ADMINISTRATIVE NOTICE 9322 Subject: Changes Concerning Business Investment and Jobs Expansion Tax Credit (Super Credit) Laws On April 10, 1993, the West Virginia Legislature enacted Senate Bill 463, which includes the following major changes to the Business Investment and Jobs Expansion Tax Credit (Super Credit) Laws. First, the credit no longer applies against the Consumers Sales and Service Tax and Use Tax for purchases made on or after July 1, 1993. Second, there is a one year suspension of new credit entitlement for property placed into service or use between April 10, 1993 and April9, 1994, inclusive. The suspension does not apply to manufacturing (other than certain timber, coal and mineral activities); information processing; warehousing; goods distribution; destination-oriented recreation and tourism; or to qualified investments for which credit applications were filed before April 10, 1993. Third, the bill strengthened the Tax Commissioner's authority to use alternative methods when the payroll fraction method does not fairly represent the tax liability solely and directly attributable to the qualified investment activity. Fourth, for tax years ending after May 31, 1993, all taxpayers must defer twenty percent of the value of their annual credit until the tenth, eleventh and twelfth tax years subsequent to the year when investment is placed in service or use. Fifth, certain taxpayers may now claim an additional amount of credit to "free up" super credit value lost as a result of the increase in the minimum coal severance tax rate. This "free up" credit may be used against business franchise tax, corporation net income tax and personal income tax. These last two changes are discussed below.
The New Twenty Percent Annual Credit Deferral - W.Va. Code §1113C5(o)
The deferral is a 20% reduction of the credit actually claimed, not of the credit available. The following are two examples of deferral calculations. If the taxpayer has available credit of $500,000 and is only able to use $20,000 against a qualified tax liability, the deferred credit is equal to $4,000 (i.e. 20% of $20,000). If the taxpayer has $20,000 of available credit and a qualified tax liability of $100,000, the deferred credit is still equal to $4,000 (i.e. 20% of $20,000). In both cases, the amount of credit claimed on the tax return falls from $20,000 to $16,000. The New Additional Allowance For Minimum Coal Severance Taxpayers ("Free-Up Credit") - W.Va. Code §1113C5(p)
Beginning June 1, 1993, the minimum coal severance tax rate increases from 50¢ per ton to 75¢ per ton. The taxpayer may "free-up" Super Credit value lost as the result of the additional 25¢ minimum tax, for use against other current year tax liabilities attributable to the qualified investment. The value of this free-up credit is equal to the lesser of (1) onethird of the taxpayer's minimum severance tax on coal (i.e., the minimum tax imposed at a rate of 75¢) or (2) the amount of the taxpayer's net minimum severance tax on coal. The net minimum severance tax on coal is the amount of the excess of the minimum coal severance tax over the amount of the State severance tax on coal severed and extracted by the taxpayer after application of available Super Credit and the annual $500 exemption. The following is an example of a free-up credit calculation for 1993. Taxpayer XYZ produced 1,000,000 tons of coal in 1993 (500,000 tons prior to June1, 1993 and 500,000 tons after that date) at an average price of $25 per ton. XYZ's pre-credit severance tax liability was $1,250,000 ($25 per ton x 1,000,000 tons x 5.0% tax), while its minimum coal severance tax liability was $625,000 (500,000 tons x $.50 tax + 500,000 tons x $.75 tax). Following the required twenty percent tax deferment calculation, XYZ applied its $950,000 Super Credit and $500 exemption against its prefreeup credit severance tax liability, which resulted in a net State severance tax liability of $278,535 (($1,250,000 - $950,500) x 93% State portion). The net minimum severance tax on coal is $346,465 ($625,000 minimum coal severance tax minus $278,535 net State severance tax), and one-third of the minimum severance tax on coal is $125,000 (500,000 tons x $.75 tax)
¸ 3). The lesser of one-third of the minimum coal severance tax ($125,000) and the net minimum coal severance tax ($346,465) is $125,000, which is the available "free-up credit" for 1993. This $125,000 may be used against XYZ's 1993 business franchise tax, corporation net income tax and personal income tax liabilities attributable to the qualified investment. Any unused free-up credit must be forfeited by the taxpayer and may not be carried to any other tax year. Instructions and Forms WV/BCS-1 (Rev. Sept. 1993) and WV/BCS-Small (Rev. Sept. 1993) contain the annual tax credit computation schedule for the credits and reflect the above changes. A copy of Senate Bill 463 may be obtained by contacting the Office of Legislative Reference Information at (304) 558-8905, Room MB27, Capitol Building, Charleston, WV 25305. James H. Paige III, Secretary Department of Tax and Revenue Issued: September 28, 1993 For additional information please call or write: Department of Tax and Revenue Taxpayer Services Division P. O. Drawer 3784 Charleston, WV 25337-3784 Operator on Duty 8:30 a.m.-4:30 p.m. Monday through Friday Telephones: (304) 558-3333 or 1-800-982-8297 (within W.Va. only) Telecopier: (304) 558-2324 TDD Service for the hearing impaired 1-800-282-9733