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Introduced Version Senate Bill 194 History

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Key: Green = existing Code. Red = new code to be enacted
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.












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