30, 1987. West Virginia Code §

11-13D-3a reads as follows: On and after the first day of July, one thousand nine hundred eighty-seven, the credits allowed under section three shall be applied to and reduce the taxes imposed by articles thirteen, thirteen-a, fifteen, fifteen-a and twenty-three of this chapter: Provided, That this credit shall not reduce the sum of the net tax liability of the taxpayer under articles thirteen, thirteen-a and twenty-three of this chapter, or under articles fifteen and fifteen-a of this chapter on purchases directly used or consumed in taxpayer's qualified investment activity, for the taxable year below fifty percent of the amount thereof, determined before application of the credits allowed by this article and article thirteen-c or thirteen-e, or both, of this chapter. The intent of W.

Va. Code §

11-13D-3a is to allow taxpayer credit against their consumers sales and use tax liabilities on purchases and leases of tangible personal property and on purchases of services when such purchases are directly used or consumed in taxpayer's qualified investment activity, meaning that activity of the taxpayer which but for the qualifiedinvestment taxpayer would not now be doing. This includes sales tax paid on property or services not directly used or consumed in manufacturing activity. The proviso of this section groups the taxes against which the credit may be applied into two groups. Net tax liability of the taxpayer under Articles thirteen, thirteen-a and twenty-three of Chapter eleven and net tax liability of the taxpayer under Articles fifteen and fifteen-a of Chapter eleven on purchases used in the taxpayer's qualified investment activity. Based on this distinction the State Tax Department will require the taxpayer to apply the taxpayer's credit pursuant to W.

Va. Code §

11-13D-3, first, to reduce each of the first group of tax liabilities by up to fifty percent, and then apply the remaining credit against the other group of tax liabilities up to fifty percent of their sum. In other words, the taxpayer would calculate the net tax liabilities under Articles thirteen, thirteen-a and twenty-three, determined before application of the credits allowed by Articles thirteen-d, thirteen-c and thirteen-e, and then separately total the net tax liabilities under Articles fifteen and fifteen-a, determined before application of the credits allowed by Articles thirteen-d, thirteen-c and thirteen-e. Since the B

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O tax liabilities and Severance tax liabilities of the taxpayer are due at the end of the month following the taxpayer's reporting period, the credit should be taken against those taxes first. The credit would next be applied against the Business Franchise tax liabilities of the taxpayer, the annual return for which is due on the 15th of the third month after the close of the taxable year for corporations or on the 15th of the fourth month after the close of the taxable year for a partnership. The taxpayer may take the credit against the Business Franchise Tax into account for the purpose of calculating the amount of quarterly estimated tax due pursuant to W.

Va. Code §

11-23-14. After the credit in W.

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11-13D-3 has been applied against the taxpayer's B

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O and/or Severance tax liabilities and after the credit is taken against the Business Franchise tax at the close of the taxable year, the taxpayer may apply any remaining Article thirteen-d credit for the year against eligible sales and use tax liabilities by filing a claim for a refund of those sales and use taxes subject to offset by the remaining credit. Such a claim for refund of sales and use tax must be supported by adequate documentation demonstrating that the tax was paid and that these purchases were directly used in the qualified investment activity and would not have been made but for the qualified investment. Administrative problems in determining with certainty the amount of credit available after the credit has been applied against the actual tax liabilities of the taxpayer for B

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O, Severance and Business Franchise taxes, make it impossible to allow the taxpayer to take the credit against sales or use tax returns during the applicable taxable year. Therefore, any taxpayer utilizing a direct pay permit should ignore line 6 on the monthly direct pay return (Form WV/CST-210 and WV/CST-230) when calculating the taxpayer's remittance due for the period. Instead the taxpayer must wait until after the annual Business Franchise return has been completed and apply for a refund (or credit to taxpayer's account) for the amount of the expansion credit applicable against the taxpayer's sales or use taxes paid during the taxable year. The tax credit provided in Article thirteen-c, Chapter eleven, of the West Virginia Code is to be applied to reduce net tax liabilities imposed by Articles thirteen, thirteen-a, fifteen, fifteen-a and twenty-three, Chapter eleven of the West Virginia Code only after applying the Article thirteen-d credit to reduce those net liabilities. In applying the Article thirteen-c credit the taxpayer is subject to the same procedures as previously outlined for the taking of the Article thirteen-d credit. Therefore, the business investment and jobs expansion tax credit in Article thirteen-c must be taken against the consumers sales and service tax and use tax liability through a request for refund filed with the Tax Department at the end of each tax year in the same manner as the Article thirteen-d credit is taken against those liabilities. _________________________ Michael E. Caryl State Tax Commissioner Date: August 19, 1988