ENGROSSED
COMMITTEE SUBSTITUTE
for
Senate Bill No. 129
(By Senators Love, Sharpe, Prezioso, Boley, Minear and
Schoonover)
____________
[Originating in the Committee on Small Business;
reported April 2, 1997.]
A BILL to amend chapter five-b of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, by adding
thereto a new article, designated article three, relating to
the creation of the West Virginia "Job Creation Zones Act of
1997"; providing for certain tax exemptions for qualified
new businesses in the ten West Virginia counties with the
highest rate of unemployment; and providing other conditions
and procedures.
Be it enacted by the Legislature of West Virginia:
That chapter five-b of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, be amended by
adding thereto a new article, designated article three, to read as follows:
ARTICLE 3. WEST VIRGINIA JOB CREATION ZONES ACT OF 1997.
§5B-3-1. Legislative findings.
The Legislature finds that the health, safety and welfare of
the people of West Virginia are enhanced by the continual
encouragement, development, growth and expansion of private
enterprise within this state, and that there are certain
economically depressed areas in the state that need particular
attention to create new jobs, stimulate economic activity and
attract private sector investment rather than government subsidy
to improve the quality of life of their citizens. It is the
purpose of the Legislature to encourage new economic activity in
these depressed areas of the state by means of tax relief and the
removal of unnecessary governmental barriers to the production
and earning of wages and profits and the creation of economic
growth.
§5B-3-2. Definitions.
As used in this article:
(a) "Agriculture and farming" means the production of food,
fiber and woodland products (but not timbering activity) by means
of cultivation, tillage of the soil and by the conduct of animal,
livestock, dairy, apiary, equine or poultry husbandry,
horticulture or any plant or animal production and all farm practices related, usual or incidental thereto, including
storage, packing, shipping and marketing, but not including any
manufacturing, milling or processing of products by persons other
than the producer thereof.
(b) "Job creation zone" means one of ten counties of this
state which during the preceding calendar year had the highest
rate of unemployment.
(c) "Mining"" means the extraction of ores or minerals from
the ground and also those treatment processes necessary or
incidental thereto.
(d) "New business" means any sole proprietorship,
partnership or corporation which employs fifty persons or less
and which has not engaged in business in this state prior to the
date it applies to the county commission for certification as a
qualified new business pursuant to section four of this article.
The term "new business" does not include:
(1) The reconfiguration or restructuring of an existing or
previously existing business, including, but not limited to, a
sole proprietor who becomes a partnership, incorporates or
establishes a limited liability company for his or her business;
a partnership that adds or loses a partner, incorporates or
becomes a limited liability company; a partnership that dissolves with some partners continuing to do business as sole
proprietorships; a corporation that creates a new subsidiary or
becomes a member of a partnership or limited liability company;
or any owner of a corporation who creates a sister corporation;
or
(2) A business that is related to another taxpayer. Related
taxpayers shall be determined under rules set forth in Section
267 of the Internal Revenue Code of 1986, as amended, pertaining
to nonrecognition of losses, expenses and interest with respect
to transactions between related taxpayers.
(e)
"Qualified new business" means any new business
employing fifty persons or less that does not engage, directly,
or indirectly through the activity of others, in:
(1) Agriculture and farming;
(2) Mining;
(3) Severing or processing natural resources; or
(43) Processing pulp, and which during the time a county is
designated as a job creation zone, begins and continues to engage
in the active conduct of a trade or business in a job creation
zone after certification as provided in section four of this
section.
§5B-3-3. Designation of county as job creation zone; report to
governor and Legislature by commissioner of employment security; designation by governor; loss of designation.
(a) The ten counties of this state that have the highest
average annual rate of unemployment for the preceding calendar
year, as determined annually by the commissioner of employment
security are each hereby designated to be job creation zones.
This designation shall remain in effect until the first day of
July, two thousand seven, or when the annual rate of unemployment
for that county is such that the county no longer qualifies for
designation as a job creation zone, whichever occurs first.
(b) On or before the fifteenth day of December, one thousand
nine hundred ninety-seven, and on or before each fifteenth day of
December thereafter through December, two thousand six, the
commissioner of employment security shall submit to the governor,
the president of the Senate and the speaker of the House of
Delegates a list ranking the counties of this state based upon
their rate of unemployment, from highest to lowest, based upon
the best information then available.
(c) If the ten counties with the highest rate of unemployment are different from the counties previously
designated as job creation zones, then any such county that is
not designated as a job creation zone for the then current
calendar year shall be designated by the governor as a job
creation zone beginning on the first day of January of the next
calendar year.
(d) Any county designated as a job creation zone for the
then current calendar year that ceases to be one of the ten
counties with the highest rate of unemployment, shall lose its
designation as a job creation zone at the end of the then current
calendar year:
Provided, That
the tax exemptions and deductions
granted to that county pursuant to this article shall remain in
effect for the full statutory period.
§5B-3-4. Certification by the county commission; application by
new business; issuance of written certification order; appeal to tax commissioner; appeals hearings.
(a) A new business seeking the tax exemptions and deductions
provided pursuant to this article must apply to the county
commission of the county in which the new business will be
located for designation by the county commission as a qualified
new business. Applications will be in such form as designated by rule by the tax commissioner.
(b) To be designated as a qualified new business, the county
commission of the county in which the new business will be
located must ascertain each of the following criteria:
(1) That the business is a new business within the meaning
of this article;
(2) That the new business will not directly compete with
sales of products or services by an existing business located in
that county or an adjacent county;
(3) That the activities of the new business will not
adversely impact or harm the environment;
(4) That the new business is not a reconfiguration or
restructuring of an existing or previously existing business or
business organization or other entity; and
(5) That the new business would not likely locate in West
Virginia if it was not given the benefit of the exemptions and
deductions provided herein.
(c) If the county commission is satisfied that the new
business meets all criteria pursuant to subsection (b) of this
section, it shall issue a written order certifying the new
business as a qualified new business and notify the tax
commissioner of the certification.
(d) Any new business denied certification by a county
commission or any business located in the county or in an
adjacent county which may be affected by the certification may
appeal the certification order of the county commission issued
under subsection (c) of this section within ninety days after
such order is entered by the county commission.
(e) The tax commissioner shall hold a hearing on an appeal
pursuant to the appeals process set by rules promulgated pursuant
to this article for that purpose.
§5B-3-5. Job creation zone tax exemptions.
(a) Notwithstanding any provision of this code to the
contrary, the following tax deductions and exemptions apply to
job creation zones:
(1) A qualified new business that is a corporation shall be
exempt from payment of the taxes imposed on it by articles
twenty-three and twenty-four, chapter eleven of this code, to the
extent such taxes are attributable to the new business.
(2) A new business that is a partnership or electing small
business corporation, shall be exempt from paying the tax imposed
by article twenty-three, chapter eleven of this code, that is
attributable to the new business; and the partners or shareholders, as the case may be, shall be exempt from paying the
tax imposed by article twenty-one, chapter eleven of this code,
on items of income, gain, loss or deduction attributable to their
respective interests in the new business.
(23) Any entity which loans money to a qualified new business
is allowed to subtract from federal adjusted gross income, or
from federal taxable income if the entity is a taxable
corporation, any interest income on the loan or loans to the new
business, to the extent such interest income is included in
federal adjusted gross income, or federal taxable income if the
entity is a taxable corporation, when determining that entity's
West Virginia adjusted gross income, or West Virginia taxable
income if the entity is a taxable corporation, earned or received
from the qualified new business; and
(334) Any person who purchases capital stock of a new business
or purchases any other ownership interest in a new business and
later sells that stock or ownership interest is allowed to
subtract from federal adjusted gross income, or from federal
taxable income if the person is a taxable corporation, any gain
from the sale to the extent such gain is included in federal
adjusted gross income, or federal taxable income if the person is
a taxable corporation, when determining that person's West Virginia adjusted gross income, or West Virginia taxable income
if the person is a taxable corporation.
(b)
Effective date. -- The deductions and exemptions allowed
by this section are first allowed for taxable years ending after
the effective date of this article.
§5B-3-6. Job creation zone additional conditions for tax
exemptions and deductions.
The following additional conditions apply to job creation
zone qualified new businesses:
(a) The exemptions and deductions provided in this article
apply for a period of ten years from the commencement of the
qualified new business;
(b) The deductions and exemptions from tax allowed by this
article shall be allowed any qualified new business that begins
doing business before the first day of January, two thousand
seven;
(c) Any changes or amendments to this article may not be
retroactively imposed to restrict past or future exemptions
conferred by this article upon qualified new businesses that rely
upon the provisions of this article;
(d) Counties that qualify for tax exemptions and deductions hereunder may change during the five-year period if their
unemployment rate changes;
(e) Interest on loans to a qualified new business are
taxable beginning the first day of January of the eleventh year;
(f) Each qualified new business that is a corporation shall
determine the fair market value of its capital stock as of the
thirty-first day of December of the tenth calendar year. The
difference between the shareholder's cost or other basis for the
stock and the stock's fair market value on the thirty-first day
of December of the tenth year is the amount of gain that may be
excluded from tax when there is a sale or other taxable
distribution of the stock after that date;
(g) The fair market value of a qualified new business that
is a sole proprietorship or partnership shall similarly be
determined as of the thirty-first day of December of the tenth
year. The difference between the fair market value so determined
and the owner's basis or other cost is the amount of gain that
may be excluded from tax under article twenty-one, chapter eleven
of this code when there is a sale or taxable termination of the
qualified new business after that date;
(h) The deductions and exemptions allowed by this article to
a qualified new business or other person are not transferable or assignable to any other person;
(i) If after a business is certified as a qualified new
business, that business acquires, by purchase or otherwise, an
existing business, the deductions and exemptions allowed by this
article do not apply to capital or income attributable to the
acquired business or to any loans for operation of the acquired
business;
(j) If the principal office or principal operations of a
qualified new business subsequently moves out of the job creation
zone in which it was located when the qualified new business
began doing business, the deductions and exemptions allowed by
this article shall immediately terminate and be forfeited, unless
the move is to another area of this state that, at the time of
the move, is a job creation zone;
(k) Any amendments to this article shall apply to qualified
new businesses that begin doing business on or after the
effective date of the amendment and may not be retroactively
imposed to limit deductions and exemptions allowed by this
article; and
(l) To qualify for the tax exemptions the new business must
give first preference to hiring qualified able-bodied welfare
recipients, relating to the West Virginia welfare reform program, and the welfare works program.
§5B-3-7. Records; report to the tax commissioner; annual report
to the governor and lLegislature.
(a) Any entity which claims exemptions or deductions from
tax under this article shall maintain those records as mandated
by the tax commissioner which establish such entity's entitlement
to claim the exemption or deduction asserted.
(b) Every business or other entity which claims exemptions
or deductions from tax under this article shall report annually,
on a form to be prescribed by the tax commissioner, its earnings,
number of employees, salary scales, business growth and growth
potential, and any other information deemed necessary by the tax
commissioner in ascertaining the progress and health of
businesses which have qualified pursuant to this article.
(c) On or before the fifteenth day of December, one thousand
nine hundred ninety-seven, and on or before each fifteenth day of
December thereafter through December, two thousand six, the tax
commissioner shall submit to the governor, the president of the
Senate and the speaker of the House of Delegates a report based
on information submitted by businesses and other entities
pursuant to this section, which report shall reflect a progress report of those qualified new businesses which have located in
job creation zones.
§5B-3-8. Administrative rules.
The tax commissioner shall propose rules, subject to
legislative approval, as may be necessary to implement and
administer the precepts of this article, as provided in article
three, chapter twenty-nine-a of this code.