W. Va. Code R. § 110-13C-14

Current through Register Vol. XLI, No. 52, December 27, 2024

Section 110-13C-14 - Restrictions and limitations on credits allowed by W. Va. Code '11-13C et seq

14.1. By legislation passed on March 10, 1990 the West Virginia Legislature made the following finding:

The Legislature finds that the tax credits allowed under provisions of this article (W. Va. Code '11-13C et seq.) heretofore enacted have not effectively and efficiently increased employment through investment in a certain industry segments; that while there has been a significant net decrease in employment in the coal industry in recent years the amount of credit being claimed by producers of coal has significantly increased; that the increasing cost of the credits allowed by this article to coal producers is eroding the State's ability to reasonably fund essential State services such as public education, public safety and basic human services; and that this erosion will continue unless remedial legislation is enacted.

14.2. Construction. - The rule of statutory construction codified in W. Va. Code '11-13C-12b is replaced by statutory mandate effective March 10, 1990 with a rule of reasonable construction in which the burden of proof is on the taxpayer to establish by clear and convincing evidence that the taxpayer is entitled to the benefits allowed by W. Va. Code '11-13C et seq.

14.3. Credit not to be applied against severance taxes.

14.3.1. Notwithstanding any provision in W. Va. Code '11-13C et seq. to the contrary, no credit shall be allowed against the taxes imposed by W. Va. Code '11-13A et seq. (the severance tax) for taxable years ending on or after March 10, 1990 unless one of the transition rules in W. Va. Code '11-13C-14(c)(2) applies.

14.3.2. Transition rules. - The general rule stated in W. Va. Code '11-13C-14(c)(1) and Section 14.3.1 of these regulations shall not apply:

14.3.2.1. To qualified investment property placed in service or use prior to March 10, 1990.

14.3.2.2. To property purchased or leased for business expansion that is placed in service or use on or after March 10, 1990 if at least one of the following clauses applies to such property:

14.3.2.2.a. The new or expanded business facility was constructed, reconstructed or erected, pursuant to a written construction contract executed prior to March 10, 1990, as limited to the provisions of such contract as of such date then binding on the taxpayer, but only to the extent such new or expanded business facility is placed in service or use prior to January 1, 1992.

14.3.2.2.b. The new or expanded business facility which is part of a project described in W. Va. Code '11-13C-4b(a)(1) was constructed, reconstructed or erected, pursuant to a written construction contract executed prior to March 10, 1990 as limited to the provisions of such contract as of such date then binding on the taxpayer: Provided, That only that portion of the contract price attributable to that percentage of the construction contract completed prior to January 1, 1992 (determined under principles set forth in Section 460(b) of the Internal Revenue Code of 1986, as in effect before March 10, 1990) which is placed in service or use prior to January 1, 1992 may be treated as property purchased for business expansion under W. Va. Code '11-13C-6.

14.3.2.2.c. The new or expanded business facility was purchased or leased pursuant to a written contract executed prior to March 10, 1990 as limited to the provisions then binding on the taxpayer as of such date, but only to the extent such new or expanded business facility is placed in service or use prior to January 1, 1992.

14.3.2.2.d. The machinery or equipment or other tangible personal property purchased or leased for business expansion at a new or expanded business facility was purchased or leased by the taxpayer pursuant to a written contract to purchase or lease identifiable tangible personal property executed before March 10, 1990, as limited to the provisions of such written contract then binding on the taxpayer, but only to the extent the tangible personal property purchased or leased under such contract is placed in service or use before January 1, 1992: Provided, That when such tangible personal property is purchased or leased as aforesaid as part of a project described in subsection 14.3.2.2.b of these regulations, such tangible personal property must be placed in service or use prior to January 1, 1994, to be treated as property purchased or leased for business expansion under W. Va. Code '11-13C-6.

14.3.2.3. Transition Rule 3. - The general rule provided in paragraph 14.3.1 shall not apply to property purchased or leased for business expansion that is placed in service or use after March 9, 1990 as a component part of a plan for an integrated project which is otherwise eligible for super tax credit under W. Va. Code '11-13C-4b, provided all of the following requirements are satisfied:

14.3.2.3.a. Investment Threshold. - The taxpayer and other participants in the project, if any, have made investments aggregating more than ten million ($10,000,000) dollars in property purchased or leased for business expansion (as defined in W. Va. Code '11-13C-3(b)(19) prior to enactment of '11-13C-14), prior to March 10, 1990.

14.3.2.3.a.1. This requirement that the taxpayer and other participants in the project, if any, have made investments aggregating more than ten million ($10,000,000) dollars prior to March 10, 1990, in "property purchased or leased for business expansion," as defined in W. Va. Code '11-13C-3(b)(19), is satisfied if property purchased or leased for business expansion, as defined in W. Va. Code '11-13C-3(b)(19), is purchased, or leased, prior to March 10, 1990 and the contract to purchase, or lease, irrevocably obligates the taxpayer or any other participant in the project, if any, to purchase, or lease, identifiable property for a sum certain amount.

14.3.2.3.a.2. Property is deemed to have been purchased before March 10, 1990 if:

(i) the physical construction, reconstruction or erection of the property was begun prior to March 10, 1990, or the property was constructed, reconstructed, erected or acquired pursuant to a written contract in existence and binding on the purchaser before March 10, 1990; or

(ii) the machinery, equipment or other tangible personal property was owned by the taxpayer or another participant in the project, if any, prior to March 10, 1990, or was acquired by the taxpayer or another participant in the project, if any, pursuant to a binding purchase contract executed prior to March 10, 1990.

14.3.2.3.a.3. Property is deemed to have been leased before March 10, 1990 only if the taxpayer or another participant in the project, if any, took physical possession of the leased property prior to March 10, 1990, or there was a binding written lease or contract to lease identifiable tangible personal property in effect prior to March 10, 1990 for a specified term for specified periodic consideration.

14.3.2.3.b. Integrated Project Rule. - Investment aggregating more than ten million ($10,000,000) dollars must have been made pursuant to a written plan for development of an integrated corporate project, in one or two phases, over a period of one or more years, which otherwise qualifies for credit under W. Va. Code '11-13C-4b. This written plan must have been in existence prior to March 10, 1990 and provide for the making of additional investments after March 9, 1990, in furtherance of the plan for an integrated corporate project. The existence of such a plan is a matter of fact to be determined on a case-by-case basis, the burden of proof is on the taxpayer to show the interrelationship between the several phases or parts of the project and the dependency of any subsequent investment on the qualifying investment of more than ten million ($10,000,000) dollars.

14.3.2.3.b.1. Existence of a written plan for development of an integrated corporate project is demonstrated by the written plan itself. Proof that the written plan existed prior to March 10, 1990 may be demonstrated by corporate minutes of meetings of boards of directors or shareholders held prior to March 10, 1990 which discuss the plan, or which authorize the expenditure of more than ten million ($10,000,000) dollars in "property purchased or leased for business expansion," as defined in W. Va. Code '11-13C-3(b)(19), to implement the plan or any integrated phrase or part thereof. The plan's existence may also be proved from submissions to federal or State regulatory authorities including, but not limited to, the Federal Energy Regulatory Commission and the Securities and Exchange Commission, which refer to the integrated corporate project in sufficient detail or by applications for financing of the integrated project which describe the project in sufficient detail.

14.3.2.3.b.1.a. There must be clear, convincing evidence of an approved corporate plan or other action of the taxpayer showing positive commitment to the full development of the plan for an integrated corporate project prior to March 10, 1990.

14.3.2.3.b.1.b. There must be clear, convincing evidence that development, design or engineering had begun prior to March 10, 1990 on any Section 11-13C-4b(a)(1) project that encompasses any thirty-six (36) consecutive month period that begins after March 9, 1990, when it is claimed that such Section 11-12C-4 b(a)(1) project is an integrated part or phase of an plan for an integrated corporate project that spans more than three (3) years.

14.3.2.3.b.2. A plan consists of two integrated phases or parts when there is clear, convincing evidence that but for phase one, phase two of the plan would not have been started and completed. Additionally, a plan is not an integrated plan unless each subsequent phase is directly in furtherance of and contributes to the primary objective of the plan. The following criteria is indicative of the existence of an integrated corporate project:

14.3.2.3.b.2.a. The investment made prior to March 10, 1990, was made with the expectation of making additional investment after March 9, 1990 which qualifies a second Section 11-13C-4 b(a)(1) project under the super tax credit law and that project is directly related to the pre-March 10, 1990 investment.

14.3.2.3.b.2.b. The two (2) super tax credit section 11-13C-4 b(a)(1) projects are dependent on or contribute to each other.

14.3.2.3.b.2.c. The corporate project is limited to a single "business facility" as defined in W. Va. Code '11-13C-3(b); and the "mining operations," as defined in Section 11-13C-3(b) are contained on contiguous property and are part of a single operating unit. Factors which indicate that the mining operations are part of a single operating unit are:

14.3.2.3.b.2.c.1. common processing or treatment plant,

14.3.2.3.b.2.c.2. common storage and loading facility,

14.3.2.3.b.2.c.3. other common support facilities, and

14.3.2.3.b.2.c.4. common supervisory personnel.

14.3.2.3.b.2.d. Notification was given to the Tax Commissioner, prior to March 10, 1990, that a corporate project consists of two (2) Section 11-13C-4b(a)(1) projects.

Business strategy and planning is generally limited to five (5) year increments. A taxpayer who applies for super tax credit under this third transition rule for more than one Section 11-13C-4b(a)(1) project that begins after March 9, 1990, must present clear and convincing evidence of significant economic loss should taxpayer's investment in such project not be eligible for super tax credit that offsets the severance tax imposed by W. Va. Code '11-13A et seq.

The following example demonstrates the intent of this paragraph 14.3.2.3.b.2.

Example: XYZ Coal Company has written plan to develop its Rocky Mountain Coal Project. Phase I consists of assembling (by purchase or lease) the coal lands necessary to economically sustain coal production once all phases of the project are completed; obtaining necessary State and federal permits; obtaining necessary financing and doing anything else that may be necessary to move into phase II. Phase II consists of developing and operating one or more strip mines on the project site. This includes development of access roads and a coal loading facility. During this phase anything else necessary to move into phase III is done. Phase III consists of construction, or development, and operation of the following on project land previously stripped:

(1) a coal preparation plant incorporating the most current coal preparation technology;

(2) unitrain coal loading facilities;

(3) three deep mines; and

(4) all related facilities.

Under these facts, this is an integrated multiphase project.

14.3.2.3.b.3. An integrated project is otherwise eligible for super tax credit, under W. Va. Code '11-13C-4b, to the extent the entire project, or any phase thereof, qualifies for credit under W. Va. Code '11-13C-4b. In order to qualify for super tax credit, there must be both investment in property purchased or leased for business expansion and the creation of at least fifty (50) new jobs by the taxpayer or any other participant in the project as a direct result of that investment. Because a Section 11-13C-4b(a)(1) multi-year project is limited to qualified investment property placed in service or use during any three (3) successive tax years that directly results in the creation of at least fifty (50) new jobs filled by new employees, a multi-year integrated corporate project is only eligible for super tax credit benefits to the extent that one or more portions of the integrated project satisfies the Section 11-13C-4b(a)(1) requirements. The following examples illustrate the meaning of this rule.

Example 1. Prior to March 10, 1990, XYZ Coal Company (Taxpayer) made investment in property purchased or leased for its Rocky Mountain Coal Project aggregating more than ten million ($10,000,000) dollars. All of that property was placed in service during calendar years 1987, 1988 and 1989. As a direct result of that investment hundred (100) new jobs were created and filled by new employees during that period. XYZ Coal Company timely applied to the Tax Commissioner for certification of this phase of its integrated project. Certification was granted and XYZ Coal Company began taking the super tax credit. During calendar year 1990, XYZ Coal Company timely filed with the Tax Commissioner notice of claim to super tax credit under the Section 11-13C-14(c) transition rules. In 1991, Taxpayer placed in service project property valued at two hundred fifty thousand ($250,000) dollars and created five new jobs. During calendar years 1992, 1992 and 1994. The property placed in service during 1990 is not eligible for super tax credit because it did not result in the creation of at least fifty (50) new jobs. While Taxpayer could have grouped the years 1991, 1992 and 1993 together as a Section 11-13C-14 b(a)(1) project, it would not have been allowed to claim super tax credit for the five million ($5,000,000) dollars of project property placed in service in calendar year 1994 which resulted in the creation of twenty-five (25) new jobs. For this reason, Taxpayer elected to treat the years 1992-1994 as a section 11-13C-4 b(a)(1) project rather than the years 1991-1993. During calendar year 1995, Taxpayer placed in service additional Rocky Mountain Coal project property valued one million ($1,000,000) dollars which created ten (10) new jobs. No super tax credit benefits are allowable with respect to the investment placed in service during 1995.

Example 2: Same facts as in Example 1, except that during 1991 XYZ Coal Company placed in service a new strip mine that is not part of its Rocky Mountain Coal Project. Property placed in service is valued at seven hundred fifty thousand ($750,000) dollars and fifty-five (55) new jobs were created. Because the new mine is not a part of the Rocky Mountain Coal Project, super tax credit for that investment may not be used to offset severance taxes on coal produced from that strip mine. Super tax credit may be applied against other taxes directly attributable to that mine, in accordance with the remaining provisions of W. Va. Code '11-13C-5.

14.3.2.3.c. New Business Facility Rule. - The portion of the integrated project constructed, purchased, or leased, after March 9, 1990 must satisfy the definition "new business facility" codified in W. Va. Code '11-13C-14(e)(3).

14.3.2.3.d. New Jobs Rule. - The new jobs created by the project after March 9, 1990 must be filled by "new employees" as defined in W. Va. Code '11-13C-14(e)(4).

14.3.3. Notice of claim under transition rules.

14.3.3.1. Notice required. - Any person intending to assert a claim for credit based in whole or in part on application of the transition rules in W. Va. Code '11-13C-14(c)(2)(B) or (C) must have filed written notice of such intention with the Tax Commissioner on or before July 1, 1990. In the case of a multiparticipant project, this notice may have been filed by the managing project participant on behalf of all participants in such project. Such notice shall have been in a form prescribed by the Tax Commissioner and all information required by such form shall have been provided.

14.3.3.2. Failure to file notice. - If any person fails to timely file the notice required by W. Va. Code '11-13C-14(c)(3), such person shall be precluded from claiming credit under W. Va. Code '11-13C et seq. for such investment.

14.4. Treatment of successor project participants. - Whenever a participant in a project certified under W. Va. Code '11-13C-4b(a)(2) or (3) is replaced by another participant in that project on or after March 10, 1990, the tax credits available to such successor participant as a result of the transfer shall not exceed the amount of credits that would have been available to the predecessor participant had the transfer to the successor participant not occurred: Provided, That if the project plan provides for annual recalculation of the division of the credit allowable for each year among the participants in the project in order to maximize the collective use of such credit by the project participants, or for any other purpose, then the credit available to the successor participant as a result of the transfer shall be limited each year to the amount of credit actually used by the predecessor participant to offset taxes for the taxable year immediately preceding the taxable year in which such participant's obligations or interest in the project, as described in the project plan certified by the Tax Commissioner, passed to the successor participant in the project.

14.5. The following terms are defined or redefined on and after March 10, 1990 for purposes of the business investment and jobs expansion tax credit:

14.5.1. "Construction contract." - For definition, refer to Section 3 of these regulations.

14.5.2. "Excluded property." - For definition, refer to Section 3 of these regulations.

14.5.3. "New business facility." - For definition, refer to Section 3 of these regulations.

14.5.4. "New employee." - The terms "full-time employee" and "permanent employment" are defined under this heading. For definition, refer to Section 3 of these regulations.

14.5.5. "Leased property." - For definition, refer to Section 3 of these regulations.

14.5.6. "Small business." - For definition, refer to Section 3 and Section 7a of these regulations.

14.5.7. "Annual payroll." - For definition, refer to Section 3 and Section 7a of these regulations.

14.5.8. "Annual gross receipts." - For definition, refer to Section 3 and Section 7a of these regulations.

14.5.9. "Affiliates." - For definition, refer to Section 7a of these regulations.

14.5.10. "Concern." - For definition, refer to Section 7a of these regulations.

14.6. Application for credit required.

14.6.1. Application required. - Notwithstanding any provision of W. Va. Code '11-13C et seq. to the contrary, no credit shall be allowed or applied under W. Va, Code '11-13C et seq. for any qualified investment property placed in service or use on or after January 1, 1990 until the person asserting a claim for the allowance of credit under W. Va. Code '11-13C et seq. makes written application to the Tax Commissioner for allowance of credit as provided in W. Va. Code '11-13C-14(f) and receives written acknowledgement of its receipt from Tax Commissioner: Provided, That in the case of a multiparticipant project this notice may be filed by the managing project participant on behalf of all participants in that project. An application for credit shall be filed no later than the last day of the due date, without extensions, for filing the tax returns required under W. Va. Code ''11-21 or 11-24 et seq. for the taxable year in which the property to which the credit relates is placed in service or use and all information required by such form shall be provided.

14.6.2. Failure to file. - The failure to timely apply for the credit in accordance with Section 14.6.1 of these regulations shall result in the forfeiture of fifty percent (50%) of the annual credit allowance otherwise allowable under W. Va. Code '11-14 et seq. This penalty shall apply annually until such application is filed.

14.6.2.1. For purposes of this section, the penalty of fifty percent (50%) of the annual credit allowance otherwise allowable under W. Va. Code '11-14 et seq. means that the amount of the actual decrease in the taxpayer's tax liability which would result from application of the credit, if the penalty were not imposed shall be eliminated in the amount of fifty percent (50%), i.e., the actual tax liability shall increase by fifty percent (50%) of the amount of offset which would have been available had the penalty not been applied.

14.7. These regulations are issued pursuant to the mandate of W. Va. Code '11-13C-14(g).

14.8. Studies and reviews. - The Tax Commissioner shall review the accounts of all taxpayers who are currently claiming tax credits under W. Va. Code '11-13C et seq. for the purpose of ensuring that such credits are being claimed only in accordance with W. Va. Code '11-13C et seq. The Tax Commissioner shall report his findings and conclusions based on such reviews at the 1991 regular session of the Legislature along with recommendations for any further legislative change: Provided, That the confidentiality of all taxpayers and taxpayer information shall be preserved in such report and that this report shall in no way be deemed to affect future enforcement of W. Va. Code '11-13C-14.

14.9. Effective date.

14.9.1. Except as otherwise expressly provided in W. Va. Code '11-13C-14, the provisions of W. Va, Code '11-13C-14 shall apply to property placed in service or use on or after March 10, 1990, notwithstanding any provision of prior law which may be in conflict with W. Va. Code '11-13C-14. In the case of any such ambiguity, the provisions of W. Va. Code '11-13C-14 shall control resolution of such ambiguity.

14.9.2. The date of passage of W. Va. Code '11-13C-14 is March 10, 1990.

W. Va. Code R. § 110-13C-14