H. B. 3202
(By Delegates Michael, Doyle, H. White and Hall)
(Originating in the Committee on Finance)
[February 27, 2003]
A BILL to amend and reenact sections three and seven, article
twenty-three, chapter eleven of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, all relating to
clarifying and specifying the treatment of the activity of
silviculture for purposes of the business franchise tax.
Be it enacted by the Legislature of West Virginia:
That sections three and seven, article twenty-three, chapter
eleven of the code of West Virginia, one thousand nine hundred
thirty-one, as amended, be amended and reenacted, all to read as
follows:
ARTICLE 23. BUSINESS FRANCHISE TAX.
§11-23-3. Meaning of terms; specific terms defined.
(a) General. -- When used in this article, or in the
administration of this article, terms defined in this section shall
have the meanings ascribed to them herein unless a different
meaning is clearly required by either the context in which the term is used, or by specific definition in this article.
(b)
Terms defined. --
(1)
Business income. -- The term "business income" means
income 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.
(2)
Capital. -- The term "capital" of a taxpayer shall mean:
(A)
Corporations. -- In the case of a corporation, except an
electing small business corporation, the average of the beginning
and ending year balances of the sum of the following entries from
Schedule L of Federal Form 1120, prepared following generally
accepted accounting principles and as filed by the taxpayer with
the Internal Revenue Service for the taxable year:
(i) The value of all common stock and preferred stock of the
taxpayer;
(ii) The amount of paid-in or capital surplus;
(iii) The amount of retained earnings, appropriated and
unappropriated; and
(iv) Less the cost of treasury stock.
(B)
S Corporations. -- In the case of an electing small
business corporation, the average of the beginning and ending year
balances of the sum of the following entries from Schedule L of
Federal Form 1120S, prepared following generally accepted accounting principles and as filed by the taxpayer with the
Internal Revenue Service for the taxable year:
(i) The value of all common stock and preferred stock of the
taxpayer;
(ii) The amount of paid-in or capital surplus;
(iii) Retained earnings, appropriated and unappropriated;
(iv) The amount of shareholders' undistributed taxable income;
(v) The amount of the accumulated adjustments account;
(vi) The amount of the other adjustments account; and
(vii) Less the cost of treasury stock.
(C)
Partnerships. -- In the case of a partnership, the
average of the beginning and ending year balances of the value of
partner's capital accounts from Schedule L of Federal Form 1065,
prepared following accepted accounting principles and as filed by
the taxpayer with the Internal Revenue Service for the taxable
year.
(D)
Additional items in capital. -- The term "capital" for
purposes of this article shall include such adjustments thereto as
the tax commissioner deems necessary to properly reflect capital
and such additional items from the accounts of the taxpayer as the
tax commissioner may by regulation prescribe, which fairly
represent the net equity of the taxpayer as defined in accordance
with generally accepted accounting principles.
(E)
Allowance for certain government obligations and
obligations secured by residential property. -- As to both
corporations and partnerships, capital shall be multiplied by a fraction equal to one minus a fraction:
(i) The numerator of which is the average of the monthly
beginning and ending account balances during the taxable year
(account balances to be determined at cost in the same manner that
such obligations, investments and loans are reported on Schedule L
of the Federal Form 1120 or Federal Form 1065) of the following:
(I) Obligations and securities of the United States, or of any
agency, authority, commission or instrumentality of the United
States and any other corporation or entity created under the
authority of the United States Congress for the purpose of
implementing or furthering an objective of national policy;
(II) Obligations of this state and any political subdivision
of this state;
(III) Investments or loans primarily secured by mortgages, or
deeds of trust, on residential property located in this state and
occupied by nontransients; and
(IV) Loans primarily secured by a lien or security agreement
on residential property in the form of a mobile home, modular home
or double-wide, located in this state and occupied by
nontransients.
(ii) The denominator of which is the average of the monthly
beginning and ending account balances of the total assets of the
taxpayer as shown on Schedule L of Federal Form 1120, as filed by
the taxpayer with the Internal Revenue Service or, in the case of
partnerships, Schedule L of Federal Form 1065, as filed by the
taxpayer with the Internal Revenue Service.
(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)
Commissioner or tax commissioner. -- The terms
"commissioner" or "tax commissioner" are used interchangeably
herein and mean the tax commissioner of the state of West Virginia,
or his delegate.
(5)
Compensation. -- The term "compensation" means wages,
salaries, commissions and any other form of remuneration paid to
employees for personal services.
(6)
Corporation. -- The term "corporation" includes any
corporations, S corporation, joint-stock company and any
association or other organization which is taxable as a corporation
under federal income tax laws or the income tax laws of this state.
(7)
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.
(8)
Doing business. -- The term "doing business" means any
activity of a corporation or partnership which enjoys the benefits and protection of the government and laws of this state, except the
activity activities of
silviculture, agriculture and farming.
which
shall mean For purposes of this article the term "agriculture and
farming" means the production of food, fiber and woodland products
(but not timbering activity
or any processing of harvested timber)
by means of cultivation, tillage of the soil and by the conduct of
animal, livestock, dairy, apiary, equine or poultry husbandry,
horticulture, or any other plant or animal production and all farm
practices related, usual or incidental thereto, including the
storage, packing, shipping and marketing, but not including any
manufacturing, milling or processing of such products by persons
other than the producer thereof.
The amendment of this paragraph
in the year two thousand three is intended to be declarative of the
intent of the law as of the enactment thereof, and shall be fully
retroactive.
The activity of agriculture and farming shall mean such
activity, as above defined, occurring on not less than five acres
of land and the improvements thereon, used in the production of the
aforementioned activities, and shall mean the production of at
least one thousand dollars of products per annum through the
conduct of such principal business activities as set forth in
section ten, article one-a, chapter eleven of this code.
(9)
Domestic corporation. -- The term "domestic corporation"
means a corporation organized under the laws of this state, 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.
(10)
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 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.
(11)
Federal Form 1065. -- The term "Federal Form 1065" means
the annual federal income tax return of a partnership made pursuant
to Section 6031 of the United States Internal Revenue Code of 1986,
as amended or renumbered, or in successor provisions of the laws of
the United States, in respect to the taxable income of a
partnership, and filed with the federal Internal Revenue Service.
(12)
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.
(13)
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.
(14)
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.
(15)
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.
(16)
Parent and subsidiary corporations. -- A corporation
which owns on average during the taxable year more than fifty percent of the stock of all classes of another corporation is
defined to be the "parent corporation" and the corporation which is
so owned by the parent is defined to be a "subsidiary corporation".
(17)
Partnership and partner. -- The term "partnership"
includes a syndicate, group, pool, joint venture or other
unincorporated organization through or by means of which any
business, financial operation or venture is carried on, and which
is not a trust or estate, a corporation or a sole proprietorship or
an unincorporated organization which under Section 761 of the
Internal Revenue Code of 1986, as amended, and is not treated as a
partnership for the taxable year for federal income tax purposes.
The term "partner" includes a member in such a syndicate, group,
pool, joint venture or other unincorporated organization which is
a partnership.
(18)
Person. -- The term "person" includes any corporation or
partnership.
(19)
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 a consolidated group.
(20)
Sales. -- The term "sales" means all gross receipts of
the taxpayer that are "business income", as defined in this
section.
(21) Silviculture. - The term "silviculture" means those
activities associated with the regeneration and growing of trees
and includes preparing sites for new stands of trees to be either planted or allowed to regenerate through natural means, drainage of
surface water which inhibits tree growth, fertilization,
application or herbicides or pesticides, removal of competing or
undesirable vegetation, and forest management techniques employed
to enhance the growth of stands of trees. Silvicuture does not
include timbering, timber severance, lumber production, log
production, pulpwood production, fuel wood production, logging
operations, disposal of wood waste from logging operations,
disposal of logging slash or logging debris or the processing or
marketing of cut or harvested timber. Silviculture does not
include the activity of planting, growing, harvesting, processing
or marketing Christmas trees. For purposes of this article,
removal of competing or undesirable vegetation does not include any
harvesting or removal of trees which results in timbering, timber
severance, lumber production, log production, pulpwood production,
fuel wood production or the processing or marketing of cut or
harvested timber.
(21) (22) State. -- The term "state" means a state of the
United States, the District of Columbia, the Commonwealth of Puerto
Rico, or any territory or possession of the United States, and any
foreign country or political subdivision thereof.
(22) (23) Stock. -- The term "stock" includes shares in a
corporation, association or joint-stock company. It shall not
include nonvoting stock which is limited and preferred as to
dividends, or treasury stock. "Stock owned by a corporation" shall
include stock owned directly by such corporation and stock which is subject to an option to acquire stock.
(23) (24) Taxable year. -- The term "taxable year" means the
calendar year, or the fiscal year ending during such calendar year,
upon the basis of which tax liability is computed under this
article. "Taxable year" means, in case of a return made for a
fractional part of a year (short taxable year) under the provisions
of this article, or under regulations promulgated by the tax
commissioner, the period for which such return is made.
(24) (25) Taxable in another state. -- The term "taxable in
another state" for purposes of apportionment under this article,
means a taxpayer who:
(A) 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 corporate stock tax; or
(B) Would be subject to a net income tax if such other state
imposed such a tax.
(25) (26) Taxpayer. -- The term "taxpayer" means any person
(as defined in this section) subject to the tax imposed by this
article.
(26) (27) This code. -- The term "this code" means the code of
West Virginia, one thousand nine hundred thirty-one, as amended.
(27) (28) This state. -- The term "this state" means the state
of West Virginia.
(28) (29) Treasury stock. -- The term "treasury stock" means
shares of a corporation which have been issued and have been
subsequently acquired by and belong to such corporation, and have not been canceled or restored to the status of authorized but
unissued shares. Treasury stock is deemed to be issued shares, but
not outstanding shares.
§11-23-7. Persons and other organizations exempt from tax.
The following organizations and persons are exempt from the
tax imposed by this article to the extent provided in this section:
(a) Natural persons doing business in this state that are not
doing business in the form of a partnership (as defined in section
three of this article) or in the form of a corporation (as defined
in section three of this article). Natural persons include persons
doing business as sole proprietors, sole practitioners and other
self-employed persons;
(b) Corporations and organizations which by reason of their
purposes or activities are exempt from federal income tax:
Provided, That this exemption does not apply to that portion of
their capital (as defined in section three of this article) which
is used, directly or indirectly, in the generation of unrelated
business income (as defined in the Internal Revenue Code) of any
corporation or organization if the unrelated business income is
subject to federal income tax;
(c) Insurance companies which pay this state a tax upon
premiums;
(d) Production credit associations organized under the
provisions of the federal "Farm Credit Act of 1933":
Provided,
That this exemption does not apply to corporations or associations
organized under the provisions of article four, chapter nineteen of this code;
(e) Any trust established pursuant to section one hundred
eighty-six, chapter seven, title twenty-nine of the code of the
laws of the United States (enacted as section three hundred two (c)
of the labor management relations act, one thousand nine hundred
forty-seven), as amended prior to the first day of January, one
thousand nine hundred eighty-five;
(f) Any credit union organized under the provisions of chapter
thirty-one, or any other chapter of this code:
Provided, That this
exemption does not apply to corporations or cooperative
associations organized under the provisions of article four,
chapter nineteen of this code;
(g) Any corporation organized under this code which is a
political subdivision of the state of West Virginia, or is an
instrumentality of a political subdivision of this state, and was
created pursuant to this code;
(h) Any corporation or partnership engaged in the
activity
activities of
silviculture or agriculture and farming, as defined
in
subdivision (8), subsection (b), section three of this article:
Provided, That if a corporation or partnership is not exclusively
engaged in
that activity either or both of those activities, its
tax base under this article is apportioned, in accordance with
regulations promulgated by the tax commissioner, among its several
activities and only that portion attributable to the
activity
activities of
silviculture or agriculture and farming is exempt
from tax under this article:
Provided, however, That the amendment of this subsection in the year two thousand three is intended to be
declarative of the intent of the law as of the enactment thereof,
and shall be fully retroactive;
(i) Any corporation or partnership licensed under article
twenty-three, chapter nineteen of this code, to conduct horse or
dog racing meetings or a pari-mutuel system of wagering:
Provided,
That if the corporation or partnership is not exclusively engaged
in this activity, its tax base under this article is apportioned,
in accordance with regulations promulgated by the tax commissioner,
among its several activities and only that portion attributable to
the activity of conducting a horse or dog racing meeting or a
pari-mutuel system of wagering is exempt from tax under this
article;
(j) For those tax years beginning after the thirtieth day of
June, one thousand nine hundred ninety-eight, any corporation or
partnership operating as a hunting club:
Provided, That the
corporation or partnership distributes no income or dividends to
its owners or stockholders. For the purposes of this subsection,
a hunting club is a group of persons owning land which is used
principally for hunting purposes by the members of the club and
guests, and where any charges made for hunting are principally for
the purpose of defraying the costs of operating and maintaining the
club and club properties or establishing a reasonable reserve to
meet the operating and maintenance costs of the club. The tax
commissioner shall by legislative rule promulgated in accordance
with article three of chapter twenty-nine of this code further prescribe the definition of a hunting club and the manner and
method in which this credit may be claimed; and
(k) For tax years beginning after the thirty-first day of
December, two thousand two, any person or other organization
engaged in the activity of providing venture capital to West
Virginia businesses:
Provided, That if the person or organization
is not exclusively engaged in that activity, only that portion of
its tax base under this article that is attributable to the
providing of venture capital to West Virginia businesses is exempt
from tax under this article, and its tax liability under this
article is determined by multiplying its pre-credit tax liability
by a fraction equal to one minus a fraction, the numerator of which
is its gross receipts attributable to its venture capital
activities in this state and the denominator of which is its total
gross receipts from all of its business activities in this state.
For purposes of this exemption, a "person or organization engaged
in the activity of providing venture capital to West Virginia
business" means a certified West Virginia capital company as
defined in section four, article one, chapter five-e of this code.
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