Senate Bill No. 94
(By Senators Burdette, Mr. President, and Boley,
By Request of the Executive)
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[Introduced February 19, 1993; referred to the Committee
on Finance.]
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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; and 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.