COMMITTEE SUBSTITUTE
FOR
H. B. 2871
(By Mr. Speaker, Mr. Kiss, and Delegates Beach, Michael,
Martin, Mezzatesta, Kelley and Williams)
[February 26, 1998]
A BILL to amend chapter eleven of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, by adding
thereto a new article, designated article thirteen-n,
relating to allowing a tax credit of two hundred and fifty
dollars per full-time hourly employee for eligible taxpayers
engaged in new farming and/or agricultural processing
operations beginning operation within this state on or after
first day of July, one thousand nine hundred ninety-eight;
stating legislative purpose; defining terms; allowing credit
against business franchise tax and against income taxes;
providing rules for determining amount of allowable credit
and for application of amount of allowable credit against
certain taxes; providing for proration of credit among
partners, members of limited liability companies and
shareholders in electing small business corporations;
requiring annual computation of number of new jobs filled by
full-time employees; making credit available to successors;
providing for credit recapture upon certain events along with interest, additions to tax and a waivable money
penalty; specifying time limitations for certain actions;
authorizing promulgation of administrative rules; providing
rule of construction; specifying effective date; and
providing for expiration of credit.
Be it enacted by the Legislature of West Virginia:
That chapter eleven of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, be amended by
adding thereto a new article, designated article thirteen-n, to
read as follows:
ARTICLE 13N. TAX CREDIT FOR NEW FARMING OR PROCESSING
OPERATIONS AFTER JULY 1, 1998.
§11-13N-1. Legislative purpose.
The Legislature finds that the farming and agricultural
processing industries are very important to the economy of this
state, and that a sound economy is in the public interest and
promotes the general welfare of the people of this state. In
order to encourage capital investment in this state, through the
commencement of new farming or agricultural processing operations
at a location within this state, after the first day of July,
one thousand nine hundred ninety-eight, thereby increasing
employment and economic development, there is hereby provided to
eligible taxpayers a tax credit for each full-time hourly
employee in a new farming or agricultural processing operation
that begins operation at a location within this state on or after
the first day of July, one thousand nine hundred ninety-eight,
and an income adjustment for farmers or agricultural processors receiving feed via commercial watercraft and unloaded at a port
located within this state
on or after the first day of July, one
thousand nine hundred ninety-eight.
§11-13N-2. Definitions.
(a) General. -- When used in this article, or in the
administration of this article, terms defined in subsection (b)
of this section have the meanings ascribed to them by this
section, unless a different meaning is clearly required by the
context in which the term is used.
(b) Terms defined.
(1) "Affiliate" means and includes all persons, as defined in
this section, which are affiliates of each other when either
directly or indirectly:
(A) One person controls or has the power to control the other,
or
(B) A third party or third parties control or have the power
to control two persons, the two thus being affiliates. In
determining whether concerns are independently owned and operated
and whether or not an affiliation exists, consideration shall be
given to all appropriate factors, including common ownership,
common management and contractual relationships.
(2) "Commissioner" or "tax commissioner" means the tax
commissioner of the state of West Virginia, or the tax
commissioner's delegate.
(3) "Consumer-ready agricultural products" means agricultural
products that are ready for sale to consumers at the end of the
farming, harvest and preparation process. Consumer-ready agricultural products includes any agricultural product that does
not require further processing before it may ordinarily be used
or consumed by the purchaser of the product, except that
consumer-ready agricultural product does not include any product
that is not produced primarily from agricultural endeavor, or any
product that is not commercially marketed as an agricultural
product for sale primarily to consumers of the product. Consumer
ready agricultural products may, as an example, be processed by
butchering, rendering, churning, mixing additives, packaging,
freezing, pasteurizing, homogenizing, evaporation, drying,
canning, brewing, fermenting, distilling, cooking or frying, but
cooking and frying does not include a product prepared and served
to a consuming patron at a restaurant, as defined in Chapter 16,
Article 6, Section 3.
(4) "Corporation" includes any corporation, a joint-stock
company and any association or other organization which is
classified as a corporation under federal income tax law.
(5) "Delegate", when used in reference to the tax
commissioner, means any officer or employee of the tax division
of the department of tax and revenue duly authorized by the tax
commissioner directly, or indirectly by one or more redelegations
of authority, to perform the functions mentioned or described in
this article.
(6) "Eligible taxpayer" means a person who after the thirtieth
day of June, one thousand nine hundred ninety-eight, begins
manufacturing a consumer-ready agricultural product at a new
manufacturing facility located in this state, or begins manufacturing a new consumer-ready agricultural product line at
an existing manufacturing facility located in this state, which
results in the creation of new jobs filled by full-time
employees.
(7) "Employer" means the person for whom an individual
performs or performed any service, of whatever nature, as the
employee of such person, except that if the person for whom the
individual performs or performed the service does not have
control of the payment of wages for such services, the term
"employer" means the person having control of the payment of such
wages.
(8) "Existing manufacturing facility" means a building which
at anytime during the twelve months preceding the month in which
manufacture of a consumer-ready agricultural product begins was
used by the taxpayer, or by a related person, to manufacture
tangible personal property.
(9) "Full-time employee" means a permanent hourly employee of
an eligible taxpayer, who is a West Virginia domiciled resident,
and works in a new consumer-ready agricultural product
manufacturing facility in this state, or in a new consumer-ready
agricultural product line of an existing manufacturing facility
in this state, more than eighteen hundred hours during the entire
twelve-month period ending on the last day of the taxable year of
the eligible employer, whether these hours are hours worked at
the manufacturing facility, or include hours of employer paid
vacation leave or other employer paid leave. Full-time employee
does not include an employee who is a part-time, seasonal or temporary employee.
(10) "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, of the United States.
(11) "Manufacturing facility" means any facility which is used
in the manufacturing of tangible personal property (including
processing resulting in a change in the condition of such
property).
(12) "New consumer-ready agricultural product line" means the
manufacture of a consumer-ready agricultural product in an
existing manufacturing facility in this state that first begins
manufacturing the new consumer-ready agricultural product line
after the thirtieth day of June, one thousand nine hundred
ninety-eight.
(13) "New consumer-ready agricultural product manufacturing
facility" means a building that is primarily used by the eligible
taxpayer to manufacture a consumer-ready agricultural product
that is first placed in service and used for that purpose by the
eligible taxpayer after the thirtieth day of June, one thousand
nine hundred ninety-eight. If the facility was used by the
taxpayer, or by a related person, to manufacture tangible
personal property at any time during the twelve months preceding
the month in which the facility is first used by the taxpayer to
manufacture a consumer-ready agricultural product, the building
is not a new consumer-ready agricultural product manufacturing
facility.
(14) "New job" means a job at a new consumer-ready
agricultural product manufacturing facility located in this state, or at a new consumer-ready agricultural product line at an
existing manufacturing facility located in this state, which did
not exist in this state with any employer as of the first day of
the second calendar month preceding the calendar month in which
the new consumer-ready agricultural product manufacturing
facility begins to manufacture consumer-ready agricultural
products, or in which the new consumer-ready agricultural product
line begins to manufacture consumer-ready agricultural products
in an existing manufacturing facility located in this state, that
is filled by a full-time employee of the eligible taxpayer.
(15) "Partnership" means and includes a syndicate, group,
pool, joint venture or other unincorporated organization through
or by means of which any business, financial operation, or
venture is carried on, which is classified as a partnership for
federal income tax purposes for the taxable year.
(16) "Partner" includes a member in a syndicate, group, pool,
joint venture or organization classified as a partnership for
federal income tax purposes for the taxable year.
(17) "Part-time employee" means any employee who normally
works twenty hours or less per week.
(18) "Seasonal employee" means an employee who normally works
on a full-time basis less than five months in a year.
(19) "Temporary employee" means an employee performing
services under a contractual arrangement with the employer of two
years or less duration.
(20) "Person" means and includes an individual, a trust,
estate, partnership, association, company or corporation.
(21) "Related entity", "related person", "entity related to"
or "person related to" means:
(A) An individual, corporation, partnership, affiliate,
association or trust or any combination or group thereof
controlled by the taxpayer;
(B) An individual, corporation, partnership, affiliate,
association or trust or any combination or group thereof that is
in control of the taxpayer;
(C) An individual, corporation, partnership, affiliate,
association or trust or any combination or group thereof
controlled by an individual, corporation, partnership, affiliate,
association or trust or any combination or group thereof that is
in control of the taxpayer; or
(D) A member of the same controlled group as the taxpayer.
For purposes of this subdivision (21), "control," with respect to
a corporation, means ownership, directly or indirectly, of stock
possessing fifty percent or more of the total combined voting
power of all classes of the stock of the corporation which
entitles its owner to vote. "Control," with respect to a trust,
means ownership, directly or indirectly, of fifty percent or more
of the beneficial interest in the principal or income of the
trust. The ownership of stock in a corporation, of a capital or
profits interest in a partnership or association or of a
beneficial interest in a trust shall be determined in accordance
with the rules for constructive ownership of stock provided in
section 267(c) of the Internal Revenue Code: Provided, That
paragraph (3) of section 267(c) of the Internal Revenue Code shall not apply.
(22) "Tax year" or "taxable year," means the tax year of the
taxpayer for federal income tax purposes.
(23) "Taxpayer" means any person subject to the tax imposed by
articles twenty-one, twenty-three or twenty-four of this chapter.
§11-13N-3.Eligibility for tax credits; creation of the
credit.
There shall be allowed to every eligible taxpayer a credit
against the taxes imposed in articles twenty-one, twenty-three
and twenty-four of this chapter. The amount of this credit shall
be determined and applied as provided in this article.
§11-13N-4. Amount of credit allowed; expiration of the credit.
(a) Credit allowable. -- The amount of annual credit allowable
under this article to an eligible taxpayer shall be two hundred
and fifty dollars for each new job at a new consumer-ready
agricultural product manufacturing facility located in this
state, or at a new consumer-ready agricultural product line of an
existing manufacturing facility located in this state, that is
filled by a full-time employee of the eligible taxpayer during
the taxable year, subject to the following:
(1) When the new consumer-ready agricultural product
manufacturing facility, or the new agricultural product line of
an existing consumer-ready agricultural product manufacturing
facility, is in operation for less than twelve months of the
taxable year in which it is placed in service, the credit allowed
by subsection (a) of this section shall be prorated by the ratio
that the number of months in the taxpayer's taxable year during
which the new consumer-ready agricultural products facility, or the new products line of an existing consumer-ready agricultural
product manufacturing facility, was in service bears to twelve.
(2) When the eligible taxpayer stops manufacturing consumer- ready agricultural products at the new consumer-ready
agricultural product manufacturing facility, or at the new
agricultural product line of an existing consumer-ready
agricultural product manufacturing facility, during the taxable
year, the credit allowed by subsection (a) of this section shall
be prorated by the ratio that the number of months in the
taxpayer's taxable year during which the new consumer-ready
agricultural products facility, or the new products line of an
existing consumer-ready agricultural product manufacturing
facility, was in operation manufacturing consumer-ready
agricultural product bears to twelve.
(3) When determining the number of full-time employees who
fill new jobs at the new consumer-ready agricultural product
manufacturing facility located in this state, or who fill new
jobs at a new consumer-ready agricultural product line of an
existing manufacturing facility located in this state, the
eligible taxpayer shall not include any position occupied by any
employee of the eligible taxpayer, or of a related person, which
existed in this state as of the first day of the second calendar
month preceding the calendar month in which the new consumer- ready agricultural product manufacturing facility, or a new
consumer-ready agricultural product line at an existing consumer- ready agricultural products manufacturing facility first becomes
operational, whether such positions are filled by permanent,
seasonal, temporary or part-time employees.
(4) The amount of credit allowable each taxable year shall be calculated annually based upon the number of new jobs filled by
full-time employees during the taxable year.
(b) Expiration of credit. -- This credit shall expire on the
first day of July, two thousand three. When the first day of
July in the year two thousand two falls during the taxable year
of the eligible taxpayer, the amount of credit allowable for that
taxable year shall be limited to that portion of the amount of
credit that would have been allowable had the credit not expired
multiplied by the ratio the number of months during taxpayers
taxable year ending before the first day of July, two thousand
two, bears to twelve.
§11-13N-5. Application of annual credit allowance.
(a) Application of credit against business franchise tax. --
The amount of credit allowed under section four of this article
shall first be applied against the eligible taxpayer's liability
for the tax imposed by article twenty-three of this chapter that
is attributable to a new consumer-ready agricultural product
manufacturing facility located in this state and to a new
consumer-ready agricultural product production line at an
existing manufacturing facility located in this state.
(b) Application of remaining credit against income tax. --
After application of the allowable credit against the tax imposed
by article twenty-three of this chapter, as provided in
subsection (a) of this section, any remaining credit may be
applied against the taxes imposed by article twenty-one or
twenty-four of this chapter to the extent those taxes are
attributable to a new consumer-ready agricultural product
manufacturing facility located in this state and to a new consumer-ready agricultural product production line at an
existing manufacturing facility located in this state: Provided,
That no credit shall be allowed against employer withholding
taxes due under article twenty-one of this chapter.
(c) Excess credit forfeited. -- If after application of
subsections (a) and (b) of this section, any credit remains for
the taxable year, the amount remaining and not used is forfeited.
Unused credit may not be carried back to any prior taxable year
and shall not carry forward to any subsequent taxable year.
(d) Application of this credit when other credits apply. --
The credit allowed under this article shall be applied after
application of all other applicable tax credits allowed for the
taxable year against the taxes imposed by articles twenty-one,
twenty-three or twenty-four of this chapter.
(e) Completion of annual schedule to assert credit. --
To assert this credit against tax, the eligible taxpayer shall
prepare and file with the annual tax return filed under articles
twenty-one, twenty-three or twenty-four of this chapter, an
annual schedule showing the amount of tax paid for the taxable
year, and the amount of credit allowed under this article. This
annual schedule shall set forth the information and be in the
form prescribed by the tax commissioner.
(f) Payments of estimated tax. -- A taxpayer may consider the
amount of credit allowed under this article when determining the
taxpayer's liability under articles twenty-one, twenty-three and
twenty-four of this chapter for periodic payments of estimated
tax for the taxable year, in accordance with the procedures and
requirements prescribed by the tax commissioner. The annual total tax liability and total tax credit allowed under this
article are subject to adjustment and reconciliation pursuant to
the filing of the annual schedule required by subsection (e) of
this section.
§11-13N-6. Proration of credit among partners, members of
limited liability companies, or shareholders in small
business corporations.
The amount of credit allowed under this article for the
taxable year to a partnership or limited liability company
classified as a partnership for the taxable year, or to an
electing small business corporation, that remains after
application the credit against the tax imposed by article twenty- three of this chapter as provided in subsection (a), section five
of this article shall be allocated to the individual partners,
members or shareholders, as the case may be, in proportion to
their ownership interest in the partnership, limited liability
company or electing small business corporation. The amount of
credit allocated to the individual partners, members or
shareholders, as the case may be, may be applied against the
taxes imposed by articles twenty-one and twenty-four of this
chapter in accordance with the rule set forth in subsection (b),
section five of this article.
§11-13N-7. Annual computation of the number of new jobs held by
full-time employees.
(a) The eligible taxpayer shall annually determine the number
of new jobs held by full-time permanent employees of the eligible
taxpayer in the taxable year by calculating the average number of
full-time employees holding jobs for each month of the taxable year by averaging the beginning and ending monthly employment of
full-time employees, then totaling the monthly averages and
dividing that total by twelve.
(b) The eligible taxpayer shall also annually determine the
number of new jobs filled during the taxable year by full-time
employees of the eligible taxpayer employed at a new consumer- ready agricultural product manufacturing facility, or at a new
consumer-ready agricultural product line at an existing
manufacturing facility, located in this state that is owned or
operated by the eligible taxpayer, by calculating the average
number of new jobs held by full-time employees for each month of
the taxable year by averaging the beginning and ending monthly
employment of full-time employees holding new jobs, then
totaling the monthly averages and dividing that total by twelve.
(c) Preexisting jobs carried over from a corporation or other
entity merged with the taxpayer, and not reflective of a true
increase in the number of new jobs in West Virginia, or
preexisting jobs formerly in place with a contract service
provider which are taken over or supplanted by the internal
operations of the taxpayer, or any other increase in the count of
jobs in place with a taxpayer which is not reflective of new
jobs, as defined in section two of this article, shall not count
as new jobs for purposes of the credit allowed under this
article.
(d) The tax commissioner may prescribe by rule alternative
methods for determining the number of jobs held by full-time
permanent employees in the taxable year upon a finding by the tax
commissioner that an alternative method is appropriate for
ascertaining an accurate and realistic determination of new jobs held by full-time employees in the taxable year. For purposes of
prescribing alternative methods, the tax commissioner may require
the deduction or inclusion of jobs in place with contract service
providers that provide or at any time provided any service to any
eligible taxpayer or to any member of the affiliated group
related to any eligible taxpayer or to any one or more entities
related to the eligible taxpayer: Provided, That deduction, or
inclusion of those jobs shall only pertain to jobs held by
employees of the contract service provider that are attributable
or that were formerly attributable to the service provided by the
contract service provider to the taxpayer. The tax commissioner
may require any deconsolidation of any filing entity, or may
require an alternative method based on separate accounting,
unitary combination, combination of the affiliated group or
combination of the taxpayer and one or more entities related to
the taxpayer, or any other method determined by the tax
commissioner to be appropriate for ascertaining an accurate and
realistic determination of new jobs held by full-time employees
in the taxable year.
§11-13N-8.Availability of credit to successors.
(a) Transfer or sale. -- When there is a transfer or sale of
the business assets of an eligible taxpayer to a successor
taxpayer which continues to operate the new consumer-ready
agricultural product manufacturing facility located in this
state, or the new consumer-ready agricultural product line of an
existing manufacturing facility located in this state, the
successor taxpayer is entitled to the credit allowed under this
article: Provided, That the successor taxpayer otherwise remains in compliance with the requirements of this article for
entitlement to the credit.
(b) Allocation of credit between eligible taxpayer and
successor eligible taxpayer. -- For any taxable year during which
a transfer, or sale of the business assets of an eligible
taxpayer to a successor taxpayer under this section occurs, or a
merger allowed under this section occurs, the credit allowed
under this article shall be apportioned between the predecessor
eligible taxpayer and the successor taxpayer based on the number
of days during the taxable year that each taxpayer acted as the
legal employer of individuals filling new jobs for which the
credit allowed under this article is based and the number of days
during the taxable year that each taxpayer owned the new
consumer-ready agricultural product manufacturing facility
located in this state, or the new consumer-ready agricultural
product line of an existing manufacturing facility located in
this state.
(c) Stock purchases. -- When a corporation which is an
eligible taxpayer entitled to the credit allowed under this
article is purchased through a stock purchase by a new owner, and
the corporation remains a legal entity so as to retain its
corporate identity, the entitlement of that corporation to the
credit allowed under this article will not be affected by the
ownership change.
(d) Mergers.--
(1) When a corporation or other entity which is an eligible
taxpayer entitled to the credit allowed under this article is
merged with another corporation, or entity, the surviving corporation, or entity, shall be entitled to the credit to which
the predecessor eligible taxpayer was originally entitled only if
the surviving corporation, or entity, otherwise complies with the
provisions of this article.
(2) The amount of credit available in any taxable year during
which a merger occurs shall be apportioned between the
predecessor eligible taxpayer and the successor eligible taxpayer
based on the number of days during the taxable year that each
taxpayer acted as the legal employer of employees holding the new
jobs upon which the credit allowed under this article is based
and the number of days during the taxable year that each owned
the transferred business assets: Provided, That when the taxable
year of the predecessor eligible taxpayer and the taxable year of
the successor eligible taxpayer are different, the apportionment
shall be made in accordance with legislative rules prescribed by
the tax commissioner.
(e) No provision of this section or of this article shall be
construed to allow sales or other transfers of the tax credit
allowed under this article. The credit allowed under this
article may be transferred only in circumstances where there is
a valid successorship as described under this section.
§11-13N-9. Credit recapture; interest; penalties; additions to
tax; statute of limitations.
(a) If it appears upon audit or otherwise that any person has
improperly claimed the credit allowed by this article, the amount
improperly claimed and which the person was not entitled to take
shall be recaptured. Amended returns shall be filed for any
taxable year for which the credit was improperly taken. Any
additional taxes due under this chapter shall be remitted with the amended return or returns filed with the tax commissioner,
along with interest, as provided in section seventeen, article
ten of this chapter, and a ten percent penalty plus such other
penalties and additions to tax as may be applicable under the
provisions of article ten of this chapter.
(b) Recapture for jobs lost. --
(1) In any tax year the number of individuals employed in
full-time positions by the eligible taxpayer decreases by more
than ten percent, credit recapture shall apply, and the taxpayer
shall return to the state an amount of tax determined by
multiplying five hundred dollars by the number of full-time jobs
lost which exceed ten percent. An amended return shall be filed
for the tax year for which credit recapture is required. Any
additional taxes due under this chapter shall be remitted with
the amended return filed with the tax commissioner, along with
interest, as provided in section seventeen, article ten of this
chapter, and a ten percent penalty plus such other penalties and
additions to tax as may be applicable under the provisions of
article ten of this chapter.
(2) Notwithstanding the provisions of article ten of this
chapter, penalties and additions to tax imposed under article ten
of this chapter and the ten percent penalty imposed under this
section may be waived, in whole or in part, at the discretion of
the tax commissioner. However, interest may not be waive.
(c) Notwithstanding the provisions of article ten of this
chapter, the time within which a notice of assessment may be
issued by the tax commissioner to recover recapture tax shall be
five years from the date of filing of any tax return on which
this credit was taken or five years from the date of payment of any tax liability calculated pursuant to the assertion of the
credit allowed under this article, whichever is later.
§11-13N-10. Administrative rules.
The tax commission may prescribe such rules as may be
necessary to carry out the purposes of this article, including,
but not limited to, rules relating to applicability of credit,
method of claiming of credit, credit recapture, documentation
necessary to claim credit and rules preventing abuse of this
article by related persons or by change in the form of doing
business. All rules promulgated under this article shall be
promulgated in accordance with article three, chapter twenty- nine-a of this code.
§11-13N-11. Construction of article.
The provisions of this article shall be reasonably construed.
The burden of proof is on the person claiming the credit allowed
by this article to establish by clear and convincing evidence
that the person is entitled to the amount of credit asserted for
the taxable year.
§11-13N-12. Effective date.
This article shall be effective for taxable years beginning on
or after the first day of July, one thousand nine hundred ninety- eight.
NOTE: The purpose of this bill is to enact a tax incentive for
new farming or agricultural products which are ready for sale to
the consumer
.
This bill establishes a tax credit against business
franchise and income taxes for each new farming and/or
agricultural facility or process in an existing facility which
employs West Virginia residents full time in West Virginia.The
allowable credit is $250 per employee for each new job at a new
consumer-ready agricultural product facility located in West
Virginia or at a new consumer-ready product line in West
Virginia. This bill is nearly identical to the recent wood-value
added tax bill passed and signed into law last session, found at
Section 11-3N-1 et seq.
These are entirely new sections, therefore strike-throughs and
underscoring are not necessary.