Enrolled Version - Final Version
Senate Bill 749 History
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ENROLLED
Senate Bill No. 749
(By Senators Helmick, Plymale, Chafin, Prezioso,
Edgell, Love, Bailey, Bowman, McCabe, Unger, Sypolt,
Fanning, Facemyer, Boley, Sprouse and Guills)
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[Passed March 10, 2007; in effect from passage.]
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AN ACT to
amend the Code of West Virginia, 1931, as amended,
by
adding thereto a new section, designated §11-23-5b; to
amend
and reenact §11-23-6 and §11-23-27 of said code; to amend and
reenact §11-24-1, §11-24-3a, §11-24-7, §11-24-13a and §11-24-
24
of said code; and to amend said code by adding thereto four
new sections, designated §11-24-13c, §11-24-13d, §11-24-13e
and §11-24-13f, all relating to business taxes generally;
reducing the business franchise tax; and requiring combined
reporting of certain taxes upon businesses.
Be it enacted by the Legislature of West Virginia:
That of the Code of West Virginia, 1931, as amended, be
amended by adding thereto a new section, designated §11-23-5b; that
§11-23-6 and §11-23-27 of said code be amended and reenacted; that
§11-24-1, §11-24-3a, §11-24-7, §11-24-13a and §11-24-24 of said
code be amended and reenacted; and that said code be amended by
adding thereto four new sections, designated §11-24-13c, §11-24-13d, §11-24-13e and §11-24-13f, all to read as follows:
ARTICLE 23. BUSINESS FRANCHISE TAX.
§11-23-5b. Apportionment of income of financial organizations.
Notwithstanding any other provisions of this article or this
code to the contrary, for tax years beginning on or after the first
day of January, two thousand nine, the provisions of section five-a
of this article are null and void and of no force or effect.
§11-23-6. Imposition of tax; change in rate of tax.
(a) General. -- An annual business franchise tax is hereby
imposed on the privilege of doing business in this state and in
respect of the benefits and protection conferred. Such tax shall be
collected from every domestic corporation, every corporation having
its commercial domicile in this state, every foreign or domestic
corporation owning or leasing real or tangible personal property
located in this state or doing business in this state and from
every partnership owning or leasing real or tangible personal
property located in this state or doing business in this state,
effective on and after the first day of July, one thousand nine
hundred eighty-seven.
(b) Amount of tax and rate; effective date. --
(1) On and after the first day of July, one thousand nine
hundred eighty-seven, the amount of tax shall be the greater of
fifty dollars or fifty-five one hundredths of one percent of the
value of the tax base, as determined under this article: Provided,
That when the taxpayer's first taxable year under this article is a short taxable year, the taxpayer's liability shall be prorated
based upon the ratio which the number of months in which such short
taxable year bears to twelve: Provided, however, That this
subdivision shall not apply to taxable years beginning on or after
the first day of January, one thousand nine hundred eighty-nine.
(2) Taxable years after the thirty-first day of December, one
thousand nine hundred eighty-eight. -- For taxable years beginning
on or after the first day of January, one thousand nine hundred
eighty-nine, the amount of tax due under this article shall be the
greater of fifty dollars or seventy-five one hundredths of one
percent of the value of the tax base as determined under this
article.
(3) Taxable years after the thirtieth day of June, one
thousand nine hundred ninety-seven. -- For taxable years beginning
on or after the first day of July, one thousand nine hundred
ninety-seven, the amount of tax due under this article shall be the
greater of fifty dollars or seventy hundredths of one percent of
the value of the tax base as determined under this article.
(4) Taxable years after the thirty-first day of December, two
thousand six. -- For taxable years beginning on or after the first
day of January, two thousand seven, the amount of tax due under
this article shall be the greater of fifty dollars or fifty-five
one hundredths of one percent of the value of the tax base as
determined under this article.
(5) Taxable years after the thirty-first day of December, two thousand eight. -- For taxable years beginning on or after the
first day of January, two thousand nine, the amount of tax due
under this article shall be the greater of fifty dollars or forty-
eight one hundredths of one percent of the value of the tax base as
determined under this article.
(6) Taxable years after the thirty-first day of December, two
thousand nine. -- For taxable years beginning on or after the first
day of January, two thousand ten, the amount of tax due under this
article shall be the greater of fifty dollars or forty-one one
hundredths of one percent of the value of the tax base as
determined under this article.
(7) Taxable years after the thirty-first day of December, two
thousand ten. -- For taxable years beginning on or after the first
day of January, two thousand eleven, the amount of tax due under
this article shall be the greater of fifty dollars or thirty-four
one hundredths of one percent of the value of the tax base as
determined under this article.
(8) Taxable years after the thirty-first day of December, two
thousand eleven. -- For taxable years beginning on or after the
first day of January, two thousand twelve, the amount of tax due
under this article shall be the greater of fifty dollars or twenty-
seven one hundredths of one percent of the value of the tax base as
determined under this article.
(9) Taxable years after the thirty-first day of December, two
thousand twelve. -- For taxable years beginning on or after the first day of January, two thousand thirteen, the amount of tax due
under this article shall be the greater of fifty dollars or twenty
one hundredths of one percent of the value of the tax base as
determined under this article.
(c) Short taxable years. -- When the taxpayer's taxable year
for federal income tax purposes is a short taxable year, the tax
determined by application of the tax rate to the taxpayer's tax
base shall be prorated based upon the ratio which the number of
months in such short taxable year bears to twelve: Provided, That
when the taxpayer's first taxable year under this article is less
than twelve months, the taxpayer's liability shall be prorated
based upon the ratio which the number of months the taxpayer was
doing business in this state bears to twelve but in no event shall
the tax due be less than fifty dollars.
§11-23-27. Credit for franchise tax paid to another state.
(a) Effective for taxable years beginning on or after the
first day of January, one thousand nine hundred ninety-one, and
notwithstanding any provisions of this code to the contrary, any
financial organization having its commercial domicile in this state
shall be allowed a credit against the tax imposed by this article
for any taxable year for taxes paid to another state. That credit
shall be equal in amount to the lesser of:
(1) The taxes such financial organization shall actually have
paid, which payments were made on or before the filing date of the
annual return required by this article, to any other state and
which tax was based upon or measured by the financial organization's capital and was paid with respect to the same
taxable year; or
(2) The portion of the tax actually paid that the financial
organization would have paid if the rate of tax imposed by this
article is applied to the tax base determined under the law of such
other state.
(b) Any additional payments of such tax to other states, or to
political subdivisions thereof, by a financial organization
described in this section, and any refunds of such taxes, made or
received by such financial organization with respect to the taxable
year, but after the due date of the annual return required by this
article for the taxable year, including any extensions, shall
likewise be accounted for in the taxable year in which such
additional payment is made or such refund is received by the
financial organization.
(c) For tax years beginning on or after the first day of
January, two thousand nine, the provisions of this section are null
and void and of no force or effect.
ARTICLE 24. CORPORATION NET INCOME TAX.
§11-24-1. Legislative findings.
The Legislature hereby finds and declares that the adoption by
this state for its corporation net income tax purposes of certain
provisions of the laws of the United States relating to the
determination of income for federal income tax purposes will: (1)
Simplify preparation of state corporation net income tax returns by
taxpayers; (2) improve enforcement of the state corporation net income tax through better use of information obtained from federal
income tax audits; and (3) aid interpretation of the state
corporation net income tax law through increased use of federal
judicial and administrative determinations and precedents.
The Legislature does, therefore, declare that this article be
construed so as to accomplish the foregoing purposes.
In recognition of the fact that corporate business is
increasingly conducted on a national and international basis, it is
the intent of the Legislature to adopt a combined system of income
tax reporting for corporations. A separate accounting system is
sometimes not adequate to accurately measure the income of
multistate and multinational corporations doing business in this
state and sometimes creates tax disadvantages for West Virginia
corporations in competition with those multistate and multinational
corporations. Therefore, it is the intent of the Legislature to
capture lost revenue with adoption of a combined reporting tax
base.
§11-24-3a. Specific terms defined.
For purposes of this article:
(1) Business income. -- The term "business income" means ncome
arising from transactions and activity in the regular course of the
taxpayer's trade or business and includes income from tangible and
intangible property if the acquisition, management and disposition
of the property or the rendering of services in connection
therewith constitute integral parts of the taxpayer's regular trade
or business operations and includes all income which is apportionable under the Constitution of the United States.(2)
"Combined group" means the group of all persons whose income and
apportionment factors are required to be taken into account
pursuant to subsection (a) or (b), section thirteen-a of this
article in determining the taxpayer's share of the net business
income or loss apportionable to this state.
(3) Commercial domicile. -- The term "commercial domicile"
means the principal place from which the trade or business of the
taxpayer is directed or managed: Provided, That the commercial
domicile of a financial organization, which is subject to
regulation as such, shall be at the place designated as its
principal office with its regulating authority.
(4) Compensation. -- The term "compensation" means wages,
salaries, commissions and any other form of remuneration paid to
employees for personal services.
(5) Corporation. -- "Corporation" means any corporation as
defined by the laws of this state or organization of any kind
treated as a corporation for tax purposes under the laws of this
state, wherever located, which if it were doing business in this
state would be a "taxpayer". The business conducted by a
partnership which is directly or indirectly held by a corporation
shall be considered the business of the corporation to the extent
of the corporation's distributive share of the partnership income,
inclusive of guaranteed payments to the extent prescribed by
regulation. The term "corporation" includes a joint-stock company
and any association or other organization which is taxable as a corporation under the federal income tax law.
(6) Delegate. -- The term "delegate" in the phrase "or his
delegate", when used in reference to the Tax Commissioner, means
any officer or employee of the State Tax Department 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 or regulations promulgated thereunder.
(7) Domestic corporation. -- The term "domestic corporation"
means any corporation organized under the laws of West Virginia and
certain corporations organized under the laws of the state of
Virginia before the twentieth day of June, one thousand eight
hundred sixty-three. Every other corporation is a foreign
corporation.
(8) Engaging in business. -- The term "engaging in business"
or "doing business" means any activity of a corporation which
enjoys the benefits and protection of government and laws in this
state.
(9) Federal Form 1120. -- The term "Federal Form 1120" means
the annual federal income tax return of any corporation made
pursuant to the United States Internal Revenue Code of 1986, as
amended, or in successor provisions of the laws of the United
States, in respect to the federal taxable income of a corporation,
and filed with the federal Internal Revenue Service. In the case of
a corporation that elects to file a federal income tax return as
part of an affiliated group, but files as a separate corporation
under this article, then as to such corporation Federal Form 1120 means its pro forma Federal Form 1120.
(10) Fiduciary. -- The term "fiduciary" means, and includes,
a guardian, trustee, executor, administrator, receiver, conservator
or any person acting in any fiduciary capacity for any person.
(11) Financial organization. -- The term "financial
organization" means:
(A) A holding company or a subsidiary thereof. As used in this
section "holding company" means a corporation registered under the
federal Bank Holding Company Act of 1956 or registered as a savings
and loan holding company other than a diversified savings and loan
holding company (as defined in Section 408(a)(1)(F) of the federal
National Housing Act (12 U. S. C. §1730(a)(1)(F));
(B) A regulated financial corporation or a subsidiary thereof.
As used in this section "regulated financial corporation" means:
(1) An institution, the deposits, shares or accounts of which
are insured under the Federal Deposit Insurance Act or by the
federal Savings and Loan Insurance Corporation;
(2) An institution that is a member of a federal home loan
bank;
(3) Any other bank or thrift institution incorporated or
organized under the laws of a state that is engaged in the business
of receiving deposits;
(4) A credit union incorporated and organized under the laws
of this state;
(5) A production credit association organized under 12 U. S.
C. §2071;
(6) A corporation organized under 12 U. S. C. §611 through
§631 (an Edge act corporation); or
(7) A federal or state agency or branch of a foreign bank (as
defined in 12 U. S. C. §3101); or
(C) A corporation which derives more than fifty percent of its
gross business income from one or more of the following activities:
(1) Making, acquiring, selling or servicing loans or
extensions of credit. Loans and extensions of credit include:
(I) Secured or unsecured consumer loans;
(II) Installment obligations;
(III) Mortgages or other loans secured by real estate or
tangible personal property;
(IV) Credit card loans;
(V) Secured and unsecured commercial loans of any type; and
(VI) Loans arising in factoring.
(2) Leasing or acting as an agent, broker or advisor in
connection with leasing real and personal property that is the
economic equivalent of an extension of credit (as defined by the
Federal Reserve Board in 12 C. F. R. 225.25(b)(5)).
(3) Operating a credit card business.
(4) Rendering estate or trust services.
(5) Receiving, maintaining or otherwise handling deposits.
(6) Engaging in any other activity with an economic effect
comparable to those activities described in item (1), (2), (3), (4)
or (5) of this subparagraph.
(12) Fiscal year. -- The term "fiscal year" means an accounting period of twelve months ending on any day other than the
last day of December and on the basis of which the taxpayer is
required to report for federal income tax purposes.
(13) Includes and including. -- The terms "includes" and
"including", when used in a definition contained in this article,
shall not be deemed to exclude other things otherwise within the
meaning of the term being defined.
(14) "Internal Revenue Code" means Title 26 of the United
States Code, as amended, without regard to application of federal
treaties unless expressly made applicable to states of the United
States.
(15) Nonbusiness income. -- The term "nonbusiness income"
means all income other than business income.
(16) "Partnership" means a general or limited partnership, or
organization of any kind treated as a partnership for tax purposes
under the laws of this state.
(17) Person. -- The term "person" is to be deemed
interchangeable with the term "corporation" in this section. The
term "person" means any individual, firm, partnership, general
partner of a partnership, limited liability company, registered
limited liability partnership, foreign limited liability
partnership, association, corporation (whether or not the
corporation is, or would be if doing business in this state,
subject to the tax imposed by this article), company, syndicate,
estate, trust, business trust, trustee, trustee in bankruptcy,
receiver, executor, administrator, assignee or organization of any kind.
(18) Pro forma return. -- The term "pro forma return" when
used in this article means the return which the taxpayer would have
filed with the Internal Revenue Service had it not elected to file
federally as part of an affiliated group.
(19) Public utility. -- The term "public utility" means any
business activity to which the jurisdiction of the Public Service
Commission of West Virginia extends under section one, article two,
chapter twenty-four of this code.
(20) Sales. -- The term "sales" means all gross receipts of
the taxpayer that are "business income", as defined in this
section.
(21) State. -- The term "state" means any state of the United
States, the District of Columbia, the Commonwealth of Puerto Rico,
any territory or possession of the United States and any foreign
country or political subdivision thereof.
(22) Taxable year, tax year. -- The term "taxable year" or
"tax year" means the taxable year for which the taxable income of
the taxpayer is computed under the federal income tax law.
(23) Tax. -- The term "tax" includes, within its meaning,
interest and additions to tax, unless the intention to give it a
more limited meaning is disclosed by the context.
(24) Tax Commissioner. -- The term "Tax Commissioner" means
the Tax Commissioner of the State of West Virginia or his delegate.
(25) "Tax haven" means a jurisdiction that, for a particular tax year in question: (A) Is identified by the Organization for
Economic Cooperation and Development as a tax haven or as having a
harmful preferential tax regime; or (B) a jurisdiction that has no,
or nominal, effective tax on the relevant income and: (i) That has
laws or practices that prevent effective exchange of information
for tax purposes with other governments regarding taxpayers subject
to, or benefiting from, the tax regime; or (ii) that lacks
transparency. For purposes of this definition, a tax regime lacks
transparency if the details of legislative, legal or administrative
provisions are not open to public scrutiny and apparent, or are not
consistently applied among similarly situated taxpayers; (iii)
facilitates the establishment of foreign-owned entities without the
need for a local substantive presence or prohibits these entities
from having any commercial impact on the local economy; (iv)
explicitly or implicitly excludes the jurisdiction's resident
taxpayers from taking advantage of the tax regime's benefits or
prohibits enterprises that benefit from the regime from operating
in the jurisdiction's domestic market; or (v) has created a tax
regime which is favorable for tax avoidance, based upon an overall
assessment of relevant factors, including whether the jurisdiction
has a significant untaxed offshore financial or other services
sector relative to its overall economy. For purposes of this
definition, the phrase "tax regime" means a set or system of rules,
laws, regulations or practices by which taxes are imposed on any
person, corporation or entity, or on any income, property,
incident, indicia or activity pursuant to governmental authority.
(26) Taxpayer. -- The term "taxpayer" means any person subject
to the tax imposed by this article.
(27) This code. -- The term "this code" means the Code of West
Virginia, one thousand nine hundred thirty-one, as amended.
(28) This state. -- The term "this state" means the State of
West Virginia.
(29) "United States" means the United States of America and
includes all of the states of the United States, the District of
Columbia and United States territories and possessions.
(30) "Unitary business" means a single economic enterprise
that is made up either of separate parts of a single business
entity or of a commonly controlled group of business entities that
are sufficiently interdependent, integrated and interrelated
through their activities so as to provide a synergy and mutual
benefit that produces a sharing or exchange of value among them and
a significant flow of value to the separate parts.
(31) West Virginia taxable income. -- The term "West Virginia
taxable income" means the taxable income of a corporation as
defined by the laws of the United States for federal income tax
purposes, adjusted, as provided in this article: Provided, That in
the case of a corporation having income from business activity
which is taxable without this state, its "West Virginia taxable
income" shall be such portion of its taxable income as so defined
and adjusted as is allocated or apportioned to this state under the
provisions of this article.
§11-24-7. Allocation and apportionment.
(a) General. -- Any taxpayer having income from business
activity which is taxable both in this state and in another state
shall allocate and apportion its net income as provided in this
section. For purposes of this section, the term "net income" means
the taxpayer's federal taxable income adjusted as provided in
section six of this article.
(b) "Taxable in another state" defined. -- For purposes of
allocation and apportionment of net income under this section, a
taxpayer is taxable in another state if:
(1) In that state the taxpayer is subject to a net income tax,
a franchise tax measured by net income, a franchise tax for the
privilege of doing business or a corporation stock tax; or
(2) That state has jurisdiction to subject the taxpayer to a
net income tax, regardless of whether, in fact, that state does or
does not subject the taxpayer to the tax.
(c) Business activities entirely within West Virginia. -- If
the business activities of a taxpayer take place entirely within
this state, the entire net income of the taxpayer is subject to the
tax imposed by this article. The business activities of a taxpayer
are considered to have taken place in their entirety within this
state if the taxpayer is not "taxable in another state": Provided,
That for tax years beginning before the first day of January, two
thousand nine, the business activities of a financial organization
having its commercial domicile in this state are considered to take place entirely in this state, notwithstanding that the organization
may be "taxable in another state": Provided, however, That for tax
years beginning before the first day of January, two thousand nine,
the income from the business activities of a financial organization
not having its commercial domicile in this state shall be
apportioned according to the applicable provisions of this article.
(d) Business activities partially within and partially without
West Virginia; allocation of nonbusiness income. -- If the business
activities of a taxpayer take place partially within and partially
without this state and the taxpayer is also taxable in another
state, rents and royalties from real or tangible personal property,
capital gains, interest, dividends or patent or copyright
royalties, to the extent that they constitute nonbusiness income of
the taxpayer, shall be allocated as provided in subdivisions (1)
through (4), inclusive, of this subsection: Provided, That to the
extent the items constitute business income of the taxpayer, they
may not be so allocated but they shall be apportioned to this state
according to the provisions of subsection (e) of this section and
to the applicable provisions of section seven-b of this article.
(1) Net rents and royalties. --
(A) Net rents and royalties from real property located in this
state are allocable to this state.
(B) Net rents and royalties from tangible personal property
are allocable to this state:
(i) If and to the extent that the property is utilized in this
state; or
(ii) In their entirety if the taxpayer's commercial domicile
is in this state and the taxpayer is not organized under the laws
of or taxable in the state in which the property is utilized.
(C) The extent of utilization of tangible personal property in
a state is determined by multiplying the rents and royalties by a
fraction, the numerator of which is the number of days of physical
location of the property in the state during the rental or royalty
period in the taxable year and the denominator of which is the
number of days of physical location of the property everywhere
during all rental or royalty periods in the taxable year. If the
physical location of the property during the rental or royalty
period is unknown or unascertainable by the taxpayer, tangible
personal property is utilized in the state in which the property
was located at the time the rental or royalty payer obtained
possession.
(2) Capital gains. --
(A) Capital gains and losses from sales of real property
located in this state are allocable to this state.
(B) Capital gains and losses from sales of tangible personal
property are allocable to this state if:
(i) The property had a situs in this state at the time of the
sale; or
(ii) The taxpayer's commercial domicile is in this state and
the taxpayer is not taxable in the state in which the property had
a situs.
(C) Capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial
domicile is in this state.
(D) Gains pursuant to Section 631 (a) and (b) of the Internal
Revenue Code of 1986, as amended, from sales of natural resources
severed in this state shall be allocated to this state if they are
nonbusiness income.
(3) Interest and dividends are allocable to this state if the
taxpayer's commercial domicile is in this state.
(4) Patent and copyright royalties. --
(A) Patent and copyright royalties are allocable to this
state:
(i) If and to the extent that the patent or copyright is
utilized by the payer in this state; or
(ii) If and to the extent that the patent or copyright is
utilized by the payer in a state in which the taxpayer is not
taxable and the taxpayer's commercial domicile is in this state.
(B) A patent is utilized in a state to the extent that it is
employed in production, fabrication, manufacturing or other
processing in the state or to the extent that a patented product is
produced in the state. If the basis of receipts from patent
royalties does not permit allocation to states or if the accounting
procedures do not reflect states of utilization, the patent is
utilized in the state in which the taxpayer's commercial domicile
is located.
(C) A copyright is utilized in a state to the extent that
printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to
states or if the accounting procedures do not reflect states of
utilization, the copyright is utilized in the state in which the
taxpayer's commercial domicile is located.
(5) Corporate partner's distributive share. --
(A) Persons carrying on business as partners in a partnership,
as defined in Section 761 of the Internal Revenue Code of 1986, as
amended, are liable for income tax only in their separate or
individual capacities.
(B) A corporate partner's distributive share of income, gain,
loss, deduction or credit of a partnership shall be modified as
provided in section six of this article for each partnership. For
taxable years beginning on or after the thirty-first day of
December, one thousand nine hundred ninety-eight, the distributive
share shall then be allocated and apportioned as provided in this
section, using the partnership's property, payroll and sales
factors. The sum of that portion of the distributive share
allocated and apportioned to this state shall then be treated as
distributive share allocated to this state; and that portion of
distributive share allocated or apportioned outside this state
shall be treated as distributive share allocated outside this
state, unless the taxpayer requests or the Tax Commissioner, under
subsection (h) of this section requires that the distributive share
be treated differently.
(e) Business activities partially within and partially without
this state; apportionment of business income. -- All net income, after deducting those items specifically allocated under subsection
(d) of this section, shall be apportioned to this state by
multiplying the net income by a fraction, the numerator of which is
the property factor plus the payroll factor plus two times the
sales factor and the denominator of which is four, reduced by the
number of factors, if any, having no denominator.
(1) Property factor. -- The property factor is a fraction, the
numerator of which is the average value of the taxpayer's real and
tangible personal property owned or rented and used by it in this
state during the taxable year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used by the taxpayer during the
taxable year, which is reported on Schedule L Federal Form 1120,
plus the average value of all real and tangible personal property
leased and used by the taxpayer during the taxable year.
(2) Value of property. -- Property owned by the taxpayer shall
be valued at its original cost, adjusted by subsequent capital
additions or improvements thereto and partial disposition thereof,
by reason of sale, exchange, abandonment, etc.: Provided, That
where records of original cost are unavailable or cannot be
obtained without unreasonable expense, property shall be valued at
original cost as determined under rules of the Tax Commissioner.
Property rented by the taxpayer from others shall be valued at
eight times the annual rental rate. The term "net annual rental
rate" is the annual rental paid, directly or indirectly, by the
taxpayer, or for its benefit, in money or other consideration for the use of property and includes:
(A) Any amount payable for the use of real or tangible
personal property, or any part of the property, whether designated
as a fixed sum of money or as a percentage of sales, profits or
otherwise.
(B) Any amount payable as additional rent or in lieu of rents,
such as interest, taxes, insurance, repairs or any other items
which are required to be paid by the terms of the lease or other
arrangement, not including amounts paid as service charges, such as
utilities, janitor services, etc. If a payment includes rent and
other charges unsegregated, the amount of rent shall be determined
by consideration of the relative values of the rent and the other
items.
(3) Movable property. -- The value of movable tangible
personal property used both within and without this state shall be
included in the numerator to the extent of its utilization in this
state. The extent of the utilization shall be determined by
multiplying the original cost of the property by a fraction, the
numerator of which is the number of days of physical location of
the property in this state during the taxable period and the
denominator of which is the number of days of physical location of
the property everywhere during the taxable year. The number of days
of physical location of the property may be determined on a
statistical basis or by other reasonable method acceptable to the
Tax Commissioner.
(4) Leasehold improvements. -- Leasehold improvements shall,
for purposes of the property factor, be treated as property owned
by the taxpayer regardless of whether the taxpayer is entitled to
remove the improvements or the improvements revert to the lessor
upon expiration of the lease. Leasehold improvements shall be
included in the property factor at their original cost.
(5) Average value of property. -- The average value of
property shall be determined by averaging the values at the
beginning and ending of the taxable year: Provided, That the Tax
Commissioner may require the averaging of monthly values during the
taxable year if substantial fluctuations in the values of the
property exist during the taxable year, or where property is
acquired after the beginning of the taxable year, or is disposed
of, or whose rental contract ceases, before the end of the taxable
year.
(6) Payroll factor. -- The payroll factor is a fraction, the
numerator of which is the total compensation paid in this state
during the taxable year by the taxpayer for compensation and the
denominator of which is the total compensation paid by the taxpayer
during the taxable year, as shown on the taxpayer's federal income
tax return as filed with the Internal Revenue Service, as reflected
in the schedule of wages and salaries and that portion of cost of
goods sold which reflects compensation or as shown on a pro forma
return.
(7) Compensation. -- The term "compensation" means wages,
salaries, commissions and any other form of remuneration paid to employees for personal services. Payments made to an independent
contractor or to any other person not properly classifiable as an
employee shall be excluded. Only amounts paid directly to employees
are included in the payroll factor. Amounts considered as paid
directly to employees include the value of board, rent, housing,
lodging and other benefits or services furnished to employees by
the taxpayer in return for personal services, provided the amounts
constitute income to the recipient for federal income tax purposes.
(8) Employee. -- The term "employee" means:
(A) Any officer of a corporation; or
(B) Any individual who, under the usual common-law rule
applicable in determining the employer-employee relationship, has
the status of an employee.
(9) Compensation. -- Compensation is paid or accrued in this
state if:
(A) The employee's service is performed entirely within this
state; or
(B) The employee's service is performed both within and
without this state, but the service performed without the state is
incidental to the individual's service within this state. The word
"incidental" means any service which is temporary or transitory in
nature or which is rendered in connection with an isolated
transaction; or
(C) Some of the service is performed in this state and:
(i) The employee's base of operations or, if there is no base of operations, the place from which the service is directed or
controlled is in the state; or
(ii) The base of operations or the place from which the
service is directed or controlled is not in any state in which some
part of the service is performed, but the employee's residence is
in this state.
The term "base of operations" is the place of more or less
permanent nature from which the employee starts his or her work and
to which he or she customarily returns in order to receive
instructions from the taxpayer or communications from his or her
customers or other persons or to replenish stock or other
materials, repair equipment, or perform any other functions
necessary to the exercise of his or her trade or profession at some
other point or points. The term "place from which the service is
directed or controlled" refers to the place from which the power to
direct or control is exercised by the taxpayer.
(10) Sales factor. -- The sales factor is a fraction, the
numerator of which is the gross receipts of the taxpayer derived
from transactions and activity in the regular course of its trade
or business in this state during the taxable year (business
income), less returns and allowances. The denominator of the
fraction is the total gross receipts derived by the taxpayer from
transactions and activity in the regular course of its trade or
business during the taxable year (business income), and reflected
in its gross income reported and as appearing on the taxpayer's
Federal Form 1120, and consisting of those certain pertinent portions of the (gross income) elements set forth: Provided, That
if either the numerator or the denominator includes interest or
dividends from obligations of the United States government which
are exempt from taxation by this state, the amount of such interest
and dividends, if any, shall be subtracted from the numerator or
denominator in which it is included.
(11) Allocation of sales of tangible personal property. --
(A) Sales of tangible personal property are in this state if:
(i) The property is received in this state by the purchaser,
other than the United States government, regardless of the f. o. b.
point or other conditions of the sale. In the case of delivery by
common carrier or other means of transportation, the place at which
the property is ultimately received after all transportation has
been completed is the place at which the property is received by
the purchaser. Direct delivery in this state, other than for
purposes of transportation, to a person or firm designated by the
purchaser, is delivery to the purchaser in this state and direct
delivery outside this state to a person or firm designated by the
purchaser is not delivery to the purchaser in this state,
regardless of where title passes or other conditions of sale; or
(ii) The property is shipped from an office, store, warehouse,
factory or other place of storage in this state and the purchaser
is the United States government.
(B) All other sales of tangible personal property delivered or
shipped to a purchaser within a state in which the taxpayer is not
taxed, as defined in subsection (b) of this section, shall be excluded from the denominator of the sales factor.
(12) Allocation of other sales. -- Sales, other than sales of
tangible personal property, are in this state if:
(A) The income-producing activity is performed in this state;
or
(B) The income-producing activity is performed both in and
outside this state and a greater proportion of the income-producing
activity is performed in this state than in any other state, based
on costs of performance; or
(C) The sale constitutes business income to the taxpayer, or
the taxpayer is a financial organization not having its commercial
domicile in this state, and in either case the sale is a receipt
described as attributable to this state in subsection (b), section
seven-b of this article.
(13) Financial organizations and other taxpayers with business
activities partially within and partially without this state. --
Notwithstanding anything contained in this section to the contrary,
in the case of financial organizations and other taxpayers, not
having their commercial domicile in this state, the rules of this
subsection apply to the apportionment of income from their business
activities except as expressly otherwise provided in subsection
(b), section seven-b of this article.
(f) Income-producing activity. -- The term "income-producing
activity" applies to each separate item of income and means the
transactions and activity directly engaged in by the taxpayer in
the regular course of its trade or business for the ultimate purpose of obtaining gain or profit. The activity does not include
transactions and activities performed on behalf of the taxpayer,
such as those conducted on its behalf by an independent contractor.
"Income-producing activity" includes, but is not limited to, the
following:
(1) The rendering of personal services by employees with
utilization of tangible and intangible property by the taxpayer in
performing a service;
(2) The sale, rental, leasing, licensing or other use of real
property;
(3) The sale, rental, leasing, licensing or other use of
tangible personal property; or
(4) The sale, licensing or other use of intangible personal
property.
The mere holding of intangible personal property is not, in
itself, an income-producing activity: Provided, That the conduct of
the business of a financial organization is an income-producing
activity.
(g) Cost of performance. -- The term "cost of performance"
means direct costs determined in a manner consistent with generally
accepted accounting principles and in accordance with accepted
conditions or practices in the trade or business of the taxpayer.
(h) Other methods of allocation and apportionment. --
(1) General. -- If the allocation and apportionment provisions
of subsections (d) and (e) of this section do not fairly represent
the extent of the taxpayer's business activities in this state, the taxpayer may petition for or the Tax Commissioner may require, in
respect to all or any part of the taxpayer's business activities,
if reasonable:
(A) Separate accounting;
(B) The exclusion of one or more of the factors;
(C) The inclusion of one or more additional factors which will
fairly represent the taxpayer's business activity in this state; or
(D) The employment of any other method to effectuate an
equitable allocation or apportionment of the taxpayer's income. The
petition shall be filed no later than the due date of the annual
return for the taxable year for which the alternative method is
requested, determined without regard to any extension of time for
filing the return and the petition shall include a statement of the
petitioner's objections and of the alternative method of allocation
or apportionment as it believes to be proper under the
circumstances with such detail and proof as the Tax Commissioner
may require.
(2) Alternative method for public utilities. -- If the
taxpayer is a public utility and if the allocation and
apportionment provisions of subsections (d) and (e) of this section
do not fairly represent the taxpayer's business activities in this
state, the taxpayer may petition for, or the Tax Commissioner may
require, as an alternative to the other methods provided for in
subdivision (1) of this subsection, the allocation and
apportionment of the taxpayer's net income in accordance with any
system of accounts prescribed by the public service commission of this state pursuant to the provisions of section eight, article
two, chapter twenty-four of this code: Provided, That the
allocation and apportionment provisions of the system of accounts
fairly represent the extent of the taxpayer's business activities
in this state for the purposes of the tax imposed by this article.
(3) Burden of proof. -- In any proceeding before the Tax
Commissioner or in any court in which employment of one of the
methods of allocation or apportionment provided for in subdivision
(1) or (2) of this subsection is sought, on the ground that the
allocation and apportionment provisions of subsections (d) and (e)
of this section do not fairly represent the extent of the
taxpayer's business activities in this state, the burden of proof
is:
(A) If the Tax Commissioner seeks employment of one of the
methods, on the Tax Commissioner; or
(B) If the taxpayer seeks employment of one of the other
methods, on the taxpayer.
(4) For tax years beginning on or after the first day of
January, two thousand nine, the provisions of sections seven-a and
seven-b of this article shall be null and void and of no force or
effect.
§11-24-13a. Method of filing for business taxes.
(a) Privilege to file consolidated return. --
(1) An affiliated group of corporations (as defined for
purposes of filing a consolidated federal income tax return) shall,
subject to the provisions of this section and in accordance with any regulations prescribed by the Tax Commissioner, have the
privilege of filing a consolidated return with respect to the tax
imposed by this article for the taxable year in lieu of filing
separate returns. The making of a consolidated return shall be upon
the condition that all corporations which at any time during the
taxable year have been members of the affiliated group are included
in such return and consent to the filing of such return. The filing
of a consolidated return shall be considered as such consent. When
a corporation is a member of an affiliated group for a fractional
part of the year, the consolidated return shall include the income
of such corporation for that part of the year during which it is a
member of the affiliated group.
(2) For tax years beginning on and after the first day of
January, two thousand nine, the provisions of this subsection are
null and void and of no further force or effect.
(b) Election binding. --
(1) If an affiliated group of corporations elects to file a
consolidated return under this article for any taxable year ending
after the thirtieth day of June, one thousand nine hundred eighty-
seven, such election once made shall not be revoked for any
subsequent taxable year without the written approval of the Tax
Commissioner consenting to the revocation.
(2) For tax years beginning on and after the first day of
January, two thousand nine, the provisions of this subsection are
null and void and of no further force or effect.
(c) Consolidated return - financial organizations. --
An affiliated group that includes one or more financial
organizations may elect under this section to file a consolidated
return when that affiliated group complies with all of the
following rules:
(1) The affiliated group of which the financial organization
is a member must file a federal consolidated income tax return for
the taxable year.
(2) All members of the affiliated group included in the
federal consolidated return must consent to being included in the
consolidated return filed under this article. The filing of a
consolidated return under this article is conclusive proof of such
consent.
(3) The West Virginia taxable income of the affiliated group
shall be the sum of:
(A) The pro forma West Virginia taxable income of all
financial organizations having their commercial domicile in this
state that are included in the federal consolidated return, as
shown on a combined pro forma West Virginia return prepared for
such financial organizations; plus
(B) The pro forma West Virginia taxable income of all
financial organizations not having their commercial domicile in
this state that are included in the federal consolidated return, as
shown on a combined pro forma West Virginia return prepared for
such financial organizations; plus
(C) The pro forma West Virginia taxable income of all other
members included in the federal consolidated income tax return, as shown on a combined pro forma West Virginia return prepared for all
such nonfinancial organization members, except that income, income
adjustments and exclusions, apportionment factors and other items
considered when determining tax liability shall not be included in
the pro forma return prepared under this paragraph for a member
that is totally exempt from tax under section five of this article,
or for a member that is subject to a different special industry
apportionment rule provided for in this article. When a different
special industry apportionment rule applies, the West Virginia
taxable income of a member(s) subject to that special industry
apportionment rule shall be determined on a separate pro forma West
Virginia return for the member(s) subject to that special industry
rule and the West Virginia taxable income so determined shall be
included in the consolidated return.
(4) The West Virginia consolidated return is prepared in
accordance with regulations of the Tax Commissioner promulgated as
provided in article three, chapter twenty-nine-a of this code.
(5) The filing of a consolidated return does not distort
taxable income. In any proceeding, the burden of proof that
taxpayer's method of filing does not distort taxable income shall
be upon the taxpayer.
(6) For tax years beginning on and after the first day of
January, two thousand nine, the provisions of this subsection are
null and void and of no further force or effect.
(d) Combined return. --
(1) A combined return may be filed under this article by a
unitary group, including a unitary group that includes one or more
financial organizations, only pursuant to the prior written
approval of the Tax Commissioner. A request for permission to file
a combined return must be filed on or before the statutory due date
of the return, determined without inclusion of any extension of
time to file the return. Permission to file a combined return may
be granted by the Tax Commissioner only when taxpayer submits
evidence that conclusively establishes that failure to allow the
filing of a combined return will result in an unconstitutional
distortion of taxable income. When permission to file a combined
return is granted, combined filing will be allowed for the year(s)
stated in the Tax Commissioner's letter. The combined return must
be filed in accordance with regulations of the Tax Commissioner
promulgated in accordance with article three, chapter twenty-nine-a
of this code.
(2) For tax years beginning on and after the first day of
January, two thousand nine, the provisions of this subsection are
null and void and of no further force or effect.
(e) Method of filing under this article deemed controlling for
purposes of other business taxes articles. --
The taxpayer shall file on the same basis under article
twenty-three of this chapter as such taxpayer files under this
article for the taxable year.
(f) Regulations. --
The Tax Commissioner shall prescribe such regulations as he
may deem necessary in order that the tax liability of any
affiliated group or combined group of corporations filing a
consolidated return, or of any unitary group of corporations filing
a combined return, and of each corporation in the affiliated or
unitary group, both during and after the period of affiliation, may
be returned, determined, computed, assessed, collected and
adjusted, in such manner as the Tax Commissioner deems necessary to
clearly reflect the income tax liability and the income factors
necessary for the determination of such liability, and in order to
prevent avoidance of such tax liability.
(g) Computation and payment of tax. --
In any case in which a consolidated or combined return is
filed, or required to be filed, the tax due under this article from
the affiliated, combined or unitary group shall be determined,
computed, assessed, collected and adjusted in accordance with
regulations prescribed by the Tax Commissioner, in effect on the
last day prescribed by section thirteen of this article for the
filing of such return, and such affiliated, combined or unitary
group, as the case may be, shall be treated as the taxpayer.
However, when any member of an affiliated, combined or unitary
group that files a consolidated or combined return under this
article is allowed to claim credit against its tax liability under
this article for payment of any other tax, the amount of credit
allowed may not exceed that member's proportionate share of the affiliated, combined or unitary group's precredit tax liability
under this article, as shown on its pro forma return.
(h) Consolidated or combined return may be required. --
The Tax Commissioner may require any person or corporation to
make and file a separate return or to make and file a composite,
unitary, consolidated or combined return, as the case may be, in
order to clearly reflect the taxable income of such corporations.
(i) Effective date. --
The amendments to this section made by chapter one hundred
seventy-nine, Acts of the Legislature in the year one thousand nine
hundred ninety, shall apply to all taxable years ending after the
eighth day of March, one thousand nine hundred ninety. Amendments
to this article enacted by this act in the year one thousand nine
hundred ninety-six shall apply to taxable years beginning on or
after the first day of January, one thousand nine hundred ninety-
six, except that financial organizations that are part of an
affiliated group may elect, after the effective date of this act,
to file a consolidated return prepared in accordance with the
provisions of this section, as amended, and subject to applicable
statutes of limitation, for taxable years beginning on or after the
first day of January, one thousand nine hundred ninety-one, but
before the first day of January, one thousand nine hundred ninety-
six, notwithstanding provisions then in effect prohibiting out-of-
state financial organizations from filing consolidated returns for
those years: Provided, That when the statute of limitation on
filing an amended return for any of those years expires before the first day of July, one thousand nine hundred ninety-six, the
consolidated return for such year, if filed, must be filed by said
first day of July.
(j) Combined reporting required. --
For tax years beginning on and after the first day of January,
two thousand nine, any taxpayer engaged in a unitary business with
one or more other corporations shall file a combined report which
includes the income, determined under section thirteen-c or
thirteen-d of this article, and the allocation and apportionment of
income provisions of this article, of all corporations that are
members of the unitary business, and such other information as may
be required by the Tax Commissioner.
(k) Combined reporting at Tax Commissioner's discretion. --
(1) The Tax Commissioner may require the combined report to
include the income and associated apportionment factors of any
persons that are not included pursuant to subsection (j) of this
section, but that are members of a unitary business, in order to
reflect proper apportionment of income of the entire unitary
businesses. The Tax Commissioner may require combination of persons
that are not or would not be doing business in this state pursuant
to this section.
(2) If the Tax Commissioner determines that the reported
income or loss of a taxpayer engaged in a unitary business with any
person not included pursuant to subsection (j) of this section
represents an avoidance or evasion of tax by such taxpayer, the Tax
Commissioner may, on a case-by-case basis, require all or any part of the income and associated apportionment factors of such person
be included in the taxpayer's combined report.
(3) With respect to inclusion of associated apportionment
factors pursuant to this section, the Tax Commissioner may require
the exclusion of any one or more of the factors, the inclusion of
one or more additional factors which will fairly represent the
taxpayer's business activity in this state, or the employment of
any other method to effectuate a proper reflection of the total
amount of income subject to apportionment and an equitable
allocation and apportionment of the taxpayer's income.
§11-24-13c. Determination of taxable income or loss using combined
report.
(a) The use of a combined report does not disregard the
separate identities of the taxpayer members of the combined group.
Each taxpayer member is responsible for tax based on its taxable
income or loss apportioned or allocated to this state, which shall
include, in addition to other types of income, the taxpayer
member's apportioned share of business income of the combined
group, where business income of the combined group is calculated as
a summation of the individual net business incomes of all members
of the combined group. A member's net business income is determined
by removing all but business income, expense and loss from that
member's total income, as provided in this section and section
thirteen-d of this article.
(b) Components of income subject to tax in this state;
application of tax credits and post-apportionment deductions. --
(1) Each taxpayer member is responsible for tax based on its
taxable income or loss apportioned or allocated to this state,
which shall include:
(A) Its share of any business income apportionable to this
State of each of the combined groups of which it is a member,
determined under subsection (c) of this section;
(B) Its share of any business income apportionable to this
state of a distinct business activity conducted within and without
the state wholly by the taxpayer member, determined under the
provisions for apportionment of business income set forth in this
article;
(C) Its income from a business conducted wholly by the
taxpayer member entirely within the state;
(D) Its income sourced to this state from the sale or exchange
of capital or assets, and from involuntary conversions, as
determined under subsection (g), section thirteen-d of this
article;
(E) Its nonbusiness income or loss allocable to this state,
determined under the provisions for allocation of nonbusiness
income set forth in this article;
(F) Its income or loss allocated or apportioned in an earlier
year, required to be taken into account as state source income
during the income year, other than a net operating loss; and
(G) Its net operating loss carryover. If the taxable income computed pursuant to this section and section thirteen-d of this
article results in a loss for a taxpayer member of the combined
group, that taxpayer member has a West Virginia net operating loss,
subject to the net operating loss limitations, and carryover
provisions of this article. This West Virginia net operating loss
is applied as a deduction in a prior or subsequent year only if
that taxpayer has West Virginia source positive net income, whether
or not the taxpayer is or was a member of a combined reporting
group in the prior or subsequent year.
(2) Except where otherwise provided, no tax credit or post-
apportionment deduction earned by one member of the group, but not
fully used by or allowed to that member, may be used, in whole or
in part, by another member of the group or applied, in whole or in
part, against the total income of the combined group; and a post-
apportionment deduction carried over into a subsequent year as to
the member that incurred it, and available as a deduction to that
member in a subsequent year, will be considered in the computation
of the income of that member in the subsequent year regardless of
the composition of that income as apportioned, allocated or wholly
within this state.
(c) Determination of taxpayer's share of the business income
of a combined group apportionable to this state. --
The taxpayer's share of the business income apportionable to
this State of each combined group of which it is a member shall be
the product of:
(1) The business income of the combined group, determined
under section thirteen-d of this article; and
(2) The taxpayer member's apportionment percentage, determined
in accordance with this article, associated with the combined
group's unitary business in this state, and including in the
denominator the property, payroll and sales of all members of the
combined group, including the taxpayer, which property, payroll and
sales are associated with the combined group's unitary business
wherever located. The property, payroll and sales of a partnership
shall be included in the determination of the partner's
apportionment percentage in proportion to a ratio the numerator of
which is the amount of the partner's distributive share of
partnership's unitary income included in the income of the combined
group in accordance with section thirteen-d of this article and the
denominator of which is the amount of the partnership's total
unitary income.
§11-24-13d. Determination of the business income of the combined
group.
The business income of a combined group is determined as
follows:
(a) From the total income of the combined group, determined
under subsection (b) of this section, subtract any income and add
any expense or loss, other than the business income, expense or
loss of the combined group.
(b) Except as otherwise provided, the total income of the
combined group is the sum of the income of each member of the
combined group determined under federal income tax laws, as
adjusted for state purposes, as if the member were not consolidated
for federal purposes. The income of each member of the combined
group shall be determined as follows:
(1) For any member incorporated in the United States, or
included in a consolidated federal corporate income tax return, the
income to be included in the total income of the combined group
shall be the taxable income for the corporation after making
allowable adjustments under this article.
(2) For any member not included in subdivision (1) of this
subsection, the income to be included in the total income of the
combined group shall be determined as follows:
(A) A profit and loss statement shall be prepared for each
foreign branch or corporation in the currency in which the books of
account of the branch or corporation are regularly maintained.
(B) Adjustments shall be made to the profit and loss statement
to conform it to the accounting principles generally accepted in the United States for the preparation of such statements except as
modified by this regulation.
(C) Adjustments shall be made to the profit and loss statement
to conform it to the tax accounting standards required by this
article.
(D) Except as otherwise provided by regulation, the profit and
loss statement of each member of the combined group, and the
apportionment factors related thereto, whether United States or
foreign, shall be translated into the currency in which the parent
company maintains its books and records.
(E) Income apportioned to this state shall be expressed in
United States dollars.
(3) In lieu of the procedures set forth in subdivision (2) of
this subsection, and subject to the determination of the Tax
Commissioner that it reasonably approximates income as determined
under this article, any member not included in subdivision (1) of
this subsection may determine its income on the basis of the
consolidated profit and loss statement which includes the member
and which is prepared for filing with the Securities and Exchange
Commission by related corporations. If the member is not required
to file with the Securities and Exchange Commission, the Tax
Commissioner may allow the use of the consolidated profit and loss
statement prepared for reporting to shareholders and subject to review by an independent auditor. If above statements do not
reasonably approximate income as determined under this article, the
Tax Commissioner may accept those statements with appropriate
adjustments to approximate that income.
(c) If a unitary business includes income from a partnership,
the income to be included in the total income of the combined group
shall be the member of the combined group's direct and indirect
distributive share of the partnership's unitary business income.
(d) All dividends paid by one to another of the members of the
combined group shall, to the extent those dividends are paid out of
the earnings and profits of the unitary business included in the
combined report, in the current or an earlier year, be eliminated
from the income of the recipient. This provision shall not apply to
dividends received from members of the unitary business which are
not a part of the combined group.
(e) Except as otherwise provided by regulation, business
income from an intercompany transaction between members of the same
combined group shall be deferred in a manner similar to 26 CFR
1.1502-13. Upon the occurrence of any of the following events,
deferred business income resulting from an intercompany transaction
between members of a combined group shall be restored to the income
of the seller, and shall be apportioned as business income earned
immediately before the event:
(1) The object of a deferred intercompany transaction is:
(A) Resold by the buyer to an entity that is not a member of
the combined group;
(B) Resold by the buyer to an entity that is a member of the
combined group for use outside the unitary business in which the
buyer and seller are engaged; or
(C) Converted by the buyer to a use outside the unitary
business in which the buyer and seller are engaged; or
(2) The buyer and seller are no longer members of the same
combined group, regardless of whether the members remain unitary.
(f) A charitable expense incurred by a member of a combined
group shall, to the extent allowable as a deduction pursuant to
Internal Revenue Code Section 170, be subtracted first from the
business income of the combined group (subject to the income
limitations of that section applied to the entire business income
of the group) and any remaining amount shall then be treated as a
nonbusiness expense allocable to the member that incurred the
expense (subject to the income limitations of that section applied
to the nonbusiness income of that specific member). Any charitable
deduction disallowed under the foregoing rule, but allowed as a
carryover deduction in a subsequent year, shall be treated as
originally incurred in the subsequent year by the same member and
the rules of this section shall apply in the subsequent year in determining the allowable deduction in that year.
(g) Gain or loss from the sale or exchange of capital assets,
property described by Internal Revenue Code Section 1231(a)(3) and
property subject to an involuntary conversion shall be removed from
the total separate net income of each member of a combined group
and shall be apportioned and allocated as follows:
(1) For each class of gain or loss (short term capital, long
term capital, Internal Revenue Code Section 1231 and involuntary
conversions) all members' business gain and loss for the class
shall be combined (without netting between such classes) and each
class of net business gain or loss separately apportioned to each
member using the member's apportionment percentage determined under
subsection (c), section thirteen-c of this article.
(2) Each taxpayer member shall then net its apportioned
business gain or loss for all classes, including any such
apportioned business gain and loss from other combined groups,
against the taxpayer member's nonbusiness gain and loss for all
classes allocated to this state, using the rules of Internal
Revenue Code Sections 1222 and 1231, without regard to any of the
taxpayer member's gains or losses from the sale or exchange of
capital assets, Section 1231 property and involuntary conversions
which are nonbusiness items allocated to another state.
(3) Any resulting state source income (or loss, if the loss is not subject to the limitations of Internal Revenue Code Section
1211) of a taxpayer member produced by the application of the
preceding subsections shall then be applied to all other state
source income or loss of that member.
(4) Any resulting state source loss of a member that is
subject to the limitations of Section 1211 shall be carried over by
that member and shall be treated as state source short-term capital
loss incurred by that member for the year for which the carryover
applies.
(h) Any expense of one member of the unitary group which is
directly or indirectly attributable to the nonbusiness or exempt
income of another member of the unitary group shall be allocated to
that other member as corresponding nonbusiness or exempt expense,
as appropriate.
§11-24-13e. Designation of surety.
As a filing convenience, and without changing the respective
liability of the group members, members of a combined reporting
group may annually elect to designate one taxpayer member of the
combined group to file a single return in the form and manner
prescribed by the department, in lieu of filing their own
respective returns, provided that the taxpayer designated to file
the single return consents to act as surety with respect to the tax
liability of all other taxpayers properly included in the combined report and agrees to act as agent on behalf of those taxpayers for
the year of the election for tax matters relating to the combined
report for that year. If for any reason the surety is unwilling or
unable to perform its responsibilities, tax liability may be
assessed against the taxpayer members.
§11-24-13f. Water's-edge election; initiation and withdrawal.
(a) Water's-edge election. --
Taxpayer members of a unitary group that meet the requirements
of subsection (b) of this section may elect to determine each of
their apportioned shares of the net business income or loss of the
combined group pursuant to a water's-edge election. Under such
election, taxpayer members shall take into account all or a portion
of the income and apportionment factors of only the following
members otherwise included in the combined group pursuant to
section thirteen-a of this article:
(1) The entire income and apportionment factors of any member
incorporated in the United States or formed under the laws of any
state, the District of Columbia or any territory or possession of
the United States;
(2) The entire income and apportionment factors of any member,
regardless of the place incorporated or formed, if the average of
its property, payroll and sales factors within the United States is
twenty percent or more;
(3) The entire income and apportionment factors of any member
which is a domestic international sales corporation as described in
Internal Revenue Code Sections 991 to 994, inclusive; a foreign
sales corporation as described in Internal Revenue Code Sections
921 to 927, inclusive; or any member which is an export trade
corporation, as described in Internal Revenue Code Sections 970 to
971, inclusive;
(4) Any member not described in subdivision (1), (2) or (3) of
this subsection shall include the portion of its income derived
from or attributable to sources within the United States, as
determined under the Internal Revenue Code without regard to
federal treaties, and its apportionment factors related thereto;
(5) Any member that is a "controlled foreign corporation", as
defined in Internal Revenue Code Section 957, to the extent of the
income of that member that is defined in Section 952 of Subpart F
of the Internal Revenue Code ("Subpart F income") not excluding
lower-tier subsidiaries' distributions of such income which were
previously taxed, determined without regard to federal treaties,
and the apportionment factors related to that income; any item of
income received by a controlled foreign corporation shall be
excluded if such income was subject to an effective rate of income
tax imposed by a foreign country greater than ninety percent of the
maximum rate of tax specified in Internal Revenue Code Section 11;
(6) Any member that earns more than twenty percent of its
income, directly or indirectly, from intangible property or
service-related activities that are deductible against the business
income of other members of the combined group, to the extent of
that income and the apportionment factors related thereto; and
(7) The entire income and apportionment factors of any member
that is doing business in a tax haven, where "doing business in a
tax haven" is defined as being engaged in activity sufficient for
that tax haven jurisdiction to impose a tax under United States
constitutional standards. If the member's business activity within
a tax haven is entirely outside the scope of the laws, provisions
and practices that cause the jurisdiction to meet the criteria set
forth in the definition of a tax haven, the activity of the member
shall be treated as not having been conducted in a tax haven.
(b) Initiation and withdrawal of election. --
(1) A water's-edge election is effective only if made on a
timely filed, original return for a tax year by every member of the
unitary business subject to tax under this article. The Tax
Commissioner shall develop rules and regulations governing the
impact, if any, on the scope or application of a water's-edge
election, including termination or deemed election, resulting from
a change in the composition of the unitary group, the combined
group, the taxpayer members and any other similar change.
(2) Such election shall constitute consent to the reasonable
production of documents and taking of depositions in accordance
with the provisions of this code.
(3) In the discretion of the Tax Commissioner, a water's-edge
election may be disregarded, in part or in whole, and the income
and apportionment factors of any member of the taxpayer's unitary
group may be included in the combined report without regard to the
provisions of this section, if any member of the unitary group
fails to comply with any provision of this article or if a person
otherwise not included in the water's-edge combined group was
availed of with a substantial objective of avoiding state income
tax.
(4) A water's-edge election is binding for and applicable to
the tax year it is made and all tax years thereafter for a period
of ten years. It may be withdrawn or reinstituted after withdrawal,
prior to the expiration of the ten-year period, only upon written
request for reasonable cause based on extraordinary hardship due to
unforeseen changes in state tax statutes, law or policy and only
with the written permission of the Tax Commissioner. If the Tax
Commissioner grants a withdrawal of election, he or she shall
impose reasonable conditions as necessary to prevent the evasion of
tax or to clearly reflect income for the election period prior to
or after the withdrawal. Upon the expiration of the ten-year period, a taxpayer may withdraw from the water's-edge election.
Such withdrawal must be made in writing within one year of the
expiration of the election and is binding for a period of ten
years, subject to the same conditions as applied to the original
election. If no withdrawal is properly made, the water's-edge
election shall be in place for an additional ten-year period,
subject to the same conditions as applied to the original election.
§11-24-24. Credit for income tax paid to another state.
(a) Effective for taxable years beginning on or after the
first day of January, one thousand nine hundred ninety-one, and
notwithstanding any provisions of this code to the contrary, any
financial organization, the business activities of which take
place, or are deemed to take place, entirely within this state,
shall be allowed a credit against the tax imposed by this article
for any taxable year for taxes paid to another state. That credit
shall be equal in amount to the lesser of:
(1) The taxes such financial organization shall actually have
paid, which payments were made on or before the filing date of the
annual return required by this article, to any other state and
which tax was based upon or measured by the financial
organization's net income and was paid with respect to the same
taxable year; or
(2) The amount of such tax the financial organization would have paid if the rate of tax imposed by this article is applied to
the tax base determined under the laws of such other state.
(b) Any additional payments of such tax to other states, or to
political subdivisions thereof, by a financial organization
described in this section and any refunds of such taxes made or
received by such financial organization with respect to the taxable
year, but after the due date of the annual return required by this
article for the taxable year, including any extensions, shall
likewise be accounted for in the taxable year in which such
additional payment is made or such refund is received by the
financial organization.
(c) For tax years beginning on or after the first day of
January, two thousand nine, the provisions of this section are null
and void and of no force or effect.