H. B. 3228
(By Delegates Michael and Kominar)
[Introduced March 25, 2005; referred to the
Committee on Finance.]
A BILL to amend and reenact §11-21-18 and §11-21-30 of the Code of
West Virginia, 1931, as amended, all relating generally to
personal income tax; providing that in determining West
Virginia taxable income of electing small business trusts,
income attributable to S corporation stock held by the trust
shall be included; making a technical change in the
computation of tax for nonresident individuals, estates and
trusts and part-year resident individuals; and correcting an
erroneous cross-reference to a section of the code concerning
part-year residents.
Be it enacted by the Legislature of West Virginia:
That §11-21-18 and §11-21-30 of the Code of West Virginia,
1931, as amended, be amended and reenacted, all to read as follows:
ARTICLE 21. PERSONAL INCOME TAX.
§11-21-18. West Virginia taxable income of resident estate or
trust.
The West Virginia taxable income of a resident estate or trust
means its federal taxable income for the taxable year as defined in
the laws of the United States and section nine of this article for
the taxable year, with the following modifications:
(1) There shall be subtracted six hundred dollars as the West
Virginia personal exemption of the estate or trust, and there shall
be added the amount of its federal deduction for a personal
exemption.
(2) There shall be added or subtracted, as the case may be,
the share of the estate or trust in the West Virginia fiduciary
adjustment determined under section nineteen of this article.
(3) There shall be added to federal adjusted gross income,
unless already included therein, the amount of a lump sum
distribution for which the taxpayer has elected under Section
402(e) of the Internal Revenue Code of one thousand nine hundred
eighty-six, as amended, to be separately taxed for federal income
tax purposes: Provided, That the provisions of this subdivision
shall first be effective for taxable years beginning after the
thirty-first day of December, one thousand nine hundred ninety.
(4) There shall be added by an electing small business trust
as defined in Section 1361(e) of the Internal Revenue Code of 1986, as amended, which is a shareholder in one or more S corporations,
the portion of the trust's income attributable to S corporation
stock held by the trust that is not included in the trust's federal
taxable income pursuant to Section 641 of the Internal Revenue Code
of 1986, as amended.
PART III. NONRESIDENT AND PART-YEAR RESIDENTS.
§11-21-30. Computation of tax on income of nonresidents and
part-year residents.
(a) Computation of tax.
-- For taxable years beginning after
the thirty-first day of December, one thousand nine hundred
ninety-one, the tax due under this article on taxable income
derived from sources in this state by a nonresident individual,
estate, or trust or by a part-year resident individual shall be
calculated as provided in this section.
(1) Taxpayer shall first calculate tax liability under this
article as if taxpayer, whether an individual, estate or trust,
were a resident of this state for the entire taxable year. When
determining tentative tax liability under this subdivision, a
nonresident shall be allowed the same deductions, exemptions and
credits that would be allowable if taxpayer were a resident
individual, estate or trust, as the case may be, for the entire
taxable year, except that no credit shall be allowed under section
twenty of this article.
(2) The amount of tentative tax determined under subdivision
(1) of this subsection shall then be multiplied by a fraction the
numerator of which is the taxpayer's West Virginia source income,
determined in accordance with Part III of this article for the
taxable year, and the denominator of which is such taxpayer's
"federal West Virginia adjusted gross income" for the taxable year
as defined in section nine of this article.
(b) Special rules for estates and trusts.
-- For purposes of
subdivision (1) of subsection (a):
(1) The "federal adjusted gross income" of an estate or trust
shall be determined as if such estate or trust were an individual;
and
(2) In the case of a trust, "federal adjusted gross income"
shall be its "federal adjusted gross income" for the taxable year
increased by the amount of any includible gain, reduced by any
deductions properly allocable thereto, upon which the tax is
imposed for the taxable year pursuant to Section 644 of the
Internal Revenue Code.
(3) When an electing small business trust as defined in
Section 1361(e)(1) of the Internal Revenue Code of 1986, as
amended, is a shareholder in one or more S corporations, the
portion of the trust's income attributable to S corporation stock
held by the trust that is not included in the trust's federal
taxable income pursuant to Section 641(c) of that code shall be included in West Virginia taxable income of the trust.
(c) Special rules for part-year residents.
--
(1) For purposes of subdivision (1) of subsection (a), the
"federal adjusted gross income" of a part-year resident individual
shall be taxpayer's federal adjusted gross income for the taxable
year, as defined in section nine of this article, increased or
decreased, as the case may be, by the items accrued under
subdivision (1), subsection (b), section forty-five of this
article, to the extent such items are not otherwise included in
federal adjusted gross income for the taxable year, and decreased
or increased, as the case may be by the items accrued under
subdivision (2), subsection (b) of said section forty-five, to the
extent such items are included in federal adjusted gross income for
the taxable year; and
(2) In computing the tax due as if taxpayer were a resident of
this state for the entire tax year, West Virginia adjusted gross
income shall include the accruals specified in subdivision (1) of
this subsection (c), with the applicable modifications described in
section forty-five forty-four of this article.
(d) Definitions.
(1) "Nonresident estate" means an estate of a decedent who was
not a resident of this state at the time of his or her death.
(2) "Nonresident trust" means a trust which is not a resident
trust, as defined in section seven.
(3) "Part-year resident individual" means an individual who is
not a resident or nonresident of this state for the entire taxable
year.
(e) Effective date.
-- The provisions of this section shall
apply to taxable years beginning after the thirty-first day of
December, one thousand nine hundred ninety-one. As to taxable
years beginning prior to that date, the provisions of this article
as then in effect shall apply and be controlling, and for that
purpose, prior law is fully and completely preserved.
NOTE: The purpose of this bill is to tax income of an electing
small business trust which is attributable to S corporation stock
held by the trust. Although such income is taxable at the federal
level, it is not included in federal taxable income, which is the
starting point for West Virginia taxation of trusts and thereby
escapes this state's personal income tax; and make technical
changes in the denominator of the fraction used in computation of
tax for nonresident individuals, and in an erroneous cross-
reference to W. Va. Code §11-21-45, which does not exist.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.