H. B. 2785
(By Delegates Craig, Morgan, Campbell,
Beach and Stalnaker)
[Introduced
January 30, 2003
; referred to the
Committee on Banking and Insurance then Finance.]
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; and clarifying that decreasing adjustment due to the
federal elimination of the reserve method for computation of
bad debt deduction applies only to large banks.
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.
§11-24-6. 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 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;
(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) On or after the first day of January, one thousand nine
hundred ninety-two, the amount added to federal taxable income due
to the elimination of the reserve method for computation of the bad
debt deduction by large banks under section 585 of the Internal
Revenue Code of one thousand nine hundred eighty-six, as amended;
(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 of the state;
(5) The amount required to be added to federal taxable income
as a dividend received from a foreign (nonUnited 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 taxable income which is
foreign source income. Foreign source income 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 "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 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, 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 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
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)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 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 clarify that the state's
decreasing adjustment to federal taxable income due to the
elimination under federal law of the reserve method of accounting
for computing the bad debt deduction is applicable only to large
banks. Because the elimination of the reserve method of computing
bad loss deductions affected only large banks, the decreasing
adjustment for elimination of that method of computing bad debt deductions is not available to small banks.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.