West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-13C - Business Investment And Jobs Expansion Tax Credit, Corporation Headquarters Relocation Tax Credit, Sma › Section 110-13C-9 - Transfer of qualified investment to successors

Current through Register Vol. XLI, No. 28, July 12, 2024
9.1. Mere change in form of business. -
				Property shall not be treated as disposed of under W. Va. Code '11-13C-8,
				by reason of a mere change in the form of conducting the business as long as
				the property is retained in a business in this State, and the taxpayer retains
				a controlling interest in the successor business. In this event, the successor
				business shall be allowed to claim the amount of credit still available with
				respect to the business facility or facilities transferred, and the taxpayer
				(transferor) shall not be required to redetermine the amount of credit allowed
				in earlier years.
9.2. Transfer or
				sale to successor. - property shall not be treated as disposed of under W. Va.
				Code '11-13C-8
				by reason of any transfer or sale to a successor business which continues to
				operate the business facility in this State. Upon transfer or sale, the
				successor shall acquire the amount of credit that remains available under this
				article for each subsequent taxable year and the taxpayer (transferor) shall
				not be required to redetermine the amount of credit allowed in earlier
				years.
9.3. Where a corporation
				entitled to take the credit is purchased through a stock purchase by a new
				owner and remains a legal entity and retains its corporate identity, the
				entitlement of the corporation to the credit will not be affected by the
				ownership change.
9.4. Where a
				corporation entitled to the credit is merged with another corporation and
				ceases to exist as an entity, the surviving corporation would be treated as a
				successor business under W. Va. Code '11-13C-9(b),
				and would be entitled to the credit and project certification to which the
				predecessor corporation was originally entitled. It would be necessary
				subsequent to the merger for the surviving corporation to substantially
				maintain the number of jobs directly attributable to qualified investment and
				the qualified investment property in service or use carried over from the
				predecessor corporation.
9.5. An S
				corporation resulting from the conversion of a C corporation to an S
				corporation is the product of a mere change in the form of doing business, or,
				at most, is a successor business, under W. Va. Code '11-13C-9.
				In such a case, any business investment and jobs expansion tax credit available
				to the C corporation would be available to the S corporation.
9.6. Under ordinary circumstances the only
				way in which two or more companies or entities can aggregate their employees
				and investment for purposes of the business investment and jobs expansion tax
				credit is to form a certified project under W. Va. Code '11-13C-4b.
				W. Va. Code '11-13C-4b(b)
				requires that a taxpayer apply to the Tax Commissioner for certification of a
				project prior to placing qualified investment property into service or use for
				purposes of the business investment and jobs expansion tax credit.
Under W. Va. Code '11-13C-9,
				  the business investment and jobs expansion tax credit is not lost by reason of
				  a mere change in the form of conducting a business or the transfer or sale of a
				  business to a successor.
Where one corporation will be split into two (2) corporations
				  but substantially the same assets and the same employees upon which the
				  original business investment and jobs expansion tax credit was based will carry
				  on with business operations, and where the second corporation will be a newly
				  formed entity using employees whose position with the first corporation prior
				  to the split-up constituted new jobs for purposes of the business investment
				  and jobs expansion tax credit, and where investment qualified for the business
				  investment and jobs expansion tax credit in place with the first corporation
				  will substantively continue to be used in the second corporation, these factors
				  indicate a situation more akin to a change in the form of the business rather
				  than a pooling of assets or effort by two independent corporations to create an
				  investment project. The situation described substantively constitutes a change
				  in the form of the business for purposes of the business investment and jobs
				  expansion tax credit.
W. Va. Code '11-13C-4b(a)(2)
				  describes a project configuration whereby two or more entities may take the
				  business investment and jobs expansion tax credit. Although the configuration
				  and business relationships resulting from the described split-up do not
				  constitute a certified project, this statutory section most closely addresses
				  the situation described. Two corporations resulting from the aforesaid change
				  in the form of conducting business may take the West Virginia business
				  investment and jobs expansion tax credit in the same manner and as if there
				  existed a certified project under W. Va. Code '11-13C-4b(a)(2).
9.7. Although the entity principle
				applies to partnerships as participants in a certified business investment and
				jobs expansion tax credit project and for tax filing purposes, the actual legal
				entitlements to property and income and other legal rights flow through the
				partnership, as a conduit, to the partners.
Presumably, if a partnership is owned by corporate partners,
				  the partnership could be acquired as an entity through a purchase of the
				  corporate partners.
If a partnership continues as an entity, the entitlement to
				  the credit will remain undisturbed in it. If a partnership is sold so that a
				  successor business takes the place of the partnership, then the successor
				  business will be entitled to the credit under W. Va. Code '11-13C-9(b)
				  if qualified investment property and jobs remain in place with the
				  successor.
Under West virginia law, a partnership ordinarily pays
				  certain taxes as an entity (such as the business and occupation tax, the
				  severance tax and the business franchise tax), but other taxes such as the
				  personal income tax, or, in the case of corporate partners, the corporate net
				  income tax, are paid by the partners on the income derived from the partnership
				  under the conduit principle. The business investment and jobs expansion tax
				  credit can offset personal income tax and corporation net income tax as well as
				  the business and occupation, severance and franchise taxes. Therefore, the
				  business investment and jobs expansion tax credit available to a partnership
				  will flow through to the partners for the income taxes, but will be taken
				  directly by the partnership against the business and occupation, severance and
				  business franchise taxes. Thus, a new partner or successor partner would be
				  entitled to the credit under W. Va. Code '11-13C-9(b)
				  on that portion of income subject to income taxes flowing from the partnership.
				  Refer to Sections 5.14.4 and 5.14.5 for treatment of S corporation shareholders
				  and partners.
9.8. The
				presumption underlying the ninety (90) day shut-down rule, set forth in W. Va.
				Code '11-13C-3(b)(12)(D),
				is that if a business is shut down for ninety (90) days, all jobs are lost and
				the cessation of business by the facility is permanent. If a purchaser then
				buys the assets formerly in operation at the facility and hires employees to
				work at the facility, that purchaser will have made new investment and will
				have created new jobs. The business investment and jobs expansion tax credit
				statute presumes that without such investment the shut-down property would have
				remained closed, and no jobs would have been created.
The ninety (90) day shut-down rule ordinarily comes into play
				  only where a purchaser is attempting to buy a facility from a seller and the
				  facility is not subject to the credit in the hands of the seller.
The situation where a purchaser buys a facility which has
				  been idle for over ninety (90) days from a seller who cannot take the credit
				  and where the purchaser thereby becomes qualified for the credit must be
				  distinguished from the situation where the seller is entitled to the business
				  investment and jobs expansion tax credit and then sells the qualified
				  investment to a purchaser who becomes a successor in the business of the
				  seller.
In the former case, the purchaser must independently qualify
				  for the business investment and jobs expansion tax credit, and a ninety (90)
				  day shut-down of the facility (or the Tax Commissioner's waiver thereof) is
				  necessary. In the later case, the seller has already qualified for the credit,
				  no shut-down is necessary, the purchaser becomes a successor in business to the
				  seller and, under W. Va. Code '11-13C-9(b),
				  obtains entitlement to the business investment and jobs expansion tax credit to
				  the exact same extent that the seller was so entitled.
9.9. 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.
9.10. Predecessors in business shall disclose
				to successors in business all records, documents and other information
				necessary for the successor to maintain entitlement to the credit, to calculate
				the amount of credit available to the successor and to file tax returns taking
				the credit. A successor in business shall be considered an interested party
				under W. Va. Code '11-10-5d(f)
				with relation to such information of the predecessor. The Tax Commissioner
				shall have absolute discretion to grant or refuse disclosure of information
				under this section.