1 et seq. Then, some time subsequent to the three (3) year new jobs redetermination period set forth in W. Va. Code '11-13C-7, the taxpayer may undertake a second development which results in the placement of more qualified investment into service and the creation of more new jobs numbering more than fifty (50). The second investment and creation of new jobs gives the taxpayer entitlement to a second business investment and jobs expansion tax credit (or other credits provided under W. Va. Code '11-13C-1 et seq.) entirely separate from the first. It is possible for investments and jobs creation to occur is such a way that a single taxpayer may become gain entitlement to several separate and discrete tax credits in succession. This phenomenon is known as "stacking credits."

Under the business investment and jobs expansion tax credit law and regulations, these stacked credits are each treated as separate and distinct entitlements.

Example 1:

A taxpayer may become entitled to credit number one (1) in year one (1), and entitled to credit number two (2) in year five (5). Credit number one will run from year one (1) to year ten (10), with a three (3) year carryover, and credit number two (2) will run from year six (6) to year sixteen (16), with a three (3) year carryover.

8a.5.1. In the case of stacked credits, for purposes of imposition of the recapture tax, each credit in the series of stacked credits will be treated as separate. Thus, referring to Example 1 above, the premature cessation of use of qualified investment property for credit number two (2) will trigger a recapture tax based upon the credit asserted against tax resulting from credit number two (2), but not based upon credit asserted against tax resulting from credit number 1. However, where there are stacked credits which can apply against a taxpayer's tax liabilities concurrently, and where there is no specific identification of which credit was applied first against the tax liability, the oldest credit out of the stacked credits shall be considered to have been applied first, then the next oldest, and so on.

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