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Introduced Version Senate Bill 39 History

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Senate Bill No. 39

(By Senators Boley, Yoder and Love)

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[Introduced February 9, 2005; referred to the Committee

on Economic Development; and then to the Committee on the Judiciary.]

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A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §5B-4-1, §5B-4-2, §5B-4-3, §5B-4-4, §5B-4-5, §5B-4-6 and §5B-4-7, all relating to the "West Virginia Job Creation Zones Act of 2005"; providing for certain tax exemptions for qualified new businesses in the twelve counties with the highest rate of unemployment; and providing other conditions and procedures.

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 §5B-4-1, §5B-4-2, §5B-4-3, §5B-4-4, §5B-4-5, §5B-4-6 and §5B-4-7, all to read as follows:
ARTICLE 4. WEST VIRGINIA JOB CREATION ZONES ACT OF 2005.
§5B-4-1. Legislative purpose.
This article may be known and cited as the "West Virginia Job Creation Zones Act of 2005." The Legislature hereby finds and declares that the health, safety and welfare of the people of West Virginia are enhanced by the continual encouragement, development, growth and expansion of private enterprises within this State, and that there are certain economically depressed areas in the State that need particular attention to create jobs, stimulate economic activity and affect private sector investment rather than governmental subsidy to improve the quality of life of their citizens. It is the purpose of the Legislature to encourage new economic activity in these depressed areas of the State by means of tax relief and the removal of unnecessary governmental barriers to the production and earning of wages and profits and the creation of economic growth.
§5B-4-2. Definitions.
(a) General. -- When used in this article, or in the administration of this article, terms defined in subsection (b) of this section have the meanings ascribed to them by this section, unless a different meaning is clearly required either by the context in which the term is used, or by specific definition in this article.
(b) Terms defined.
(1) Agriculture and farming. -- The term "agriculture and farming" means the production of food, fiber and woodland products (but not timbering activity) by means of cultivation, tillage of the soil and by the conduct of animal, livestock, dairy, apiary, equine or poultry husbandry, horticulture or any plant or animal production and all farm practices related, usual or incidental thereto, including the storage, packing, shipping and marketing, but not including any manufacturing, milling or processing of products by persons other than the producer of the products.
(2) Business. -- The term "business" means and includes all purposeful revenue-generating activity engaged in or caused to be engaged in with the object of gain or economic benefit, either direct or indirect by any person.
(3) Corporation. -- The term "corporation" includes any corporation, electing small business corporation, joint-stock company, and any association or other organization which is taxable as a corporation under federal income tax laws or the income tax laws of this State.
(4) Extraction of ores or minerals from the ground. -- The phrase "extraction of ores or minerals from the ground" includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining.
(5) Include, includes and including. -- The terms "include," "includes" and "including," when used in a definition contained in this article, does not exclude other things otherwise within the meaning of the term being defined.
(6) Job creation zone. -- The term "job creation zone" means the geographical area of a county of this State which during the preceding calendar year had the highest rate of unemployment.
(7) Mining. -- The term "mining" includes not merely the extraction of ores or minerals from the ground but also those treatment processes necessary or incidental to the mining.
(8) Natural resources. -- The term "natural resources" means all forms of minerals, including, but not limited to, rock, stone, limestone, coal, shale, gravel, sand, clay, natural gas, oil and natural gas liquids, which are contained in or on the soils or waters of this State and standing timber.
(9) New business. -- The term "new business" means any sole proprietorship and any partnership or corporation that does not engage in business in this State, or elsewhere, prior to the date it applies to the county commission for certification as a qualified new business. "New business" does not include: (A) The reconfiguration or restructuring of an existing or previously existing business, such as, but not limited to, a sole proprietor who adds a partner thereby becoming a partnership, incorporates or establishes a limited liability company for his or her business, a partnership that adds or loses a partner, incorporates or becomes a limited liability company, a partnership that dissolves with some partners continuing to do business as sole proprietorships, a corporation that creates a new subsidiary or becomes a member of a partnership or limited liability company, any owner of a corporation who creates a sister corporation; or (B) a business that is related to another taxpayer. Related taxpayers shall be determined under rules set forth in Section 267 of the Internal Revenue Code of 1986, as amended, pertaining to nonrecognition of losses, expenses and interest with respect to transactions between related taxpayers.
(10) Partnership. -- The term "partnership" includes a syndicate, group, pool, joint venture, other unincorporated organization through or by means of which any business, financial organization or venture is carried on, when the organization is treated as a partnership for federal income tax purposes. "Partnership" includes a limited liability company which is treated as a partnership for federal income tax purposes for the taxable year. "Partnership" does not include a corporation, an estate, a sole proprietorship, trust or unincorporated organization which under Section 761 of the Internal Revenue Code of 1986, as amended, is not treated as a partnership for the taxable year for federal income tax purposes.
(11) Person. -- The term "person" means and includes any individual, trust, estate, partnership, association, company or corporation.
(12) Qualified new business. -- The term "qualified new business" means any new business, as defined in section two of this article, that does not engage, directly or indirectly through the activity of others, in: (A) Agriculture and farming; (B) severing or processing natural resources; or (C) processing pulp, and which during the time a county is designated as a job creation zone, begins and continues to engage in the active conduct of a trade or business in a job creation zone after certification as provided in subsection (a) of section three of this article.
(13) Sale. -- The term "sale" includes: (A) Any transfer of the ownership or title to property, whether for money or in exchange for other property or services or any combination thereof; (B) any lease of property, whether the transaction is characterized as a rental, lease, hire, bailment or license to use; and (C) any provision of service for a consideration, whether direct or indirect.
(14) Service. -- The term "service" includes all activities engaged in by a person for consideration which involve the rendering of a service as distinguished from the sale of tangible personal property, except that "service" does not include: (A) Services rendered by an employee to his or her employer pursuant to a contract of employment; or (B) severing or processing natural resources.
(15) Severing or processing natural resources. -- The phrase "severing or processing natural resources" means the physical removal of natural resources from the earth or waters of this State by any means and the ordinary processing of the raw natural resource product to obtain a marketable natural resource product.
(16) Tax commissioner. -- The term "tax commissioner" means the Tax Commissioner of the State of West Virginia, or his or her delegate.
§5B-4-3. Qualified new business.
(a) A new business is not a qualified new business unless the county commission of the county in which the new business will be located by order certifies in writing each of the following facts to the Tax Commissioner:
(1) That the business is a new business;
(2) That the new business will not directly compete with sales of products or services by an existing business located in that county or an adjacent county;
(3) That the activities of the new business will not adversely impact or harm the environment; and
(4) That the new business would not likely locate in West Virginia if it were not given the benefit of the exemption provided herein.
(b) The Tax Commissioner or any business located in the county or in an adjacent county may appeal the order of the county commission issued under subsection (a) of this section within four months after the order is entered by the county commission.
§5B-4-4. Designation of counties as job creation zones.
(a) The twelve counties of this State that have the highest average annual rate of unemployment for the preceding calendar year, as determined annually by the Commissioner of the Bureau of Employment Programs, are each hereby designated a job creation zone. This designation remains in effect until the first day of January, two thousand eleven, or when the annual rate of unemployment for that county is such that the county no longer qualifies for designation as a job creation zone, whichever occurs first.
(b) Upon enactment of this article the Commissioner of the Bureau of Employment Programs shall forthwith submit to the Governor, the President of the Senate and the Speaker of the House of Delegates a list ranking the counties of this State based upon their rate of unemployment for the preceding year, from highest to lowest, based upon the best information then available to the Commissioner of the Bureau of Employment Programs.
(c) By the fifteenth day of December, two thousand five, and by each fifteenth day of December thereafter through December, two thousand eleven, the Commissioner of the Bureau of Employment Programs shall submit to the Governor, the President of the Senate and the Speaker of the House of Delegates a list ranking the counties of this State based upon their rate of unemployment, from highest to lowest, based upon the best information then available to the Commissioner of the Bureau of Employment Programs. If the twelve counties with the highest rate of unemployment are different from the counties previously designated as job creation zones for that year, then any county that is not designated as a job creation zone for the then current calendar year shall be designated by the Governor as a job creation zone beginning on the first day of January of the next calendar year. Any county designated as a job creation zone for the then current calendar year that ceases to be one of the twelve counties with the highest rate of unemployment, shall lose its designation as a job creation zone at the end of the then current calendar year. In the event two or more counties have the same rate of unemployment and the county with the twelfth highest rate of unemployment cannot be ascertained, because two or more counties eligible for designation as the twelfth highest county have the same numerical rate of unemployment, those counties shall then be ranked, from highest to lowest, based upon their poverty level and the twelfth designation determined based upon that ranking.
§5B-4-5. Job creation zone tax deductions and exemptions.

(a) Notwithstanding any provision of this code to the contrary and subject to section six of this article, the following tax deductions and exemptions apply to job creation zones:
(1) A qualified new business that is a corporation is exempt from payment of the taxes imposed on it by articles twenty-three and twenty-four, chapter eleven of this code, to the extent the taxes are attributable to the new business.
(2) A new business that is a partnership or electing small business corporation, is exempt from paying the tax imposed by article twenty-three, chapter eleven of this code, that is attributable to the new business; and the partners or shareholders, as the case may be, are exempt from paying the tax imposed by article twenty-one, chapter eleven of this code, on items of income, gain, loss or deduction attributable to their respective interests in the new business.
(3) Any person who loans money to a qualified new business is allowed to subtract from federal adjusted gross income, or from federal taxable income if the person is a taxable corporation, any interest income on the loan or loans to the new business, to the extent the interest income is included in federal adjusted gross income, or federal taxable income if the person is a taxable corporation, when determining that person's West Virginia adjusted gross income, or West Virginia taxable income if the person is a taxable corporation, earned or received from the qualified new business; and
(4) Any person who purchases capital stock of a new business or purchases any other ownership interest in a new business and later sells that stock or ownership interest is allowed to subtract from federal adjusted gross income, or from federal taxable income if the person is a taxable corporation, any gain from the sale to the extent the gain is included in federal adjusted gross income, or federal taxable income if the person is a taxable corporation, when determining that person's West Virginia adjusted gross income, or West Virginia taxable income if the person is a taxable corporation.
(b) Effective date. -- The deductions and exemptions allowed by this section are first allowed for taxable years ending after the effective date of this article.
§5B-4-6. Job creation zone conditions for tax deductions and exemptions.
(a) The following additional conditions apply to job creation zone qualified new businesses:
(1) The deductions and exemptions from tax allowed by this article are allowed any qualified new business that begins doing business before the first day of January, two thousand thirteen;
(2) The deductions and exemptions from tax provided in this article apply for a period of twenty calendar years beginning with the calendar year during which the qualified new business begins doing business;
(A) Interest on loans to a qualified new business are taxable beginning the first day of January of the twenty-second year;
(B) Each qualified new business that is a corporation shall determine the fair market value of its capital stock as of the thirty-first day of December of the twentieth calendar year. The difference between the shareholder's cost or other basis for the stock and the stock's fair market value on the thirty-first day of December of the twentieth year is the amount of gain that may be excluded from tax when there is a sale or other taxable distribution of the stock after that date;
(C) The fair market value of a qualified new business that is a sole proprietorship or partnership shall similarly be determined as of the thirty-first day of December of the twentieth year. The difference between the fair market value so determined and the owner's basis or other cost is the amount of gain that may be excluded from tax under article twenty-one, chapter eleven of this code when there is a sale or taxable termination of the qualified new business after that date.
(b) The deductions and exemptions allowed by this article to a qualified new business or other person are not transferable or assignable to any other person.
(c) If after a business is certified as a qualified new business, that business acquires, by purchase or otherwise, an existing business, the deductions and exemptions allowed by section five of this article do not apply to capital or income attributable to the acquired business or to any loans for operation of the acquired business.
(d) If the principal office or principal operation of a qualified new business subsequently moves out of the job creation zone in which it was located when the qualified new business began doing business, the deductions and exemptions allowed by this article shall immediately terminate and be forfeited, unless the move is to another area of this State that, at the time of the move, is a job creation zone.
(e) Any amendments to this article apply to qualified new businesses that begin doing business on or after the effective date of the amendment and may not be retroactively imposed to limit deductions and exemptions allowed by this article.
(f) Records. -- Any person who claims exemption from tax under subsection (a) of this section, shall maintain sufficient records to establish their entitlement to claim the exemption asserted.
§5B-4-7. Administrative rules.
The Tax Commissioner may propose rules for legislative approval in accordance with the provisions of article three, chapter twenty-nine-a of this code, as may be necessary to implement and administer the tax deductions and exemptions provided in this article.


NOTE: The purpose of this bill is to create the "West Virginia Job Creation Zones Act of 2005" which provides certain tax exemptions to qualified new businesses, and exempts from taxation interest earned on loans to qualified new businesses and gains from the sale of stock in a qualified new business. The qualified new business must be in one of the twelve counties in the State with the highest unemployment rate.

This article is new; therefore, strike-throughs and underscoring have been omitted.

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