H. B. 2198


(By Mr. Speaker, Mr. Chambers, and Delegate Burk)
[By Request of the Executive]
[Introduced February 19, 1993; referred to the
Committee on Finance.]



A BILL to amend and reenact section six, article twenty-four, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, relating generally to adjustments to federal taxable income when determining West Virginia taxable income of corporations; eliminating certain modifications made obsolete by amendments enacted in prior years; eliminating, for taxable years beginning after the thirty-first day of December, one thousand nine hundred ninety-two, the three year carryback of West Virginia corporation net income tax net operating losses.

Be it enacted by the Legislature of West Virginia:
That section six, article twenty-four, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted to read as follows:
ARTICLE 24. CORPORATION NET INCOME TAX.

§11-24-6. Adjustments in determining West Virginia taxable income.

(a) General. -- In determining West Virginia taxable income of a corporation, its taxable income as defined for federal income tax purposes shall be adjusted and determined before the apportionment provided by section seven of this article, by the items specified in this section.
(b) Adjustments increasing federal taxable income. -- There shall be added to federal taxable income, unless already included in the computation of federal taxable income, the following items:
(1) Interest or dividends on obligations or securities of any state or of a political subdivision or authority thereof;
(2) Interest or dividends (less related expenses to the extent not deducted in determining federal taxable income) on obligations or securities of any authority, commission or instrumentality of the United States which the laws of the United States exempt from federal income tax but not from state income taxes;
(3) Income taxes and other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by this state or any other taxing jurisdiction, to the extent deducted in determining federal taxable income;
(4) Taxes imposed by this state for which credit against the taxes imposed by section four of this article, is allowed by section nine or nine-a of this article and taken by the taxpayer, to the extent deducted in determining federal taxable income; and
(5) The deferral value of certain income that is not recognized for federal tax purposes, which value shall be an amount equal to a percentage of the amount allowed as a deduction in determining federal taxable income pursuant to the accelerated cost recovery system under section 168 of the Internal Revenue Code for the federal taxable year, with the percentage of the federal deduction to be added as follows with respect to the following recovery property: Three-year property -- no modifications; five-year property -- ten percent; ten-year property -- fifteen percent; fifteen-year public utility property -- twenty-five percent; and fifteen-year or eighteen-year real property -- thirty-five percent: Provided, That this modification shall not apply to any person whose federal deduction is determined by the use of the straight line method, or to any taxable year beginning after the thirtieth day of June, one thousand nine hundred eighty-seven;
(6) (4) The amount of unrelated business taxable income as defined by section 512 of the Internal Revenue Code of 1986, as amended, of a corporation which by reason of its purposes is generally exempt from federal income taxes; and
(7) (5) The amount of any net operating loss deduction taken for federal income tax purposes under section 172 of the Internal Revenue Code of 1986, as amended.
(c) Adjustments decreasing federal taxable income. -- There shall be subtracted from federal taxable income to the extent included therein:
(1) Any gain from the sale or other disposition of property having a higher fair market value on the first day of July, one thousand nine hundred sixty-seven, than the adjusted basis at said date for federal income tax purposes: Provided, That the amount of this adjustment is limited to that portion of any such gain which does not exceed the difference between such fair market value and such adjusted basis;
(2) The amount of any refund or credit for overpayment of income taxes and other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by this state or any other taxing jurisdiction, to the extent properly included in gross income for federal income tax purposes;
(3) The amount of dividends received, to the extent included in federal taxable income: Provided, That this modification shall not be made for taxable years beginning after the thirtieth day of June, one thousand nine hundred eighty-seven;
(4) Thirty-seven and one-half percent of the excess of net long-term capital gain over net short-term capital loss as defined in the laws of the United States: Provided, That this modification shall not be made for taxable years beginning after the thirtieth day of June, one thousand nine hundred eighty- seven;
(5) (3) The amount added to federal taxable income due to the elimination of the reserve method for computation of the bad debt deduction;
(6) (4) The full amount of interest expense actually disallowed in determining federal taxable income which was incurred or continued to purchase or carry obligations or securities of any state or of any political subdivision thereof;
(7) (5) The amount required to be added to federal taxable income as a dividend received from a foreign (non-United States) corporation under section 78 of the Internal Revenue Code of 1986, as amended, by a corporation electing to take the foreign tax credit for federal income tax purposes;
(8) (6) The amount of salary expenses disallowed as a deduction for federal income tax purposes due to claiming the federal jobs credit under section 51 of the Internal Revenue Code of 1986, as amended;
(9) (7) The amount included in federal adjusted gross income by the operation of section 951 of the Internal Revenue Code of 1986, as amended; and
(10) (8) Any amount included in federal adjusted gross income which is foreign source income. Foreign source income includes:
(A) Interest and dividends, other than those derived from sources within the United States;
(B) Rents, royalties, license, and technical fees from property located or services performed without the United States or from any interest in such property, including rents, royalties, or fees for the use of or the privilege of using without the United States any patents, copyrights, secret processand formulas, goodwill, trademarks, trade brands, franchises and other like properties; and
(C) Gains, profits, or other income from the sale of intangible or real property located without the United States.
In determining the source of "foreign source income," the provisions of sections 861, 862 and 863 of the Internal Revenue Code of 1986, as amended, shall be applied.
(d) Net operating loss deduction. -- Except as otherwise provided in this subsection, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate of (1) the West Virginia net operating loss carryovers to such year plus (2) the net operating loss carrybacks to such year: Provided, That no net operating loss from any taxable year beginning after the thirty-first day of December, one thousand nine hundred ninety-two, may be carried back to any previous taxable year. For purposes of this subsection, the term "West Virginia net operating loss deduction" means the deduction allowed by this subsection, determined in accordance with section 172 of the Internal Revenue Code of 1986, as amended.
(1) Special rules:
(A) When the corporation further adjusts its adjusted federal taxable income under section seven of this article, the West Virginia net operating loss deduction allowed by this subsection (d) shall be deducted after the section seven adjustments are made;
(B) The tax commissioner shall prescribe such transitionregulations as he deems necessary for fair and equitable administration of this subsection as amended by this act.
(2) Effective date. -- The provisions of this subsection (d), as amended by this act chapter one hundred nineteen, Acts of the Legislature, one thousand nine hundred eighty-eight, shall apply to all taxable years ending after the thirtieth of June, one thousand nine hundred eighty-eight; and to all loss carryovers from taxable years ending on or before said thirtieth day of June.
(e) Special adjustments for expenditures for water and air pollution control facilities.
(1) If the taxpayer so elects under subdivision (2) of this subsection, there shall be:
(A) Subtracted from federal taxable income the total of the amounts paid or incurred during the taxable year for the acquisition, construction or development within this state of water pollution control facilities or air pollution control facilities as defined in section 169 of the Internal Revenue Code, and
(B) Added to federal taxable income the total of the amounts of any allowances for depreciation and amortization of such water pollution control facilities or air pollution control facilities, as so defined, to the extent deductible in determining federal taxable income.
(2) The election referred to in subdivision (1) of this subsection shall be made in the return filed within the timeprescribed by law (including extensions thereof) for the taxable year in which such amounts were paid or incurred. Such election shall be made in such manner, and the scope of application of such election shall be defined, as the tax commissioner may by regulations prescribe, and shall be irrevocable when made as to all amounts paid or incurred for any particular water pollution control facility or air pollution control facility.
(3) Notwithstanding any other provisions of this subsection or of section seven to the contrary, if the taxpayer's federal taxable income is subject to allocation and apportionment under section seven, the adjustments prescribed in paragraphs (A) and (B), subdivision (1) of this subsection shall (instead of being made to the taxpayer's federal taxable income before allocation and apportionment thereof as provided in section seven) be made to the portion of the taxpayer's net income, computed without regard to such adjustments, allocated and apportioned to this state in accordance with section seven.
(f) Allowance for certain government obligations and obligations secured by residential property. -- The West Virginia taxable income of a taxpayer subject to this article as adjusted in accordance with parts (b), (c), (d) and (e) of this section shall be further adjusted by multiplying such taxable income after such adjustment by parts (b), (c), (d) and (e) by a fraction equal to one minus a fraction:
(1) The numerator of which is the sum of the average of the monthly beginning and ending account balances during the taxableyear (account balances to be determined at cost in the same manner that such obligations, investments and loans are reported on Schedule L of the Federal Form 1120) of the following:
(A) Obligations or securities of the United States, or of any agency, authority, commission or instrumentality of the United States and any other corporation or entity created under the authority of the United States Congress for the purpose of implementing or furthering an objective of national policy;
(B) Obligations or securities of this state and any political subdivision or authority thereof;
(C) Investments or loans primarily secured by mortgages, or deeds of trust, on residential property located in this state and occupied by nontransients; and
(D) Loans primarily secured by a lien or security agreement on residential property in the form of a mobile home, modular home or double-wide, located in this state and occupied by nontransients.
(2) The denominator of which is the average of the monthly beginning and ending account balances of the total assets of the taxpayer which are shown on Schedule L of Federal Form 1120, which are filed by the taxpayer with the Internal Revenue Service.




NOTE: The purpose of this bill is to eliminate the three year net operating loss carryback for purposes of the West Virginia corporation net income tax for losses occurring in tax years beginning on or after January one, one thousand nine hundred ninety-three. Additionally, certain obsolete language is deleted.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.