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ENROLLED
Senate Bill No. 2008
(By Senators Tomblin, Mr. President, and Sprouse,
By Request of the Executive)
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[Passed November 13, 2006; in effect ninety days from passage.]
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AN ACT to amend and reenact §11-21-71a of the Code of West
Virginia, 1931, as amended, relating to increasing the rate of
personal income tax
withholding for certain nonresidents of
West Virginia.
Be it enacted by the Legislature of West Virginia:
That §11-21-71a of the Code of West Virginia, 1931, as
amended, be amended and reenacted to read as follows:
ARTICLE 21. PERSONAL INCOME TAX.
§11-21-71a. Withholding tax on West Virginia source income of
nonresident partners, nonresident S corporation
shareholders, and nonresident beneficiaries of
estates and trusts.
(a) General rule. -- For the privilege of doing business in
this state or deriving rents or royalties from real or tangible
personal property located in this state, including, but not limited to, natural resources in place and standing timber, a partnership,
S corporation, estate or trust, which is treated as a pass-through
entity for federal income tax purposes and which has taxable income
for the taxable year derived from or connected with West Virginia
sources any portion of which is allocable to a nonresident partner,
nonresident shareholder, or nonresident beneficiary, as the case
may be, shall pay a withholding tax under this section, except as
provided in subsections (c) and (k) of this section.
(b) Amount of withholding tax. --
(1) In general. -- The amount of withholding tax payable by
any partnership, S corporation, estate or trust, under subsection
(a) of this section, shall be equal to four percent of the
effectively connected taxable income of the partnership, S
corporation, estate or trust, as the case may be, which may
lawfully be taxed by this state and which is allocable to a
nonresident partner, nonresident shareholder, or nonresident
beneficiary of a trust or estate: Provided, That for taxable years
commencing on or after the first day of January, two thousand
eight, the amount of withholding tax payable by any partnership, S
corporation, estate or trust, under subsection (a) of this section,
shall be equal to six and one-half percent of the effectively
connected taxable income of the partnership, S corporation, estate
or trust, as the case may be, which may lawfully be taxed by this
state and which is allocable to a nonresident partner, nonresident shareholder, or nonresident beneficiary of a trust or estate.
(2) Credits against tax. -- When determining the amount of
withholding tax due under this section, the pass-through entity may
apply any tax credits allowable under this chapter to the
pass-through entity which pass through to the nonresident
distributees: Provided, That in no event may the application of
any credit or credits reduce the tax liability of the distributee
under this article to less than zero.
(c) When withholding is not required. -- Withholding shall not
be required:
(1) On distribution to a person, other than a corporation, who
is exempt from the tax imposed by this article. For purposes of
this subdivision, a person is exempt from the tax imposed by this
article only if such person is, by reason of such person's purpose
or activities, exempt from paying federal income taxes on such
person's West Virginia source income. The pass-through entity may
rely on the written statement of the person claiming to be exempt
from the tax imposed by this article provided the pass-through
entity discloses the name and federal taxpayer identification
number for all such persons in its return for the taxable year
filed under this article or article twenty-four of this chapter; or
(2) On distributions to a corporation which is exempt from the
tax imposed by article twenty-four of this chapter. For purposes
of this subdivision, a corporation is exempt from the tax imposed by article twenty-four of this chapter only if the corporation, by
reason of its purpose or activities is exempt from paying federal
income taxes on the corporation's West Virginia source income. The
pass-through entity may rely on the written statement of the person
claiming to be exempt from the tax imposed by article twenty-four
of this chapter provided the pass-through entity discloses the name
and federal taxpayer identification number for all such
corporations in its return for the taxable year filed under this
article or article twenty-four of this chapter; or
(3) On distributions when compliance will cause undue hardship
on the pass-through entity: Provided, That no pass-through entity
shall be exempt under this subdivision from complying with the
withholding requirements of this section unless the Tax
Commissioner, in his or her discretion, approves in writing the
pass-through entity's written petition for exemption from the
withholding requirements of this section based on undue hardship.
The Tax Commissioner may prescribe the form and contents of such a
petition and specify standards for when a pass-through entity will
not be required to comply with the withholding requirements of this
section due to undue hardship. Such standards shall take into
account (among other relevant factors) the ability of a pass-
through entity to comply at reasonable cost with the withholding
requirements of this section and the cost to this state of
collecting the tax directly from a nonresident distributee who does not voluntarily file a return and pay the amount of tax due under
this article with respect to such distributions; or
(4) On distributions by nonpartnership ventures. An
unincorporated organization that has elected, under Section 761 of
the Internal Revenue Code, to not be treated as a partnership for
federal income tax is not treated as a partnership under this
article and is not required to withhold under this section.
However, such unincorporated organizations shall make and file with
the Tax Commissioner a true and accurate return of information
under subsection (c), section fifty-eight of this article, under
such regulations and in such form and manner as the Tax
Commissioner may prescribe, setting forth: (A) The amount of fixed
or determinable gains, profits and income; and (B) the name,
address and taxpayer identification number of persons receiving
fixed or determinable gains, profits or income from the
nonpartnership venture.
(d) Payment of withheld tax. --
(1) General rule. -- Each partnership, S corporation, estate
or trust, required to withhold tax under this section, shall pay
the amount required to be withheld to the Tax Commissioner no later
than:
(A) S corporations. -- The fifteenth day of the third month
following the close of the taxable year of the S corporation along
with the annual information return due under article twenty-four of this chapter, unless paragraph (C) of this subdivision applies.
(B) Partnerships, estates and trusts. -- The fifteenth day of
the fourth month following the close of the taxable year of the
partnership, estate or trust, with the annual return of the
partnership, estate or trust due under this article, unless
paragraph (C) of this subdivision applies.
(C) Composite returns. -- The fifteenth day of the fourth
month of the taxable year with the composite return filed under
section fifty-one-a of this article.
(2) Special rules. --
(A) Where there is extension of time to file return. -- An
extension of time for filing the returns referenced in subdivision
(1) of this subsection does not extend the time for paying the
amount of withholding tax due under this section. In this
situation, the pass-through entity shall pay, by the date specified
in subdivision (1) of this subsection, at least ninety percent of
the withholding tax due for the taxable year, or one hundred
percent of the tax paid under this section for the prior taxable
year, if such taxable year was a taxable year of twelve months and
tax was paid under this section for that taxable year. The
remaining portion of the tax due under this section, if any, shall
be paid at the time the pass-through entity files the return
specified in subdivision (1) of this subsection. If the balance
due is paid by the last day of the extension period for filing such return and the amount of tax due with such return is ten percent or
less of the tax due under this section for the taxable year, no
additions to tax shall be imposed under article ten of this chapter
with respect to balance so remitted. If the amount of withholding
tax due under this section for the taxable year is less than the
estimated withholding taxes paid for the taxable year by the pass-
through entity, the excess shall be refunded to the pass-through
entity or, at its election, established as a credit against
withholding tax due under this section for the then current taxable
year.
(B) Deposit in trust for Tax Commissioner. -- The Tax
Commissioner may, if the commissioner believes such action is
necessary for the protection of trust fund moneys due this state,
require any pass-through entity to pay over to the Tax Commissioner
the tax deducted and withheld under this section, at any earlier
time or times.
(e) Effectively connected taxable income. -- For purposes of
this section, the term "effectively connected taxable income" means
the taxable income or portion thereof of a partnership, S
corporation, estate or trust, as the case may be, which is derived
from or attributable to West Virginia sources as determined under
section thirty-two of this article and such regulations as the Tax
Commissioner may prescribe, whether such amount is actually
distributed or is deemed to have been distributed for federal income tax purposes.
(f) Treatment of nonresident partners, S corporation
shareholders or beneficiaries of a trust or estate. --
(1) Allowance of credit. -- Each nonresident partner,
nonresident shareholder, or nonresident beneficiary shall be
allowed a credit for such partner's or shareholder's or
beneficiary's share of the tax withheld by the partnership, S
corporation, estate or trust under this section: Provided, That
when the distribution is to a corporation taxable under article
twenty-four of this chapter, the credit allowed by this section
shall be applied against the distributee corporation's liability
for tax under article twenty-four of this chapter.
(2) Credit treated as distributed to partner, shareholder or
beneficiary. -- Except as provided in regulations, a nonresident
partner's share, a nonresident shareholder's share, or a
nonresident beneficiary's share of any withholding tax paid by the
partnership, S corporation, estate or trust under this section
shall be treated as distributed to such partner by such
partnership, or to such shareholder by such S corporation, or to
such beneficiary by such estate or trust on the earlier of:
(A) The day on which such tax was paid to the Tax Commissioner
by the partnership, S corporation, estate or trust; or
(B) The last day of the taxable year for which such tax was
paid by the partnership, S corporation, estate or trust.
(g) Regulations. -- The Tax Commissioner shall prescribe such
regulations as may be necessary to carry out the purposes of this
section.
(h) Information statement. --
(1) Every person required to deduct and withhold tax under
this section shall furnish to each nonresident partner, or
nonresident shareholder, or nonresident beneficiary, as the case
may be, a written statement, as prescribed by the Tax Commissioner,
showing the amount of West Virginia effectively connected taxable
income, whether distributed or not distributed for federal income
tax purposes by such partnership, S corporation, estate or trust,
to such nonresident partner, or nonresident shareholder, or
nonresident beneficiary, the amount deducted and withheld as tax
under this section; and such other information as the Tax
Commissioner may require.
(2) A copy of the information statements required by this
subsection must be filed with the West Virginia return filed under
this article (or article twenty-four of this chapter in the case of
S corporations) by the pass-through entity for its taxable year to
which the distribution relates. This information statement must be
furnished to each nonresident distributee on or before the due date
of the pass-through entity's return under this article or article
twenty-four of this chapter for the taxable year, including
extensions of time for filing such return, or such later date as may be allowed by the Tax Commissioner.
(i) Liability for withheld tax. -- Every person required to
deduct and withhold tax under this section is hereby made liable
for the payment of the tax due under this section for taxable years
(of such persons) beginning after the thirty-first day of December,
one thousand nine hundred ninety-one, except as otherwise provided
in this section. The amount of tax required to be withheld and
paid over to the Tax Commissioner shall be considered the tax of
the partnership, estate or trust, as the case may be, for purposes
of articles nine and ten of this chapter. Any amount of tax
withheld under this section shall be held in trust for the Tax
Commissioner. No partner, S corporation shareholder, or
beneficiary of a trust or estate, shall have a right of action
against the partnership, S corporation, estate or trust, in respect
to any moneys withheld from such person's distributive share and
paid over to the Tax Commissioner in compliance with or in intended
compliance with this section.
(j) Failure to withhold. -- If any partnership, S corporation,
estate or trust fails to deduct and withhold tax as required by
this section and thereafter the tax against which such tax may be
credited is paid, the tax so required to be deducted and withheld
under this section shall not be collected from the partnership, S
corporation, estate or trust, as the case may be, but the
partnership, S corporation, estate or trust shall not be relieved from liability for any penalties or interest on additions to tax
otherwise applicable in respect of such failure to withhold.
(k) Distributee agreements. --
(1) The Tax Commissioner shall permit a nonresident
distributee to file with a pass-through entity, on a form
prescribed by the Tax Commissioner, the agreement of such
nonresident distributee: (A) To timely file returns and make timely
payment of all taxes imposed by this article or article twenty-four
of this chapter in the case of a C corporation, on the distributee
with respect to the effectively connected taxable income of the
pass-through entity; and (B) to be subject to personal jurisdiction
in this state for purposes of the collection of any unpaid income
tax under this article (or article twenty-four of this chapter in
the case of a C corporation), together with related interest,
penalties, additional amounts and additions to tax, owed by the
nonresident distributee.
(2) A nonresident distributee electing to execute an agreement
under this subsection must file a complete and properly executed
agreement with each pass-through entity for which this election is
made, on or before the last day of the first taxable year of the
pass-through entity in respect of which the agreement applies. The
pass-through entity shall file a copy of that agreement with the
Tax Commissioner as provided in subdivision (5) of this subsection.
(3) After an agreement is filed with the pass-through entity, that agreement may be revoked by a distributee only in accordance
with regulations promulgated by the Tax Commissioner.
(4) Upon receipt of such an agreement properly executed by the
nonresident distributee, the pass-through entity shall not withhold
tax under this section for the taxable year of the pass-through
entity in which the agreement is received by the pass-through
entity and for any taxable year subsequent thereto until either the
nonresident distributee notifies the pass-through entity, in
writing, to begin withholding tax under this section or the Tax
Commissioner directs the pass-through entity, in writing, to begin
withholding tax under this section because of the distributee's
continuing failure to comply with the terms of such agreement.
(5) The pass-through entity shall file with the Tax
Commissioner a copy of all distributee agreements received by the
pass-through entity during any taxable year with this annual
information return filed under this article, or article twenty-four
of this chapter in the case of S corporations. If the pass-through
entity fails to timely file with the Tax Commissioner a copy of an
agreement executed by a distributee and furnished to the pass-
through entity in accordance with this section, then the pass-
through entity shall remit to the Tax Commissioner an amount equal
to the amount that should have been withheld under this section
from the nonresident distributee. The pass-through entity may
recover payment made pursuant to the preceding sentence from the distributee on whose behalf the payment was made.
(l) Definitions. -- For purposes of this section, the
following terms mean:
(1) Corporation. -- The term "corporation" includes
associations, joint stock companies and other entities which are
taxed as corporations for federal income tax purposes.
(A) C corporation. -- The term "C corporation" means a
corporation which is not an S corporation for federal income tax
purposes.
(B) S corporation. -- The term "S corporation" means a
corporation for which a valid election under Section 1362(a) of the
Internal Revenue Code is in effect for the taxable period. All
other corporations are C corporations.
(2) Distributee. -- The term "distributee" includes any
partner of a partnership, any shareholder of an S corporation and
any beneficiary of an estate or trust that is treated as a
pass-through entity for federal income tax purposes for the taxable
year of the entity, with respect to all or a portion of its income.
(3) Internal Revenue Code. -- The term "Internal Revenue Code"
means the Internal Revenue Code of 1986, as amended, through the
date specified in section nine of this article.
(4) Nonresident distributee. -- The term "nonresident
distributee" includes any individual who is treated as a
nonresident of this state under this article; and any partnership, estate, trust or corporation whose commercial domicile is located
outside this state.
(5) Partner. -- The term "partner" includes a member of a
partnership as that term is defined in this section.
(6) Partnership. -- 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. "Partnership" does
not include an unincorporated organization which, under Section 761
of the Internal Revenue Code, is not treated as a partnership for
the taxable year for federal income tax purposes.
(7) Taxable period. -- The term "taxable period" means, in the
case of an S corporation, any taxable year or portion of a taxable
year during which a corporation is an S corporation.
(8) Taxable year of the pass-through entity. -- The term
"taxable year of the pass-through entity" means the taxable year of
the pass-through entity for federal income tax purposes. If a
pass-through entity does not have a taxable year for federal tax
purposes, its tax year for purposes of this article shall be the
calendar year.
(m) Effective date. -- The provisions of this section shall
first apply to taxable years of pass-through entities beginning
after the thirty-first day of December, one thousand nine hundred ninety-one.