W. Va. Code R. § 110-21-8

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-21-8 - Credits Against Tax

8.1. Business and Occupation Tax Credit. If the taxpayer is subject to the business and occupation tax imposed by W. Va. code '11-13-1 et seq. said taxpayer may be entitled to a credit against his West Virginia personal income tax. However, the amount of the credit shall not exceed the amount of income tax attributable to West Virginia taxable income for the taxable year derived from the business or activity subjected to such other tax. If the West Virginia taxable income of the taxpayer includes income from a partnership, estate, trust or a S corporation, a part of any business and occupation tax liability of the partnership, estate, trust or S corporation shall be allowed, in computing the credit, in an amount proportionate to the income of such partnership, estate, trust or S corporation, which is included in the taxpayer's West Virginia taxable income.

8.1.1. For purposes of Subsection 8.1 above, the tax imposed under W. Va. code '11-13 shall be the amount of the liability of the taxpayer for such tax under said Article 13 computed without reduction for the tax Industrial Expansion or Revitalization tax credit and the Capital Company tax credit allowed for such year.

8.1.2. Credit Limitations. The business and occupation tax credit allowed under W. Va. code '11-21-8 and this regulation shall be limited to the smallest of the following:

(1) The amount of business and occupation tax imposed after all credits except the Industrial Expansion or Revitalization tax credit and the Capital Company tax credit; or

(2) The amount of West Virginia personal income tax before credits; or

(3) The amount of West Virginia personal income tax imposed on income from the business subject to the business and occupation tax.

8.1.2.1. The limitation set forth under Subsection 8.1.2.(3) is placed upon the amount of the credit to preclude exempting from personal income tax such of the taxpayer's income as is not derived from a business subject to business and occupation tax. Stated another way, the credit for business and occupation tax cannot offset the income tax imposed on income derived from sources which are not subject to business and occupation tax.

8.1.2.2. There can be no credit against personal income tax for business and occupation tax imposed on a business which operated at a loss, because no income from a business which operates at a loss enters into a taxpayer's West Virginia taxable income. Likewise, there can be no credit against personal income tax for business and occupation tax imposed, unless the West Virginia taxable income of a taxpayer includes business income. The West Virginia taxable income of a taxpayer is determined by offsetting business losses against business gains.

8.1.2.3. Who may claim the credit. The credit is allowable to taxpayers engaged in activities subject to the business and occupation tax in their capacities as proprietors, members of partnerships, beneficiaries and fiduciaries of estates and trusts, and stockholders of corporations, if and only if, they elected to be taxed under subchapter S of the Internal Revenue Code. The credit allowed these taxpayers is based on their share of the business and occupation tax imposed, and is limited to the amount of personal income tax imposed on business income derived from the proprietorship, partnership , S corporation, estate or trust. Salaries that are not, in fact, part of the distributive share of the partnership income, (for example, salaries guaranteed to partners by the articles of partnership), and salaries paid to stockholders of S corporations, are not income of partnerships or subchapter S corporations for the purpose of computing the credit.

8.1.2.3.a. Examples.

Example 1. The taxpayer is engaged in a sole proprietorship which is subject to the business and occupation tax. The amount of business and occupation tax liability imposed for the taxable year was seventy-five dollars ($75.00). The taxpayer's net income from the business was twelve thousand dollars ($12,000). He received no other income during the year. The taxpayer filed a joint return and claimed two (2) personal exemptions. Presuming a West Virginia income tax liability before credits would be two hundred and forty dollars ($240.00), the business and occupation tax credit would be limited to seventy-five dollars ($75.00), the amount of business and occupation tax imposed.

Example 2. Assume the same facts as in example 1 except that the amount of business and occupation tax imposed was three hundred dollars ($300.00). The West Virginia personal income tax before credits is two hundred and forty dollars ($240.00), therefore, the business and occupation tax credit is limited to two hundred and forty dollars ($240.00), the amount of income tax before credits. No carry over of this credit is available.

Example 3. The taxpayer was engaged in a business (partnership) subject to the business and occupation tax. His share of the distributive profits was eight thousand dollars ($8,000), and his share of the business and occupation tax liability was four hundred dollars ($400.00). In addition to his business income, the taxpayer received a salary of four thousand dollars ($4,000.00) from a local bank; therefore, his total income for the taxable year was twelve thousand dollars ($12,000.00). Presuming a personal income tax liability of three hundred dollars ($300) before credits, the business and occupation tax credit would be limited to two hundred dollars ($200.00), which is the amount of personal income tax imposed on income from the business subject to the business and occupation tax credit.

8.1.2.4. No credit shall be allowed against the West Virginia personal income tax unless the West Virginia taxable income of a taxpayer includes positive amounts of income from a business subject to the business and occupation tax. In computing the business income for purposes of applying the ratio of income from business, subject to the business and occupation tax to the total West Virginia adjusted gross income for determining the limitation of credit, business losses must be offset against business gains to reflect the positive amount of business income, subject to business and occupation tax in determining West Virginia taxable income. The purpose of the business and occupation tax credit is to avoid the imposition of income tax, and not to relieve the taxpayer from the imposition of income tax on income not subject to the business and occupation tax that would otherwise have been imposed in the absence of business activity.

8.1.2.4.a. Example. Taxpayer is engaged in a business subject to the business and occupation tax. Business and occupation tax in the amount of five hundred dollars ($500.00) was imposed on gross receipts of forty thousand dollars ($40,000.00). His business operated at a loss of ten thousand dollars ($10,000,00). The taxpayer had income, from a source other than his business, in the amount of thirty thousand dollars ($30,000.00) for the taxable year. This taxpayer is not entitled to a business and occupation tax credit on his personal income tax return, because his West Virginia taxable income does not include a positive amount of income from business subject to the business and occupation tax.

8.1.2.5. In determining the income from a business or occupation which is subject to the business and occupation tax, the net income, from such business or occupation, as reported in federal adjusted gross income without reference to the component items of income from the business or occupation, shall be considered prima facie evidence of the income of the subject business. For purposes of determining net income, gross income may include, but is not limited to: gross income from sales, interest income, bad debt recoveries, rents and royalties, earned discounts and miscellaneous income.

8.1.2.5.a. Salaries which have been deducted as a business expense for federal income tax purposes, in determining net income from the business or occupation subject to the business and occupation tax, shall not thereafter be included as income from the business in determining the individual's business and occupation tax credit.

8.1.2.6. Partnerships. In determining the income from a partnership which is subject to the business and occupation tax, the salaries paid to the partners which are not considered a draw against the distributive share of profits shall be deducted in arriving at the net income of the partnership; and such salaries shall not be included in the basis for computing the business and occupation tax credit of the individual partner. If the salary is not a guaranteed salary, provided in the articles of partnership, the Tax Commissioner will accept as prima facie evidence that the salary is considered a draw against distributive share of profits; therefore, the salary will be allowed in the basis for computing the business and occupation tax credit of the individual partner.

8.1.2.7. S Corporations. In determining the income from an S corporation which are subject to the business and occupation tax, salaries paid to stockholders shall be deducted in arriving at the net income of said corporation. The taxpayer, who is a stockholder and receives a salary from from such corporation, is not permitted to use said salary in the computation of his or her business and occupation tax credit on his or her West Virginia Personal Income Tax Return, because such salaries are not income of S corporations but are expenses of S corporations deductible in arriving at their net income.

8.1.2.7.a. Example 1. Mr. X is a stockholder in an S corporation and is also an employee of the corporation. Mr. X receives a salary of six thousand dollars ($6,000.00) from the corporation. At the end of the corporation's taxable year, Mr. X receives two thousand dollars ($2,000.00) as his distributive share of profits from the corporation. In computing his business and occupation tax credit on his West Virginia Personal Income Tax Return, Mr. X is permitted to use only his distributive share of profits two thousand dollars ($2,000) as his basis.

8.2. Carrier Income Tax Credit. If a taxpayer is subject to the carrier income tax imposed under W. Va. code '11-12A-1 et seq., said taxpayer may be entitled to a credit against his West Virginia personal income tax. The amount of this credit shall not exceed the amount of personal income tax attributable to West Virginia taxable income for the taxable year derived from the activities subjected to such other tax. If the West Virginia taxable income of the taxpayer includes income from a partnership, estate, trust or S corporation, a part of any S corporation shall be allowed in computing the credit in an amount proportionate to the income of such partnership, estate, trust or S corporation which is included in the taxpayer's West Virginia taxable income.

8.2.1. The West Virginia Carrier Income Tax was repealed effective July 1, 1987. A carrier income tax credit may, however, still be applicable in cases where said tax is paid subsequent to July 1, 1987.

8.2.2. Credit Limitations. The provisions regarding limitations on the business and occupation tax credit which are set forth under Subsection 8.1.2. of this regulation are equally applicable to the carrier income tax credit.

8.3. Severance Tax Credit. If a taxpayer is subject to the severance tax imposed under W. Va. code '11-13A-1 et seq., said taxpayer may be entitled to a credit against his West Virginia personal income tax. The amount of this credit shall not exceed the amount of personal income tax attributable to West Virginia taxable income for the taxable year derived from the activities subjected to such other tax. If the West Virginia taxable income of the taxpayer includes income from a partnership, estate, trust or S corporation, a part of any severance tax liability of the partnership, estate, trust or S corporation shall be allowed in computing the credit in an amount proportionate to the income of such partnership, estate, trust or S corporation which is included in the taxpayer's West Virginia taxable income.

8.3.1. Credit Limitations. The provisions regarding limitations on the business and occupation tax credit which are applicable to the severance tax credit.

W. Va. Code R. § 110-21-8