TECHNICAL ASSISTANCE ADVISORY 91-004

RE: Business Investment and Jobs Expansion Tax Credit -- Applicationto Expansion of a Manufacturing Plant.

This is in reply to your letter of January 4, 1991 requesting,issuance of a technical assistance advisory, under the provisionsof W. Va. Code § 11-10-5r, concerning application of theWest Virginia Business Investment and Jobs Expansion Tax CreditAct ("Super Tax Credit"), W. Va. Code §§ 11-13C-1through 11-13C-14, to a proposed industrial expansion project.

The following facts were submitted for our consideration, andit is upon these facts which our advisory is predicated.

The Company proposes to expand its manufacturing facility (the"Initial Facility") located in West Virginia, by purchasingland adjacent to the Initial Facility and constructing a secondmanufacturing line (the "Addition"). The Initial Facility,as expanded by the Addition, is hereafter referred to as the "ExpandedFacility." This request provided facts relative to the Addition.

FACTS

1. The Company was incorporated in 1984, for the purpose of constructingand operating the Initial Facility.

2. The Company presently employs 106 people at the Initial Facilitywhich was placed in service after 1985.

3. The financing of the Initial Facility was accomplished throughthe issuance of Industrial Development Revenue Bonds under W.Va. Code §§ 13-2C-1, et seq.

4. Legal title to the Initial Facility is held by a West VirginiaCounty Commission, (the "County"), and the Initial Facilityis leased to the Company for a term of 20 years. The Companyhas the option to purchase the Initial Facility at the end ofthe term of the lease.

5. The Initial Facility qualifies for the West Virginia BusinessInvestment and Jobs Credit under W. Va. Code §§ 11-13C-1,et seq. and the Company is presently utilizing the SuperCredit to offset the applicable taxes.

6. The Company has operated successfully and intends to expandits operations in West Virginia.

7. The Company intends to purchase land adjacent to the InitialFacility and construct the Addition which will provide the Companywith its second manufacturing line.

8. The projected cost of the Addition is in excess of $100,000,000. The financing of the Addition will be accomplished through acontribution to the capital of the Company by its owners and,through the sale of the Industrial Development Revenue Bonds tofinancial institutions.

9. It is anticipated that the Addition will create approximatelyfifty (50) West Virginia jobs. However, it cannot be determineduntil the project is operational, whether fifty (50) new WestVirginia jobs will be created.

10. It is anticipated that the documents providing for the ownership,financing and leasing of the Initial Facility will be modifiedto include the Addition. Thus, legal title to the real and personalproperty constituting the Expanded Facility will be held by theCounty and leased to the Company under a lease whereby the Companywill have the right to purchase the property at the end of thelease term.

11. The Addition is designed to operate as an integral part ofthe Initial Facility.

12. The Addition will be operated as an expansion to the InitialFacility utilizing the same loading docks, purchasing and shippingdepartment, accounting staff and otherwise be operated as an additionto the ongoing operations of the Initial Facility.

DISCUSSION

An eligible taxpayer is allowed to claim Super Tax Credit againstcertain West Virginia tax liabilities which are attributable totaxpayer's qualified investment in a new or expanded businessin this State which results in the taxpayer creating at least50 new jobs filled by new employees.

The terms "eligible taxpayer," "new jobs,""qualified investment" and "new employee"are all key terms which are specifically defined for purposesof the Super Tax Credit. See, respectively W.Va., Code §§ 11-13C-3(b)(9) & (14) (defining eligible taxpayerand new jobs); 11-13C-6 (defining qualified investment); and 11-13C-14(e)(4)[1990] (defining new employee).

In order to claim Super Tax Credit benefits, the following six(6) conditions must be satisfied: (1) the taxpayer must be aneligible taxpayer; (2) the taxpayer must make qualified investmentin real or tangible personal property purchased, or leased, forpurposes of business expansion in this State; (3) the qualifiedinvestment property must be used in or at a new or expanded businessfacility; (4) this qualified investment must result in the taxpayercreating at least 50 new jobs filled by West Virginia residents;(5) the taxpayer must timely make application for allowance ofSuper Tax Credit; and (6) allowable Super Tax Credit may onlybe used in the manner prescribed by law to offset certain WestVirginia taxes attributable to the qualified investment.

The Company will satisfy the first condition because it is subjectto both the business franchise tax and the corporation net incometax imposed by articles 23 and 24, chapter 11 of the West VirginiaCode.

The Company will satisfy the second and third conditions if itmakes qualified investment in property purchased or leased forbusiness expansion at a new or expanded business facility locatedin this State. The term "property purchased or lease forbusiness expansion" is defined in W.Va. Code § 11-13C-3(b)(19). However, that definition was amended by enactment of W.Va. Code§ 11-13C-14(e)(2) [1990] which redefines the term "excludedproperty." Reading section 11­13C­3(b)(19) andsection 11-13C-14(e)(2) in pari materia, the term "propertypurchased or leased for business expansion" now reads:

(19) Property purchased or leased for business expansion.

(A) Included property. -- Except as provided in subparagraph(B), the term "property purchased or leased for businessexpansion" means real property and improvements thereto,and tangible personal property, but only if such real or personalproperty was constructed, purchased, or leased and placed in serviceor use by the taxpayer, for use as a component part of a new orexpanded business facility, as defined in this section, whichis located within West Virginia. This term includes only:

(1) Real property and improvements thereto having a useful lifeof four or more years, placed in service or use on or after thefirst day of March, one thousand nine hundred eighty-five, bythe taxpayer.

(2) Real property and improvements thereto, or tangible personalproperty acquired by written lease having a primary term of tenor more years and placed in service or use by the taxpayer onor after the first day of March, one thousand nine hundred eighty-five.

(3) Tangible personal property placed in service or use by thetaxpayer on or after the first day of March, one thousand ninehundred eighty-five, with respect to which depreciation, or amortizationin lieu of depreciation, is allowable in determining the personalor corporation net income tax liability of the business taxpayerunder article twenty-one or twenty-four of this chapter and whichhas a useful life at the same time such property is placed inservice or use in this state, of four or more years.

(4) Tangible personal property acquired by written lease havinga primary term of four years or longer, that commenced and wasexecuted by the parties thereto on or after the first day of February,one thousand nine hundred eighty-six, if used as a component partof a new or expanded business facility, shall be included withinthis definition.

(5) Tangible personal property owned or leased, and used bythe taxpayer at a business location outside this state which ismoved into this state on or after the first day of February, onethousand nine hundred eight-six, for use as a component part ofa new or expanded business facility located in this state: Provided,That if the property is owned, it must be depreciable or amortizablepersonal property for income tax purposes, and have a useful lifeof four or more years remaining at the time it is placed in serviceor use in this state, and if the property is leased, the primaryterm of the lease remaining at the time the leased property isplaced in service or use in this state, must be four or more years.

(B) Excluded property. -- The term "property purchasedor lease for business expansion" shall not include:

(1) Property owned or leased by the taxpayer and for whichthe taxpayer was previously allowed tax credit for industrialexpansion, tax credit for industrial revitalization, tax creditfor coal loading facilities or the tax credits allowed by thisarticle.

(2) Property owned or leased by the taxpayer and for whichthe seller, lessor, or other transferor, was previously allowedtax credit for industrial expansion, tax credit for industrialrevitalization, tax credit for coal loading facilities, or thetax credits allowed by this article.

(3) Repair costs, including materials used in the repair, unlessfor federal income tax purposes the cost of the repair must becapitalized and not expensed.

(4) Airplanes.

(5) Property which is primarily used outside this state, withuse being determined based upon the amount of time the propertyis actually used both within and without this state.

(6) Property which is acquired incident to the purchase ofthe stock or assets of the seller, unless for good cause shown,the tax commissioner consents to waiving this requirement.

(7) Natural resources in placed purchased or leased prior tothe first day of March, one thousand nine hundred eighty-five,or purchased or leased after such date pursuant to an option topurchase or lease such natural resources in place acquired priorto such date but exercised in whole or in part on or after ...[March 10, 1990]; and natural resources in place purchased orleased on or after ... [March 10, 1990] unless pursuant to a writtencontract to purchase or lease executed prior to ... [March 10,1990] section.

(8) Property purchased or lease on or after ... [March 10,1990] unless pursuant to a written contract to purchase or leaseexecuted prior to ... [March 10, 1990] the cost or considerationfor which cannot be quantified with any reasonable degree of accuracyat the time such property is placed in service or use: Provided,That when the contract of purchase or lease specifies a minimumpurchase price or minimum annual rent the amount thereof shallbe used to determine the qualified investment in such propertyunder section six of this article if the property otherwise qualifiesas property purchased or leased for business expansion.

"Business expansion" is defined in W.Va. Code §11-13C-3(b)(2) to mean "capital investment in a new or expandedbusiness facility in this state."

The proposed expansion will be made at a "business facility,"as defined in W. Va. Code § 11-13C-3(b)(3), located in thisState and will result in an "expanded facility" as definedin W. Va. Code § 11-13C-3(b)(10) which states:

(10) Expanded facility. -- The term "expandedfacility" means any business facility (other than a new orreplacement business facility) resulting from the acquisition,construction, reconstruction, installation or erection of improvementsor additions to existing property if such improvements or additionsare purchased on or after the first day of March, one thousandnine hundred eighty-five, but only to the extent of the taxpayer'squalified investment in such improvements or additions.

The amount of the Company's qualified investment will be determinedunder the rules set forth in W. Va. Code § 11-13C-6 [1986](qualified investment), as amended by § 11-13C-14(e)(5) [1990]which provides that if a lease of property is a capital leaseor a financing lease for Federal income tax purposes, the qualifiedinvestment in that lease is a percentage of the original purchaseprice of the property for financial and federal income tax accountingpurposes, rather than a percentage of the financed purchase price.

W. Va. Code § 11-13C-14(e)(5) states:

(5) Leased property. -- The term "leased property"does not include property which the taxpayer is required to showon its books and records as an asset under generally acceptedprinciples of financial accounting. If the taxpayer is prohibitedfrom expensing the lease payments for federal income tax purposes,the property shall be treated as purchased property under thissection if the property was purchased on or after the date ofpassage of this section.

The fourth condition will be satisfied if the Company creates,as a direct result of its qualified investment, in the Addition,at least fifty (50) new jobs, filled by new employees who residein this State.

The term "new job" means a job which did not existin the business of the taxpayer in this State prior to the taxpayer'squalified investment being made, and which is filled by a newemployee. West Virginia Code § 11-13C-3(b)(14). The term"new employee" was redefined in West Virginia Code §11-13C-14(e)(4) which states:

(4) New employee.

(A) The term "new employee" means a person residingand domiciled in this state, hired by the taxpayer to fill a positionor a job in this state which previously did not exist in taxpayer'sbusiness enterprise in this state prior to the date on which thetaxpayer's qualified investment is placed in service or use inthis state. In no case shall the number of new employees directlyattributable to such investment for purposes of this credit exceedthe total net increase in the taxpayer's employment in this state: Provided, That with respect to taxpayers who file applicationfor certification after ... [March 10, 1990], the tax commissionermay require that the net increase in the taxpayer's employmentin this state be determined and certified for the taxpayer's controlledgroup; and in the case of a project involving more than one personfor the controlled groups of all participants, taken as a whole:Provided, however, That persons filling jobs savedas a direct result of taxpayer's qualified investment in propertypurchased or leased for business expansion on or after ... [March10, 1990] may be treated as new employees filling new jobs ifthe taxpayer certifies the material facts to the tax commissionerand the tax commissioner expressly finds that:

(i) But for the new employer purchasing the assets of a businessin bankruptcy under chapter seven or eleven of the United StatesBankruptcy Code and such new employer making qualified investmentin property purchased or leased for business expansion, the assetswould have been sold by the United States bankruptcy court ina liquidation sale and the jobs so saved would have been lost;or

(ii) But for taxpayer's qualified investment in property purchasedor leased for business expansion in this state, taxpayer wouldhave closed its business facility in this state and the employeesof the taxpayer located at such facility would have lost theirjobs: Provided, That the tax commissioner shall not makethis certification unless the tax commissioner finds that thetaxpayer is insolvent as defined in 11 U.S.C. § 101(31) orthat the taxpayer's business facility was destroyed in whole orin significant part by fire, flood or other act of God.

(B) A person shall be deemed to be a "new employee"only if such person's duties in connection with the operationof the business facility are on:

(i) A regular, full-time and permanent basis.

(I) "Full-time employment" means employment for atleast one hundred forty hours per month at a wage not less thanthe prevailing state or federal minimum wage, depending on whichminimum wage provision is applicable to the business.

(II) "Permanent employment" does not include employmentthat is temporary or seasonal and therefore the wages, salariesand other compensation paid to such temporary or seasonal employeeswill not be considered for purposes of sections five and sevenof this article; or

(ii) A regular, part-time and permanent basis: Provided,That such persona is customarily performing such duties at leasttwenty hours per week for at least six months during the taxableyear.

The fifth condition to claiming Super Tax Credit benefits isthat the Company must timely file an application for credit allowancewith Tax Commissioner. Please note that no Super Tax Credit benefitsmay be claimed until after it makes written application to theTax Commissioner for allowance of Super Tax Credit with respectto its qualified investment and receives written acknowledgementfrom the Tax Commissioner of its receipt. W. Va. Code §11-13C-14(f)(1) [1990] states:

(1) Application required. -- Notwithstanding any provisionof this article to the contrary, no credit shall be allowed orapplied under this article for any qualified investment propertyplaced in service or use on or after ... [March 10, 1990], untilthe person asserting a claim for the allowance of credit underthis article makes written application to the tax commissionerfor allowance of credit as provided in this subsection and receiveswritten acknowledgement of its receipt from tax commissioner: Provided, That in the case of a multiparticipant projectthis notice may be filed by the managing project participant onbehalf of all participants in that project. An application forcredit shall be filed no later than the last day of the due date,without extensions, for filing the tax returns required underarticle twenty-one or twenty-four of this chapter for the taxableyear in which the property to which the credit relates is placedin service or use and all information required by such form shallbe provided.

This request for issuance of a technical assistance advisorywill not be treated as an application for allowance of Super TaxCredit under W.

Va. Code §

11­13C­14(f)(1)because it is not known at this time whether the Addition willbe constructed or whether at least 50 new jobs will be createdand filled by new employees who are residents of this State. The Company's application for Super Tax Credit allowance shouldbe filed prior to placing the qualified investment property inservice. Assuming that the proposed Addition is constructed andthat at least 50 new jobs are created, the application for SuperTax Credit allowance will be granted.

The sixth condition to claiming Super Tax Credit benefits isthat the allowable credit must be applied over a period of tenyears, as at the rate of one-tenth per year, beginning with thetaxable year in which qualified investment property is first placedin service or use (determined under Federal income tax law) unlessthe taxpayer timely elects to delay the start of the ten-yearcredit period for one year. W. Va. Code § 11-13C-4. Pleasenote that this election may not be changed once it is made andthat a decision to not elect a one year delay is itself an election.The one-tenth annual credit allowance may only be used to offsetcertain taxes directly attributable to the qualified investment,and in the manner specified in West Virginia Code § 11-13C-7,as amended by § 11-13C-14(c) [1990] (prohibiting applicationof credit against severance taxes unless a transition rule applies).

In summary, we find that the Company will be an "eligibletaxpayer" (if at least fifty new jobs filled by new employeesare created), as that term is defined in West Virginia Code §11-13C-3(b)(9), because it will satisfy the following two conditions: (1) It is subject to the business franchise tax and the corporationnet income tax imposed by articles 23 and 24, chapter 11 of theWest Virginia Code; and (2) The Company will have made qualifiedinvestment in property purchased or leased for business expansionat an expanded business facility in this State.

The Company also requested clarification concerning what creditswould be available to it in the event that the Addition does notresult in the creation of at least fifty new jobs filled by newemployees.

The initial question is whether the Super Tax Credit benefitsattributable to the Initial Facility may be used to offset statetaxes attributable to operation of the Addition. The answer isno. W. Va. Code § 11-13C-5(b) expressly limits applicationof Super Tax Credit to "that portion of the taxpayer's statetax liability which is attributable to and the direct result oftaxpayer's qualified investment, ...."

"Qualified investment" is limited to property purchasedor leased for the purpose of business expansion which is placedin service or use during the same taxable year, W. Va. Code §11-13-C-6(a), unless the investment is part of a certified multiple-yearproject. If multiple-year investment is certified as a multiple-yearproject, under West Virginia Code § 11-13C-4b, Super TaxCredit allowable for the project's qualified investment may beused to offset State taxes attributable to and the direct resultof the project's qualified investment property. However, a multiple-yearproject may only include qualified investment property placedin service or use during a span of three successive taxable yearswhich results in the creation of at least 50 new jobs. W. Va.Code § 11-13C-4b(a)(1). The facts submitted here indicatethat the Addition will be placed in service more than three yearsafter the Initial Facility was placed in service. Therefore,unless use of the Addition results in the creation of 50 or morejobs, Super Tax Credit may not offset any portion of the taxesattributable to the Addition.

In the event that the Addition does not qualify for Super TaxCredit benefits, the question becomes whether the investment iseligible for the industrial expansion tax credit provided in W.Va.Code § 11-13D-3. We conclude that this credit would be allowablebecause the Company is an "industrial taxpayer," asdefined in W. Va. Code § 11-13d-2(b)(1), and the Additionwill constitute "property purchased for industrial expansion,"as defined in W. Va. Code § 11-13D-2(b)(11) and (13); andthe investment will be made at an "industrial facility,"as defined in W. Va. Code §

11-13D-2(b)(5).

The conclusions reached in this technical assistance advisoryare based on the facts presented for our consideration and applicationof current law. If the facts presented change in any materialway, or if there is a material change in relevant law pertainingto the Super Tax Credit, the conclusions reached in this technicalassistance advisory may no longer apply.

_____________________________________

L. Frederick Williams, Jr., Secretary

Department of Tax and Revenue

Issued: February 13, 1991