8.1.
Business and Occupation Tax Credit. If the taxpayer is subject to the business
and occupation tax imposed by W. Va. code '11-13-1 et seq. said
taxpayer may be entitled to a credit against his West Virginia personal income
tax. However, the amount of the credit shall not exceed the amount of income
tax attributable to West Virginia taxable income for the taxable year derived
from the business or activity subjected to such other tax. If the West Virginia
taxable income of the taxpayer includes income from a partnership, estate,
trust or a S corporation, a part of any business and occupation tax liability
of the partnership, estate, trust or S corporation shall be allowed, in
computing the credit, in an amount proportionate to the income of such
partnership, estate, trust or S corporation, which is included in the
taxpayer's West Virginia taxable income.
8.1.1. For purposes of Subsection 8.1 above,
the tax imposed under W. Va. code '11-13 shall be the amount of the liability
of the taxpayer for such tax under said Article 13 computed without reduction
for the tax Industrial Expansion or Revitalization tax credit and the Capital
Company tax credit allowed for such year.
8.1.2. Credit Limitations. The business and
occupation tax credit allowed under W. Va. code '11-21-8 and
this regulation shall be limited to the smallest of the following:
(1) The amount of business and occupation tax
imposed after all credits except the Industrial Expansion or Revitalization tax
credit and the Capital Company tax credit; or
(2) The amount of West Virginia personal
income tax before credits; or
(3)
The amount of West Virginia personal income tax imposed on income from the
business subject to the business and occupation tax.
8.1.2.1. The limitation set forth under
Subsection 8.1.2.(3) is placed upon the amount of the credit to preclude
exempting from personal income tax such of the taxpayer's income as is not
derived from a business subject to business and occupation tax. Stated another
way, the credit for business and occupation tax cannot offset the income tax
imposed on income derived from sources which are not subject to business and
occupation tax.
8.1.2.2. There can
be no credit against personal income tax for business and occupation tax
imposed on a business which operated at a loss, because no income from a
business which operates at a loss enters into a taxpayer's West Virginia
taxable income. Likewise, there can be no credit against personal income tax
for business and occupation tax imposed, unless the West Virginia taxable
income of a taxpayer includes business income. The West Virginia taxable income
of a taxpayer is determined by offsetting business losses against business
gains.
8.1.2.3. Who may claim the
credit. The credit is allowable to taxpayers engaged in activities subject to
the business and occupation tax in their capacities as proprietors, members of
partnerships, beneficiaries and fiduciaries of estates and trusts, and
stockholders of corporations, if and only if, they elected to be taxed under
subchapter S of the Internal Revenue Code. The credit allowed these taxpayers
is based on their share of the business and occupation tax imposed, and is
limited to the amount of personal income tax imposed on business income derived
from the proprietorship, partnership , S corporation, estate or trust. Salaries
that are not, in fact, part of the distributive share of the partnership
income, (for example, salaries guaranteed to partners by the articles of
partnership), and salaries paid to stockholders of S corporations, are not
income of partnerships or subchapter S corporations for the purpose of
computing the credit.
8.1.2.3.a. Examples.
Example 1. The taxpayer is engaged in a sole proprietorship
which is subject to the business and occupation tax. The amount of business and
occupation tax liability imposed for the taxable year was seventy-five dollars
($75.00). The taxpayer's net income from the business was twelve thousand
dollars ($12,000). He received no other income during the year. The taxpayer
filed a joint return and claimed two (2) personal exemptions. Presuming a West
Virginia income tax liability before credits would be two hundred and forty
dollars ($240.00), the business and occupation tax credit would be limited to
seventy-five dollars ($75.00), the amount of business and occupation tax
imposed.
Example 2. Assume the same facts as in example 1 except that
the amount of business and occupation tax imposed was three hundred dollars
($300.00). The West Virginia personal income tax before credits is two hundred
and forty dollars ($240.00), therefore, the business and occupation tax credit
is limited to two hundred and forty dollars ($240.00), the amount of income tax
before credits. No carry over of this credit is available.
Example 3. The taxpayer was engaged in a business
(partnership) subject to the business and occupation tax. His share of the
distributive profits was eight thousand dollars ($8,000), and his share of the
business and occupation tax liability was four hundred dollars ($400.00). In
addition to his business income, the taxpayer received a salary of four
thousand dollars ($4,000.00) from a local bank; therefore, his total income for
the taxable year was twelve thousand dollars ($12,000.00). Presuming a personal
income tax liability of three hundred dollars ($300) before credits, the
business and occupation tax credit would be limited to two hundred dollars
($200.00), which is the amount of personal income tax imposed on income from
the business subject to the business and occupation tax credit.
8.1.2.4. No credit
shall be allowed against the West Virginia personal income tax unless the West
Virginia taxable income of a taxpayer includes positive amounts of income from
a business subject to the business and occupation tax. In computing the
business income for purposes of applying the ratio of income from business,
subject to the business and occupation tax to the total West Virginia adjusted
gross income for determining the limitation of credit, business losses must be
offset against business gains to reflect the positive amount of business
income, subject to business and occupation tax in determining West Virginia
taxable income. The purpose of the business and occupation tax credit is to
avoid the imposition of income tax, and not to relieve the taxpayer from the
imposition of income tax on income not subject to the business and occupation
tax that would otherwise have been imposed in the absence of business activity.
8.1.2.4.a. Example. Taxpayer is engaged in a
business subject to the business and occupation tax. Business and occupation
tax in the amount of five hundred dollars ($500.00) was imposed on gross
receipts of forty thousand dollars ($40,000.00). His business operated at a
loss of ten thousand dollars ($10,000,00). The taxpayer had income, from a
source other than his business, in the amount of thirty thousand dollars
($30,000.00) for the taxable year. This taxpayer is not entitled to a business
and occupation tax credit on his personal income tax return, because his West
Virginia taxable income does not include a positive amount of income from
business subject to the business and occupation tax.
8.1.2.5. In determining the income from a
business or occupation which is subject to the business and occupation tax, the
net income, from such business or occupation, as reported in federal adjusted
gross income without reference to the component items of income from the
business or occupation, shall be considered prima facie evidence of the income
of the subject business. For purposes of determining net income, gross income
may include, but is not limited to: gross income from sales, interest income,
bad debt recoveries, rents and royalties, earned discounts and miscellaneous
income.
8.1.2.5.a. Salaries which have been
deducted as a business expense for federal income tax purposes, in determining
net income from the business or occupation subject to the business and
occupation tax, shall not thereafter be included as income from the business in
determining the individual's business and occupation tax credit.
8.1.2.6. Partnerships. In
determining the income from a partnership which is subject to the business and
occupation tax, the salaries paid to the partners which are not considered a
draw against the distributive share of profits shall be deducted in arriving at
the net income of the partnership; and such salaries shall not be included in
the basis for computing the business and occupation tax credit of the
individual partner. If the salary is not a guaranteed salary, provided in the
articles of partnership, the Tax Commissioner will accept as prima facie
evidence that the salary is considered a draw against distributive share of
profits; therefore, the salary will be allowed in the basis for computing the
business and occupation tax credit of the individual partner.
8.1.2.7. S Corporations. In determining the
income from an S corporation which are subject to the business and occupation
tax, salaries paid to stockholders shall be deducted in arriving at the net
income of said corporation. The taxpayer, who is a stockholder and receives a
salary from from such corporation, is not permitted to use said salary in the
computation of his or her business and occupation tax credit on his or her West
Virginia Personal Income Tax Return, because such salaries are not income of S
corporations but are expenses of S corporations deductible in arriving at their
net income.
8.1.2.7.a. Example 1. Mr. X is a
stockholder in an S corporation and is also an employee of the corporation. Mr.
X receives a salary of six thousand dollars ($6,000.00) from the corporation.
At the end of the corporation's taxable year, Mr. X receives two thousand
dollars ($2,000.00) as his distributive share of profits from the corporation.
In computing his business and occupation tax credit on his West Virginia
Personal Income Tax Return, Mr. X is permitted to use only his distributive
share of profits two thousand dollars ($2,000) as his basis.
