Source: http://www.wvlegislature.gov/Bill_Status/bills_text.cfm?billdoc=hb2993%20intr.htm&yr=2011&sesstype=RS&i=2993
Timestamp: 2018-02-24 22:47:48
Document Index: 284372442

Matched Legal Cases: ['§11', '§11', '§11', '§11', '§11', '§11', '§11', '§11', '§11', '§11', '§11', '§11']

A BILL to amend and reenact §11-13AA-3, §11-13AA-4, §11-13AA-5, §11-13AA-7, §11-13AA-11 and §11-13AA-12 of the Code of West Virginia, 1931, as amended, all relating to the West Virginia Commercial Patents Incentives Tax Act, defining terms; clarifying carryover provisions; specifying when credit accrues; disallowing credit based on related party transactions; disallowing application of credit in addition to specified other tax credits; making technical corrections to use appropriate terminology; and retroactively adjusting the effective date language.
That §11-13AA-3, §11-13AA-4, §11-13AA-5, §11-13AA-7, §11-13AA-11 and §11-13AA-12 of the Code of West Virginia, 1931, as amended, be amended and reenacted, all to read as follows:
(1) "Agreement" means any agreement or contractual relationship entered into after the effective date of this section between Marshall University or West Virginia University and a person developing patents in this state and that is either:
(2) “Business activity" means all activities engaged in or caused to be engaged in by a person with the object of gain or economic benefit, direct or indirect. For purposes of this definition, the term "gain or economic benefit, direct or indirect" does not include income realized by any person in the form of wages, salary or income that is reported on federal form W-2.
(3) “Commercial use” means selling, licensing, leasing or otherwise making patents available to a third party for a price, fee, royalty, commission or other consideration called by whatever name. “Commercial use” also means, in the case of patents developed by the developer for the developer’s own commercial use, the first use of the patents in a manufacturing or other business activity of the developer. "Commercial use" does not include any selling, licensing, leasing or otherwise making patents available to a third party when done by a broker or by any person who does not own the patent sold, licensed, leased or otherwise made available.
(4) “Commissioner" and “Tax Commissioner" are used interchangeably herein and mean the Tax Commissioner of the State of West Virginia or his or her designee.
(5) “Copyright” means a copyright that is registered with the United States Copyright Office or with a similar office of a foreign country when the foreign copyright is recognized under federal law.
(6) “Credit year” means the taxable year in which the person realizes the net profit attributable to a patent. In the case of a license or lease to use patents, “credit year” means each taxable year during the term of the license or lease to use patents.
(7) (6) “Delegate" in the phrase “or his or her delegate", when used in reference to the Tax Commissioner, means any officer or employee of the Tax Department of the Department of Revenue duly authorized by the Tax Commissioner directly, or indirectly, by one or more redelegations of authority to perform the functions mentioned or described in this article.
(7) “Development of a patent,” "developing patents" or “development” means the act of fostering, causing or accelerating the progress of a process, or a machine, or the manufacturing of product, or a composition of matter, or improvement thereto through significant investment of money, performance of research, or application of design or engineering expertise, which culminates in the issuance of a patent, as defined in this article, for that process, machine, manufacturing of a product, composition of matter, or improvement.
(8) “Developer” means a person engaged in this state in developing patents for direct use in a manufacturing process or product and who has an agreement, as defined in this section, with Marshall University or West Virginia University.
(9)"Directly used in manufacturing process or product, "and “direct use in manufacturing process or product” with reference to patents mean the use of patents directly in those activities or operations which constitute an integral and essential part of the manufacturing processes and products, as contrasted with and distinguished from those activities or operations which are simply incidental, convenient or remote to the manufacturing activity such as those activities that are incidental. Those activities that are incidental to business activities such as bills, marketing, inventory control, order fulfillment, shipping and tracking are not considered an integral and essential part of the manufacturing process or product means application or incorporation of a patented process, machine, manufactured article or composition of matter, in manufacturing operations or processes, or in manufactured products, in circumstances where United States or foreign patent laws require that the specific patent for the process, machine, manufactured article or composition of matter be owned by the manufacturer, or purchased, leased, licensed or authorized by contract to be applied or incorporated in the manufacturing operation, processes or product, and where such lawful ownership, purchase, lease, licensure or contractual authorization is in effect.
(11) “Mask work” means a series of related images, however fixed or encoded:
(12) “Owner”, when used in reference to a pass-through entity, means a person who owns an equity interest in the pass-through entity.
(13) “Partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization through or by means of which any business, financial operation or venture is carried on, which is not a sole proprietorship, trust or estate, and which is treated as a partnership for federal income tax purposes for the taxable year.
(14) “Pass-through entity” means a partnership, limited liability company, small business corporation (S corporation) or other entity treated as a partnership for federal income tax purposes for the taxable year.
(15) “Patent” means a United States or foreign national patent grant or United States certificate of invention or certificate of protection under the Plant Variety Protection Office of the United States Department of Agriculture and is limited to patents developed in this state for direct use in a manufacturing process or product, or both developed for use and directly used in a manufacturing process or product in this state. For purposes of this article, patents do not include copyrights, trademarks, mask works, trade secrets or any intellectual property that is not a patent.
(16) “Person" includes a natural person, corporation, limited liability company or partnership. A single member liability company that is treated as a disregarded entity for federal income tax purposes is be treated as a disregarded entity for purposes of this article.
(17) “Purchase” means a transaction under which title to an item is transferred for consideration, or a license or lease contract for at least three years is executed, regardless of whether title to the item is transferred at the end of the lease or license period.
(18) “Taxpayer" means any person subject to the tax imposed by article twenty-three or twenty-four of this chapter or to both taxes. In the case of a sole proprietorship that is not subject to either the tax imposed by article twenty-three or twenty-four of this chapter, the term "taxpayer" means a natural person who owns a disregarded entity and who is subject to the tax imposed by article twenty-one of this chapter on his or her income from business activity in this state, or any sole proprietor who is subject to the tax imposed by article twenty-one of this chapter.
(19) “Trademark” means any trademark, trade name, service mark or other identifying symbol or name that is registered with the United States Patent and Trademark Office or with a similar office of a foreign country when the foreign registration is recognized under federal law.
(20) “Trade secret" means information, including a formula, pattern, compilation, program device, method, technique or process, that:
(a) Allowance of credit. -- A person engaging in this state in developing patents for direct use in a manufacturing process or product and who has an agreement, as defined in section three of this article, with Marshall University or West Virginia University is allowed a credit, when computing the person’s liability for business franchise tax imposed by article twenty-three of this chapter and corporation net income tax imposed by article twenty-four of this chapter, in the amount allowed under subsection (b) of this section. When the developer is a sole proprietor or a pass-through entity, that amount of the credit remaining after first applying it against the tax liability under article twenty-three of this chapter for the taxable year is allowed when computing the tax imposed by article twenty-one of this chapter on income from the person’s business activity. No credit is allowed under this article for any activity, investment, assets, or expenditures for which any of the tax credits authorized under articles thirteen-d, thirteen-e, thirteen-q, thirteen-r, thirteen-s, or thirteen-x of this chapter, has been authorized, taken or allowed. No credit is allowed under this article for any activity, investment, assets, or expenditures for which the tax credits authorized under article thirteen, chapter eighteen-b, has been, authorized, taken or allowed.
(2) When the person developed the patent for direct use in a manufacturing process or product through that person’s activity in this state and through that person’s activity in one or more other states, the consideration received by the developer during the taxable year from the sale, lease or license of the patent developed through multistate activity of the developer is multiplied by a fraction, the numerator of which is the direct costs of developing the patent in this state and the denominator of which is the total direct costs of developing the patent. The product of this computation establishes the consideration to be used in subsection (b) of this section;
(3) If a person receives a portion of a royalty that would be eligible for a tax credit under this section because of a business association, licensing agreement or otherwise, the person may receive the tax credit allowable to the portion of royalties that person receives provided the person has an agreement, as defined in section three of this article, with Marshall University or West Virginia University and otherwise meets the requirements for entitlement to this credit, as set forth in subsection (a) of this section;
(4) Unused credit may be carried forward until the earlier of the tax year when the credit is used up or used for a period of nine the ninth consecutive tax year after the taxable year in which the credit allowed by this section accrues to the person the first tax year in which the taxpayer is eligible to claim the credit. When the person is an owner of a pass-through entity, credit accrues to may be taken by the owner beginning in the tax year when it accrues to credit may be taken by the pass-through entity or when the pass through entity gains entitlement to the credit;
(5) No credit is allowed under this section for consideration received by the developer for patents developed for direct use in a manufacturing process or product before the taxable year beginning January 1, 2011. For purposes of this subdivision, a patent was developed for direct use in a manufacturing process or product before January 1, 2011, if before that date it was sold, leased or licensed to a third party prior to January 1, 2011, or before that day it was reduced to practice for purely commercial purposes by the developer or a person related to the developer, as defined in subsection (b), Section 267 of the Internal Revenue Code of 1986, as amended; and as defined in section nine, article twenty-one of this chapter or section three, article twenty-four of this chapter; and
(6) (7) No credit is allowed under this section beginning with the eleventh taxable year after the patent was first directly used in a manufacturing process or product.
(a) Allowance of credit. -- A person directly using a patent developed in this state in a manufacturing process or product in this state is allowed a credit against the person’s liability for business franchise tax imposed by article twenty-three of this chapter and corporation net income tax imposed by article twenty-four of this chapter, the amount computed under subsection (b) of this section. When the user of a patent is a sole proprietor or a pass-through entity, that amount of credit allowed against income taxes shall be against the tax imposed by article twenty-one of this chapter.
(b) Amount of credit. -- The amount of credit allowed under this section is equal to twenty percent of the net profit attributable to the patent: Provided, That the amount of credit allowed under this section is equal to thirty percent of the net profit attributable to the patent when the person claiming the credit reinvests in capital improvements to add product lines to or increase productivity in this state during the next taxable year an amount equal to at least eighty percent of the tax credit amount used for the taxable year. For purposes of this article, the term "net profits" means West Virginia taxable income as determined for purposes of article twenty four of this chapter, before application of this credit and after application of all credits allowable under this chapter except this credit. In the case of taxpayers that are not subject to the tax imposed by article twenty-four, "net profits" means West Virginia taxable income as determined for purposes of article twenty-one of this chapter, before application of this credit and after application of all credits allowable under this chapter except this credit. In circumstances where net profit is not solely attributable to and the exclusive result of the direct use of a patent in a manufacturing process or product in this state, the taxpayer shall determine net profit solely attributable to and the exclusive result of the direct use of a patent in a manufacturing process or product in this state, and net profit for purposes of determining the amount of credit allowable under this article shall be the net profit solely attributable to and the exclusive result of the direct use of a patent in a manufacturing process or product in this state.
(1) The credit allowed by this section is applied after all other credits allowed by this chapter have been applied against the person’s business franchise tax and West Virginia income tax liabilities for the taxable year under this chapter;
(2) Unused credit may be carried forward until the earlier of the tax year when the credit is used up or used for a period of nine the ninth consecutive tax year after the taxable year in which the credit allowed by this section accrues to the person the first tax year in which the taxpayer is eligible to claim the credit. When the person is an owner of a pass-through entity, credit accrues to may be taken by the owner beginning in the tax year when it accrues to credit may be taken by the pass-through entity or when the pass through entity gains entitlement to the credit;
(3) Any credit not used within the ten-year period described in subdivision (2) of this subsection is forfeited beginning with the eleventh taxable year after the taxable year in which the credit accrued to the person first tax year in which the taxpayer is eligible to claim the credit;
(3) The month and taxable year in which the patent was first used, placed in service or directly used in the person’s manufacturing process or product in this state;
(5) The date the patent was disposed of or otherwise ceased to be directly used in the person’s manufacturing process or product in this state.
(2) The date the depreciable property identified in subdivision (1) of this subsection was purchased, its cost and its estimated useful life determined using strait straight-line method of depreciation;
(3) The date the depreciable property identified in subdivision (1) of this subsection was placed in service or used in the person’s business activity in this state;
(4) The date the depreciable property identified in subdivision (1) of this subsection was taken out of service or use in the person’s business activity in this state and the reason why the property was taken out of service or use; and
(b) The provisions of this article shall be reasonably strictly construed in order to effectuate the legislative intent recited in section two of this article.
The provisions of this article retroactively become effective on July January 1, 2011, and apply only to a patent developed in this state after the taxable years in tax years beginning on or after January 1, 2011, and to a patent purchased, leased or licensed for use on or after that date for direct use in the taxpayer’s manufacturing process or product in this state.
NOTE: The purpose of this bill is to make technical changes to correct some infirmities related to incorrect terminology, unworkable effective dates, and to disallow some related transactions within the Commercial Patent Incentives Tax Act.