TECHNICAL ASSISTANCE ADVISORY 87-002Re: Application of West Virginia Capital Company Tax Credit Against Installment Payments of Estimated Tax; Three Year Carry-Back and Fifteen Year Carry-Forward of Unused Credit. Clarification has been requested on when an investor in a qualified West Virginia capital company may begin to claim the credit allowed by W. Va. Code § 5E-1-8 against the investor's West Virginia tax liabilities and to file claims for refund due to the carrying-back of the amount of tax credit that cannot be used in the taxable year in which the investment was made. Under W. Va. Code § 5E-1-8, the amount of tax credit allowed to an investor is to be credited against the investor's tax liability for the taxable year in which the investment in a qualified West Virginia capital company is made. If the amount of the allowable tax credit exceeds the investor's tax liability for the taxable year, the amount of the credit which exceeds the tax liability must be carried back o each of the three taxable years preceding the unused credit year, and any unused credit may then be carried forward, until used, to each of the fifteen (15) taxable years following the unused credit year. As originally enacted in 1986, the amount of allowable credit can be applied to offset business and occupation taxes attributable to tax periods ending prior to July 1, 1986 and to income taxes, personal or corporate, as appropriate, imposed by this State pursuant to W. Va. Code art. 11-21 and 11-24. During the 1987 Regular Session of the West Virginia Legislature, several provisions of the West Virginia Capital Company Act were amended. Enr. H.B. No. 3040. Particularly relevant to this discussion is the amendment to subsection 5E-1-8(c), which allows the tax credit to be applied against business and occupation tax liabilities for periods ending after June 30, 1987, and allows unused credit to be applied against other taxes imposed by this State in the following order: (1) Carrier income taxes; (2) Severance taxes; (3) Telecommunications taxes; (4) Business franchise taxes; (5) Corporation net income taxes; and (6) Personal income taxes. With respect to each of the taxes listed above (except for the carrier income tax which is repealed as of July 1, 1987), taxpayers having liability for a tax in excess of a specific amount are required to remit at least 90% of their annual liability for such taxes in installment payments during the taxable year, except for the fourth installment payment of personal income taxes which is due on the 15th day of the first taxable month in the next succeeding taxable year and the last installment payment of severance tax which is due with the annual return. In estimating the amount of tax that must be paid in periodic installment payments for that taxable year, a taxpayer may and should take into consideration the amount of credits which that taxpayer will be allowed to claim against taxpayer's annual liability for each of the enumerated taxes. See W. Va. Code §§ 11­10-18a(b); 11-13-4; 11-13A-9; 11-13B-6; 11-21-55; 11-23-13; and 11-24-16. An investor in a West Virginia capital company may not begin to claim the credit allowed by W. Va. Code § 5E-1-8 until after that investor receives certification from the capital company that the investor's investment in that capital company in fact qualifies for the tax credit. Once the investor receives this certification that investor may immediately begin taking the amount of such credit into consideration when determining the amount of installment payments of estimated tax that become due subsequent to the date on which the investor receives certification from the West Virginia capital company of the investor's entitlement to claim the tax credit allowed by W. Va. Code § 5E-1-8. The amount of allowable tax credit not actually used to offset the investor's tax liability(s) for the taxable year in which the investment was made in the West Virginia capital company may be carried back to each of the three taxable years immediately preceding the taxable year in which the investment was made. What this means, is that the earliest point in time when a taxpayer may apply for refund due to a carry-back of unused tax credit is after the investor files all of the annual returns required to be filed for the taxes against which the credit may be applied for the taxable year in which the investment was made. At a practical matter, the last return which the investor files for the taxable year in which the investment was made will probably be the investor's West Virginia income tax return, whether corporate or personal, which is due on the 15th day of the third month of the next succeeding taxable year in the case of an investor who is a regular corporation, and the 15th day of the fourth month of the next succeeding taxable year in the case of an investor who is an individual, or a partner in a partnership, or a shareholder in an electing small business corporation, unless the investor obtains an extension of time for filing that return. In summary, once a West Virginia capital company certifies to an investor that the investor is entitled to the tax credit allowed by W. Va. Code § 5E-1-8, that investor may immediately begin taking the amount of such credit into consideration when determining the amount of estimated tax which must be remitted to the Tax Commissioner for the taxable year in which the investment is made. The first time an investor may file a claim for refund of tax paid in a prior tax year due to the carrying back of unused allowable tax credit is after the investor has filed all of the annual returns for the taxes against which the credit may be applied which are due for the taxable year in which the investment was made. While such returns may not be filed before the end of such taxable year, when such returns are field, thereafter, is a matter that is generally within the control of the taxpayer/investor. The later these returns are filed after the close of the taxable year in which the investment was made, the later the investor will be able to claim a tax refund due to carrying back the unused tax credit. Michael E. Caryl State Tax Commissioner Issued: April 21, 1987MEC:dss