Senate Bill No. 479
(By Senators Craigo, Prezioso, Dittmar, Sharpe, Plymale, Ross
and Anderson)
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[Introduced February 12, 1998; 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 to corporation
net income tax adjustments in determining West Virginia
taxable income, beginning in taxable year one thousand nine
hundred ninety-eight; adding increasing adjustments for
foreign taxes and for net operating losses from sources
outside of the United States; amending the decreasing
adjustment for foreign source income; and specifying
effective date.
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.
ยง11-24-6. 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 of
the state;
(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) 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
(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;
(6) Any amount included in federal taxable income which is
a net operating loss from sources without the United States after
making the decreasing adjustments provided in subdivisions (5)
and (7), subsection (c) of this section for Section 951 income
and Section 78 income. Federal taxable income from sources
without the United States shall be determined in accordance with
the provisions of Sections 861, 862, and 863 of the Internal
Revenue Code of 1986, as amended; and
(7) The amount of foreign taxes deducted in determining
federal taxable income.
(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 gain which does not exceed the difference between the fair market
value and the 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 added to federal taxable income due to the
elimination of the reserve method for computation of the bad debt
deduction;
(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 of the state;
(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;
(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;
(7) The amount included in federal adjusted gross income by the operation of Section 951 of the Internal Revenue Code of
1986, as amended;
(8) Employer contributions to medical savings accounts
established pursuant to section fifteen, article sixteen, chapter
thirty-three of this code to the extent included in federal
adjusted gross income for federal income tax purposes less any
portion of employer contributions withdrawn for purposes other
than payment of medical expenses: Provided, That the amount
subtracted pursuant to this subsection for any one taxable year
may not exceed the maximum amount that would have been deductible
from the corporation's federal adjusted gross income for federal
income tax purposes if the aggregate amount of the corporation's
contributions to individual medical savings accounts established
under section fifteen, article sixteen, chapter thirty-three of
this code had been contributed to a qualified plan as defined
under the Employee Retirement Income Security Act of 1974, as
amended; and
(9) Any amount included in federal adjusted gross taxable
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 the property, including rents, royalties or fees for the use of or the privilege of using without the
United States any patents, copyrights, secret process and
formulas, good will, 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.
is any amount included in federal taxable income which is taxable
income from sources without the United States, less the
adjustments provided in subdivisions (5) and (7) of this
subsection.
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 is allowed as a
deduction for the taxable year an amount equal to the aggregate
of: (1) The West Virginia net operating loss carryovers to that
year; plus (2) the net operating loss carrybacks to that year:
Provided, That no more than three hundred thousand dollars of 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 shall be deducted after the section seven adjustments
are made;
(B) The tax commissioner shall prescribe the transition
regulations 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, as
amended by chapter one hundred nineteen, acts of the Legislature,
one thousand nine hundred eighty-eight, shall apply to all
taxable years ending after the thirtieth day 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 the 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 time
prescribed by law, including extensions thereof of the time, for
the taxable year in which the amounts were paid or incurred. The
election shall be made in that manner, and the scope of
application of that election shall be defined, as the tax
commissioner may by regulations rule 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 the 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 subsections (b), (c), (d) and (e) of this
section shall be further adjusted by multiplying the taxable
income after the adjustment by said subsections 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 taxable
year (account balances to be determined at cost in the same
manner that 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 of the state;
(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.
(g) The amendments to the provisions of this section made
during the regular session of the Legislature in the year one
thousand nine hundred ninety-eight, apply to all taxable years
beginning on or after the thirty-first day of December, one
thousand nine hundred ninety-seven.
NOTE: The purpose of this bill is to make technical
corrections and clarifications to the Corporation Net Income Tax
concerning the decreasing and increasing adjustments to taxable
income for foreign source income of corporations.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.