COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 194
(By Senators Tomblin, Mr. President, and Sprouse,
By Request of the Executive)
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[Originating in the Committee on Economic Development;
reported February 25, 2004.]
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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, §11-13U-9 and §11-13U-10, 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
§11-13U-9 and §11-13U-10, 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) "Alter ego" means a qualified research and development
company where one or more of the following criteria are satisfied
in relation to the eligible taxpayer:
(1) 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
(2) The board of directors of the qualified 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.
(b) "Corporate headquarters" means the place at which the
corporation has its commercial domicile and from which the
business of the corporation is primarily conducted.
(c) "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 research and development credit
company.
(d) "Person" includes any natural person, corporation,
limited liability company, or partnership.
(e) "Qualified investment" means an equity financing of a
West Virginia qualified strategic research and development
company. The investment must be in cash or cash equivalents and
may not be an exchange of in-kind property.
(f) "Qualified 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 twenty million
dollars and has annual payroll of less then two million five
hundred thousand dollars.
(g) "Tax credit" means the high-growth business development
tax credit authorized by this article.
(h) "Taxable year" means the tax year of the eligible
taxpayer.
(I) "This code" means the code of West Virginia, one
thousand nine hundred thirty-one, as amended.
§11-13U-4. High-growth business investment tax credit.
(a)
Credit allowed. -- There shall be allowed to each
eligible taxpayer in a qualified research and development company
that maintains its corporate headquarters 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 ten 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 five hundred thousand dollars. The
total amount of qualified investment that a qualified 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 fourth 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 research and
development company that will benefit from the investment; and
(4) 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
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: 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 research and
development company for a period of time at least equal to the
remainder of the initial five-year term.
§11-13U-6. Penalty.
An eligible taxpayer that fails to maintain a qualified
investment for the required period of time stated in section five
of this article shall pay to the state tax commissioner a penalty
equal to all of the tax credits asserted under this article by
the eligible taxpayer with interest, calculated at the rate set
forth in section seventeen-a, article ten of this chapter, from
the date the tax credits were certified as allocated to the
eligible taxpayer. The tax commissioner shall give notice to the
eligible taxpayer of any penalties imposed under this section.
The penalty shall be assessed and collected in the same manner as
tax. The tax commissioner shall deposit any amounts received
under this subsection in the general revenue fund.
§11-13U-7. Disclosure of tax credits.
Notwithstanding any provision in this code to the contrary,
the tax commissioner shall annually publish in the state register
the name and address of every eligible taxpayer and the amount,
by category, of any tax credit asserted under this article. The
categories by dollar amount of tax 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-8. 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
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-9. Rules.
The state tax department and the economic development
authority may 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-10. Effective date; expiration of credit.
The provisions of this article become effective on the first
day of July, two thousand five, 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 the thirtieth day of June, two thousand
eight: Provided further, That unless sooner terminated by law,
the high growth business investment tax credit act will terminate on the first day of July, two thousand eight. Taxpayers who have
gained entitlement to the tax credit pursuant to qualified
investment prior to the earlier of the first day of July, two
thousand eight 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.
NOTE: The purpose of this legislation is to create a High
Growth Business Investment Tax Credit to encourage investment in
the research and development focused companies started by West
Virginians. The credit is equal to 50% of the qualified
investment made by an individual or business in a business
certified as eligible for the "Strategic Research & Development
Tax Credit" by the Tax Department. To ensure that this
opportunity is not abused, there is an annual 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.
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