Senate Bill No. 2
(By Senators Boley, Love and Minear)
[Introduced January 14, 1998;
referred to the Committee on Small Business; and then to the
Committee on Finance.]
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 West Virginia "Job Creation Zones Act of 1998";
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
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
ARTICLE 3. WEST VIRGINIA JOB CREATION ZONES ACT OF 1998.
§5B-3-1. Legislative purpose.
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
(a) General. -- When used in this article, or in the
administration of this article, terms defined in subsection (b)
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
(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 such products by persons other than the producer
(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 thereto.
(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: (1) 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 (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.
(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
(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: (1) Agriculture and farming;
(2) 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 subsection (a) of section three of
(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
(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
§5B-3-3. 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
(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
§5B-3-4. Designation of counties as job creation zones.
(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 a job creation zone. This
designation remains in effect until the first day of January, 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) Upon enactment of this article, the following ten
counties of this state are designated job creation zones:
Barbour, Braxton, Calhoun, Clay, Mingo, Tucker, Grant, Mason,
Webster and Wirt.
(c) By the fifteenth day of December, one thousand nine
hundred ninety-eight, and by 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 to the commissioner of employment
security. If the ten 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
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. In the event two or more counties have
the same rate of unemployment and the county with the tenth
highest rate of unemployment cannot be ascertained, because two
or more counties eligible for designation as the tenth 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 tenth designation determined based
upon that ranking.
§5B-3-5. 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
(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 such
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.
(2) 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
(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 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-3-6. Job creation zone conditions for tax deductions and
(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 eight.
(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-first
(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
§5B-3-7. 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: This bill creates the "West Virginia Job Creation
Zones Act of 1998" which exempts qualified new businesses from taxation, interest earned by entities that make 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 ten counties in the state with the highest
unemployment rate for the preceding year.
This article is new; therefore, strike-throughs and
underscoring have been omitted.