Senate Bill No. 754
(By Senators Oliverio, Fanning, Anderson, Ball, Bowman,
Craigo, Plymale, Ross, Sharpe, Buckalew, Kimble and Sprouse)
[Originating in the Committee on Small Business;
reported March 2, 1998.]
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
(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
(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
(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
(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
(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
§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
(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
(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
(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
(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
(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
(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.
(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.