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-9 - Transfer of qualified investment to successors

9.1. Mere change in form of business. - Property shall not be treated as disposed of under W. Va. Code '11-13C-8, by reason of a mere change in the form of conducting the business as long as the property is retained in a business in this State, and the taxpayer retains a controlling interest in the successor business. In this event, the successor business shall be allowed to claim the amount of credit still available with respect to the business facility or facilities transferred, and the taxpayer (transferor) shall not be required to redetermine the amount of credit allowed in earlier years.

9.2. Transfer or sale to successor. - property shall not be treated as disposed of under W. Va. Code '11-13C-8 by reason of any transfer or sale to a successor business which continues to operate the business facility in this State. Upon transfer or sale, the successor shall acquire the amount of credit that remains available under this article for each subsequent taxable year and the taxpayer (transferor) shall not be required to redetermine the amount of credit allowed in earlier years.

9.3. Where a corporation entitled to take the credit is purchased through a stock purchase by a new owner and remains a legal entity and retains its corporate identity, the entitlement of the corporation to the credit will not be affected by the ownership change.

9.4. Where a corporation entitled to the credit is merged with another corporation and ceases to exist as an entity, the surviving corporation would be treated as a successor business under W. Va. Code '11-13C-9(b), and would be entitled to the credit and project certification to which the predecessor corporation was originally entitled. It would be necessary subsequent to the merger for the surviving corporation to substantially maintain the number of jobs directly attributable to qualified investment and the qualified investment property in service or use carried over from the predecessor corporation.

9.5. An S corporation resulting from the conversion of a C corporation to an S corporation is the product of a mere change in the form of doing business, or, at most, is a successor business, under W. Va. Code '11-13C-9. In such a case, any business investment and jobs expansion tax credit available to the C corporation would be available to the S corporation.

9.6. Under ordinary circumstances the only way in which two or more companies or entities can aggregate their employees and investment for purposes of the business investment and jobs expansion tax credit is to form a certified project under W. Va. Code '11-13C-4b. W. Va. Code '11-13C-4b(b) requires that a taxpayer apply to the Tax Commissioner for certification of a project prior to placing qualified investment property into service or use for purposes of the business investment and jobs expansion tax credit.

Under W. Va. Code '11-13C-9, the business investment and jobs expansion tax credit is not lost by reason of a mere change in the form of conducting a business or the transfer or sale of a business to a successor.

Where one corporation will be split into two (2) corporations but substantially the same assets and the same employees upon which the original business investment and jobs expansion tax credit was based will carry on with business operations, and where the second corporation will be a newly formed entity using employees whose position with the first corporation prior to the split-up constituted new jobs for purposes of the business investment and jobs expansion tax credit, and where investment qualified for the business investment and jobs expansion tax credit in place with the first corporation will substantively continue to be used in the second corporation, these factors indicate a situation more akin to a change in the form of the business rather than a pooling of assets or effort by two independent corporations to create an investment project. The situation described substantively constitutes a change in the form of the business for purposes of the business investment and jobs expansion tax credit.

W. Va. Code '11-13C-4b(a)(2) describes a project configuration whereby two or more entities may take the business investment and jobs expansion tax credit. Although the configuration and business relationships resulting from the described split-up do not constitute a certified project, this statutory section most closely addresses the situation described. Two corporations resulting from the aforesaid change in the form of conducting business may take the West Virginia business investment and jobs expansion tax credit in the same manner and as if there existed a certified project under W. Va. Code '11-13C-4b(a)(2).

9.7. Although the entity principle applies to partnerships as participants in a certified business investment and jobs expansion tax credit project and for tax filing purposes, the actual legal entitlements to property and income and other legal rights flow through the partnership, as a conduit, to the partners.

Presumably, if a partnership is owned by corporate partners, the partnership could be acquired as an entity through a purchase of the corporate partners.

If a partnership continues as an entity, the entitlement to the credit will remain undisturbed in it. If a partnership is sold so that a successor business takes the place of the partnership, then the successor business will be entitled to the credit under W. Va. Code '11-13C-9(b) if qualified investment property and jobs remain in place with the successor.

Under West virginia law, a partnership ordinarily pays certain taxes as an entity (such as the business and occupation tax, the severance tax and the business franchise tax), but other taxes such as the personal income tax, or, in the case of corporate partners, the corporate net income tax, are paid by the partners on the income derived from the partnership under the conduit principle. The business investment and jobs expansion tax credit can offset personal income tax and corporation net income tax as well as the business and occupation, severance and franchise taxes. Therefore, the business investment and jobs expansion tax credit available to a partnership will flow through to the partners for the income taxes, but will be taken directly by the partnership against the business and occupation, severance and business franchise taxes. Thus, a new partner or successor partner would be entitled to the credit under W. Va. Code '11-13C-9(b) on that portion of income subject to income taxes flowing from the partnership. Refer to Sections 5.14.4 and 5.14.5 for treatment of S corporation shareholders and partners.

9.8. The presumption underlying the ninety (90) day shut-down rule, set forth in W. Va. Code '11-13C-3(b)(12)(D), is that if a business is shut down for ninety (90) days, all jobs are lost and the cessation of business by the facility is permanent. If a purchaser then buys the assets formerly in operation at the facility and hires employees to work at the facility, that purchaser will have made new investment and will have created new jobs. The business investment and jobs expansion tax credit statute presumes that without such investment the shut-down property would have remained closed, and no jobs would have been created.

The ninety (90) day shut-down rule ordinarily comes into play only where a purchaser is attempting to buy a facility from a seller and the facility is not subject to the credit in the hands of the seller.

The situation where a purchaser buys a facility which has been idle for over ninety (90) days from a seller who cannot take the credit and where the purchaser thereby becomes qualified for the credit must be distinguished from the situation where the seller is entitled to the business investment and jobs expansion tax credit and then sells the qualified investment to a purchaser who becomes a successor in the business of the seller.

In the former case, the purchaser must independently qualify for the business investment and jobs expansion tax credit, and a ninety (90) day shut-down of the facility (or the Tax Commissioner's waiver thereof) is necessary. In the later case, the seller has already qualified for the credit, no shut-down is necessary, the purchaser becomes a successor in business to the seller and, under W. Va. Code '11-13C-9(b), obtains entitlement to the business investment and jobs expansion tax credit to the exact same extent that the seller was so entitled.

9.9. Treatment of successor project participants. - Whenever a participant in a project certified under W. Va. Code ''11-13C-4b(a)(2) or (3) is replaced by another participant in that project on or after March 10, 1990, the tax credits available to such successor participant as a result of the transfer shall not exceed the amount of credits that would have been available to the predecessor participant had the transfer to the successor participant not occurred: Provided, That if the project plan provides for annual recalculation of the division of the credit allowable for each year among the participants in the project in order to maximize the collective use of such credit by the project participants, or for any other purpose, then the credit available to the successor participant as a result of the transfer shall be limited each year to the amount of credit actually used by the predecessor participant to offset taxes for the taxable year immediately preceding the taxable year in which such participant's obligations or interest in the project, as described in the project plan certified by the Tax Commissioner, passed to the successor participant in the project.

9.10. Predecessors in business shall disclose to successors in business all records, documents and other information necessary for the successor to maintain entitlement to the credit, to calculate the amount of credit available to the successor and to file tax returns taking the credit. A successor in business shall be considered an interested party under W. Va. Code '11-10-5d(f) with relation to such information of the predecessor. The Tax Commissioner shall have absolute discretion to grant or refuse disclosure of information under this section.