TECHNICAL ASSISTANCE ADVISORY 89­002Re: West Virginia Capital Company Act - - Whether an investment is made during taxable year in which investor deposits's funds with escrow agent or during the taxable year in which tax credit is certified. This is in reply to your letter of January 5, 1989, requesting on behalf of XYZ Limited Partnership, a West Virginia Capital Company, issuance of a Technical Assistance Advisory under the provisions of W. Va. Code § 11­10­5r. The issue presented for ruling is whether an investor in a West Virginia Capital Company is entitled to claim the tax credit allowed for his investment by W. Va. Code § 5E­1­8 beginning with the taxable year in which the investor pays his investment to the escrow agent of the capital company, or with the taxable year in which the investor's investment is withdrawn from escrow by the capital company pursuant to certification by the West Virginia Industry and Jobs Development Corporation that the investment is eligible for the tax credit allowed by W. Va. Code § 5E­1­8. Detailed facts were outlined in your letter of January 5, 1989. For resolution of the issue presented, the controlling facts are that the investor is a calendar year taxpayer; his investment was paid to the capital company's escrow agent prior to December 31, 1988; and that the investor can recover his funds from the escrow agent only if the Board of Directors of the West Virginia Industry and Job Development Corporation does not certify the investment as eligible for credit under W. Va. Code § 5E­1­8. It is anticipated that the Board will certify this investment at its next board meeting in 1989. W. Va. Code § 5E­1­8(d) provides that the "tax credit allowed under this section is to be credited against the taxpayer's tax liability for the taxable year in which the investment in a qualified West Virginia Capital Company is made." (Emphasis added.) Sections 4.6 and 4.7 of the legislative rules for the West Virginia Capital Company Act, W. Va. Code §§ 5E­1­1 through 5E­1­17, conform to the language of W. Va. Code § 5E­1­8(d). These legislative rules further indicate that the investment is made when the funds are deposited in escrow. Section 2.2.7 of the rules indicate that the funds "invested" in the applicant company must be deposited and held in escrow. This section applies to initial investments, those prior to certification of the capital company and to subsequent, incremental investments which are held in escrow pending approval of an increase to the capital base. Language elsewhere in the regulations indicates that the investment is made at the time the funds are placed in escrow. See, e.g., sections 2.2.8, 2.3.6, 2.3.7, 2.3.8, 2.3.15 and 2.3.16 of the Legislative Rules. We conclude that an investment in a West Virginia Capital Company is made at the time the investor deposits his funds with the escrow agent of the capital company and that the determination of the taxable year in which an investment is made is based upon the date the investor's funds are deposited with the escrow agent as required by law. It is expressly noted that even though the investment is "made" at that time, the investor may not begin claiming the credit allowed by W. Va. Code § 5E­1­8 until after the Board of Directors of the West Virginia Industry and Jobs Development Corporation certifies to the capital company that the investment is eligible for tax credits and the capital company, in turn, certifies to the investor the extent to which the investor is eligible for the tax credit. __________________________________ Charles O. Lorensen State Tax Commissioner Issued: February 1, 1989