Senate Bill No. 194
(By Senators Tomblin (Mr. President) and Sprouse
By Request of the Executive)
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[Introduced January 16, 2004; referred to the Committee on
Economic Development; and then to the Committee on Finance.]
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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 and §11-13U-9, all relating to the
high-growth business investment tax credit.
Be it enacted by the Legislature of West Virginia:
That the code of West Virginia, 1931, as amended, be amended
by adding thereto a new article, designated §11-13U-1, §11-13U-2,
§11-13U-3, §11-13U-4, §11-13U-5, §11-13U-6, §11-13U-7, §11-13U-8
and §11-13U-9, all to read as follows:
ARTICLE 13U. HIGH-GROWTH BUSINESS INVESTMENT TAX CREDIT.
§11-13U-1. Short title.
This article may be cited as the "High-Growth Business
Investment Tax Credit."
§11-13U-2. Legislative finding and purpose.
The Legislature finds the encouragement of investment in
potentially high-growth research and development businesses in
this state is in the public interest and promotes economic growth
and development for the people of this state. In order to
encourage investment in start-up, growth-oriented, research and
development businesses in this state and thereby increase
employment and economic development, there is hereby provided a
high-growth business investment tax credit.
§11-13U-3. Definitions.
As used in this article, the following terms have the
meanings ascribed to them in this section, unless the context in
which the term is used clearly requires another meaning or a
specific different definition is provided:
(a) "Qualified investor" means a person who makes a
qualified investment in a West Virginia qualified research and
development company who has received certification of the high
growth investment credit from the West Virginia state tax
department.
(b) "Qualified investment" means a debt or equity financing
of a West Virginia qualified research and development company.
The investment must be in cash or cash equivalents and cannot be
an exchange of in-kind property. The qualified investor must maintain the investment for a period of at least five years or
the period of existence of the qualified research or development
company, whichever is less.
(c) "Qualified research and development company" means an
entity that has been certified by the West Virginia state tax
commissioner as eligible for the West Virginia research and
development credit set forth in West Virginia code, section one,
article thirteen-r, chapter eleven.
(d) "Person" includes any natural person, corporation,
limited liability company, or partnership.
(e) "Investment year" means the tax year of the qualified
investor in which the qualified investment was actually made in
the qualified research and development company.
(f) "Eligible taxpayer" means a qualified investor that has
received certification from the state tax department that a
portion of the annual available high growth business investment
credit has been allocated to them and who is subject to the tax
imposed by article twenty-three or article twenty-four of this
chapter and who has made a qualified investment in a qualified
research and development credit company. In the case of a sole
proprietorship subject to neither the tax imposed by article
twenty-three nor the tax imposed by article twenty-four, the term
"eligible taxpayer" means any sole proprietor who is subject to the tax imposed by article twenty-one of this chapter and who has
made a qualified investment in a qualified research and
development credit company.
§11-13U-4. High-growth business investment tax credit.
(a)
Credit allowed. -- For each qualified research and
development company which has been incorporated for five years or
less in the state, and maintains the primary corporate
headquarters in West Virginia, there shall be allowed to each
eligible taxpayer in the entity a tax credit for the taxable year
in which the investment was made and the following four years
provided the credit is properly claimed. The tax credit shall be
equal to fifty percent of the value of the investment in cash or
cash equivalents in the year the actual investment was made and
does not include in-kind contributions.
(b) Not more than ten million dollars of the credits
allowed under subdivision (a) of this section shall be allocated
by the state tax department during any fiscal year to one or more
qualified investors. These credits shall be allocated by the
state tax department in the order that the investors request
qualification.
(c)
Business franchise tax. -- The credit is first applied
to reduce the taxes imposed by article twenty-three of this
chapter for the taxable year (determined after application of the credits against tax provided in section seventeen of said
article, but before application of any other allowable credits
against tax).
(d)
Corporation net income taxes. -- After application of
subsection (b) of this section, any unused credit is next applied
to reduce the taxes imposed by article twenty-four of this
chapter for the taxable year (determined before application of
allowable credits against tax).
(e) If the eligible investor
is a limited liability company,
an electing small business corporation as defined in section one
thousand three hundred sixty-one of the United States Internal
Revenue Code, or a partnership, then any unused credit (after
application of subsections (b) and (c) of this section) is
allowed as a credit against the taxes imposed by article
twenty-four of this chapter on owners of the eligible taxpayer on
the conduit income directly derived from the eligible taxpayer by
its owners. Only those portions of the tax imposed by article
twenty-four of this chapter that are imposed on income directly
derived by the owner from the eligible taxpayer are subject to
offset by this credit.
(1) Small business corporations, limited liability
companies, partnerships and other unincorporated organizations
shall allocate the credit allowed by this article among their members in the same manner as profits and losses are allocated
for the taxable year.
(2) No credit is allowed under this article against any
withholding tax imposed by, or payable under, article twenty-one
of this chapter.
(f)
Personal income tax taxes. -- After application of
subsections (b), (c) and (d) of this section, any unused credit
is next applied to reduce the taxes imposed by article twenty-one
of this chapter for the taxable year (determined before
application of allowable credits against tax) of the eligible
taxpayer.
(g) If the eligible taxpayer is a limited liability company,
small business corporation or a partnership, then any unused
credit (after application of subsections (b), (c), (d) and (e) of
this section) is allowed as a credit against the taxes imposed by
article twenty-one of this chapter on owners of the eligible
taxpayer on the conduit income directly derived from the eligible
taxpayer by its owners. Only those portions of the tax imposed
by article twenty-one of this chapter that are imposed on income
directly derived by the owner from the eligible taxpayer are
subject to offset by this credit.
(1) Small business corporations, limited liability
companies, partnerships and other unincorporated organizations shall allocate the credit allowed by this article among their
members in the same manner as profits and losses are allocated
for the taxable year.
(2) No credit is allowed under this article against any
withholding tax imposed by, or payable under, article twenty-one
of this chapter.
(h) The total amount of tax credit that may be used in any
taxable year by any eligible taxpayer in combination with the
owners of the eligible taxpayer under subsections (d) and (f) of
this section may not exceed five hundred thousand dollars.
(i)
Unused credit carry forward. -- If the credit allowed
under this article in any taxable year exceeds the sum of the
taxes enumerated in subsections (b), (c), (d), (e) and (f) of
this section for that taxable year, the eligible taxpayer and
owners of eligible taxpayers described in subsections (d) and (f)
of this section may apply the excess as a credit against those
taxes, in the order and manner stated in this section, for
succeeding taxable years until the earlier of the following:
(1) The full amount of the excess credit is used; or
(2) The expiration of the fourth taxable year after the
taxable year in which the qualified high-growth business
investment was made. The credit remaining thereafter is
forfeited.
(j) No credit is allowed or may be applied under this
article until the taxpayer seeking to claim the credit has filed
a written application with the state tax commissioner for the
credit accompanied by the research and development certification
and certificate of incorporation for the qualified entity which
will benefit from the investment and received certification back
from the state tax commissioner of the amount of credit to be
allocated to the qualified investor. The application form shall
be filed by the investor including such information as may be
prescribed by the tax commissioner.
§11-13U-5. Penalty.
(a) A qualified investor that fails to make or maintain a
qualified investment for the required period of time shall pay to
the state tax commissioner a penalty equal to all of the tax
credits allowed with interest at the rate of two-thirds percent
per month, compounded monthly, from the date the tax credits were
certified as allocated to the qualified investor. The tax
commissioner shall give notice to the company of any penalties
under this section. The tax commissioner may abate the penalty
upon written request if the capital company establishes
reasonable cause for the failure to make qualified investments.
The tax commissioner shall deposit any amounts received under
this subsection in the general revenue fund.
§11-13U-6. Disclosure of tax credits.
Notwithstanding any provision in this code to the contrary,
the tax commissioner shall publish in the state register the name
and address of every eligible taxpayer and the amount, by
category, of any credit asserted under this article. The
categories by dollar amount of credit received are as follows:
(1) More than $1.00, but no more than $50,000;
(2) More than $50,000, but no more than $100,000;
(3) More than $100,000, but no more than $250,000;
(4) More than $250,000, but no more than $500,000.
§11-13U-7. Tax credit review and accountability.
(a) Beginning on the first day of February, two thousand six,
and on the first day of February every third year thereafter, the
commissioner shall submit to the governor, the president of the
Senate and the speaker of the House of Delegates a tax credit
review and accountability report evaluating the cost
effectiveness of the credit allowed under this article during the
most recent three-year period for which information is available.
The criteria to be evaluated includes, but is not limited to, for
each year of the three-year period:
(1) The numbers of taxpayers claiming the credit;
(2) The net number, type, and duration of new jobs created
by all qualified research and development companies in which taxpayers claiming the credit made investment in and the wages
and benefits paid by such companies;
(3) The cost of the credit;
(4) The cost of the credit per new job created; and
(5) Comparison of employment trends for the industry and for
taxpayers within the industry that claim the credit.
(b) Taxpayers claiming the credit shall provide such
information as the tax commissioner may require to prepare the
report:
Provided, That such information shall be subject to the
confidentiality and disclosure provisions of sections five-d and
five-s, article ten of this chapter.
§11-13U-8. Rules.
The state tax department shall promulgate rules in
accordance with article three, chapter twenty-nine-a of this code
to carry out the policy and purposes of this article, to provide
any necessary clarification of the provisions of this article and
to efficiently provide for the general administration of this
article.
§11-13U-9. Effective date; expiration of credit.
The provisions of this article become effective on the first
day of January, two thousand four, and apply only to qualified
investment made on or after that date. Unless sooner terminated
by law, the high growth business investment credit act will terminate on the first day of January, two thousand seven. No
entitlement to the tax credit under this article shall result
from any qualified investment made after the thirty-first day of
December, two thousand six. Taxpayers who have gained
entitlement to the credit under this article pursuant to
qualified investment prior to the first day of January, two
thousand seven, shall retain that entitlement and apply the
credit in due course pursuant to the requirements and limitations
of this article.
NOTE: The purpose of this legislation is to create a High
Growth Business Investment Tax Credit to encourage investment by
West Virginia citizens and businesses in the research and
development focused companies started by their fellow West
Virginians. The suggested credit would equal to 50% of the angel
or seed investment made by an individual or business in another,
unrelated business certified as eligible for the "Strategic
Research & Development Tax Credit" by the Tax Department. To
ensure that this opportunity is not abused, there would be a cap
of $500,000 on the amount of credit that can be used by the
investors in any one business.
This article is new; therefore, strike-throughs and
underscoring have been omitted.