COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 127
(By Senators Oliverio and Unger)
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[Originating in the Committee on Economic Development;
reported February 1, 2010.]
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A BILL to amend and reenact §11-13U-2, §11-13U-3, §11-13U-4, §11-
13U-5, §11-13U-8 and §11-13U-10 of the Code of West Virginia,
1931, as amended, all relating to reinstating the high-growth
business investment tax credit; broadening the definition of
"eligible companies" to include start-up, early stage, growth-
oriented businesses that may not qualify for the tax credit;
extending the expiration to five years with a provision for
reauthorization; and increasing the annual allocation for
credits from $1 million to $2 million.
Be it enacted by the Legislature of West Virginia:
That §11-13U-2, §11-13U-3, §11-13U-4, §11-13U-5, §11-13U-8 and
§11-13U-10 of the Code of West Virginia, 1931, as amended, be
amended and reenacted to read as follows:
ARTICLE 13U. 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,
early stage growth-oriented, research and
or 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:
(1) "Alter ego" means a qualified
start-up, early stage,
growth oriented or research and development company where one or
more of the following criteria are satisfied in relation to the
eligible taxpayer:
(A) The ownership of the business is "substantially related"
to the ownership of the eligible taxpayer. "Substantially related"
means a five percent or more common ownership interest; or
(B) The board of directors of the qualified
start-up, early
stage, growth oriented or research and development company is
controlled by the eligible taxpayer:
Provided, That an eligible
taxpayer is deemed to have control of the board of directors of a
qualified research and development company if it controls a simple
majority of the board of directors.
(2) "Corporate headquarters" means the place at which the corporation has its commercial domicile and from which the business
of the corporation is primarily conducted.
(3) "Eligible taxpayer" means a person that has received
certification from the economic development authority that a
portion of the annual available high growth business investment
credit has been allocated to it, that is subject to the tax imposed
by either article twenty-three, article twenty-four or article
twenty-one of this chapter, and that has made a qualified
investment in a qualified
start-up, early stage, growth oriented or
research and development credit company.
(4) "Person" includes any natural person, corporation, limited
liability company, or partnership.
(5) "Qualified investment" means an equity financing of a West
Virginia qualified
strategic start-up, early stage, growth oriented
or research and development company. The investment must be in
cash or cash equivalents and may not be an exchange of in-kind
property.
(6) "Qualified
start-up, early stage, growth oriented or
research and development company" for purposes of the high growth
business investment tax credit means an entity
that has been
certified by the state tax commissioner as eligible for the West
Virginia research and development tax credit set forth in article
thirteen-r, chapter eleven of this code, that has annual gross
receipts of less than
twentyfive million dollars and has annual
payroll of less then
twoone million five hundred thousand dollars.
(7) "Tax credit" means the high-growth business development tax credit authorized by this article.
(8) "Taxable year" means the tax year of the eligible
taxpayer.
§11-13U-4. High-growth business investment tax credit.
(a)
Credit allowed. -- There shall be allowed to each eligible
taxpayer in a qualified
start-up, early stage, growth oriented or
research and development company that maintains its corporate
headquarters
or other significant operations in West Virginia a tax
credit for the taxable year in which the investment was made. The
total tax credit that may be used by an eligible taxpayer shall be
equal to fifty percent of the total value of the qualified
investment in the taxable year the qualified investment was
actually made.
(b) No more than
onetwo million dollars of the tax credits
allowed under subsection (a) of this section shall be allocated by
the economic development authority during any fiscal year. The
economic development authority shall allocate the tax credits in
the order the applications therefor are received.
(c)
Business franchise tax. -- The tax credit is first applied
to reduce the taxes imposed upon the eligible taxpayer 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 (c) of this section, any unused tax credit is next applied to reduce the taxes imposed upon the eligible taxpayer by
article twenty-four of this chapter for the taxable year
(determined before application of allowable credits against tax).
(e) If the eligible taxpayer is a limited liability company,
an electing small business corporation (as defined in section 1361
of the United States Internal Revenue Code of 1986, as amended), or
a partnership, any unused tax credit remaining after application of
subsections (c) and (d) of this section is allowed as a tax credit
against the taxes imposed by article twenty-four of this chapter on
owners of the eligible taxpayer.
(1) Electing small business corporations (as defined above in
subsection (e)), limited liability companies, and partnerships
shall allocate the tax credit allowed by this article among their
members in the same manner as profits and losses are allocated for
the taxable year.
(2) No tax 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 (c), (d) and (e) of this section, any unused tax 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,
an electing small business corporation (as defined in subsection
(e) of this section) or a partnership, any unused tax credit remaining after application of subsections (c), (d), (e) and (f) of
this section is allowed as a tax credit against the taxes imposed
by article twenty-one of this chapter on owners of the eligible
taxpayer.
(1) Electing small business corporations (as defined in
subsection (e) of this section), limited liability companies, and
partnerships shall allocate the tax credit allowed by this article
among their members in the same manner as profits and losses are
allocated for the taxable year.
(2) No tax 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 (e) and (g) of
this section may not exceed fifty thousand dollars. The total
amount of qualified investment that a qualified
start-up, early
stage, growth oriented or research and development company may
accept from all eligible taxpayers in any taxable year is one
million dollars.
(i)
Unused credit carry forward. -- If the tax credit allowed
under this article in any taxable year exceeds the sum of the taxes
enumerated in subsections (c), (d), (e), (f) and (g) of this
section for that taxable year, the eligible taxpayer and owners of
eligible taxpayers described in subsections (e) and (g) of this
section may apply the excess as a tax 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 tax credit is used; or
(2) The expiration of the
fourthfifth taxable year after the
taxable year in which the investment was made. The tax credit
remaining thereafter is forfeited.
(j) No tax credit is allowed or may be applied under this
article until the taxpayer seeking to claim the tax credit has:
(1) Filed with the economic development authority a written
application for the tax credit;
(2)
Filed with the economic development authority the research
and development program or project certification issued pursuant to
section six, article thirteen-r of this chapter for the qualified
research and development company that will benefit from the
investment;
(3) Filed with the economic development authority the
certificate of incorporation for the qualified
start-up, early
stage, growth oriented or research and development company that
will benefit from the investment; and
(
43) Received from the economic development authority
certification of the amount of tax credit to be allocated to the
eligible taxpayer.
§11-13U-5. Restrictions on investment.
(a) No qualified investment may be made in a qualified
start-
up, early stage, growth oriented or research and development
company that is the alter ego of the eligible taxpayer.
(b) The eligible taxpayer shall maintain its qualified
investment for a minimum period of five years
or until the company
is sold:
Provided, That an eligible taxpayer receiving repayment
or return of a qualified investment (exclusive of interest,
dividends or other earnings on the investment) shall within three
calendar months from the date of repayment or return reinvest the
repaid or returned amount of the initial investment in another
qualified
start-up, early stage, growth oriented or research and
development company for a period of time at least equal to the
remainder of the initial five-year term.
§11-13U-8. Tax credit review and accountability.
(a) Beginning on the first day of February, two thousand
sixeleven, and on the first day of February every third year
thereafter, the tax 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 tax credit allowed under this article during
the most recent three-year period for which information is
available:
Provided, That the requirement to file the credit
review and accountability report terminates the thirtieth day of
June, two thousand eleven, unless the termination of entitlement to
the tax credit as stated in section ten of this article terminates.
The criteria to be evaluated includes, but is not limited to, for
each year of the three-year period:
(1) The numbers of eligible taxpayers claiming the tax 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 tax credit;
(4) The cost of the tax credit per new job created; and
(5) Comparison of employment trends for the industry and for
taxpayers within the industry that claim the tax credit.
(b) Eligible taxpayers claiming the tax credit shall provide
any information required by the tax commissioner for the purpose of
preparing 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-10. Effective date; expiration of credit; reinstatement
and expiration of credit.
The provisions of this article become effective on July 1,
20052010, and apply only to qualified investment made on or after
that date:
Provided, That no entitlement to the tax credit shall
result from any qualified investment made after June 13,
20082015:
Provided, however, That unless sooner terminated by law, the High-
Growth Business Investment Tax Credit Act will terminate on July 1,
20082015 unless reauthorized by the Legislature prior to the
termination date. Taxpayers who have gained entitlement to the tax
credit pursuant to qualified investment prior to the earlier of
July 1, 2008, or termination of the tax credit prior to that date
shall retain that entitlement and apply the credit in due course pursuant to the requirements and limitations of this article.