sb160 intr

Senate Bill No. 160

(By Senators McKenzie, Fanning, Minard, Sharpe, Deem, Minear,
Redd, Hunter, Bowman, Kessler, Edgell, Helmick, Mitchell, Sprouse, Oliverio, Unger, Caldwell, Rowe and Prezioso)

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[Introduced February 16, 2001; referred to the Select Committee on Economic Development; and then to the Committee on Finance.]
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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-p, relating to allowing a downtown business revitalization tax credit for capital improvement in new or expanded nonmanufacturing facilities in downtown areas of municipalities in the state after the thirtieth day of June, two thousand one; setting forth legislative purpose; definitions; eligibility for credit; providing for the expiration of the credit; specifying the annual credit allowance; allowing proration of credit; allowing the credit to be used by successors; and providing for credit recapture.

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-p, to read as follows:
ARTICLE 13P. DOWNTOWN BUSINESS REVITALIZATION TAX CREDIT.
§11-13P-1. Legislative purpose.
The Legislature finds that downtown business revitalization is vital to the economy of the state as well as its cities and that a sound municipal economy is in the public interest and promotes the general welfare of the people of this state. In order to encourage capital investment in this state through the location of new business and the expansion of existing business in downtown areas of cities in this state, thereby increasing employment and economic development, there is provided to eligible taxpayers a tax credit for capital expenditures in qualifying new facilities, or in qualifying expanded existing facilities, that occur after the thirtieth day of June, two thousand one.
§11-13P-2. Definitions.

(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" 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 delegate.

(3) "Corporation" includes any corporation, a joint-stock company and any association or other organization which is taxed as a corporation under federal income tax law.

(4) "Delegate," when used in reference to the tax commissioner, means any officer or employee of the tax division of the department of tax and revenue 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) "Downtown area" means an area not exceeding one square mile in, or more than ten percent of, the total area of the municipality, whichever is greater, and which has consisted primarily of commercial enterprises other than manufacturing.

(6)(A) "Eligible investment" means the amount of capital investment made by an eligible taxpayer in property purchased for a new facility or expansion of an existing facility which is the applicable percentage of the cost of property purchased for the purpose which is placed in service or use in this state by the eligible taxpayer during the taxable year.

(B) Applicable percentage. -- For the purposes of paragraph (A) of this subdivision, the applicable percentage for any property shall be determined under the following table:

If useful life is:

The applicable percentage is:

4 years or more but less than 6 years

33 1/3
6 years or more but less than 8 years

66 2/3
8 years or more

100

The useful life of any property for purposes of this section shall be determined as of the date the property is first placed in service or use in this state by the taxpayer, determined in accordance with federal income tax law.

(C) Cost.-- For purposes of paragraph (A) of this subdivision, the cost of each property purchased for a new facility or expansion of an existing facility is determined using this paragraph.

(i) Trade-ins. -- Cost does not include the value of property given in trade or exchange for the property purchased for expansion or revitalization.

(ii) Damaged, destroyed or stolen property. -- If property is damaged or destroyed by fire, flood, storm or other casualty, or is stolen, then the cost of replacement property does not include any insurance proceeds received in compensation for the loss.

(iii) Rental property. -- The cost of property acquired by lease for a term of ten years or longer is one hundred percent of the rent reserved for the primary term of the lease, not to exceed twenty years.

(iv) Property purchased for multiple use. -- The use of property purchased for multiple business use including use as a component part of a new or expanded business, together with some other business or activity not eligible for credit under this article, shall be apportioned between the businesses and occupations. The amount apportioned to the new or expanded or revitalized business, is an eligible investment, subject to the conditions and limitations of this section.

(v) Self-constructed property. -- In the case of self-constructed property, its cost is the amount properly charged to the capital account for purposes of depreciation.

(7) "Eligible taxpayer" means a person who after the thirtieth day of June, two thousand one, makes capital expenditures in a new or expanded existing facility located in a downtown area of a municipality in this state, including retail businesses, restaurants, hotels and motels, offices of professionals such as doctors and lawyers, high technology businesses and back office operations, but not including manufacturing facilities. Prior to the investment for which credit is claimed a clearly delineated downtown area must be designated as such in writing to a requesting municipality by the county development authority in which the municipality is located, and certified in writing by the authority as an area in need of revitalization due to the decline in the number of businesses located in the area.

(8) "Existing facility" means a building and capital equipment in the building which at anytime during the twelve months preceding the month of its expansion was used by the taxpayer, or by a related person.

(9) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, of the United States.

(10) "Manufacturing facility" means any industrial facility used in the manufacturing of tangible personal property, including processing resulting in a change in the condition of the property.

(11) "New facility" means a building and capital equipment in the building that is used by the eligible taxpayer which occupies it after the thirtieth day of June, two thousand one. If the facility was used by the taxpayer, or by a related person, at any time during the preceding twelve months the building is not a new facility.

(12) "Partnership" 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 which is treated as a partnership for federal income tax purposes for the taxable year.

(13) "Partner" includes a member in a syndicate, group, pool, joint venture or organization treated as a partnership for federal income tax purposes for the taxable year.

(14) "Person" means and includes an individual, trust, estate, partnership, limited liability company, association, company or corporation.

(15)(A) "Related entity," "related person," "entity related to" or "person related to" means:

(i) An individual, corporation, partnership, affiliate, association or trust or any combination or group of them controlled by the taxpayer;

(ii) An individual, corporation, partnership, affiliate, association or trust or any combination or group of them that is in control of the taxpayer;

(iii) An individual, corporation, partnership, affiliate, association or trust or any combination or group of them controlled by an individual, corporation, partnership, affiliate, association or trust or any combination or group of them that is in control of the taxpayer; or

(iv) A member of the same controlled group as the taxpayer.

(B) For purposes of this subdivision, "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 entitled 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 two hundred sixty-seven(c) of the Internal Revenue Code: Provided, That paragraph (3) of section two hundred sixty-seven(c) of the Internal Revenue Code does not apply.

(16) "Tax year" or "taxable year," means the tax year of the taxpayer for federal income tax purposes.

(17) "Taxpayer" means any person subject to the tax imposed by articles twenty-one, twenty-three or twenty-four of this chapter.
§11-13P-3. Eligibility for tax credits; creation of the credit.
There is allowed to every eligible taxpayer a credit against the taxes imposed in articles twenty-one, twenty-three and twenty-four of this chapter. The amount of the credit is determined and applied as provided in this article.
§11-13P-4. Amount of credit allowed; expiration of the credit.
(a) Credit allowable. --

(1) The amount of annual credit allowable under this article to an eligible taxpayer is five percent of its eligible investment as defined in section two of this article, and shall be applied for each of the next five tax years, beginning with the taxable year in which the eligible investment is first placed in service or use in the municipality by the eligible taxpayer during the taxable year, or until the credit is exhausted, whichever comes first.

(2) When the new or expanded facility is in operation for less than twelve months of the taxable year in which it is placed in service, the credit allowed by this subsection shall be prorated by the ratio that the number of months in the taxpayer's taxable year during which the new or expanded facility was in service bears to twelve.

(3) When the eligible taxpayer stops using the facility during the taxable year, the credit allowed by this subsection shall be prorated by the ratio that the number of months in the taxpayer's taxable year during which facility was in use bears to twelve.

(4) The amount of credit allowable each taxable year shall be calculated annually based upon eligible investment made during the taxable years for which this credit is eligible. The amount of credit allowable for investment made during a taxable year shall be applied over a five-year period, at the rate of one fifth of the investment per taxable year, beginning with the taxable year in which the eligible investment is first placed in service or use.

(b) Credit against municipal business and occupation tax. --
A municipality may authorize in its ordinance a tax credit against its municipal business and occupation tax pursuant to this article and subsection (f), section five, article thirteen, chapter eight of this code, for eligible investment made by an eligible taxpayer. The maximum amount of the credit which may be allowed against the municipal business and occupation tax is the amount of new additional municipal business and occupation tax revenue resulting from the new or expanded facility. The decrease in the amount of municipal business and occupation tax liability resulting from the credit may not result in a tax liability for that tax, if any, which is less than the previous taxable year. The provisions of this article apply to this municipal business and occupation tax credit to the extent applicable.

(c) Expiration of credit. -- This credit expires on the first day of July, two thousand six. When the first day of July, two thousand six, falls during the taxable year of the eligible taxpayer, the amount of credit allowable for that taxable year is limited to that portion of the amount of credit that would have been allowable had the credit not expired multiplied by the ratio which the number of months during taxpayers taxable year ending before the first day of July, two thousand six, bears to twelve.
§11-13P-5. Application of annual credit allowance.
(a) Application of credit against business franchise tax. -- The amount of credit allowed under section four of this article shall first be applied against the eligible taxpayer's liability for the tax imposed by article twenty-three of this chapter that is attributable to eligible investment in a downtown area of a municipality.

(b) Application of remaining credit against income tax. -- After application of the allowable credit against the tax imposed by article twenty-three of this chapter, as provided in subsection (a) of this section, any remaining credit may be applied against one of the income taxes imposed by article twenty-one or twenty-four of this chapter to the extent those taxes are attributable to eligible investment in a facility located in a downtown area of a facility located in this state: Provided, That no credit is allowed against employer withholding taxes due under article twenty-one of this chapter.

(c) Excess credit forfeited. -- If after application of subsections (a) and (b) of this section, any of the one-fifth annual allowable credit remains for the taxable year, the amount remaining and not used is forfeited. Unused credit may not be carried back to any prior taxable year and may not be carried forward to any subsequent taxable year.

(d) Application of this credit when other credits apply. --

The credit allowed under this article shall be applied after application of all other applicable tax credits allowed for the taxable year against the taxes imposed by article twenty-one, twenty-three or twenty-four of this chapter.

(e) Completion of annual schedule to assert credit. -- To assert this credit against tax, the eligible taxpayer shall prepare and file with the annual tax return or returns filed under article twenty-one, twenty-three or twenty-four of this chapter, an annual schedule showing the amount of tax paid for the taxable year, and the amount of credit allowed under this article. This annual schedule shall set forth the information and be in the form prescribed by the tax commissioner.

(f) Payments of estimated tax. -- A taxpayer may consider the amount of credit allowed under this article when determining the taxpayer's liability under articles twenty-one, twenty-three and twenty-four of this chapter for periodic payments of estimated tax for the taxable year, in accordance with the procedures and requirements prescribed by the tax commissioner. The annual total tax liability and total tax credit allowed under this article are subject to adjustment and reconciliation pursuant to the filing of the annual schedule required by subsection (e) of this section.

§11-13P-6. Proration of credit among partners, members of limited liability companies, or shareholders in small business corporations.

The amount of credit allowed under this article for the taxable year to a partnership or limited liability company classified as a partnership for the taxable year, or to an electing small business corporation, that remains after application of the credit against the tax imposed by article twenty-three of this chapter as provided in subsection (a), section five of this article, shall be allocated to the individual partners, members or shareholders, as the case may be, in proportion to their ownership interest in the partnership, limited liability company or electing small business corporation. The amount of credit allocated to the individual partners, members or shareholders, as the case may be, may be applied against the taxes imposed by articles twenty-one and twenty-four of this chapter in accordance with the rule set forth in subsection (b), section five of this article.
§11-13P-7. Availability of credit to successors.

(a) Transfer or sale. -- When there is a transfer or sale of the business assets of an eligible taxpayer to a successor taxpayer which continues to operate the facility in the downtown area of the municipality, the successor taxpayer is entitled to the credit allowed under this article if the successor taxpayer otherwise remains in compliance with the requirements of this article for entitlement to the credit.

(b) Allocation of credit between eligible taxpayer and successor eligible taxpayer. -- For any taxable year during which a transfer or sale of the business assets of an eligible taxpayer to a successor taxpayer under this section occurs, or a merger allowed under this section occurs, the credit allowed under this article shall be apportioned between the predecessor eligible taxpayer and the successor taxpayer based on the number of days during the taxable year that each taxpayer owned the facility for which credit is allowed.

(c) Stock purchases. -- When 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 the corporation remains a legal entity so as to retain its corporate identity, the entitlement of that corporation to the credit allowed under this article is not affected by the ownership change.

(d) Mergers.--

(1) When 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 is 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 of this article.

(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 owned the transferred business assets: Provided, That when the taxable year of the predecessor eligible taxpayer and the taxable year of the successor eligible taxpayer are different, the apportionment shall be made as prescribed by the tax commissioner.

(e) No provision of this section or of this article allows sales or other transfers of the tax credit allowed under this article. The credit allowed under this article may be transferred only in circumstances where there is a valid successorship as described under this section.
§11-13P-8. Credit recapture; interest; penalties; additions to tax; statute of limitations.

(a) If it appears upon audit or otherwise that any person has improperly claimed the credit allowed by this article, the amount improperly claimed and which the person was not entitled to take shall be recaptured. An amended return shall be filed for any taxable year for which the credit was improperly taken. Any additional taxes due under this chapter shall be remitted with the amended return or returns filed with the tax commissioner, along with interest, as provided in section seventeen, article ten of this chapter, and a ten percent penalty plus such other penalties and additions to tax as may be applicable under the provisions of article ten of this chapter.

(b) Recapture for jobs lost. --

(1) If in any tax year the eligible facility ceases to operate, credit recapture applies for that year, and the taxpayer shall return to the state an amount of tax determined as provided in subsection (a) of this section.

(2) Notwithstanding the provisions of article ten of this chapter, penalties and additions to tax imposed under article ten of this chapter and the ten percent penalty imposed under this section may be waived, in whole or in part, at the discretion of the tax commissioner. However, interest may not be waived.

(c) Notwithstanding the provisions of article ten of this chapter, the time within which a notice of assessment may be issued by the tax commissioner to recover recaptured tax is five years from the date of filing of any tax return on which this credit was taken or five years from the date of payment of any tax liability calculated pursuant to the assertion of the credit allowed under this article, whichever is later.
§11-13P-9. Legislative rules.

The tax commissioner may propose rules for legislative approval pursuant to the provisions of article three, chapter twenty-nine-a of this code, as may be necessary to carry out the purposes of this article including, but not limited to, rules relating to applicability of credit, method of claiming credit, credit recapture, documentation necessary to claim credit and preventing abuse of this article by related persons or by change in the form of doing business.
§11-13P-10. Construction of article.

The provisions of this article shall be reasonably construed. The burden of proof is on the person claiming the credit allowed by this article to establish by clear and convincing evidence that the person is entitled to the amount of credit asserted for the taxable year.
§11-13P-11. Effective date.

This article is effective for taxable years beginning on or after the first day of July, two thousand one.

NOTE:
The purpose of this bill is to encourage businesses to locate or expand in the downtown areas of cities in the state which are in need of revitalization due to a decline in business in those areas.

This article is new; therefore, strike-throughs and underscoring have been omitted.