COMMITTEE SUBSTITUTE

for


Senate Bill No. 129

(By Senators Love, Sharpe, Prezioso, Boley, Minear and Schoonover)
____________

[Originating in the Committee on Small Business;

reported April 2, 1997.]



A BILL to amend chapter five-b of the code of West Virginia, one thousand nine hundred thirty-one, as amended, by adding thereto a new article, designated article three, relating to the creation of the West Virginia "Job Creation Zones Act of 1997"; providing for certain tax exemptions for qualified new businesses in the ten West Virginia counties with the highest rate of unemployment; and providing other conditions and procedures.

Be it enacted by the Legislature of West Virginia:
That chapter five-b of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended by adding thereto a new article, designated article three, to read as follows:

ARTICLE 3. WEST VIRGINIA JOB CREATION ZONES ACT OF 1997.
§5B-3-1. Legislative findings.
The Legislature finds that the health, safety and welfare of the people of West Virginia are enhanced by the continual encouragement, development, growth and expansion of private enterprise within this state, and that there are certain economically depressed areas in the state that need particular attention to create new jobs, stimulate economic activity and attract private sector investment rather than government 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-3-2. Definitions.
As used in this article:
(a) "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 storage, packing, shipping and marketing, but not including any manufacturing, milling or processing of products by persons other than the producer thereof.
(b) "Job creation zone" means one of ten counties of this state which during the preceding calendar year had the highest rate of unemployment.
(c) "Mining" means the extraction of ores or minerals from the ground and also those treatment processes necessary or incidental thereto.
(d) "New business" means any sole proprietorship, partnership or corporation which employs fifty persons or less and which has not engagdengaged in business in this state prior to the date it applies to the county commission for certification as a qualified new business pursuant to section four of this article. The term "new business" does not include:
(1) The reconfiguration or restructuring of an existing or previously existing business, including, but not limited to, a sole proprietor who becomes 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; or any owner of a corporation who creates a sister corporation; or
(2) 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.
(e) "Qualified new business" means any new business employing fifty persons or less that does not engage, directly, or indirectly through the activity of others, in:
(1) agriculture and farming;
(2) mining;
(3)severing or processing natural resources; or
(3) 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 section four of this section.
§5B-3-3. Designation of county as job creation zone; report to governor and legislature by commissioner of employment security; designation by governor; loss of designation.
(a) The ten 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 employment security are each hereby designated to be job creation zones. This designation shall remain in effect until the first day of July, two thousand seven, 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) On or before the fifteenth day of December, one thousand nine hundred ninety-seven, and on or before each fifteenth day of December thereafter through December, two thousand six, the commissioner of employment security 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.
(c) If the ten counties with the highest rate of unemployment are different from the counties previously designated as job creation zones, then any such 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.
(d) Any county designated as a job creation zone for the then current calendar year that ceases to be one of the ten 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: Provided That, the tax exemptions and deductions granted to that county pursuant to this article shall remain in effect for the full statutory period.
§5B-3-4. Certification by the county commission; application by new business; issuance of written certification order; appeal to tax commissioner; appeals hearings.
(a) A new business seeking the tax exemptions and deductions provided pursuant to this article must apply to the county commission of the county in which the new business will be located for designation by the county commission as a qualified new business. Applications will be in such form as designated by rule by the tax commissioner.
(b) To be designated as a qualified new business, the county commission of the county in which the new business will be located must ascertain each of the following criteria:
(1) That the business is a new business within the meaning of this article;
(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;
(4) That the new business is not a reconfiguration or restructuring of an existing or previously existing business or business organization or other entity; and
(5) That the new business would not likely locate in West Virginia if it was not given the benefit of the exemptions and deductions provided herein.
(c) If the county commission is satisfied that the new business meets all criteria pursuant to subsection (b) of this section, it shall issue a written order certifying the new business as a qualified new business and notify the tax commissioner of the certification.
(d) Any new business denied certification by a county commission or any business located in the county or in an adjacent county which may be affected by the certification may appeal the certification order of the county commission issued under subsection (c) of this section within ninety days after such order is entered by the county commission.
(e) The tax commissioner shall hold a hearing on an appeal pursuant to the appeals process set by rules promulgated pursuant to this article for that purpose.
§5B-3-5. Job creation zone tax exemptions.
(a) Notwithstanding any provision of this code to the contrary, the following tax deductions and exemptions apply to job creation zones.
(1) A qualified new business that is a corporation shall be exempt from payment of the taxes imposed on it by articles twenty-three and twenty-four, chapter eleven of this code, to the extent such taxes are attributable to the new business.
(2) A new business that is a partnership or electing small business corporation, shall be 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, shall be 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.
(2) Any entity which loans money to a qualified new business is allowed to subtract from federal adjusted gross income, or from federal taxable income if the entity is a taxable corporation, any interest income on the loan or loans to the new business, to the extent such interest income is included in federal adjusted gross income, or federal taxable income if the entity is a taxable corporation, when determining that entity's West Virginia adjusted gross income, or West Virginia taxable income if the entity is a taxable corporation, earned or received from the qualified new business; and
(3) 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 such 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-3-6. Job creation zone additional conditions for tax exemptions and deductions.
The following additional conditions apply to job creation zone qualified new businesses:
(a) The exemptions and deductions provided in this article apply for a period of ten years from the commencement of the qualified new business;
(b) The deductions and exemptions from tax allowed by this article shall be allowed any qualified new business that begins doing business before the first day of January, two thousand seven.
(c) Any changes or amendments to this article may not be retroactively imposed to restrict past or future exemptions conferred by this article upon qualified new businesses that rely upon the provisions of this article;
(d) Counties that qualify for tax exemptions and deductions hereunder may change during the five-year period if their unemployment rate changes;
(e) Interest on loans to a qualified new business are taxable beginning the first day of January of the eleventh year;
(f) 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 tenth 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 tenth 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.
(g) 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 tenth 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.
(h) 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.
(i) 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 this article do not apply to capital or income attributable to the acquired business or to any loans for operation of the acquired business.
(j) If the principal office or principal operations 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.
(k) Any amendments to this article shall 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.
(l) To qualify for the tax exemptions the new business must give first preference to hiring qualified able-bodied welfare recipients, relating to the West Virginia welfare reform program, and the welfare works program.
§5B-3-7. Records; report to the tax commissioner; annual report to the governor and legislature.
(a) Any entity which claims exemptions or deductions from tax under this article shall maintain those records as mandated by the tax commissioner which establish such entity's entitlement to claim the exemption or deduction asserted.
(b) Every business or other entity which claims exemptions or deductions from tax under this article shall report annually, on a form to be prescribed by the tax commissioner, its earnings, number of employees, salary scales, business growth and growth potential, and any other information deemed necessary by the tax commissioner in ascertaining the progress and health of businesses which have qualfiedqualified pursuant to this article.
(c) On or before the fifteenth day of December, one thousand nine hundred ninety-seven, and on or before each fifteenth day of December thereafter through December, two thousand six, the tax commissioner shall submit to the governor, the president of the Senate and the speaker of the House of Delegates a report based on information submitted by businesses and other entities pursuant to this section, which report shall reflect a progress report of those qualified new businesses which have located in job creation zones.
§5B-3-8. Administrative rules.
The tax commissioner shall propose rules, subject to legislative approval, as may be necessary to implement and administer the precepts of this article, as provided in article three, chapter twenty-nine-a of this code.