West Virginia levies two primary business taxes: the corporation net income tax and the business franchise tax. Certain other taxes are levied upon specialized industries. For example, severance tax is imposed on the production of natural resources. The business and occupation tax is a gross receipts tax imposed upon public utilities, natural gas storage operators, electric power producers and synthetic fuel manufacturers. A telecommunications tax is imposed upon telephone companies.
Corporation net income tax
The corporation net income tax is imposed annually at a rate of 8.75 percent. The starting point for determining West Virginia taxable income is the federal taxable income of the corporation for the year. Various increasing and decreasing modifications are required to determine West Virginia taxable income.
The method used for apportioning income is a four-factor formula comprised of a property factor, a payroll factor and a double-weighted sales factor.
Optional special expensing treatment is available for expenditures for air and water pollution control facilities. A West Virginia net operating loss may be carried back and carried forward for the same time periods allowed for net operating loss carryovers under the Internal Revenue Code. This typically means that they can be carried back up to two years and carried forward up to 20 tax years. There is an annual limitation of $300,000 for West Virginia net operating loss carry-backs.
Business franchise tax
The measure of the business tax base is the net worth of the corporation or partnership as determined for federal income tax purposes. The rate of tax is 0.55 percent or $50, whichever is greater. In the case of a multistate business, net worth is apportioned to this state using a four-factor formula comprised of a property factor, a payroll factor and a double-weighted sales factor.
Businesses also receive credit for business franchise taxes paid by subsidiary corporations and by partnerships in which they are an owner. The tax is remitted in monthly installments. The annual return is due on or before the 15th day of the third month after the close of the tax year for corporations and on or before the 15th day of the fourth month after the close of the tax year for partnerships.
Business and occupation tax
The business and occupation tax is an annual privilege tax levied on public utilities, natural gas storage operators, electricity generators and synthetic fuel manufacturers doing business in West Virginia.
Utilities are taxed at varying rates depending on the business activity or activities in which they are engaged. These rates vary from $.05 cents per kilowatt hour for bulk sales of electric power of at least 200,000 kw/hr/yr to $4.40 per $100 of gross receipts for water utilities.
Severance taxes are levied on the production of natural resources including ordinary processing commonly employed by the industry to obtain a salable natural resource product. The oil and gas production privilege will end at the well-mouth; the timber production privilege ends once the tree is severed, delimbed, and topped; the limestone or sandstone production privilege ends immediately after severance from the earth; and the coal production privilege includes certain coal processing activities. The rate of tax on timber production is 3.22 percent and the tax rate on other natural resources is generally 5 percent.
The telecommunications tax is levied at a rate of 4 percent. The measure of this tax is gross income from the provision of telecommunication services. This does not include gross income from network access, billing or similar services provided to end users and other telephone companies or communications carriers. Any income derived from the provision of commodities or services determined by the Public Service Commission of West Virginia to be subject to competition is excluded from the tax base. This exclusion effectively limits the tax base to the provision of local exchange services only.
Consumers' sales and service tax (CSST) and use tax
West Virginia has consumers' sales and service tax and a use tax. Sales of goods and service to a manufacturer for direct use in manufacturing are exempt from CSST (for in-state purchases) and from the use tax (for out-of-state purchases). The effects of these exemptions and others are far-reaching.
Business registration tax
The rate of this tax is $30 biennially for each location in which business activity is conducted. Businesses generating annual gross income of less than $4,000 are exempt from payment but still must file to obtain the certificate. The license year is July 1 to June 30 of the succeeding calendar year.
Personal income tax
A graduated scale of rates is applied to taxable income of all residents, individuals, estates and trusts and on the West Virginia income of nonresidents. The starting point for computation of the tax is federal adjusted gross income. Individuals are allowed a $2,000 deduction for each exemption claimed on their federal return. Individuals older than 65 are allowed an additional $8,000 income exemption. Tax rates range from 3 percent on the first $10,000 of taxable income to 6.5 percent on income exceeding $60,000.
Corporation charter tax
For West Virginia chartered corporations, the rates for this tax range from $20 annually on authorized capital stock of $5,000 or less to $2,500 annually on values in excess of $15 million.
For non-West Virginia chartered corporations, the rates of this tax are 1.75 times the annual rate for West Virginia chartered firms. The rates are based on a proportion of the value of shares of issued and outstanding capital stock, which is adjusted to reflect the proportion of a company's property owned and used in West Virginia. Annual liability for corporations not chartered in West Virginia cannot be less than $250.
In West Virginia, ad valorem property taxes are local taxes. The assessed value of non-utility property is set by locally elected county officials. Guidelines are provided by the state to achieve equal and uniform assessed values for property throughout the state. The assessed value of utility property is determined by the state. Public utility taxes are collected by the state and remitted to county sheriffs for distribution to local levying bodies. County sheriffs collect all other property taxes. Property is generally taxed on 60 percent of its appraised value with reduced valuation for qualified capital additions.
For complete information about business support programs, incentives, and taxes, visit the West Virginia Development Office www.wvdo.org