W. Va. Code R. § 110-13C-6

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

Section 110-13C-6 - Qualified investment

6.1. General. - The qualified investment in property purchased or leased for business expansion shall be the applicable percentage of the cost of each property purchased or leased for the purpose of business expansion which is placed in service or use in this State by the taxpayer during the taxable year.

6.1.1. The cost of property purchased prior to March 1, 1985, but placed in service or use in a new or expanded business facility on or after that date and prior to March 10, 1990 can constitute a base for qualified investment. The cost of other property meeting the definition of property purchased or leased for business expansion as set forth in Section 3 of these regulations can constitute a base for qualified investment.

6.2. Applicable percentage. - For the purpose of Section 6.1 of these regulations, the applicable percentage of any property shall be determined under the following table:

THE APPLICABLE
IF USEFUL LIFE IS:	PERCENTAGE IS:
4 years or more but less than	33-1/3
6 years or more but less than	66-2/3
8 years or more	100

The useful life of any property, for purposes of this Section, shall be determined as of the date such property is first placed in service or use in this State by the taxpayer, determined in accordance with federal income tax law.

6.2.1. Without regard to the depreciation practice of the taxpayer, the life of an asset for purposes of the business investment and jobs expansion tax credit should be the actual economic life of the particular asset. The Department of Tax and Revenue will accept the so-called facts and circumstances doctrine formerly prevalent under federal income tax law. A taxpayer may use the federal income tax asset depreciation range midpoint useful life for purposes of the business investment and jobs expansion tax credit, but should increase or decrease that useful life if particular facts and circumstances applicable to the particular asset reasonably warrant such an adjustment.

The taxpayer may use another reasonable method of determining actual useful life. However, the Accelerated Cost Recovery System (ACRS) or Modified Accelerated Cost Recovery System (MACRS) depreciation periods may not be used to determine useful life for purposes of the business investment and jobs expansion tax credit.

6.3. Cost. - For purposes of Section 6.1 of these regulations, the cost of each property purchased for business expansion shall be determined under the following rules:

6.3.1. Trade-ins. - Cost shall not include the value of property given in trade or exchange for the property purchased for business expansion.

6.3.2. Damaged, destroyed or stolen property. - If property is damaged or destroyed by fire, flood, storm or other casualty, or is stolen, the cost of replacement property shall not include any insurance proceeds received in compensation for the loss.

6.3.3. Rental property.

6.3.3.1. the cost of real property acquired by written lease for a primary term of ten (10) years, or longer, shall be one hundred percent (100%) of the rent reserved for the primary term of the lease, not to exceed twenty (20) years.

6.3.3.1.a. A lease of realty must have a primary term of at least ten (10) years in order to qualify for the business investment and jobs expansion tax credit. The fact that a lease having a shorter primary term is renewable will not satisfy the ten (10) year primary term requirement. The right of a lessee to terminate a lease of real property with a stated term of ten (10) years or longer prior to the expiration of that term does not preclude such property from qualifying as qualified investment property as defined by the Business Investment and Jobs Expansion Tax Credit Act.

6.3.3.2. The cost of tangible personal property acquired by written lease for a primary term of:

6.3.3.2.a. Four (4) years, or longer, shall be one-third of the rent reserved for the primary term of the lease;

6.3.3.2.b. Six (6) years, or longer, shall be two-thirds of the rent reserved for the primary term of the lease; or

6.3.3.2.c. Eight (8) years, or longer, shall be one hundred percent (100%) of the rent reserved for the primary term of the lease, not to exceed twenty (20) years: Provided, That in no event shall rent reserved include rent for any year subsequent to expiration of the book life of the equipment, determined using the straight line method of depreciation.

6.3.3.3. Where one (1) multiple party certified project participant leases project investment property as lessor to a project participant lessee, the measure of investment for the purposes of the business investment and jobs expansion tax credit is the cost of the property to the lessor rather than the rent reserved for the primary term of the lease. This is because the cost of the property to the project as an enterprise would be the amount paid to the non-participant from whom it is acquired by any project participant. Internal payments between project participants would not count as investments made by the project as an enterprise.

6.3.3.4. For property acquired or leased subsequent to March 10, 1990, property shall not be treated as rented or leased property which the taxpayer is required to show on its books and records as an asset under generally accepted accounting principles of financial accounting. If the taxpayer is prohibited from expensing the lease payments for federal income tax purposes, the property shall be treated as purchased property for purposes of this credit. See W. Va. Code '11-13C-14(e)(5).

6.3.4. Property purchased for multiple use. - In the case of property purchased for use as a component part of a new or expanded business taxable under W. Va. Code '11-12a et seq. and used as a component part of a new or expanded business taxable under W. Va. Code '11-13 et seq., the cost thereof shall be apportioned between such businesses. The amount apportioned to each such new or expanded business for which credit is allowed under W. Va. Code '11-13C et seq. shall be considered as a qualified investment subject to the conditions and limitations of W. Va. Code '11-13C et seq.

6.3.4.1. Multiple use property will qualify for the business investment and jobs expansion tax credit in the amount of qualified investment apportionable to an enterprise entitled to credit. Actual usage of the property must be the criterion for apportioning the amount of investment attributable to the business investment and jobs expansion tax credit enterprise and the amount not so attributable. Apportionment of usage measured on the basis of time, units of production, power usage, payroll, raw materials usage or other means will be considered on a case-by-case basis.

In circumstances where the proportional usage of the multiple use property between the qualified and nonqualified enterprises will be relatively stable throughout the ten (10) year credit period and is known or reasonably ascertainable, the investment apportioned to the qualified enterprise may be treated like any other qualified investment quantifiable at the time the qualified investment property is placed in service or use.

Credit would be available for the usual ten (10) year credit period (with possible rebate credit carryover up to year thirteen (13) for the amount of investment apportioned to the qualified enterprise adjusted by the useful life percentages set forth in W. Va. Code '11-13C-6.

Where proportional usage of the multiple use property will vary significantly from year to year between the quantified investment will be treated as nonquantifiable investment. Such nonquantifiable investment in property placed in service or use subsequent to March 9, 1990 will not qualify for credit.

For multiple use property having such variable use from year to year placed in service or use prior to March 10, 1990, the amount of qualified investment in the property annually available and arising from that year will be total investment in the particular multiple use property, adjusted by the useful life percentage computation required by W. Va. Code '11-13C-6(b), divided by ten (10) (the number of years over which the credit is applied), and then multiplied by the annual percentage of usage of the property in the qualified enterprise for the year.

(Investment Annual Usage

X X

Useful Life Percentage) Percentage (10)

This procedure will determine the amount of credit apportionable to the qualified enterprise for that year to be taken in that year and in each year thereafter for a total of ten (10) years.

The determination of this amount should be made for each year of the useful life of the property, and the amount so determined will then become an annual credit amount to be applied for a period of ten (10) years. Each year of useful life of the property up to ten years will add a layer of credit to be taken for ten (10) years. Thus, for example, for six (6) year property, credit would be created in year one (1) to be applied between years one (1) to ten (10), and in year six (6), credit would be created to be applied in year six (6) through year fifteen (15).

6.3.5. Self-constructed property. - In the case of self-constructed property, the cost thereof shall be the amount properly charged to the capital amount for depreciation in accordance with federal income tax law.

6.3.6. Transferred property. - The cost of property used by the taxpayer out-of-state and then brought into this State, shall be determined based on the remaining useful life of the property at the time it is placed in service or use in this State, and the cost shall be the original cost of the property to the taxpayer less straight line depreciation allowable for the tax years or portions thereof taxpayer used the property outside this State. In the case of leased tangible personal property, cost shall be based on the period remaining in the primary term of the lease after the property is brought into this State for use in a new or expanded business facility of the taxpayer; and shall be the rent reserved for the remaining period of the primary term of the lease, not to exceed twenty (20) years, or the remaining useful life of the property (determined as aforesaid), whichever is less.

6.3.7.1. Natural resources in place purchased or leased prior to March 10, 1990. - In the case of natural resources in place, the property must be capable of sustained production for a period of at least ten (10) years. If this qualification is met, then the qualified investment is one hundred percent (100%) of the purchase price of the natural resource in place that is attributable to ten (10) years of production, but not more than twenty (20) years of production. If such price is not quantifiable at the time the mining operation is placed into production, cost shall be determined annually and shall be the amount of royalties actually paid to the owner of the natural resource in place during each year for a total period of ten (10) years. The amount of such royalties multiplied by the taxpayer's new jobs percentage (determined at the time the mining operation is placed in service or use) divided by ten (10) establishes the credit allowable each year for ten (10) successive years beginning with the year in which the royalties were paid. For purposes of this subsection the new jobs percentage is determined for years one (1) and two (2) according to the taxpayer's estimate of the number of new jobs which will be in place in year three (3), and is determined for year three (3) and all subsequent years in accordance with Section 7.6 of these regulations.

6.3.7.1.a. Although for property purchased or leased prior to March 10, 1990, lease or mineral royalty payments which are not quantifiable at the time investment is first placed in service or use by reason of the variability of the amount of payments to be made from period to period may be accumulated year by year for a period of ten (10) years, this provision merely sets out a procedure for measuring investment in property which could not be measured by determining the amount paid for the property at the time the property is placed in service or use. The statute does not permit the placement of property into service or use in any year beyond the first taxable year or in the case of multiple year certified projects, three (3) tax years. It merely determines the amount paid for that property over the ten (10) year use period of the property.

6.3.7.2. Natural resources in place purchased or leased subsequent to March 9, 1990. - Natural resources in place purchased or leased prior to March 1, 1985, or purchased or leased after March 1, 1985 pursuant to an option to purchase or lease such natural resources in place acquired prior to March 1, 1985 but exercised in whole or in part on or after March 10, 1990; and natural resources in place purchased or leased on or after March 10, 1990, unless pursuant to a written contract to purchase or lease executed prior to March 10, 1990, shall not constitute property purchased or leased for business expansion, and investment in such property shall not qualify for this credit.

6.3.8. Nonquantifiable investment. - Property purchased or leased on or after March 10, 1990, unless pursuant to a written contract to purchase or lease executed prior to March 10, 1990, the cost or consideration for which cannot be quantified with any reasonable degree of accuracy at the time such property is placed in service or use will not constitute property purchased or leased for business expansion upon which credit can be based: Provided, that when the contract of purchase or lease specifies a minimum purchase price or minimum annual rent the amount thereof shall be used to determine the qualified investment in such property under W. Va. Code '11-13C-6 if the property otherwise qualifies as property purchased or leased for business expansion.

W. Va. Code R. § 110-13C-6