H. B. 3138
(By Delegate Michael)
[Introduced March 30, 2001; referred to the
Committee on Finance.]
A BILL to amend and reenact section nine-a, article twenty-three,
chapter eleven of the code of West Virginia, one thousand nine
hundred thirty-one, as amended; and to amend and reenact
section thirteen-a, article twenty-four of said chapter, all
relating to filing business franchise tax and corporation net
income tax on a consolidated basis; and permitting affiliated
groups with subsidiaries exempt from tax or subject to special
industry apportionment to file on a consolidated basis.
Be it enacted by the Legislature of West Virginia:
That section nine-a, article twenty-three, chapter eleven of
the code of West Virginia, one thousand nine hundred thirty-one, as
amended, be amended and reenacted; and that section thirteen-a,
article twenty-four of said chapter be amended and reenacted, all
to read as follows:
ARTICLE 23. BUSINESS FRANCHISE TAX.
§11-23-9a. Method of filing for business taxes.
(a)
Privilege to file consolidated return. -- An affiliated
group of corporations (as defined for purposes of filing a
consolidated federal income tax return) shall, subject to the
provisions of this section and in accordance with any regulations
prescribed by the tax commissioner, have the privilege of filing a
consolidated return with respect to the tax imposed by this article
for the taxable year in lieu of filing separate returns. The
making of a consolidated return shall be upon the condition that
all corporations which at any time during the taxable year have
been members of the affiliated group are included in such return
and consent to the filing of such return. The filing of a
consolidated return shall be considered as such consent. When a
corporation is a member of an affiliated group for a fractional
part of the year, the consolidated return shall include the tax
base of such corporation for that part of the year during which it
is a member of the affiliated group.
(b)
Election binding. -- If an affiliated group of
corporations elects to file a consolidated return under this
article, such election once made shall not be revoked for any
subsequent taxable year without the written approval of the tax
commissioner consenting to the revocation.
(c)
Consolidated return. -- financial organizations method of
preparing. -- An affiliated group that includes one or more
financial organizations,
one or more affiliated group members
subject to special industry apportionment, or one or more affiliated group members exempt from tax may elect under this
section to file a consolidated return when that affiliated group
complies with all of the following rules:
(1) The affiliated group of which the financial organization,
affiliated group member subject to special industry apportionment,
or affiliated group member that is exempt from tax, is a member
must file a federal consolidated income tax return for the taxable
year;
(2) All members of the affiliated group included in the
federal consolidated return must consent to being included in the
consolidated return filed under this article. The filing of a
consolidated return under this article is conclusive proof of such
consent;
(3) The taxable capital of the affiliated group shall be the
sum of:
(A) The pro forma West Virginia taxable capital of all
financial organizations having their commercial domicile in this
state that are included in the federal consolidated return, as
shown on a combined pro forma West Virginia return prepared for
such financial organizations; plus
(B) The pro forma West Virginia taxable capital of all
financial organizations not having their commercial domicile in
this state that are included in the federal consolidated return, as
shown on a combined pro forma West Virginia return prepared for
such financial organizations; plus
(C) The pro forma West Virginia taxable capital of all other members included in the federal consolidated income tax return, as
shown on a combined pro forma West Virginia return prepared for all
such nonfinancial organization members, except that the capital,
apportionments factors and other items considered when determining
tax liability shall not be included in the pro forma return
prepared under this paragraph for a member that is totally exempt
from tax under section seven of this article, or for a member that
is subject to a different special industry apportionment rule
provided for in this article. When a different special industry
apportionment rule applies, the taxable capital of a member(s)
subject to that special industry apportionment rule shall be
determined on a separate pro forma West Virginia return for the
member(s) subject to that special industry rule and the taxable
capital so determined shall be included in the consolidated return;
(4) The West Virginia consolidated return is prepared in
accordance with regulations of the tax commissioner promulgated as
provided in article three, chapter twenty-nine-a of this code; and
(5) The filing of a consolidated return does not distort the
taxable capital of the affiliated group. In any proceeding, the
burden of proof that the taxpayer's method of filing does not
distort taxable capital under this article shall be upon the
taxpayer.
(d)
Combined return. -- A combined return may be filed under
this article by a unitary group, including a unitary group that
includes one or more financial organizations, only pursuant to the
prior written approval of the tax commissioner. A request for permission to file a combined return must be filed on or before the
statutory due date of the return, determined without inclusion of
any extension of time to file the return. Permission to file a
combined return may be granted by the tax commissioner only when
taxpayer submits evidence that conclusively establishes that
failure to allow the filing of a combined return will result in an
unconstitutional distortion of the measure of tax under this
article. When permission to file a combined return is granted,
combined filing will be allowed for the year(s) stated in the tax
commissioner's letter. The combined return must be filed in
accordance with regulations of the tax commissioner promulgated in
accordance with article three, chapter twenty-nine-a of this code.
(e)
Method of filing under this article deemed controlling for
purposes of other business taxes articles. -- The taxpayer shall
file on the same basis under article twenty-four of this chapter as
such taxpayer files under this article for the taxable year.
(f)
Regulations. -- The tax commissioner shall prescribe such
regulations as he
or she may
deem consider necessary in order that
the tax liability of any affiliated group of corporations filing a
consolidated return, or of any unitary group of corporations filing
a combined return, and of each corporation in an affiliated or
unitary group, both during and after the period of affiliation, may
be returned, determined, computed, assessed, collected and
adjusted, in such manner as the tax commissioner deems necessary to
clearly reflect tax liability under this article and the factors
necessary for the determination of such liability, and in order to prevent avoidance of such tax liability.
(g)
Computation and payment of tax. -- In any case in which a
consolidated or combined return is filed, or required to be filed,
the tax due under this article from the affiliated or unitary group
shall be determined, computed, assessed, collected and adjusted in
accordance with regulations prescribed by the tax commissioner, in
effect on the last day prescribed by section nine of this article
for the filing of such return, and such affiliated or unitary
group, as the case may be, shall be treated as the taxpayer.
However, when any member of an affiliated or unitary group that
files a consolidated or combined return under this article is
allowed to claim credit against its tax liability under this
article for payment of any other tax, the amount of credit allowed
may not exceed that member's proportionate share of the affiliated
or unitary group's precredit tax liability under this article, as
shown on its pro forma return.
(h)
Consolidated or combined return may be required. -- If any
affiliated group of corporations has not elected to file a
consolidated return, or if any unitary group of corporations has
not applied for permission to file a combined return, the tax
commissioner may require such corporations to make a consolidated
or combined return, as the case may be, in order to clearly reflect
taxable capital of such corporations.
(i)
Effective date. -- This section shall apply to taxable
years beginning on or after the first day of January, one thousand
nine hundred ninety-six, except that financial organizations that are part of an affiliated group may elect, after the effective date
of this act, to file a consolidated return prepared in accordance
with the provisions of this section and subject to applicable
statutes of limitation, for taxable years beginning on or after the
first day of January, one thousand nine hundred ninety-one, but
before the first day of January, one thousand nine hundred
ninety-six, notwithstanding provisions then in effect prohibiting
out-of-state financial organizations from filing consolidated
returns for those years:
Provided, That when the statute of
limitations on filing an amended return for any of those years
expires before the first day of July, one thousand nine hundred
ninety-six, the consolidated return for such year, if filed, must
be filed by said first day of July.
ARTICLE 24. CORPORATION NET INCOME TAX.
§11-24-13a. Method of filing for business taxes.
(a)
Privilege to file consolidated return. -- An affiliated
group of corporations (as defined for purposes of filing a
consolidated federal income tax return) shall, subject to the
provisions of this section and in accordance with any regulations
prescribed by the tax commissioner, have the privilege of filing a
consolidated return with respect to the tax imposed by this article
for the taxable year in lieu of filing separate returns. The
making of a consolidated return shall be upon the condition that
all corporations which at any time during the taxable year have
been members of the affiliated group are included in such return
and consent to the filing of such return. The filing of a consolidated return shall be considered as such consent. When a
corporation is a member of an affiliated group for a fractional
part of the year, the consolidated return shall include the income
of such corporation for that part of the year during which it is a
member of the affiliated group.
(b)
Election binding. -- If an affiliated group of
corporations elects to file a consolidated return under this
article for any taxable year ending after the thirtieth day of
June, one thousand nine hundred eighty-seven, such election once
made shall not be revoked for any subsequent taxable year without
the written approval of the tax commissioner consenting to the
revocation.
(c)
Consolidated return. -- financial organizations Method of
preparing. -- An affiliated group that includes one or more
financial organizations,
one or more affiliated group members
subject to special industry apportionment, or one or more
affiliated group members exempt from tax may elect under this
section to file a consolidated return when that affiliated group
complies with all of the following rules:
(1) The affiliated group of which the financial organization,
affiliated group member subject to special industry apportionment,
or affiliated group member that is exempt from tax is a member must
file a federal consolidated income tax return for the taxable year.
(2) All members of the affiliated group included in the
federal consolidated return must consent to being included in the
consolidated return filed under this article. The filing of a consolidated return under this article is conclusive proof of such
consent.
(3) The West Virginia taxable income of the affiliated group
shall be the sum of:
(A) The pro forma West Virginia taxable income of all
financial organizations having their commercial domicile in this
state that are included in the federal consolidated return, as
shown on a combined pro forma West Virginia return prepared for
such financial organizations; plus
(B) The pro forma West Virginia taxable income of all
financial organizations not having their commercial domicile in
this state that are included in the federal consolidated return, as
shown on a combined pro forma West Virginia return prepared for
such financial organizations; plus
(C) The pro forma West Virginia taxable income of all other
members included in the federal consolidated income tax return, as
shown on a combined pro forma West Virginia return prepared for all
such nonfinancial organization members, except that income, income
adjustments and exclusions, apportionment factors and other items
considered when determining tax liability shall not be included in
the pro forma return prepared under this paragraph for a member
that is totally exempt from tax under section five of this article,
or for a member that is subject to a different special industry
apportionment rule provided for in this article. When a different
special industry apportionment rule applies, the West Virginia
taxable income of a member(s) subject to that special industry apportionment rule shall be determined on a separate pro forma West
Virginia return for the member(s) subject to that special industry
rule and the West Virginia taxable income so determined shall be
included in the consolidated return.
(4) The West Virginia consolidated return is prepared in
accordance with regulations of the tax commissioner promulgated as
provided in article three, chapter twenty-nine-a of this code.
(5) The filing of a consolidated return does not distort
taxable income. In any proceeding, the burden of proof that
taxpayer's method of filing does not distort taxable income shall
be upon the taxpayer.
(d)
Combined return. -- A combined return may be filed under
this article by a unitary group, including a unitary group that
includes one or more financial organizations, only pursuant to the
prior written approval of the tax commissioner. A request for
permission to file a combined return must be filed on or before the
statutory due date of the return, determined without inclusion of
any extension of time to file the return. Permission to file a
combined return may be granted by the tax commissioner only when
taxpayer submits evidence that conclusively establishes that
failure to allow the filing of a combined return will result in an
unconstitutional distortion of taxable income. When permission to
file a combined return is granted, combined filing will be allowed
for the year(s) stated in the tax commissioner's letter. The
combined return must be filed in accordance with regulations of the
tax commissioner promulgated in accordance with article three, chapter twenty-nine-a of this code.
(e)
Method of filing under this article deemed controlling for
purposes of other business taxes articles. -- The taxpayer shall
file on the same basis under article twenty-three of this chapter
as such taxpayer files under this article for the taxable year.
(f)
Regulations. -- The tax commissioner shall prescribe such
regulations as he may deem necessary in order that the tax
liability of any affiliated group of corporations filing a
consolidated return, or of any unitary group of corporations filing
a combined return, and of each corporation in the affiliated or
unitary group, both during and after the period of affiliation, may
be returned, determined, computed, assessed, collected and
adjusted, in such manner as the tax commissioner deems necessary to
clearly reflect the income tax liability and the income factors
necessary for the determination of such liability, and in order to
prevent avoidance of such tax liability.
(g)
Computation and payment of tax. -- In any case in which a
consolidated or combined return is filed, or required to be filed,
the tax due under this article from the affiliated or unitary group
shall be determined, computed, assessed, collected and adjusted in
accordance with regulations prescribed by the tax commissioner, in
effect on the last day prescribed by section thirteen of this
article for the filing of such return, and such affiliated or
unitary group, as the case may be, shall be treated as the
taxpayer. However, when any member of an affiliated or unitary
group that files a consolidated or combined return under this article is allowed to claim credit against its tax liability under
this article for payment of any other tax, the amount of credit
allowed may not exceed that member's proportionate share of the
affiliated or unitary group's precredit tax liability under this
article, as shown on its pro forma return.
(h)
Consolidated or combined return may be required. -- If any
affiliated group of corporations has not elected to file a
consolidated return, or if any unitary group of corporations has
not applied for permission to file a combined return, the tax
commissioner may require such corporations to make a consolidated
or combined return, as the case may be, in order to clearly reflect
the taxable income of such corporations.
(i)
Effective date. -- The amendments to this section made by
chapter one hundred seventy-nine, acts of the Legislature in the
year one thousand nine hundred ninety, shall apply to all taxable
years ending after the eighth day of March, one thousand nine
hundred ninety. Amendments to this article enacted by this act in
the year one thousand nine hundred ninety-six, shall apply to
taxable years beginning on or after the first day of January, one
thousand nine hundred ninety-six, except that financial
organizations that are part of an affiliated group may elect, after
the effective date of this act, to file a consolidated return
prepared in accordance with the provisions of this section, as
amended, and subject to applicable statutes of limitation, for
taxable years beginning on or after the first day of January, one
thousand nine hundred ninety-one, but before the first day of January, one thousand nine hundred ninety-six, notwithstanding
provisions then in effect prohibiting out-of-state financial
organizations from filing consolidated returns for those years:
Provided, That when the statute of limitation on filing an amended
return for any of those years expires before the first day of July,
one thousand nine hundred ninety-six, the consolidated return for
such year, if filed, must be filed by said first day of July.
NOTE: The purpose of this bill is to clarify the law to permit
affiliated groups with affiliated group members that are exempt
from tax or subject to special industry apportionment rules to file
Business Franchise Tax and Corporation Net Income Tax on a
consolidated basis. Presently, affiliated groups with financial
organizations are expressly permitted to do so, and the law is
unclear as to affiliated groups with affiliated group members that
are exempt from tax or subject to special apportionment.
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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