H. B. 4047
(By Mr. Speaker, Mr. Kiss, and Delegate Trump)
[By Request of the Executive]
[Introduced January 16, 2004; referred to the
Committee on Finance.]
A BILL to amend the code of West Virginia, 1931, as amended, by
adding thereto a new article, designated §11-13U-1, §11-13U-2,
§11-13U-3, §11-13U-4, §11-13U-5, §11-13U-6, §11-13U-7, §11-
13U-8 and §11-13U-9, all relating to the high-growth business
investment tax credit.
Be it enacted by the Legislature of West Virginia:
That the code of West Virginia, 1931, as amended, be amended
by adding thereto a new article, designated §11-13U-1, §11-13U-2,
§11-13U-3, §11-13U-4, §11-13U-5, §11-13U-6, §11-13U-7, §11-13U-8
and §11-13U-9, all to read as follows:
ARTICLE 13U. HIGH-GROWTH BUSINESS INVESTMENT TAX CREDIT.
§11-13U-1. Short title.
This article may be cited as the "High-Growth Business
Investment Tax Credit."
§11-13U-2. Legislative finding and purpose.
The Legislature finds the encouragement of investment in
potentially high-growth research and development businesses in this
state is in the public interest and promotes economic growth and
development for the people of this state. In order to encourage
investment in start-up, growth-oriented, research and development
businesses in this state and thereby increase employment and
economic development, there is hereby provided a high-growth
business investment tax credit.
§11-13U-3. Definitions.
As used in this article, the following terms have the meanings
ascribed to them in this section, unless the context in which the
term is used clearly requires another meaning or a specific
different definition is provided:
(a) "Qualified investor" means a person who makes a qualified
investment in a West Virginia qualified research and development
company who has received certification of the high growth
investment credit from the West Virginia state tax department.
(b) "Qualified investment" means a debt or equity financing of
a West Virginia qualified research and development company. The
investment must be in cash or cash equivalents and cannot be an
exchange of in-kind property. The qualified investor must maintain
the investment for a period of at least five years or the period of existence of the qualified research or development company,
whichever is less.
(c) "Qualified research and development company" means an
entity that has been certified by the West Virginia state tax
commissioner as eligible for the West Virginia research and
development credit set forth in West Virginia code, section one,
article thirteen-r, chapter eleven.
(d) "Person" includes any natural person, corporation, limited
liability company, or partnership.
(e) "Investment year" means the tax year of the qualified
investor in which the qualified investment was actually made in the
qualified research and development company.
(f) "Eligible taxpayer" means a qualified investor that has
received certification from the state tax department that a portion
of the annual available high growth business investment credit has
been allocated to them and who is subject to the tax imposed by
article twenty-three or article twenty-four of this chapter and who
has made a qualified investment in a qualified research and
development credit company. In the case of a sole proprietorship
subject to neither the tax imposed by article twenty-three nor the
tax imposed by article twenty-four, the term "eligible taxpayer"
means any sole proprietor who is subject to the tax imposed by
article twenty-one of this chapter and who has made a qualified investment in a qualified research and development credit company.
§11-13U-4. High-growth business investment tax credit.
(a)
Credit allowed. -- For each qualified research and
development company which has been incorporated for five years or
less in the state, and maintains the primary corporate headquarters
in West Virginia, there shall be allowed to each eligible taxpayer
in the entity a tax credit for the taxable year in which the
investment was made and the following four years provided the
credit is properly claimed. The tax credit shall be equal to fifty
percent of the value of the investment in cash or cash equivalents
in the year the actual investment was made and does not include in-
kind contributions.
(b) Not more than ten million dollars of the credits allowed
under subdivision (a) of this section shall be allocated by the
state tax department during any fiscal year to one or more
qualified investors. These credits shall be allocated by the state
tax department in the order that the investors request
qualification.
(c)
Business franchise tax. -- The credit is first applied to
reduce the taxes imposed by article twenty-three of this chapter
for the taxable year (determined after application of the credits
against tax provided in section seventeen of said article, but
before application of any other allowable credits against tax).
(d)
Corporation net income taxes. -- After application of
subsection (b) of this section, any unused credit is next applied
to reduce the taxes imposed by article twenty-four of this chapter
for the taxable year (determined before application of allowable
credits against tax).
(e) If the eligible investor
is a limited liability company,
an electing small business corporation as defined in section one
thousand three hundred sixty-one of the United States Internal
Revenue Code, or a partnership, then any unused credit (after
application of subsections (b) and (c) of this section) is allowed
as a credit against the taxes imposed by article twenty-four of
this chapter on owners of the eligible taxpayer on the conduit
income directly derived from the eligible taxpayer by its owners.
Only those portions of the tax imposed by article twenty-four of
this chapter that are imposed on income directly derived by the
owner from the eligible taxpayer are subject to offset by this
credit.
(1) Small business corporations, limited liability companies,
partnerships and other unincorporated organizations shall allocate
the credit allowed by this article among their members in the same
manner as profits and losses are allocated for the taxable year.
(2) No credit is allowed under this article against any
withholding tax imposed by, or payable under, article twenty-one of this chapter.
(f)
Personal income tax taxes. -- After application of
subsections (b), (c) and (d) of this section, any unused credit is
next applied to reduce the taxes imposed by article twenty-one of
this chapter for the taxable year (determined before application of
allowable credits against tax) of the eligible taxpayer.
(g) If the eligible taxpayer is a limited liability company,
small business corporation or a partnership, then any unused credit
(after application of subsections (b), (c), (d) and (e) of this
section) is allowed as a credit against the taxes imposed by
article twenty-one of this chapter on owners of the eligible
taxpayer on the conduit income directly derived from the eligible
taxpayer by its owners. Only those portions of the tax imposed by
article twenty-one of this chapter that are imposed on income
directly derived by the owner from the eligible taxpayer are
subject to offset by this credit.
(1) Small business corporations, limited liability companies,
partnerships and other unincorporated organizations shall allocate
the credit allowed by this article among their members in the same
manner as profits and losses are allocated for the taxable year.
(2) No credit is allowed under this article against any
withholding tax imposed by, or payable under, article twenty-one of
this chapter.
(h) The total amount of tax credit that may be used in any
taxable year by any eligible taxpayer in combination with the
owners of the eligible taxpayer under subsections (d) and (f) of
this section may not exceed five hundred thousand dollars.
(i)
Unused credit carry forward. -- If the credit allowed
under this article in any taxable year exceeds the sum of the taxes
enumerated in subsections (b), (c), (d), (e) and (f) of this
section for that taxable year, the eligible taxpayer and owners of
eligible taxpayers described in subsections (d) and (f) of this
section may apply the excess as a credit against those taxes, in
the order and manner stated in this section, for succeeding taxable
years until the earlier of the following:
(1) The full amount of the excess credit is used; or
(2) The expiration of the fourth taxable year after the
taxable year in which the qualified high-growth business investment
was made. The credit remaining thereafter is forfeited.
(j) No credit is allowed or may be applied under this article
until the taxpayer seeking to claim the credit has filed a written
application with the state tax commissioner for the credit
accompanied by the research and development certification and
certificate of incorporation for the qualified entity which will
benefit from the investment and received certification back from
the state tax commissioner of the amount of credit to be allocated to the qualified investor. The application form shall be filed by
the investor including such information as may be prescribed by the
tax commissioner.
§11-13U-5. Penalty.
(a) A qualified investor that fails to make or maintain a
qualified investment for the required period of time shall pay to
the state tax commissioner a penalty equal to all of the tax
credits allowed with interest at the rate of two-thirds percent per
month, compounded monthly, from the date the tax credits were
certified as allocated to the qualified investor. The tax
commissioner shall give notice to the company of any penalties
under this section. The tax commissioner may abate the penalty
upon written request if the capital company establishes reasonable
cause for the failure to make qualified investments. The tax
commissioner shall deposit any amounts received under this
subsection in the general revenue fund.
§11-13U-6. Disclosure of tax credits.
Notwithstanding any provision in this code to the contrary,
the tax commissioner shall publish in the state register the name
and address of every eligible taxpayer and the amount, by category,
of any credit asserted under this article. The categories by
dollar amount of credit received are as follows:
(1) More than $1.00, but no more than $50,000;
(2) More than $50,000, but no more than $100,000;
(3) More than $100,000, but no more than $250,000;
(4) More than $250,000, but no more than $500,000.
§11-13U-7. Tax credit review and accountability.
(a) Beginning on the first day of February, two thousand six,
and on the first day of February every third year thereafter, the
commissioner shall submit to the governor, the president of the
Senate and the speaker of the House of Delegates a tax credit
review and accountability report evaluating the cost effectiveness
of the credit allowed under this article during the most recent
three-year period for which information is available. The criteria
to be evaluated includes, but is not limited to, for each year of
the three-year period:
(1) The numbers of taxpayers claiming the credit;
(2) The net number, type, and duration of new jobs created by
all qualified research and development companies in which taxpayers
claiming the credit made investment in and the wages and benefits
paid by such companies;
(3) The cost of the credit;
(4) The cost of the credit per new job created; and
(5) Comparison of employment trends for the industry and for
taxpayers within the industry that claim the credit.
(b) Taxpayers claiming the credit shall provide such information as the tax commissioner may require to prepare the
report:
Provided, That such information shall be subject to the
confidentiality and disclosure provisions of sections five-d and
five-s, article ten of this chapter.
§11-13U-8. Rules.
The state tax department shall promulgate rules in accordance
with article three, chapter twenty-nine-a of this code to carry out
the policy and purposes of this article, to provide any necessary
clarification of the provisions of this article and to efficiently
provide for the general administration of this article.
§11-13U-9. Effective date; expiration of credit.
The provisions of this article become effective on the first
day of January, two thousand four, and apply only to qualified
investment made on or after that date. Unless sooner terminated by
law, the high growth business investment credit act will terminate
on the first day of January, two thousand seven. No entitlement to
the tax credit under this article shall result from any qualified
investment made after the thirty-first day of December, two
thousand six. Taxpayers who have gained entitlement to the credit
under this article pursuant to qualified investment prior to the
first day of January, two thousand seven, shall retain that
entitlement and apply the credit in due course pursuant to the
requirements and limitations of this article.
NOTE: The purpose of this legislation is to create a High
Growth Business Investment Tax Credit to encourage investment by
West Virginia citizens and businesses in the research and
development focused companies started by their fellow West
Virginians. The suggested credit would equal to 50% of the angel
or seed investment made by an individual or business in another,
unrelated business certified as eligible for the "Strategic
Research & Development Tax Credit" by the Tax Department. To
ensure that this opportunity is not abused, there would be a cap of
$500,000 on the amount of credit that can be used by the investors
in any one business.
This article is new; therefore, strike-throughs and
underscoring have been omitted.