Senate Bill No. 204
(By Senators Tomblin (Mr. President) and Sprouse
By Request of the Executive)
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[Introduced January 19, 2004; referred to the Committee on
Economic Development; and then to the Committee on Finance.]
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A BILL to amend and reenact §11-13R-6, §11-13R-11 and §11-13R-12 of
the code of West Virginia, 1931, as amended, all relating to
the strategic research and development tax credit; and the
sale of unused excess strategic research and development
credits by taxpayers eligible to claim said credit.
Be it enacted by the Legislature of West Virginia:
That §11-13R-6, §11-13R-11 and §11-13R-12 of the code of West
Virginia, 1931, as amended, be amended and reenacted, all to read
as follows:
ARTICLE 13R. STRATEGIC RESEARCH AND DEVELOPMENT TAX CREDIT.
§11-13R-6. Application of credit.
(a)
Credit allowed. -- Beginning in the year that the annual
combined qualified research and development expenditure is paid or
incurred, eligible taxpayers and owners of eligible taxpayers described in subsections (d) and (f) of this section are allowed a
credit against the taxes imposed by articles twenty-three,
twenty-four and twenty-one of this chapter, in that order, as
specified in this section.
(b)
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).
(c)
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).
(d) If the eligible taxpayer is a limited liability company,
small business corporation 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.
(e)
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.
(f) 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.
(g) 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 two million dollars.
(h)
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 tenth taxable year after the taxable
year in which the annual combined qualified research and
development expenditure was paid or incurred. Credit remaining thereafter is forfeited.
(i) Notice of intent to sell unused credit. -- 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 file a notice of intent to sell their unused
excess credits to taxpayers with tax liability against the taxes
enumerated in subsections (b), (c), (d), (e) and (f) of this
section for a succeeding taxable year, provided that all of the
following criteria are met:
(1) The unused excess credits are proposed to be sold for a
minimum of seventy-five percent of the value of the tax benefits;
(2) The taxpayer seeking to sell the unused excess tax credits
has West Virginia residents comprising no less than sixty percent
of its employees; and
(3) This filing of the notice of intent shall be made, in the
form prescribed by the tax commissioner, no later than the last day
for filing the tax returns in the year in which the unused excess
credit was created, determined by including any authorized
extension of time for filing the return, required under article
twenty-one or twenty-four of this chapter for the taxable year in
which the unused excess credit was created, and all information required by the form shall be provided by the taxpayer.
(A) In the case of owners of eligible taxpayers described in
subsection (d) or (f) of this section, the filing required under
this section by the limited liability company, small business
corporation or partnership owned by the person is considered to be
filed on behalf of the owner and no separate filing is required of
the owner.
(B) Form of filing. -- The notice of intent to sell must be
filed in the form as the tax commissioner may prescribe and shall
contain the information as the tax commissioner may require to
determine whether a sale should be allowed under this article.
(C) Requirements for notice. -- The notice shall specifically
set forth a written plan generally describing the nature of the
sale of unused excess credits, the projected value of the unused
excess credits, the time period over which the unused excess
credits shall have been obtained and such other information as the
tax commissioner may require.
(D) Approval. -- The tax commissioner may issue approval of
the notice of intent to sell the unused excess credits if it
appears to the tax commissioner to comply with the requirements of
this article and all rules and requirements applicable thereto. Not
more than ten million dollars of the unused credits described in
subsection (i) of this section may be approved for sale by the tax commissioner during any fiscal year. These credits shall be
certified for sale in the order in which the notices of intent to
sell are received.
(E) Failure to file notice. -- The failure to timely file the
notice of intent to sell the unused excess credits results in
forfeiture of the right to sell such unused excess credits in the
immediately successive taxable year.
(j) Advertisement of credits. -- Notwithstanding the
provisions contained in section five-d, article ten of this
chapter, after the tax commissioner has approved all notices of
intent to sell unused excess credits for a given tax year, the tax
commissioner shall, in consultation with the West Virginia
development office, publicly advertise these available unused
excess credits to foster the creation of a market for the credits.
The advertisement will contain:
(1) The name and address of the taxpayer;
(2) The amount of the credit; and
(3) Whatever additional information the tax commissioner may
find necessary to promote the creation of a market for the credits.
(k) Sale of unused credit. -- If the credit allowed under this
article 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 sell their unused
excess credits to taxpayers with tax liability for the taxes
numerated in subsections (b), (c), (d), (e) and (f) of this section
for that taxable year, provided that all of the following criteria
are met:
(1) The unused excess credits are sold for a minimum of
seventy-five percent of the value of the tax benefits; and
(2) The taxpayer seeking to sell the unused excess tax credits
has West Virginia residents comprising no less than sixty percent
of its employees; and
(3) The purchaser of the unused excess credits shall apply
such credits in the same manner and against the same taxes
enumerated in subsections (b), (c), (d), (e) and (f) of this
section; and
(4) The taxpayer seeking to sell the unused excess tax credits
has filed a notice of intent to sell with the tax commissioner and
has received approval from the tax commissioner pursuant to that
written notice, as provided in subsection (i) of this section for
that taxable year.
(l) Notice of sale. -- A notice of sale shall be filed, in the
form prescribed by the tax commissioner, no later than the last day
for filing the tax returns, determined by including any authorized
extension of time for filing the return, required under article twenty-one or twenty-four of this chapter for the taxable year in
which the sale occurs, and all information required by the form
shall be provided by the taxpayer and the purchaser of the excess
credits.
(1) In the case of owners of eligible taxpayers described in
subsection (d) or (f) of this section, the notice required under
this section by the limited liability company, small business
corporation or partnership owned by the person is considered to be
filed on behalf of the owner and no separate filing of the notice
is required of the owner.
(2) Form of notice. -- The notice of sale must be filed in the
form as the tax commissioner may prescribe and shall contain the
information as the tax commissioner may require to determine
whether the sale should be allowed under this article.
(3) Requirements for notice. -- The notice shall specifically
set forth, the value of the unused excess credits sold, the time
period over which the unused excess credits shall have been
obtained, the purchaser of the excess credits, the amount received
for the sale of excess credits, and such other information as the
tax commissioner may require.
(4) Filing of notice. -- The purchaser of the excess credits
shall attach a copy of the notice of sale with the returns on which
the credits are claimed.
(i) (m) Application for certification. -- No credit is allowed
or may be applied under this article until the person seeking to
claim the credit has filed a written application for certification
of the proposed research and development program or project with
the tax commissioner and has received certification of the research
and development program or project from the tax commissioner
pursuant to that written application. The certification of the
program or project must be received by the eligible taxpayer from
the tax commissioner prior to any credit being claimed or allowed
for any annual combined qualified research and development
expenditure for any research activity or project. This application
shall be filed, in the form prescribed by the tax commissioner, no
later than the last day for filing the tax returns, determined by
including any authorized extension of time for filing the return,
required under article twenty-one or twenty-four of this chapter
for the taxable year in which the property to which the credit
relates is placed in service or use, or the qualified research and
development expenses to which the credit relates are incurred by
the taxpayer, and all information required by the form shall be
provided by the taxpayer.
(1) In the case of owners of eligible taxpayers described in
subsection (d) or (f) of this section, the application for
certification filed under this section by the limited liability company, small business corporation or partnership owned by the
person is considered to be filed on behalf of the owner and no
separate filing of the application is required of the owner.
(2)
Form of application. -- The application for certification
must be filed in the form as the tax commissioner may prescribe and
shall contain the information as the tax commissioner may require
to determine whether the project should be certified as eligible
for credit under this article.
(3)
Time period covered by certification. -- The application
may request certification of the research and development program
for one taxable year or multiple taxable years, as applicable,
based on the nature and character of the program or project plan
for the particular research and development project or activity.
(4)
Requirements for application. -- The application shall
specifically set forth a written research and development program
plan generally describing the nature of the research and
development to be undertaken, the number and types of jobs, if any,
created by the applicant as a direct result of the research and
development program and the average wages and benefits paid to
those employees, the projected time period over which the research
and development shall be carried out, the period of time for which
the applicant seeks certification of the program or project and
such other information as the tax commissioner may require.
(5)
Certification. -- The tax commissioner may issue
certification of a research and development program or project if
it appears to the tax commissioner that the applicant intends to
engage in a bona fide research and development activity, as
described in this article, and will otherwise comply with the
requirements of this article and all rules and requirements
applicable thereto.
(6)
Time period covered by certification. -- The tax
commissioner may issue certification for the period of time for
which the eligible taxpayer seeks certification or a different
period of time, within the discretion of the tax commissioner. In
his or her discretion, the tax commissioner may require that a
separate application be filed for each tax year in which qualified
research and development activity is to be undertaken or in which
qualified research and development property is to be placed in
service or use.
(7)
Failure to file. -- The failure to timely file the
application for certification of a research and development program
or project under this section results in forfeiture of one hundred
percent of the annual credit otherwise allowable under this
article. This penalty applies annually until such application is
filed.
(8)
Research and development undertaken without certification. -- If a person has filed an application for certification of a
research and development program or project and has failed to
receive certification of the plan or program from the tax
commissioner, no credit is allowed under this article for the
research and development activity or investment relating thereto.
(9)
Failure to comply with terms of certification. -- If a
person has filed an application for certification of a research and
development program or project and has received certification of
the plan or program from the tax commissioner, but fails to conform
to the terms of the certification, no credit is allowed under this
article for the research and development activity or for investment
in the research and development activity by the eligible taxpayer.
This restriction may be waived by the tax commissioner upon a
finding that the research and development undertaken was within the
requirements of this article and that there was no intent to
defraud the state or willful neglect in the applicant's failure to
conform to the terms of the certification.
(10)
Failure to comply with certification time restrictions.
-- If a person has filed an application for certification of a
research and development program or project and has received
certification of the plan or program from the tax commissioner, but
fails to conform to the time periods specified therein for the
certified research and development program or project, or fails to renew the certification so as to cover ongoing or subsequent
research and development activity, the research and development
activity is out of compliance with the terms of the certification
and no credit is allowed under this article for, or relating to,
the research and development activity by any person or taxpayer.
This restriction may be waived by the tax commissioner upon a
finding that the research and development thus undertaken was
within the requirements of this article and that there was no
intent to defraud the state or willful neglect in the applicant's
failure to conform to the terms of the certification.
§11-13R-11. 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 taxpayers claiming the credit and wages and benefits paid;
(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;
and
(6) The number and amount of excess credits which were sold
pursuant to subsection (k), section six of this article and the
amount received from the sale of these credits.
(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.
§11-13R-12. Effective date.
The provisions of this article become effective on the first
day of January, two thousand three, and apply only to qualified
investment made on or after that date,
except that subsections (i),
(j), (k) and (l), section six of this article shall become
effective on the first day of January, two thousand four, and apply
only to qualified investment made on or after that date and prior
to the first day of January, two thousand seven. No credits
attributable to investment made after the first day of January, two
thousand seven may be sold pursuant to subsections (i), (j), (k)
and (l), section six of this article.
NOTE: The purpose of this bill is to allow the sale of unused
strategic research and development tax credits.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
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