COMMITTEE SUBSTITUTE
FOR
COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 204
(By Senators Tomblin, Mr. President, and Sprouse,
By Request of the Executive)
____________
[Originating in the Committee on Finance;
reported March 2, 2004.]
____________
A BILL to amend and reenact §11-13R-6, §11-13R-11 and §11-13R-12 of
the code of West Virginia, 1931, as amended, all relating to
the strategic research and development tax credit; providing
that the credit may be refundable for small qualified research
and development companies; specifying limitations on credit;
and providing an effective date.
Be it enacted by the Legislature of West Virginia:
That §11-13R-6, §11-13R-11 and §11-13R-12 of the code of West
Virginia, 1931, as amended, be amended and reenacted, all to read
as follows:
ARTICLE 13R. STRATEGIC RESEARCH AND DEVELOPMENT TAX CREDIT.
§11-13R-6. Application of credit.
(a)
Credit allowed. -- Beginning in the year that the annual
combined qualified research and development expenditure is paid or
incurred, eligible taxpayers and owners of eligible taxpayers
described in subsections (d) and (f) of this section are allowed a
credit against the taxes imposed by articles twenty-three,
twenty-four and twenty-one of this chapter, in that order, as
specified in this section.
(b)
Business franchise tax. -- The credit is first applied to
reduce the taxes imposed by article twenty-three of this chapter
for the taxable 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
).
(c)
Corporation net income taxes. -- After application of
subsection (b) of this section, any unused credit is next applied
to reduce the taxes imposed by article twenty-four of this chapter
for the taxable year
, (determined before application of allowable
credits against tax
).
(d) If the eligible taxpayer is a limited liability company,
small business corporation or a partnership, then any unused credit
(after application of subsections (b) and (c) of this section
) is
allowed as a credit against the taxes imposed by article
twenty-four of this chapter on owners of the eligible taxpayer on
the conduit income directly derived from the eligible taxpayer by its owners. Only those portions of the tax imposed by article
twenty-four of this chapter that are imposed on income directly
derived by the owner from the eligible taxpayer are subject to
offset by this credit.
(1) Small business corporations, limited liability companies,
partnerships and other unincorporated organizations shall allocate
the credit allowed by this article among their members in the same
manner as profits and losses are allocated for the taxable year.
(2) No credit is allowed under this article against any
withholding tax imposed by, or payable under, article twenty-one of
this chapter.
(e)
Personal income tax taxes. -- After application of
subsections (b), (c) and (d) of this section, any unused credit is
next applied to reduce the taxes imposed by article twenty-one of
this chapter for the taxable year
(determined before application of
allowable credits against tax
) of the eligible taxpayer.
(f) If the eligible taxpayer is a limited liability company,
small business corporation or a partnership, then any unused credit
(after application of subsections (b), (c), (d) and (e) of this
section
) is allowed as a credit against the taxes imposed by
article twenty-one of this chapter on owners of the eligible
taxpayer on the conduit income directly derived from the eligible
taxpayer by its owners. Only those portions of the tax imposed by article twenty-one of this chapter that are imposed on income
directly derived by the owner from the eligible taxpayer are
subject to offset by this credit.
(1) Small business corporations, limited liability companies,
partnerships and other unincorporated organizations shall allocate
the credit allowed by this article among their members in the same
manner as profits and losses are allocated for the taxable year.
(2) No credit is allowed under this article against any
withholding tax imposed by, or payable under, article twenty-one of
this chapter.
(g) The total amount of tax credit that may be used in any
taxable year by any eligible taxpayer in combination with the
owners of the eligible taxpayer under subsections (d) and (f) of
this section,
and including any refundable credit claimed under
subsection (i) of this section, may not exceed two million dollars.
(h)
Unused credit carry forward. --
Except to the extent
excess credit is refunded as provided in subsection (i) of this
section, if the credit allowed under this article in any taxable
year exceeds the sum of the taxes enumerated in subsections (b),
(c), (d), (e) and (f) of this section for that taxable year, the
eligible taxpayer and owners of eligible taxpayers described in
subsections (d) and (f) of this section may apply the excess as a
credit against those taxes, in the order and manner stated in this section, for succeeding taxable years until the earlier of the
following:
(1) The full amount of the excess credit is used; or
(2) The expiration of the tenth taxable year after the taxable
year in which the annual combined qualified research and
development expenditure was paid or incurred. Credit remaining
thereafter is forfeited.
(i) Refundable credit for "small qualified research and
development company". -- If the eligible taxpayer, including the
controlled group, is a member of a controlled group, has gross
revenues of not more than twenty million dollars and a payroll of
not more than two million five hundred thousand dollars, and the
credit allowed under this article in any taxable year exceeds the
sum of taxes enumerated in subsections (b), (c), (d), (e), and (f)
of this section for that taxable year, the eligible taxpayer and
owners of the eligible taxpayers described in subsections (d) and
(f) of this section may claim for that year the excess amount as a
refundable credit, not to exceed one hundred thousand dollars per
taxpayer, including owners and the controlled group, if applicable:
Provided, That not more than one million dollars of the unused
credits described in this subsection may be approved for refundable
credit by the tax commissioner during any fiscal year. Priority
for approval of refundable credit is determined based on the filing date of the claim for refund with earlier claims having priority
over later claims.
(i) (j) Application for certification. -- No credit is allowed
or may be applied under this article until the person seeking to
claim the credit has filed a written application for certification
of the proposed research and development program or project with
the tax commissioner and has received certification of the research
and development program or project from the tax commissioner
pursuant to that written application. The certification of the
program or project must be received by the eligible taxpayer from
the tax commissioner prior to any credit being claimed or allowed
for any annual combined qualified research and development
expenditure for any research activity or project. This application
shall be filed, in the form prescribed by the tax commissioner, no
later than the last day for filing the tax returns, determined by
including any authorized extension of time for filing the return,
required under article twenty-one or twenty-four of this chapter
for the taxable year in which the property to which the credit
relates is placed in service or use, or the qualified research and
development expenses to which the credit relates are incurred by
the taxpayer, and all information required by the form shall be
provided by the taxpayer.
(1) In the case of owners of eligible taxpayers described in subsection (d) or (f) of this section, the application for
certification filed under this section by the limited liability
company, small business corporation or partnership owned by the
person is considered to be filed on behalf of the owner and no
separate filing of the application is required of the owner.
(2)
Form of application. -- The application for certification
must be filed in the form as the tax commissioner
may prescribe
prescribes and shall contain the information as the tax
commissioner
may require requires to determine whether the project
should be certified as eligible for credit under this article.
(3)
Time period covered by certification. -- The application
may request certification of the research and development program
for one taxable year or multiple taxable years, as applicable,
based on the nature and character of the program or project plan
for the particular research and development project or activity.
(4)
Requirements for application. -- The application shall
specifically set forth a written research and development program
plan generally describing the nature of the research and
development to be undertaken, the number and types of jobs, if any,
created by the applicant as a direct result of the research and
development program and the average wages and benefits paid to
those employees, the projected time period over which the research
and development shall be carried out, the period of time for which the applicant seeks certification of the program or project and
such other information as the tax commissioner
may require
requires.
(5)
Certification. -- The tax commissioner may issue
certification of a research and development program or project if
it appears to the tax commissioner that the applicant intends to
engage in a bona fide research and development activity, as
described in this article, and will otherwise comply with the
requirements of this article and all rules and requirements
applicable thereto.
(6)
Time period covered by certification. -- The tax
commissioner may issue certification for the period of time for
which the eligible taxpayer seeks certification or a different
period of time, within the discretion of the tax commissioner. In
his or her discretion, the tax commissioner may require that a
separate application be filed for each tax year in which qualified
research and development activity is to be undertaken or in which
qualified research and development property is to be placed in
service or use.
(7)
Failure to file. -- The failure to timely file the
application for certification of a research and development program
or project under this section results in forfeiture of one hundred
percent of the annual credit otherwise allowable under this article. This penalty applies annually until
such the application
is filed.
(8)
Research and development undertaken without certification.
-- If a person has filed an application for certification of a
research and development program or project and has failed to
receive certification of the plan or program from the tax
commissioner, no credit is allowed under this article for the
research and development activity or investment relating thereto.
(9)
Failure to comply with terms of certification. -- If a
person has filed an application for certification of a research and
development program or project and has received certification of
the plan or program from the tax commissioner, but fails to conform
to the terms of the certification, no credit is allowed under this
article for the research and development activity or for investment
in the research and development activity by the eligible taxpayer.
This restriction may be waived by the tax commissioner upon a
finding that the research and development undertaken was within the
requirements of this article and that there was no intent to
defraud the state or willful neglect in the applicant's failure to
conform to the terms of the certification.
(10)
Failure to comply with certification time restrictions.
-- If a person has filed an application for certification of a
research and development program or project and has received certification of the plan or program from the tax commissioner, but
fails to conform to the time periods specified therein for the
certified research and development program or project, or fails to
renew the certification so as to cover ongoing or subsequent
research and development activity, the research and development
activity is out of compliance with the terms of the certification
and no credit is allowed under this article for, or relating to,
the research and development activity by any person or taxpayer.
This restriction may be waived by the tax commissioner upon a
finding that the research and development thus undertaken was
within the requirements of this article and that there was no
intent to defraud the state or willful neglect in the applicant's
failure to conform to the terms of the certification.
§11-13R-11. Tax credit review and accountability.
(a) Beginning on the first day of February, two thousand six,
and on the first day of February every third year thereafter, the
commissioner shall submit to the governor, the president of the
Senate and the speaker of the House of Delegates a tax credit
review and accountability report evaluating the cost effectiveness
of the credit allowed under this article during the most recent
three-year period for which information is available. The criteria
to be evaluated includes, but is not limited to, for each year of
the three-year period:
(1) The numbers of taxpayers claiming the credit;
(2) The net number, type and duration of new jobs created by
all taxpayers claiming the credit and wages and benefits paid;
(3) The cost of the credit;
(4) The cost of the credit per new job created;
and
(5) Comparison of employment trends for the industry and for
taxpayers within the industry that claim the credit;
and
(6) The amount of excess credit refunded to small qualified
research and development companies pursuant to subsection (i),
section six of this article.
(b) Taxpayers claiming the credit shall provide
such
information as the tax commissioner
may require requires to prepare
the report:
Provided, That
such the information shall be subject
to the confidentiality and disclosure provisions of sections five-d
and five-s, article ten of this chapter.
§11-13R-12. Effective date.
The provisions of this article become effective on the first
day of January, two thousand three, and apply only to qualified
investment made on or after that date,
except that the amendments
to this article enacted in two thousand four shall become effective
for taxable years beginning on or after the first day of July, two
thousand four, and apply only to unused credit attributable to
qualified investment made on or after that date and prior to the first day of January, two thousand eight.