Senate Bill No. 754

(By Senators Oliverio, Fanning, Anderson, Ball, Bowman, Craigo, Plymale, Ross, Sharpe, Buckalew, Kimble and Sprouse)

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[Originating in the Committee on Small Business;

reported March 2, 1998.]

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A Bill to amend chapter eleven of the code of West Virginia, one
thousand nine-hundred thirty-one, as amended, by adding thereto a new article, designated article thirteen-n, relating to taxation; setting forth short title; setting forth legislative findings; defining terms; specifying eligibility criteria for qualification for small business tax credit; specifying amounts of credit; specifying application of credit against specified taxes; specifying forfeiture of unused credit; specifying procedure for assertion of credit; specifying restrictions and limitations on claims for tax credit; prescribing availability of credit to successors in business and allocation of credit among successor and predecessor; specifying treatment of credit pursuant to stock purchases and mergers; setting forth restrictions against sales or transfers of credit; and specifying effective date.

Be it enacted by the Legislature of West Virginia;
That chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended by adding thereto a new article, designated article thirteen-n, to read as follows:
ARTICLE 13N. SMALL BUSINESS JOBS CREATION TAX CREDIT.
§11-13N-1. Short title.
 This article shall be known and may be cited as the "Small Business Jobs Creation Tax Credit Act."
§11-13N-2. Declaration of legislative intent and purpose. The Legislature of West Virginia hereby finds and declares that small business, as defined in this article, is a vital component of the West Virginia economy; That the growth and prosperity of small business in West Virginia will promote, improve and increase the general welfare and material well being of the people of West Virginia; That tax incentives for creation, expansion and improvement of small business within this State advance the interests of the People of West Virginia; and That development of small business serves the public purposes of relieving unemployment, preserving and creating jobs, promoting economic development and creating tax revenues for the support of essential public services. The Legislature finds and declares that the purposes to be accomplished by this Act are proper governmental and public services.
§11-13N-3. Definitions. -- For the purposes of this article:

(a) General. When used in this article, or in the administration of this article, terms defined in subsection (b) of this section have the meanings ascribed to them by this section, unless a different meaning is clearly required by the context in which the term is used. (b) Terms defined.
(1) "Affiliate" or "affiliated group" means and includes all persons, as defined in this section, which are affiliates of each other when either directly or indirectly:
(A) One person controls or has the power to control the other, or
(B) A third party or third parties control or have the power to control two persons, the two thus being affiliates. In determining whether concerns are independently owned and operated and whether or not an affiliation exists, consideration shall be given to all appropriate factors, including common ownership, common management and contractual relationships.
(2) "Commissioner" or "tax commissioner" means the tax commissioner of the state of West Virginia, or the tax commissioner's designee.
(3) "Corporation" means any corporation, joint-stock company or association, and any business conducted by a trustee or trustees wherein interest or ownership is evidenced by a certificate of interest or ownership or similar written instrument.
(4) "Designee", when used in reference to the tax commissioner, means any officer or employee of the tax division of the department of tax and revenue duly authorized by the tax commissioner directly, or indirectly by one or more redelegations of authority, to perform the functions mentioned or described in this article.
(5) "Eligible taxpayer" means a small business that has achieved entitlement to the tax credit allowed under this article by employing qualified employees, in the case of manufacturers, in at least two new jobs for a period of 365 continuous days, or, in the case of other businesses, in at least five new jobs for a period of 365 continuous days, in compliance with the requirements and provisions of this article.
(6) "Full-time employee" means an employee who works, is on a work site, on paid vacation leave or other paid leave, in the aggregate, at least two thousand eighty hours per year.
(7) "Manufacturer" means a person engaged in the activity of manufacturing in this state, or a manufacturing service provider.
(8) "Manufacturing" means a systematic operation or integrated series of systematic operations engaged in as a business or segment of a business which transforms or converts tangible personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed. In no case shall the term "manufacturing" include the activities of building construction, construction of other structures or facilities affixed to or on realty, retailing or agriculture, food processing or food manufacturing, the operation of any restaurant or retail food preparation or sales operation, the production of any natural resource, contract mining or any other activity of severing, producing, processing or extracting any natural resource. Manufacturing production begins with the arrival of raw materials and ends when the property has reached that point where no further chemical, physical or other changes are to be made to the resultant property in the production process.
(9) "Manufacturing service provider" means a person engaged in a manufacturing activity who does not have legal title to or any economic interest in the tangible personal property transformed or converted by the manufacturing process, and who engages in the manufacturing activity as a service to another person.
(10) "Natural person" or "individual" means a human being.
(11) "New job" means a full-time employment position held by a West Virginia resident domiciled in this state which did not exist in this state with any employer prior to the taxpayer's current taxable year.
(12) "Partnership" and "partner" means and includes a syndicate, group, pool, joint venture or other unincorporated organization through or by means of which any business, financial operation or venture is carried on, and which is not a trust or estate, a corporation or a sole proprietorship. The term "partner" includes a member in a syndicate, group, pool, joint venture or organization.
(13) "Person" means and includes any natural person, corporation, limited liability company or partnership.
(14) "Qualified employee" means a West Virginia resident domiciled in this state holding a new job as a full time employee of a small business.
(15) "Related entity", "related person", "entity related to" or "person related to" means:
(A) An individual, corporation, partnership, affiliate, association or trust or any combination or group thereof controlled by the taxpayer;
(B) An individual, corporation, partnership, affiliate, association or trust or any combination or group thereof that is in control of the taxpayer;
(C) An individual, corporation, partnership, affiliate, association or trust or any combination or group thereof controlled by an individual, corporation, partnership, affiliate, association or trust or any combination or group thereof that is in control of the taxpayer; or
(D) A member of the same controlled group as the taxpayer.
For purposes of this article, "control", with respect to a corporation, means ownership, directly or indirectly, of stock possessing fifty percent or more of the total combined voting power of all classes of the stock of the corporation which entitles its owner to vote. "Control", with respect to a trust, means ownership, directly or indirectly, of fifty percent or more of the beneficial interest in the principal or income of the trust. The ownership of stock in a corporation, of a capital or profits interest in a partnership or association or of a beneficial interest in a trust shall be determined in accordance with the rules for constructive ownership of stock provided in section 267(c) of the United States Internal Revenue Code, as amended: Provided, That paragraph (3) of section 267(c) of the United States Internal Revenue Code shall not apply.
(16) "small business" means a person that is required to hold a West Virginia business registration certificate under article twelve of this chapter, and that has annual gross income from a business registered under article twelve of this chapter of five hundred thousand dollars or less. For purposes of this definition, annual gross income shall include the gross income of the affiliated group of taxpayers to which the taxpayer belongs.
(17) "Tax year" or "taxable year" means the tax year of the taxpayer for federal income tax purposes.
(18) "Taxpayer" means any person subject to any tax imposed under this chapter.
§11-13N-4. Tax credit; eligibility; amount.
(a) For new jobs created on or after the first day of January, one thousand nine hundred ninety nine, each small business engaged in manufacturing which creates two or more new jobs, and each small business engaged in any lawful business activity other than manufacturing which creates five or more new jobs, except as otherwise provided in this article, shall be entitled to a tax credit for each new job, as provided in subsection (b) of this section. This tax credit shall be nonassignable and may not exceed an employer's total tax liability with respect to the specific tax against which the tax credit is required to be applied.
(b) Amount of credit.
(1) The amount of credit allowed to the eligible taxpayer is one thousand five hundred dollars multiplied by the number of qualified employees employed by the eligible taxpayer for 365 consecutive days; Provided, That, in the case of manufacturers, at least two new jobs are created by the small business within a taxable year, or, in the case of other businesses, at least five new jobs are created by the small business within a taxable year, and all such new jobs are continuously filled by a qualified employee for a period of 365 consecutive days.
(2)In no case shall the number of qualified employees allowed for purposes of this credit exceed the total increase in the taxpayer's employment in this state. Loss of West Virginia jobs by the taxpayer or by any affiliate of the taxpayer or by any person related to the taxpayer shall be subtracted from the number of new jobs created by the taxpayer for which credit may be claimed under this article.
(3) Entitlement to this credit will only accrue when, in the case of small businesses that are manufacturers, qualified employees filling at least two new jobs have held such jobs for a period of at least 365 consecutive days each, and fulfillment of the 365 day tenure for all such new jobs holders occurs within the same taxable year of the employer. If one employee filling a new job has reached 365 days tenure, but a second employee has held a new job for less than 365 days, the taxpayer's entitlement to the credit shall accrue only when the second employee's period of continuous employment reaches 365 days, and only if that second employee's tenure reaches 365 days within the same tax year in which the first employee's tenure reached 365 days.
(4) Entitlement to this credit will only accrue when, in the case of small businesses other than manufacturers, qualified employees filling at least five new jobs have held such jobs for a period of at least 365 days each, and fulfillment of the 365 day tenure for all such new job holders occurs within the same taxable year of the employer.
(5) Part-time and seasonal jobs shall not count as new jobs.
§11-13N-5. Application of annual credit allowance.
(a) Application of current year annual credit allowance. The amount determined under section four of this article shall be allowed as a credit for tax years ending on and after the first day of July, one thousand nine hundred ninety-nine, as follows:
(1) Business franchise taxes.
The amount determined under section four of this article shall be applied to reduce up to fifty percent of the taxes imposed by article twenty-three of this chapter for the tax year (determined after application of the credits against tax provided in section seventeen of said article, but before application of any other allowable credits against tax).
(2) Corporation net income taxes. After application of subdivision (1) of this subsection, any unused credit shall next be applied to reduce up to fifty percent of the taxes imposed by article twenty-four of this chapter, for the tax year (determined before application of allowable credits against tax).
(3) Personal income taxes.
(A) If the eligible taxpayer is an electing small business corporation (as defined in Section 1361 of the United States Internal Revenue Code), a limited liability company treated as a partnership for purposes of the federal income tax, a partnership or a sole proprietorship, then any unused credit (after application of subdivisions (1) and (2) of this subsection) shall be allowed as a credit against up to fifty percent of the taxes imposed by article twenty-one of this chapter on income of proprietors, partners or shareholders, subject to the limitations set forth in parts (B) and (C) of this subdivision.
(B) Electing small business corporations, partnerships and other unincorporated organizations shall allocate the credit allowed by this article among the members thereof in the same manner as profits and losses are allocated for the tax year.
(C) No credit may be allowed under this section against any tax due under article twenty-one of this chapter on any wage, salary or other compensation paid to any employee of any electing small business corporation, limited liability company, partnership, other unincorporated organization or sole proprietorship or against any amount of tax due on any wage, salary or other compensation reported on federal form W2.
(b) Unused credit forfeited. If any annual credit remains after application of subsection (a) of this section, the amount thereof shall be forfeited. No carryover to a subsequent tax year or carryback to a prior tax year shall be allowed for the amount of any unused portion of any annual credit allowance under this article. §11-13N-6. Assertion of the tax credit against tax.
(a) Any eligible taxpayer which desires to claim a tax credit as provided in this article shall file with the West Virginia tax commissioner, in such form as the tax commissioner may prescribe, an annual tax credit reporting schedule stating the amount of credit available to the taxpayer, and such other information as the tax commissioner may require.
(b) In the tax credit reporting schedule required under this section, the taxpayer shall provide all information required by the tax commissioner's prescribed form.
(c) The tax credit reporting schedule shall be filed with the annual return for the taxes imposed by article twenty-four of this chapter for the tax year in which the eligible taxpayer claims the credit allowed under this article. Provided, That, if the eligible taxpayer is not required to file a tax return under article twenty-four of this chapter, then such tax credit reporting schedule shall be filed with the annual return for the taxes imposed by article twenty-three of this chapter for such year: Provided, however, That, if the eligible taxpayer is not required to file a tax return under article twenty-three or twenty-four of this chapter, then such tax credit reporting schedule shall be filed with the annual return for the taxes imposed by article twenty-one of this chapter for such year.
(d) The tax commissioner may disallow any credit claimed under this article for which a properly completed tax credit reporting schedule, or other required documentation, statements or proofs are not timely filed.
§11-13N-7. Restrictions and limitations regarding tax credit.

(a) An employer may not claim a tax credit provided for in this article for any individual employed for less than a continuous period of 365 consecutive days, unless:
(1) The individual voluntarily leaves employment with the employer;
(2) The individual becomes totally disabled and unable to continue his employment; or
(3) The individual is terminated for good cause shown. for purposes of this article, good cause shall mean employee misbehavior of such seriousness to warrant dismissal. Good cause shall not include downsizing, economic downturns, layoffs due to business slowdowns or lack of business volume.
In the event that the individual is employed for less than a continuous period of 365 days due to circumstances enumerated in subdivision (1), (2) or (3) above, the employer shall be entitled to a partial tax credit in a proportional amount corresponding to the ratio of the time period during which the individual was actually employed to the 365 day period required for a full tax credit multiplied by the amount of the full tax credit which would have accrued to the employer had the individual's employment continued for a full year.
(b) An employer may not claim tax credit provided for in this article for any individual who is employed and displaces a person already employed.
§11-13N-8. Availability of credit to successors.
(a) (1) Where there has been a transfer or sale of the business assets of an eligible taxpayer to a successor taxpayer which continues to operate the business in this state, if the successor taxpayer is a small business otherwise in compliance with the requirements of this article, the successor taxpayer is entitled to the credit allowed under this article to which the predecessor was entitled for the taxable year of transfer in proportion to the number of days of the predecessor's taxable year that the successor owns the assets, and
(2) the predecessor is entitled to the credit in proportion to the number of days of the predecessor's taxable year that the predecessor owned the assets.
(3) New jobs held by employees of the predecessor who have not been employed by the predecessor for 365 days prior to the transfer of the assets of the predecessor to the successor, when such jobs remain in place subsequent to the transfer of assets to the successor as new jobs held by qualified employees of the successor, shall be counted as new jobs of the successor; and if such employees hold such new jobs for a total period of 365 days in the aggregate while employed by the predecessor and then the successor in turn, the successor, as employer of such employees on the 365th day of employment, shall thereupon gain entitlement to the credit allowed under this article: Provided, That the successor taxpayer otherwise remains in compliance with the requirements of this article for entitlement to the credit including the requirement that the successor constitute a small business.
(b) Stock purchases. Where a corporation which is an eligible taxpayer entitled to the credit allowed under this article is purchased through a stock purchase by a new owner and remains a legal entity so as to retain its corporate identity, the entitlement of that corporation to the credit allowed under this article will not be affected by the ownership change.
(c) Mergers.
(1) Where a corporation or other entity which is an eligible taxpayer entitled to the credit allowed under this article is merged with another corporation or entity, the surviving corporation or entity shall be entitled to the credit to which the predecessor eligible taxpayer was originally entitled only if the surviving corporation or entity otherwise complies with the provisions and requirements of this article including the requirement that the surviving corporation constitute a small business.
(2) The amount of credit available in any taxable year during which a merger occurs shall be apportioned between the predecessor eligible taxpayer and the successor eligible taxpayer based on the number of days during the taxable year that each taxpayer owned the transferred business assets.
(d) No provision of this section or of this article shall be construed to allow sales or other transfers of the tax credit allowed under this article. The credit allowed under this article can be transferred only in circumstances where there is a valid successorship as described under this section.
(e) This article shall be effective for tax years beginninng on or after the first day of January, one thousand nine hundred ninety nine.


Note: The purpose of this bill is to create a small business tax credit for jobs creation in the amount of $1,500 per job for two or more new jobs created by a small business manufacturer and for five or more jobs created by any other small business in any single tax year when such jobs have been in place for at least 365 days.






Article thirteen-N is new; therefore, strike-throughs and underscoring have been omitted.