W. Va. Code R. § 110-13C-5
For example:
John received $1,000,000 in taxable income distributions from the MM Small Business Corporation, a business entitled to the business investment and jobs expansion credit. MM has a total West Virginia payroll of $12,000,000 but only $6,000,000 of payroll is directly attributable to the qualified investment. Therefore MM's payroll apportionment factor is 50% ($6,000,000/$12,000,000).
In addition to his $1,000,000 distribution from MM, John also received $100,000 in wage and salary income, $200,000 in capital gains, $50,000 in dividends and $250,000 from an oil and gas partnership. John's total West Virginia adjusted gross income is $1,600,000 ($1,000,000 + $100,000 + $200,000 + $50,000 + $250,000). John's pre-credit West Virginia personal income tax liability equals $102,745.
John determines the portion of his tax subject to business investment and jobs expansion tax credit offset by multiplying his pre-credit tax liability ($102,745) by both MM's payroll apportionment factor (50%) and by the fraction of his total West Virginia adjusted gross income directly attributable to the qualified income distribution from MM (62.5% or $1,000,000/$1,600,000). John may then apply any unused credit (remaining after applications of Sections 5.3, 5.4, 5.5, 5.6 and 5.7 and the subsections thereof of these regulations) against up to 80% ($25,686) of his personal income tax ($32,108) attributable to the qualified investment by MM Small Business corporation.
On and after July 1, 1987, for purchases of tangible personal property and taxable services made on or after that date, that portion of the allowable credit, which is attributable to qualified investment in a business or activity subject to the taxes imposed by W. Va. Code '11-15 and 11-15A et seq. on purchases for use or consumption in the conduct of such business or activity, shall be applied to reduce up to eighty percent (80%) of the taxes imposed by W. Va. Code ''11-15 and 11-15A on purchases that are directly used or consumed in the qualified investment activity. When property and services purchased for use or consumption are not solely used or consumed in the qualified investment activity, the cost thereof shall be apportioned between such activities. Only that amount apportioned to purchases directly used or consumed in the qualified investment activity shall be included when applying the credit allowable under this Section.
The sales tax and use tax are set out in the order of taxes against which the credit will apply subsequent to business and occupation taxes, carrier income taxes, severance taxes, telecommunications taxes, business franchise tax, corporation net income taxes and personal income taxes.
Before the credit may be applied against the consumers sales and service tax and use tax liabilities, it is necessary that the annual liabilities for the preceding taxes and the amount of credit available against those taxes be determined. Therefore, the business investment and jobs expansion tax credit must be taken against the consumers sales and service tax and use tax liabilities through a request for refund filed with the Tax Department at the end of each tax year.
Obviously, no credit carryforward would be available in year one (1). However, credit could carry forward from year one (1) to year two (2) and thereafter. Any credit carryforward remaining unused at the end of year thirteen (13) would be forfeited by operation of law. No carryover rebate credit would be available in year fourteen (14) or thereafter.
If an S corporation paid the business franchise tax or any other tax directly as an entity, then the shareholders themselves could not obtain any pass through credit against any liability for the same tax. The amount of credit remaining after the entity had taken credit would flow through to the shareholders in proportion to their ownership percentages precisely as would income of the S corporation. For multiple party projects, the shareholders should use the same payroll allocation percentage as the S corporation under W. Va. Code '11-13C-4b(c)(3) and Sections 4b.3.4 through 4b.3.4.5.d.2 or Section 5.9.4.1, if applicable, of these regulations for determining the amount of personal income tax against which the business investment and jobs expansion tax credit for the project can be taken. In the case of nonproject credit or a multiple year project, as opposed to a multiple party project, the numerator of the allocation fraction would be the West Virginia payroll of the S corporation attributable to qualified investment, and the denominator would be the total West Virginia payroll of the S corporation. This allocation percentage or the allocation percentage described under Section 5.9.4.1 of these regulations, which is applicable, should be multiplied by the S corporation shareholders' personal income tax on income flowing through the S corporation as a conduit. This would determine the amount of personal income tax against which the credit can be taken by the S corporation shareholder.
In the situation where partnerships take the credit, the procedure for the subsequent taking of the credit by the partners of the partnership is as follows. If the partnership paid business and occupation tax or any other tax directly as an entity, then the partners themselves cannot obtain the credit against any liability for the same tax. The partners should use the same payroll allocation percentage as the partnership. Generally, for a nonproject credit or a multiple year, nonmultiple party project, the numerator is West Virginia payroll of the partnership attributable to qualified investment and the denominator is West Virginia payroll of the partnership. That partnership payroll allocation percentage or the allocation percentage described under Section 5.9.4.1 of these regulations, whichever is applicable, should be multiplied by the partner's share of tax on income flowing through the partnership as a conduit. This will determine the amount of tax against which the credit can be taken by the partner. The payroll factor would be determined for the business entity in accordance with these regulations.
Under W. Va. Code '11-13C-5(b), the credits allowable under W. Va. Code '11-13C et seq. can offset only tax attributable to and the direct result of qualified investment. For those taxes enumerated in W. Va. Code '11-13C-5 which can be offset by W. Va. Code '11-13C et seq. credits, the determination of what portion of the taxpayer's total tax liability for each such tax that is "tax solely attributable to and the direct result of qualified investment" is typically made by multiplying the total liability for each tax by a payroll factor. The payroll factor typically consists of a fraction, the numerator of which is annual payroll of the taxpayer solely attributable to and the direct result of qualified investment, and the denominator of which is total annual West Virginia payroll of the taxpayer. As discussed in section 4b.3.4 et seq., Section 5.13, Section 5.14.3 of these regulations, and other provisions of these regulations, the payroll factor may be adjusted to accommodate multiple party or multiple year project status for taxpayers, or to accommodate circumstances where taxpayers have gained entitlement to one or more concurrently applicable tax credits under W. Va. Code '11-13C et seq., and to accommodate circumstances where there is a single, consolidated, composite or unitary tax filing unit.
W. Va. Code '11-13C-5(j) provides that for tax years beginning after December 31, 1992 and thereafter, if the payroll formula provisions of W. Va. Code '11-13C-5(c) through (i), inclusive, do not fairly represent the taxes solely attributable to and the direct result of the taxpayer's qualified investment, and that of all other project participants in the business or activity subject to tax, the Tax Commissioner may require the use of an alternative method of determining tax so attributable that will effectuate an equitable attribution of the tax.
The enumerated methods are:
The purpose of the Business Investment and Jobs Expansion Tax Credit is to promote net employment growth within West Virginia. In return for net employment growth (e.g. 50 new jobs) through capital investment, the State provides tax credits to offset the additional taxes directly attributable to the qualified investment and new jobs. In no case should credits attributable to one qualified project apply to tax liability unrelated to that project. The purpose behind a mathematical formula (e.g. payroll factor) is to arrive at tax liability attributable to qualified investment or new jobs in situations where that amount is not clearly identifiable. If a mathematical formula (e.g. a payroll factor) fails to accomplish this result, then an alternative apportionment method may be prescribed by the Tax Commissioner. Examples where use of an alternative apportionment formula may be necessary are as follows. These examples are not intended to be all inclusive.
For example: Under prior Business investment and Jobs Expansion Tax Credit Law, the West Virginia Severance Tax could be offset by the business investment and jobs expansion tax credit, and it can still be offset by taxpayers qualified under the transition rules of W. Va. Code '11-13C-14.
A severance taxpayer "a mineral owner" could have a multitude of mineral properties producing a severance tax liability for the taxpayer.
then the payroll factor attributable to the qualified investment would be 100%.
The only employees attributable to qualified investment would be the West Virginia employees of the contract miners (and the project employees of the taxpayer, if applicable). All other mineral operations of the taxpayer generating the severance tax liability of the taxpayer would be operated by contract miners which are not participants in the project. Thus, the payroll attributable to these operations would not be included in the denominator of the payroll factor for the project participants.
The result of this structural configuration (whether inadvertent or deliberate) would be to create a payroll factor of 100%, which would allow the taxpayer to offset 100% of its severance tax liability, even though only a small part of its severance tax liability would in fact be attributable to qualified investment.
Under W. Va. Code '11-13C-5(j), if application of the payroll factor does not fairly represent the taxes solely attributable to and the direct result of qualified investment of the taxpayer and all other project participants in the business or other activities subject to the tax, the Tax Commissioner may require, in respect to all or any part of the taxpayer's businesses or activities, if reasonable, any of the following methods or any combination thereof, for determining tax so attributable. These alternate methods shall be used when required by the Tax Commissioner in lieu of the payroll apportionment method, and where required, in lieu of the payroll apportionment methods prescribed in Section 4b of these regulations, and the subsections thereof, or any methods prescribed in any other sections of these regulations.
This method entails the specific identification and quantification of tax solely attributable to and the direct result of qualified investment of the taxpayer or project participants. Required use of the separate accounting or identification method may result in total exclusion of one or more particular taxes from offset by the credit, and specific accounting or use of other apportionment methods as to other taxes.
Separate accounting may be based upon taxes specifically related to identifiable qualified investment property, operations arising from a facility constituting qualified investment property, operations directly identifiable with employees employed to exclusively operate qualified investment property or equipment or to perform operations on a facility constituting qualified investment property, or upon any other basis; and such determination can be made upon a separate entity, unitary, composite or consolidated basis, and upon the basis of the affiliated group for all domestic affiliates or all domestic and foreign affiliates of a given taxpayer or of the participants in a business investment and jobs expansion tax credit project.
This adjustment may entail the creation and application of a payroll factor which includes all or part of the payroll of all or some contractors and all or some contract labor for all or some entities which operate facilities for or otherwise produce income for the taxpayer whose tax attributable to and the direct result of qualified investment is to be determined. The payroll factor can be adjusted to create a payroll factor as discussed above, or otherwise as determined by the Tax Commissioner, determined on a separate entity, unitary, composite or consolidated basis, and upon the basis of the affiliated group for all domestic affiliates or all domestic and foreign affiliates of a given taxpayer or of the participants in a business investment and jobs expansion tax credit project.
The property factor is a fraction, the numerator of which is the average value of the individual taxpayer's or project participant's real and tangible personal property owned or rented by it in this State during the taxable year which constitutes property purchased or leased for business expansion as defined in W. Va. Code '11-13C-3(b) and in which qualified investment has been made, or which constitutes property purchased or leased for business expansion as defined in W. Va. Code '11-13C-14(e) in which qualified investment has been made; and the denominator of which is the average value of the individual taxpayer's or project participant's real and tangible personal property owned or rented and used by it in this State during the taxable year.
For purposes of calculating the property factor, property owned by the taxpayer or participant shall be valued at its original cost, adjusted by subsequent capital additions or improvements thereto and partial disposition thereof by reason of sale, exchange, abandonment, etc. Property rented by the taxpayer or participant from others shall be valued at eight (8) times the annual rental rate. The annual rental rate is the annual rent paid directly or indirectly, by the taxpayer or participant for its benefit, in money or other consideration for the use of property. This would include any amount payable for the use of real or tangible personal property or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits or otherwise. It would also include any amount payable in additional rent or in lieu of rents, such as interest, taxes, insurance, repairs or any other items which are required to be paid by the terms of the lease or other arrangement, not including amounts paid as service charges, such as utilities charges, janitor service charges, etc. If a payment includes rent and other charges unsegregated, the amount of rent shall be determined by consideration of the relative values of the rent and other items.
The value of movable tangible personal property used both within and without this State shall be included in the denominator to the extent of its utilization in this State. The extent of such utilization is determined by multiplying the original cost of such property by a fraction, the numerator of which is the number of days of physical location of the property in this State during the taxable period, and the denominator of which is the number of days of physical location of the property everywhere during the taxable year. The number of days of physical location of the property may be determined on a statistical basis or by such other reasonable method that is acceptable to the Tax Commissioner.
Leasehold improvements are treated as property owned by the taxpayer or participant regardless of whether the taxpayer or participant is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. Leasehold improvements are included in the property factor at their original cost.
The average value of property is determined by averaging the values at the beginning and end of the taxable year. The Tax Commissioner may require the averaging of monthly values during the taxable year if substantial fluctuations in the values of the property exist during the taxable year, or where property is acquired after the beginning of the taxable year or is disposed of, or the rental contract ceases before the end of the taxable year.
In the case of a simple direct application of the property factor not in combination with one or more other factors, the taxpayer's or participant's total tax liability for a given tax would be multiplied by the property factor.
Typically, where the property factor would be applied in combination with one other factor, the property factor would be added to the other factor, and the sum of the two factors would then be divided by two. The total tax liability would then be multiplied by the result in order to determine the amount of the tax liability solely attributable to and the direct result of qualified investment.
The Tax Commissioner can prescribe alternate methods for combining the property factor with other factors or other methods of determining tax solely attributable to and the direct result of qualified investment.
W. Va. Code R. § 110-13C-5