wv-wv-18427: 110-13KK — WEST VIRGINIA TAX CREDIT FOR FEDERAL EXCISE TAX IMPOSED UPON SMALL ARMS AND AMMUNITION MANUFACTURERS

6/23/2026 3:18:42 PM Office of West Virginia Secretary Of State NOTICE OF PUBLIC COMMENT PERIOD AGENCY: Tax TITLE-SERIES: 110-13KK RULE TYPE: Legislative Amendment to Existing Rule: Yes Repeal of existing rule:o RULE NAME: WEST VIRGINIA TAX CREDIT FOR FEDERAL EXCISE TAX IMPOSED UPON SMALL ARMS AND AMMUNITION MANUFACTURERS CITE STATUTORY AUTHORITY: W. Va. Code §11-10-5 and W. Va. Code §11-13KK-13 COMMENTS LIMITED TO: Written DATE OF PUBLIC HEARING: LOCATION OF PUBLIC HEARING: DATE WRITTEN COMMENT PERIOD ENDS: 07/23/2026 9:00 AM COMMENTS MAY BE MAILED OR EMAILED TO: NAME: Mark S. Morton ADDRESS: P.O. Box 1005 Charleston, WV 25324-1005 EMAIL: taxlegal@wv.gov PLEASE INDICATE IF THIS FILING INCLUDES: RELEVANT FEDERAL STATUTES OR REGULATIONS: No (IF YES, PLEASE UPLOAD IN THE SUPPORTING DOCUMENTS FIELD) No INCORPORATED BY REFERENCE: (IF YES, PLEASE UPLOAD IN THE SUPPORTING DOCUMENTS FIELD) PROVIDE A BRIEF SUMMARY OF THE CONTENT OF THE RULE: This legislative rule establishes the procedures for applying for and claiming the West Virginia Tax Credit for Federal Excise Tax Imposed Upon Small Arms and Ammunition Manufacturers, and sets forth the methodology the Tax Commissioner will use to administer the West Virginia Tax Credit for Federal Excise Tax Imposed Upon Small Arms and Ammunition Manufacturers. SUMMARIZE IN A CLEAR AND CONCISE MANNER CONTENTS OF CHANGES IN THE RULE AND A STATEMENT OF CIRCUMSTANCES REQUIRING THE RULE: This legislative rule establishes the procedures for applying for and claiming the West Virginia Tax Credit for Federal Excise Tax Imposed Upon Small Arms and Ammunition Manufacturers, and sets forth the methodology the Tax Commissioner will use to administer the West Virginia Tax Credit for Federal Excise Tax Imposed Upon Small Arms and Ammunition Manufacturers. Continuation of the rule in its current state is necessary to provide guidance regarding the credit. The proposed rule change extends the sunset date of the rule and deletes language that is merely duplicative of statutory language. SUMMARIZE IN A CLEAR AND CONCISE MANNER THE OVERALL ECONOMIC IMPACT OF THE PROPOSED RULE: A. ECONOMIC IMPACT ON REVENUES OF STATE GOVERNMENT: None B. ECONOMIC IMPACT ON SPECIAL REVENUE ACCOUNTS: None C. ECONOMIC IMPACT OF THE RULE ON THE STATE OR ITS RESIDENTS: None D. FISCAL NOTE DETAIL: Effect of Proposal Fiscal Year 2026 2027 Fiscal Year (Upon Increase/Decrease Increase/Decrease Full (use "-") (use "-") Implementation) 1. Estimated Total Cost 0 0 0 Personal Services 0 0 0 Current Expenses 0 0 0 Repairs and Alterations 0 0 0 Assets 0 0 0 Other 0 0 0 2. Estimated Total 0 0 0 Revenues E EXPLANATION OF ABOVE ESTIMATES (INCLUDING LONG-RANGE EFFECT): No economic impact. BY CHOOSING 'YES', I ATTEST THAT THE PREVIOUS STATEMENT IS TRUE AND CORRECT. Yes Anoop Bhasin -By my signature, I certify that I am the person authorized to file legislative rules, in accordance with West Virginia Code §29A-3-11 and §39A-3-2. 110CSR13KK TITLE 110 LEGISLATIVE RULE STATE TAX DEPARTMENT SERIES 13KK WEST VIRGINIA TAX CREDIT FOR FEDERAL EXCISE TAX IMPOSED UPON SMALL ARMS AND AMMUNITION MANUFACTURERS §110-13KK-1. General. 1.1. Scope. -- This legislative rule establishes the procedures for applying for and claiming the West VirginiaTaxCreditforFederalExciseTaxImposedUponSmallArmsandAmmunitionManufacturers,and sets forth the methodology the Tax Commissioner will use to administer the West Virginia Tax Credit for Federal Excise Tax Imposed Upon Small Arms and Ammunition Manufacturers. 1.2. Authority. -- W. Va. Code §11-10-5 and W. Va. Code §11-13KK-13. 1.3. Filing Date. -- July 1, 2022. 1.4. Effective Date. -- July 1, 2022. 1.5. SunsetProvision. -- Thisruleshallterminate andhavenofurtherforceoreffectonAugust1,2027 2032. §110-13KK-2. Definitions. 2.1. General Rule. -- Unless a specific definition is provided in section 2.2 of this section headingelsewhere in this rule, or the context in which the term is used clearly requires a different meaning, thetermsusedinthisrulehavethedefinitionsprovidedunderW.Va.Code§11-13KK-1,etseq.,§11-10-1,et seq., §11-21-1, et seq., and §11-24-1, et seq. 2.2. Terms defined. 2.2.1. “Affiliated group” means any affiliated group within the meaning of section 1504(a) of the Internal Revenue Code,orany similar groupdefined under a similar provisionofstate, local, or foreignlaw, exceptthatsection1504oftheInternalRevenueCodeshallbeappliedbysubstituting“morethan50percent” for “at least 80 percent” each place it appears in that section. 2.2.2. “Business”meanssmallarmsorammunitionmanufacturingbusinessactivity,whichisormay be classified under the North American Industry Classification System with a six-digit code for a product producedatafacilityundercodenumbers332992or332994astheyaredefinedonJanuary1,2021,whichis engagedinbyanypersoninthisstatethatistaxableunderW.Va.Code§11-21-1,etseq.,or§11-24-1,etseq. 2.2.3. “Business expansion” means capital investment in a new or expanded small arms or ammunition manufacturing facility in this state, which is or may be classified under the North American Industry Classification System with a six-digit code for a product produced at a facility under code numbers 332992 or 332994 as they are defined on January 1, 2021. 2.2.4. “Commissioner” or “Tax Commissioner” are used interchangeably in this rule and mean the Tax Commissioner of the State of West Virginia, or his or her designee. 2.2.5. “Controlled group of corporations” means a controlled group of corporations as defined in 1 110CSR13KK section 1563(a) of the Internal Revenue Code. 2.2.6. “Corporation”meansanycorporation,joint-stockcompany,association,orotherentitytreated asacorporationforfederalincometaxpurposes,andanybusinessconductedbyatrusteeortrusteeswherein interest or ownership is evidenced by a certificate of interest or ownership or similar written instrument. 2.2.7. “Designee” in the phrase “his or her designee,” when used in reference to the Tax Commissioner, means any officer or employee of the State Tax Department duly authorized by the Commissioner directly, or indirectly by one or more redelegations of authority, to perform the functions mentioned or described in this rule. 2.2.8. “Eligibletaxpayer”meansanypersonwhomakesaqualifiedinvestmentinaneworexpanded small armsandammunitionmanufacturingfacilitylocatedinthisstateandwhoissubjecttoanyofthetaxes imposed by W. Va. Code §11-21-1, et seq. or §11-24-1, et seq. 2.2.9. “Expandedfacility”meansanysmallarmsandammunitionmanufacturingfacility,otherthan a new or replacement business facility, resulting from the acquisition, construction, reconstruction, installation,orerectionofimprovementsoradditionstoexistingpropertyiftheimprovementsoradditionsare purchased on or after July 1, 2021, but only to the extent of the taxpayer’s qualified investment in the improvements or additions. 2.2.10. “Federalexcisetax”meansallexcisetaxespaidtothegovernmentoftheUnitedStatesunder section 4181of Title 26 ofthe Internal Revenue Codeimposed upon manufacturers, producers, or importers for the sale of pistols, revolvers, firearms (other than pistols and revolvers), shells and cartridges. 2.2.11. “Includes” and “including,” when used in a definition contained in this rule, shall not be considered to exclude other things otherwise within the meaning of the term defined. 2.2.12. “Leased property” does not include property that the taxpayer is required to show on its books and records as an asset under generally accepted principles of financial accounting. If the taxpayer is prohibitedfromexpensingtheleasepaymentsforfederalincometaxpurposes,thepropertyshallbetreatedas purchased property under this section. 2.2.13. “New small arms and ammunition manufacturing facility” means a business facility which satisfies all the following requirements: 2.2.13.a. Thefacilityisemployedbythetaxpayerintheconductofasmallarmsandammunition manufacturingactivity,thenetincomeofwhichisorwouldbetaxableunderW.Va.Code§§11-21-1,etseq., or11-24-1,etseq. Thefacilityisnotconsideredanewsmallarmsandammunitionmanufacturingfacilityin the hands of the taxpayer if the taxpayer’s only activity with respect to the facility is to lease it to another person or persons; and 2.2.13.b. The facility is purchased by, or leased to, the taxpayer on or after July 1, 2021; and 2.2.13.c. The facility was not purchased or leased by the taxpayer from a related person. The Commissionermaywaivethisrequirementifthefacilitywasacquiredfromarelatedpartyforitsfairmarket value and the acquisition was not tax motivated; and 2.2.13.d. Thefacilitywasnotinserviceoruseduringthe90daysimmediatelypriortotransferof the title to the facility or prior to the commencement of the term of the lease of the facility. 2.2.14. “New property” means: 2 110CSR13KK 2.2.14.a. Property,theconstruction,reconstruction,orerectionofwhichiscompletedonorafter July 1, 2021, and placed in service or use after that date; and 2.2.14.b. PropertyleasedoracquiredbythetaxpayerthatisplacedinserviceoruseinthisState onorafterJuly1,2021,iftheoriginaluseofthepropertycommenceswiththetaxpayerandcommencesafter that date. 2.2.15. “Original use” means the first use to which the property is put, whether or not the use corresponds to the use of the property by the taxpayer. 2.2.16. “Partnership” includes a syndicate, group, pool, joint venture, or other unincorporated organization through or bymeans of which any business, financial operation, orventure is carried on,which is treated as a partnership for federal income tax purposes, and that is not a trust or estate, a corporation, or a sole proprietorship. 2.2.17. “Partner” includes a member of a partnership as defined in this rule. 2.2.18. “Person” includes any natural person, corporation, or partnership. 2.2.19. “Property purchased or leased for business expansion” shall be treated as follows for purposes of this credit. 2.2.19.a. Included property. -- Except as provided in subdivision b of this subsection, the term “property purchased or leased for business expansion” means real property and improvements thereto, and tangiblepersonalproperty,butonlyiftherealorpersonalpropertywasconstructed,purchased,orleasedand placed in service or use by the taxpayer for use as a component part of a new or expanded small arms and ammunition manufacturing facility as defined in this section heading, which is located within the State of West Virginia. This term includes only: 2.2.19.a.1. Real property and improvements thereto having a useful life of four or more years, placed in service or use on or after July 1, 2021, by the taxpayer. 2.2.19.a.2. Real property and improvements thereto acquired by written lease having a primary term of 10 or more years and placed in service or use by the taxpayer on or after July 1, 2021. 2.2.19.a.3. Tangible personal property placed in service or use by the taxpayer on or after July 1, 2021, with respect to which depreciation, or amortization in lieu of depreciation, is allowable in determining the personal or corporation net income tax liability of the business taxpayer under W. Va. Code §11-21-1,etseq.,or§11-24-1,etseq.,andwhichhasausefullife,atthetimethepropertyisplacedinservice or use in this state, of four or more years. 2.2.19.a.4. Tangiblepersonalpropertyacquiredbywrittenleasehavingaprimarytermof4 (four) years or longer, that commenced and was executed by the parties thereto on or after July 1, 2021, if usedasacomponentpartofaneworexpandedsmallarmsandammunitionmanufacturingbusinessfacility, shall be included within this definition. 2.2.19.a.5. Tangible personal property owned or leased and used by the taxpayer at a business location outside this state that is moved into the State of West Virginia on or after July 1, 2021, for use as a component part of a new or expanded small arms and ammunition manufacturing facility located in this state. 2.2.19.a.5.A. If the property is owned, it must be depreciable or amortizable personal propertyforincometaxpurposesandhaveausefullifeoffourormoreyearsremainingatthetimeitisplaced 3 110CSR13KK in service or use in this state. 2.2.19.a.5.B. Ifthepropertyisleased,theprimarytermoftheleaseremainingatthetime the leased property is placed in service or use in this state, must be four or more years. 2.2.19.b. Excludedproperty. -- Theterm“propertypurchasedorleasedforbusinessexpansion” does not include: 2.2.19.b.1. Repaircosts,includingthecostofmaterialsusedintherepair,unlessforfederal income tax purposes the cost of the repair must be capitalized and not expensed. 2.2.19.b.2. Airplanes and helicopters. 2.2.19.b.3. Propertythatisprimarilyusedoutsidethisstate,withusebeingdeterminedbased upon the amount of time the property is actually used both within and outside this state. 2.2.19.b.4. Property which is acquired incident to the purchase of the stock or assets of the seller, unless for good cause shown, the Tax Commissioner consents to waiving this requirement. 2.2.19.b.5. Purchased or leased property, the cost or consideration for which cannot be quantified with any reasonable degree of accuracy at the time the property is placed in service or use. 2.2.19.b.5.A. If the contract of purchase specifies a minimum purchase price or minimumannualrent,theamountthereofshallbeusedtodeterminethequalifiedinvestmentintheproperty under W. Va. Code §11-13KK-6 and this rule, if the property otherwise qualifies as property purchased or leased for expansion of a small arms and ammunition manufacturing facility. 2.2.19.b.5.B. If the contract of lease specifies a minimum purchase price or minimum annual rent, the amount thereof shall be used to determine the qualified investment in the property under W. Va. Code §11-13KK-6 and this rule, if the property otherwise qualifies as property purchased or leased for expansion of a small arms and ammunition manufacturing facility. 2.2.20. “Purchase” means any acquisition of property, but only if: 2.2.20.a. Thepropertyisnotacquiredfromapersonwhoserelationshiptothepersonacquiringit would result in the disallowance of deductions under section 267 or 707 (b) of the United States Internal Revenue Code. 2.2.20.b. The property is not acquired by one component member of an affiliated or controlled group from another component member of the same affiliated or controlled group, as applicable. The Tax Commissioner may waive this requirement if the property was acquired from a related party for its then fair market value; and 2.2.20.c. The basis of the property for federal income tax purposes, in the hands of the person acquiring it, is not determined: 2.2.20.c.1. Inwholeorinpart,byreferencetothefederaladjustedbasisofthepropertyinthe hands of the person from whom it was acquired; or 2.2.20.c.2. Under Section 1014(e) of the United States Internal Revenue Code. 2.2.21. “Qualifiedactivity”meansanysmallarmsandammunitionmanufacturingbusinessactivity subjecttoanyofthetaxesimposedbyW.Va.Code§11-21-1,etseq.,or§11-24-1,etseq.,whichisormaybe classifiedundertheNorthAmericanIndustryClassificationSystemwithasix-digitNorthAmericanIndustry 4 110CSR13KK ClassificationSystemcode foraproductproducedatafacilitywithcodenumbers332992or332994asthey are defined on January 1, 2021. 2.2.22. “Related person” means: 2.2.22.a. A corporation, partnership, association, or trust controlled by the taxpayer; 2.2.22.b. An individual, corporation, partnership, association, or trust that is in control of the taxpayer; 2.2.22.c. Acorporation,partnership,association,ortrustcontrolledbyanindividual,corporation, partnership, association, or trust that is in control of the taxpayer; or 2.2.22.d. A member of the same affiliated or controlled group as the taxpayer. 2.2.22.e. The term “control” means the following. 2.2.22.e.1. For purposes of this subsection, “control,” with respect to a corporation, means ownership, directly or indirectly, of stock possessing 50 percent ormore of the total combined voting power of all classes of the stock of the corporation entitled to vote. 2.2.22.e.2. “Control,” with respect to a trust, means ownership, directly or indirectly, of 50 percent or more of the beneficial interest in the principal or income of the trust. The ownership of stock in a corporation,ofacapitalorprofitsinterestinapartnershiporassociation,orofabeneficialinterestinatrustis determinedinaccordancewiththerulesforconstructiveownershipofstockprovidedinsection267(c)ofthe United States Internal Revenue Code, other than paragraph (3) of that section. 2.2.23. “Replacementsmallarmsandammunitionmanufacturingfacility”meansanyproperty(other than an expanded small arms and ammunition manufacturing facility) that replaces or supersedes any other property located within this state that: 2.2.23.a. The taxpayer or a related person used in or in connection with any small arms and ammunition manufacturing facility for more than 2 (two) years during the period of 5 consecutive years ending on the date the replacement or superseding property is placed in service by the taxpayer; or 2.2.23.b. Is not used by the taxpayer or a related person in or in connection with any small arms andammunitionmanufacturingfacilityforacontinuousperiodof1(one)yearormorecommencingwiththe date the replacement or superseding property is placed in service by the taxpayer. 2.2.24. “Small arms and ammunition manufacturing” refers to a facility that is or may be classified under the North American Industry Classification System with a six-digit North American Industry ClassificationSystemcode foraproductproducedatafacilitywithcodenumbers332992or332994asthey are defined on January 1, 2021. 2.2.25. “Smallarmsandammunitionmanufacturingbusiness”meansabusinessprimarilyengagedin this state in small arms or ammunition manufacturing that is or may be classified under the North American Industry Classification System with a six-digit North American Industry Classification System code for a product produced at a facility with code numbers 332992 or 332994 as they are defined on January 1, 2021. 2.2.26. “Small arms and ammunition manufacturing facility” means any factory, mill, plant, warehouse, building, or complex of buildings located within this state, including the land on which it is located, and all machinery, equipment, and other real and personal property located at or within the facility, 5 110CSR13KK usedinconnectionwiththeoperationofthefacility,andallsitepreparationandstart-upcostsofthetaxpayer for the small arms and ammunition manufacturing facility, which is or may be classified under the North American Industry Classification System with a six-digit North American Industry Classification System codeforaproductproducedatafacilitywithcodenumbers332992or332994astheyaredefinedonJanuary 1, 2021, and that it capitalizes for federal income tax purposes in a business that is taxable in this state. 2.2.27. “Taxpayer”meansanypersonsubjecttoanyofthetaxesimposedbyW.Va.Code§11-21-1, et seq., or §11-24-1, et seq. 2.2.28. “The code” means the Code of West Virginia, 1931, as amended. 2.2.29. “This state” means the State of West Virginia. 2.2.30. “UnitedStatesInternalRevenueCode”or“I.R.C.”meanstheInternalRevenueCode182as defined in W. Va. Code §11-21-1, et seq. or §11-24-1, et seq. 2.2.31. “Used property” means property acquired after June 30, 2021, that is not “new property.” §110-13KK-3. The amount and application of the credit. 3.1. Credit allowed. -- Eligible taxpayers are allowed a credit against the portion of taxes imposed by this state that are attributable to and the consequence of the taxpayer’s qualified investment in a new or expanded small arms and ammunition manufacturing facility in this state. 3.1.1. The qualified investment must be equal to or greater than $2 million. 3.1.2.3.1. TheamountofthiscreditisdeterminedandappliedasprovidedinW.Va.Code§11-13KK-1, et seq., and this rule. 3.1.3. The amount of this credit claimed for any taxable year cannot exceed the amount of federal excise tax paid or payable to the government of the United States under section 4181 of Title 26 of the Internal Revenue Code, after application of any federal credits that may have been claimed. 3.2. Amountof credit. -- The amount of credit allowable is 100 percent of the amount of federal excise tax paid in a tax year under section 4181, Title 26 of the Internal Revenue Code, which is attributable to and the consequence of the taxpayer’s qualified investment. 3.2.1. Threshold for the credit. -- No credit shall be allowed under W. Va. Code §11-13KK-1, et seq., or this rule unless the taxpayer has invested at least $2 million in property purchased or leased for business expansion during the tax year for which the credit is claimed. 3.2.2.3.2. It is the intent of W. Va. Code §11-13KK-1, et seq., that a qualified taxpayer makes and continuously maintains a minimum capital investment in a qualified munitions manufacturing facility of no lessthan$2million. ThesolepurposeofthecapitalinvestmentportionofW.Va.Code§11-13KK-1,etseq., is to determine whether the $2 million threshold requirement is met in every operational year based on a rolling 10 year time span for creation and extinguishment for measurement of capital investment. 3.2.2.a.3.2.1. Ifthe$2millioncapitalinvestmentthresholdismetorexceededinanygiventaxyear, then the taxpayer is authorized to apply the annual dollar for dollar W. Va. Code §11-13KK-1, et seq. tax credit against corporation net income tax or personal income tax, as applicable, in the amount of federal excise tax paid pursuant to 26 U.S.C. 4181. 6 110CSR13KK 3.2.2.b.3.2.2. If the $2 million threshold has not been met, then the taxpayer may not apply the annual tax credit in the amount of the federal excise tax paid each year. 3.2.2.c.3.2.3. Under §11-13KK-5, the statute contemplates placement of potential qualified investment in service or use in each taxable year. Therefore, the $2 million threshold is an ongoing determination, with each year contributing a new layer of capital investment over a 10 year time span. Year 1 investment is counted from year 1 to year 10 Year 2 investment is counted from year 2 to year 11 Year 3 investment is counted from year 3 to year 12 etc. Ataxpayercannotgainentitlementtothecredituntilatleast$2millionofaccumulatedqualifiedinvestment is in place. 3.2.2.c.1.3.2.3.a. EXAMPLE: If the taxpayer meets the $2 million threshold in year 1, then the taxpayer can apply the credit beginning in year 1. If the qualified investment is made in phases such that the $2 million threshold qualified investment is not in place until a later year, the taxpayer may begin taking the tax credit in the year when the $2 million threshold is met, based on the qualified investment made in the current year, combined with investments placed in service or use in the prior 10 years (under the 10 year rolling measurement system), provided that all other requirements of W. Va. Code §11-13KK-1, et seq., are met, including the filing for of an application for credit. 3.2.2.c.2.3.2.3.b. The tax credit set forth in W. Va. Code §11-13KK-1, et seq., uses a 10 year rollingmeasurementofqualifiedinvestmenttodeterminethatatleast$2millionofcapitaliscontinuouslyin place in the facility. 3.2.2.d.3.2.3.c. Ifthe$2millionthresholdisreachedorexceeded,thenthetaxpayerisauthorized to take the annual W. Va. Code §11-13KK-1, et seq., tax credit, the amount of which is an annual dollar for dollar offset of West Virginia income taxes, in the amount of federal excise tax paid in each taxable year on manufacture of certain firearms and ammunition, pursuant to 26 U.S.C. §4181. 3.2.3.3.2.4. Nothing in this subsection shall prevent the taxpayer from making a subsequent $2 million investment and claiming an additional credit during a subsequent tax year. 3.3. Applicationofcreditover10years. -- Theamountofcreditallowableshallbetakenovera10year period,beginningwiththetaxableyearinwhichthetaxpayerplacesthequalifiedinvestmentinserviceoruse in this state that is used to reach the $2 million threshold. 3.3.1. The taxpayer may elect to delay the beginning of the 10 year period until the next succeeding taxable year. 3.3.1.a. This election shall be made in the annual income tax return filed for the taxable year in which qualified investment is first placed into service or use by the taxpayer. 3.3.1.b. Once made, the election cannot be revoked. 3.3.2. The annual credit allowance is taken in the manner prescribed in W. Va. Code §11-13KK-4 and this rule. 3.4. Placedinserviceoruse. -- ForpurposesofthecreditallowedbyW.Va.Code§11-13KK-1,etseq., andthissectionheading,propertyisconsideredplacedinserviceoruseintheearlierofthefollowingtaxable years: 7 110CSR13KK 3.4.1. The taxable year in which, under the taxpayer’s depreciation practice, the period for depreciation with respect to the property begins; or 3.4.2. The taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function. §110-13KK-4. Application of the credit. 4.1. Ingeneral. -- TheamountdeterminedunderW.Va.Code§11-13KK-3andthisruleisallowedasa credit against 100 percent of that portion of the taxpayer’s state tax liability that is attributable to and the direct result of the taxpayer’s qualified investment and applied as provided in subsections 1 and 2, both inclusive of this section, and in that order. 4.1.1. Corporation net income taxes. -- 4.1.1.a. That portion of the allowable credit attributable to qualified investment in a small arms andammunitionmanufacturingfacilitymaybeappliedtoreducethetaxesimposedbyW.Va.Code§11-24- 1, et seq., for the taxable year as determined before application of allowable credits against tax. 4.1.1.b. IfthetaxesdueunderW.Va.Code§11-24-1,etseq.,asdeterminedbeforeapplicationof allowable credits against tax, are not solely attributable to and the direct result of the taxpayer’s qualified investment in a small arms and ammunition manufacturing business, the amount of the taxes that is attributable is determined by multiplying the amount of taxes due under W. Va. Code §11-24-1, et seq., for the taxable year, as determined before application of allowable credits against tax, by a fraction, the numerator of which is all wages, salaries, and other compensation paid during the taxable year to all employees of the taxpayer employed in this state whose positions are directly attributable to the qualified investment, and the denominator of which is the wages, salaries, and other compensation paid during the taxable year to all employees of the taxpayer employed in this state. 4.1.2 Personal income taxes. -- 4.1.2.a. If the person making the qualified investment in a small arms and ammunition manufacturing facility is an electing small business corporation, as defined in section 1361 of the United States Internal Revenue Code, a partnership, a limited liability company that is treated as a partnership for federalincometaxpurposes,orasoleproprietorship,thenanyunusedcreditisallowedasacreditagainstthe taxes imposed by W. Va. Code §11-21-1, et seq., on the income from the small arms and ammunition manufacturing facility, or on income of a sole proprietor attributable to the small arms and ammunition manufacturing facility. 4.1.2.b. Electingsmallbusinesscorporations,limitedliabilitycompaniestreatedaspartnerships forfederalincometaxpurposes,partnerships,andotherunincorporatedorganizationsshallallocatethecredit againsttheincometaximposedbyW.Va.Code§11-21-1,etseq.,amongitsmembersinthesamemanneras profits and losses are allocated for the taxable year. 4.1.2.c. IftheamountoftaxesattributabletobusinessactivitydueunderW.Va.Code§11-21-1, et seq., as determined before application of allowable credits against tax, is not solely attributable to and the direct result of the qualified investment of the electingsmallbusiness corporation, limited liability company treated as a partnership for federal income tax purposes, other unincorporated organization, or sole proprietorship, the amount of the taxes that are so attributable are determined by multiplying the amount of taxesdueunderW.Va.Code§11-21-1,etseq.,asdeterminedbeforeapplicationofallowablecreditsagainst tax that are attributable to business activities by a fraction, the numerator of which is all wages, salaries, and 8 110CSR13KK other compensation paid during the taxable year to all employees of the electing small business corporation, limitedliabilitycompany,partnership,otherunincorporatedorganization,orsoleproprietorshipemployedin thisstate,whosepositionsaredirectlyattributabletothequalifiedinvestment,andthedenominatorofwhich is the wages, salaries, and other compensation paid during the taxable year to all employees of the taxpayer. 4.1.2.d. Nocreditisallowedunderthissectionagainstanyemployerwithholdingtaxesimposed by W. Va. Code §11-21-1, et seq. 4.2. Ifthewages,salaries,andothercompensationfractionformulaprovisionsofsubsections1and2of this section, inclusive, do not fairly represent the taxes solely attributable to and the direct result of qualified investment of the taxpayer, then the Tax Commissioner may require, in respect to all or any part of the taxpayer’s businesses or activities, if reasonable: 4.2.1. Separate accounting or identification; 4.2.2. Adjustment to the wages, salaries, and other compensation fraction formula to reflect all components of the tax liability; 4.2.3. The inclusion of one or more additional factors that will fairly represent the taxes solely attributabletoandthedirectresultofthequalifiedinvestmentofthetaxpayerandallotherprojectparticipants in the businesses or other activities subject to tax; or 4.2.4. The employment of any other method to effectuate an equitable attribution of the taxes. 4.3. Unused credit. -- If any credit remains after application of section 1 of this section heading, the amount thereof is carried forward to each ensuing tax year until used or until the expiration of the tenth taxable year subsequent to the end of the initial 10 year credit application period. 4.3.1. If any unused credit remains after the 20th year, the amount thereof is forfeited. 4.3.2. No carryback to a prior taxable year is allowed for the amount of any unused portion of any annual credit allowance. §110-13KK-5§110-13KK-4. Qualified investment. 5.1.4.1. General. -- Thequalifiedinvestmentinpropertypurchasedorleasedforanew,orexpansionof anexisting,smallarmsandammunitionmanufacturingfacilityistheapplicablepercentageofthecostofeach property purchased or leased for the purpose of the new, or expansion of an existing, small arms and ammunition manufacturing facility that is placed in service or use in this state by the taxpayer during the taxable year. 5.1.1.4.1.1. Applicable percentage. -- For the purposes of section 1 of this subject heading, the applicable percentage of any property is determined pursuant to the following table: 5.1.1.a.4.1.1.a. Table. If useful life is: The applicable percentage is: Less than four years 0% Four years or more but less than six years 33 1/3% Six years or more but less than eight years 66 2/3% Eight years or more 100% 9 110CSR13KK 5.1.1.b.4.1.1.b. The useful life of any property, for purposes of this section heading, is determinedasofthedatethepropertyisfirstplacedinserviceoruseinthisstatebythetaxpayer,determined in accordance with the provisions of W. Va. Code §11-13KK-4 and this rule. 5.2.4.2. Cost. -- For purposes of section 1 of this section heading, the cost of each property purchased foranew,orexpansionofanexisting,smallarmsandammunitionmanufacturingfacilityisdeterminedunder the following rules: 5.2.1.4.2.1. Trade-ins. -- Costdoesnotincludethevalueofpropertygivenintradeorexchangefor the property purchased for a new, or expansion of an existing, small arms and ammunition manufacturing facility. 5.2.2.4.2.2. Damaged,destroyed,orstolenproperty. -- Ifpropertyisdamaged ordestroyedbyfire, flood, storm, or other casualty, or is stolen, then the cost of replacement property does not include any insurance proceeds received in compensation for the loss. 5.2.34.2.3. Rentalproperty,self-constructedproperty,andtransferredproperty. -- Rentalproperty, self-constructed property, and transferred property istreatedassetforthinW.Va. Code§11-13KK-1et seq. 5.2.3.a. The cost of real property acquired by written lease for a primary term of 10 years or longer is 100 percent of the rent reserved for the primary term of the lease, not to exceed 20 years. 5.2.3.b. The cost of tangible personal property acquired by written lease for a primary term of: 5.2.3.b.1. Four years, or longer, is one third of the rent reserved for the primary term of the lease; 5.2.3.b.2. Six years, or longer, is two thirds of the rent reserved for the primary term of the lease; or 5.2.3.b.3. Eight years, or longer, is 100 percent of the rent reserved for the primary term of the lease, not to exceed 20 years. 5.2.3.c. In no event may rent reserved include rent for any year subsequent to expiration of the book life of the equipment, determined using the straight-line method of depreciation. 5.2.4. Self-constructed property. -- In the case of self-constructed property, the cost thereof is the amount properly charged to the capital account for depreciation in accordance with federal income tax law. 5.2.5. Transferred property. -- The cost of property used by the taxpayer out-of-state and then broughtintothisstate,isdeterminedbasedontheremainingusefullifeofthepropertyatthetimeitisplaced in service or use in this state, 5.2.5.a. Thecostistheoriginalcostofthepropertytothetaxpayerlessstraight-linedepreciation allowable for the tax years or portions thereof the taxpayer used the property outside this state. 5.2.5.b. Inthecaseofleasedtangiblepersonalproperty,costisbasedontheperiodremainingin theprimarytermoftheleaseafterthepropertyisbroughtintothisstateforuseinaneworexpandedbusiness facility of the taxpayer, and is the rent reserved for the remaining period of the primary term of the lease, not toexceed20years,ortheremainingusefullifeoftheproperty,asdeterminedasaforesaid,whicheverisless. 10 110CSR13KK §110-13KK-6§110-13KK-5. Forfeiture of unused tax credits; redetermination of credit allowed. 6.1. Disposition of property or cessation of use. -- If, during any taxable year, property with respect to which a tax credit has been allowed under W. Va. Code §11-13KK-1, et seq., and this rule is disposed of or ceasestobeusedinasmallarmsandammunitionmanufacturingfacilityofthetaxpayerinthisstate,thenthe unused portion of the credit allowed for the property is forfeited for the taxable year and all ensuing years, except when the property is damaged or destroyed by fire, flood, storm, or other casualty, or is stolen. 6.2. Cessation of operation of small arms and ammunition manufacturing facility. -- If, during any taxable year, the taxpayer ceases operation of a small arms and ammunition manufacturing facility in this state for which credit was allowed under W. Va. Code §11-13KK-1, et seq., then the unused portion of the allowed credit is forfeited for the taxable year and for all ensuing years, except when the cessation is due to fire, flood, storm, or other casualty. Forfeiture of unused tax credits and redetermination of allowed credit are treated as set forth in W. Va. Code §11-13KK-1 et seq. §110-13KK-7§110-13KK-6. Transfer of qualified investment to successors. 7.1. Mere change in form of business. -- Property will not be treated as disposed of under W. Va. Code §11-13KK-8 or this rule, by reason of a mere change in the form of conducting the business, as long as the propertyisretainedinthesuccessor’ssmallarmsandammunitionmanufacturingfacilityinthisstate,andthe transferorbusinessretainsacontrollinginterestinthesuccessorbusiness. Thesuccessorbusinessmayclaim the amount of credit still available with respect to the business facility or facilities transferred. 7.2. Transfer or sale to successor. -- Property is not treated as disposed of under W. Va. Code §11- 13KK-8 or this rule by reason of any transfer or sale to a successor business that continues to operate the small arms and ammunition manufacturing facility in this state. Upon transfer or sale, the successor shall acquire the amount of credit that remains available under this article for each subsequent taxable year. Transfer or sale of a qualified investment is treated as set forth in W. Va. Code §11-13KK-1 et seq. §110-13KK-8§110-13KK-7. Identification of investment credit property. 8.17.1. Every taxpayer who claims credit under W. Va. Code §11-13KK-1, et seq., and this rule shall maintain sufficient records to establish the following facts for each item of qualified property: 8.1.1.7.1.1. The identity of the qualified property; 8.1.2.7.1.2. The actual or reasonably determined cost of the qualified property; 8.1.3.7.1.3. The straight-line depreciation life of the qualified property; 8.1.4.7.1.4. The month and taxable year in which the qualified property was placed in service; 8.1.5.7.1.5. The amount of credit taken with respect to the qualified property; 8.1.6.7.1.6. The date the qualified property was disposed of or otherwise ceased to be used as qualified property in the small arms and ammunition manufacturing facility of the taxpayer; and 8.1.7.7.1.7. The amounts and dates of federal excise tax paid. §110-13KK-9§110-13KK-8. Failure to keep records of investment credit property. 11 110CSR13KK 9.1. Ataxpayerwhodoesnotkeeptherecordsrequiredforidentificationofinvestmentcreditpropertyis subject to the following rules: 9.1.1. A taxpayer is treated as having disposed of during the taxable year any investment credit property that the taxpayer cannot establish was still on hand, in this state, at the end of that year. 9.1.2. If a taxpayer cannot establish when investment credit property reported for purposes of claimingthiscreditduringthetaxableyearwasplacedinservice,thetaxpayeristreatedashavingplaceditin service in the most recent prior year in which similar property was placed in service, unless the taxpayer can establishthatthepropertyplacedinserviceinthemostrecentyearisstillonhand. Inthatevent,thetaxpayer will be treated as having placed the returned property in service in the next most recent year. Ataxpayerthatfailstokeeprecordsofinvestmentcreditpropertyissubjecttotheconsequencessetforth in W. Va. Code §11-13KK-1 et seq. §110-13KK-10§110-13KK-9. Interpretation and construction. 10.1. No inference, implication, or presumption of legislative construction or intent may be drawn or madebyreasonofthelocationorgroupingofanyparticularsection,provision,orportionofthisrule;andno legal effect may be given to any descriptive matter or headingrelating to any section, subsection, paragraph, part, or item of this rule. 10.2. Theprovisionsofthisruleshallbereasonablyconstruedinordertoeffectuatethelegislativeintent recited in W. Va. Code §11-13KK-1. All aspects of the tax credit are subject to the rules of interpretation and construction set forth in W. Va. Code §11-13KK-1 et seq. §110-13KK-11§110-13KK-10. Burden of proof; application required; failure to make timely application. 11.1.10.1. Burden of proof. -- The burden of proof is on the taxpayer to establish by clear and convincingevidencethatthetaxpayerisentitledtothebenefitsallowedbyW.Va.Code§11-13KK-1,etseq., and this rule. 11.2.10.2. Application for credit required. -- 11.2.1.10.2.1. Application required. -- No credit is allowed or may be applied under W. Va. Code §11-13KK-1, et seq., or this rule for any qualified investment property placed in service or use until the person asserting a claim for the allowance of credit under W. Va. Code §11-13KK-1, et seq., and this rule makes written application to the Tax Commissioner for allowance of credit as provided in this section heading. 11.2.1.a. 10.2.1.a. An application for credit shall be filed, in the form prescribed by the Tax Commissioner, no later than the last day for filing the tax returns, determined by including any authorized extension of time for filing the return, required under W. Va. Code §11-21-1, et seq., or §11-24-1, et seq, for the taxable year in which the property to which the credit relates is placed in service or use. The form to apply for the credit is available online at https://tax.wv.gov. 11.2.1.b.10.2.1.b. Allinformationrequiredbytheformshallbeprovided,ortheapplicationwill be rejected. 12 110CSR13KK 11.2.2.10.2.2. Failure to make timely application. -- Failure to timely apply for the credit results in forfeitureof50percentoftheannualcreditallowanceotherwiseallowableunderW.Va.Code§11-13KK-1, et seq., and this rule. This penalty applies annually until the application is filed. §110-13KK-12§110-13KK-11. Tax credit review and accountability. 12.1. BeginningonFebruary1,2026,andeveryfifthyearthereafter,theTaxCommissionershallsubmit to the Governor, the President of the Senate, and the Speaker of the House of Delegates a tax credit review and accountability report evaluating the cost effectiveness of this credit during the most recent 5 year period for which information is available. The criteria to be evaluated shall include, but not be limited to, for each year of the 5 year period: 12.1.1. The numbers of taxpayers claiming the credit; 12.1.2. The moneys invested, and net number of new jobs created, by all taxpayers claiming the credit; 12.1.3. The cost of the credit; 12.1.4. The cost of the credit per new job created; and 12.1.5. A comparison of employment trends for the industry and for taxpayers within the industry that claim the credit. 12.2. TaxpayersclaimingthecreditshallprovideanyinformationtheTaxCommissionermayrequireto prepare the report required by this section; the information provided is subject to the confidentiality and disclosure provisions of W. Va. Codea§11-10-5d. 12.3. On or before February 1, 2026, the Department of Commerce, in consultation with the Tax Commissioner, the Department of Transportation, and the Department of Environmental Protection, shall submittotheGovernor,thePresidentoftheSenate,andtheSpeakeroftheHouseofDelegatesareportofthe impact of all the tax credits and other economic incentives provided in W. Va. Code §11-13KK-1, et seq., upon; 12.3.1. Economic development in this state, including, but not limited to, the moneys invested and jobs created in this state; 12.3.2. The state’s infrastructure, including, but not limited to, the need for construction or maintenance of the roads and highways of the state; 12.3.3. The natural resources of the state; and 12.3.4. Public and private property interests in the state. AllaspectsofreviewandaccountabilityforthetaxcreditaregovernedbytheprovisionsofW.Va.Code §11-13KK-1 et seq. §110-13KK-13§110-13KK-12. General procedure and administration. 13.1.12.1. Each provisionof the “West Virginia Tax Procedureand Administration Act” set forth in W. Va.Code§11-10-1,etseq.,appliestothetaxcreditallowedunderW.Va.Code§11-13KK-1,etseq.,except 13 110CSR13KK as otherwise expressly provided in W. Va. Code §11-13KK-1, et seq., and this rule with like effect as if that actwereapplicableonlytothetaxcreditallowedbyW.Va.Code§11-13KK-1,etseq.,andthisruleandwere set forth in extenso in W. Va. Code §11-13KK-1, et seq., and this rule. 13.2.12.2. The provisions of W. Va. Code §11-10-5EE shall not be interpreted in such a way as to preventanyotherwiseeligibletaxpayerfromclaimingboththecreditsetforthbyW.Va.Code§11-13KK-1, et seq., and this rule, and any credit available against the federal excise tax paid to the government of the United States under section 4181 of Title 26 of the Internal Revenue Code. 13.3.12.3. Althoughthe$2millionqualifiedinvestmentthresholdmeasurementofthiscreditissimilarto themeasureofqualifiedinvestmentusedforthemanufacturinginvestmentandothertaxcredits,calculation and amount of the W. Va. Code §11-13KK-1, et seq., tax credit is not based on the amount of qualified investment. TheW.Va.Code§11-13KK-1,etseq.,taxcreditisbasedonthedollaramountofannualfederal excise tax paid. Therefore, the prohibition of W. Va. Code §11-10-5ee (SB 532 (2021 Regular Legislative Session)) does preclude simultaneous application of the W. Va. Code §11-13S-1, et seq., manufacturing investment tax credit or W. Va. Code §11-13Q-1, et seq., economic opportunity tax credit, and the W. Va. Code §11-13KK-1, et seq., tax credit. §110-13KK-14§110-13KK-13. Crimes and penalties. Each provision of the “West Virginia Tax Crimes and Penalties Act” set forth in W. Va. Code §11-9-1, et seq., applies to the tax credit allowed by §11-13KK-1, et seq., and this rule with like effect as if that act were applicableonlytothetaxcreditsetforthinW.Va.Code§11-13KK-1,etseq.,andthisruleandweresetforth in extenso in W. Va. Code §11-13KK-1, et seq., and this rule. AsnotedinW.Va.Code§11-13KK-1etseq.,theprovisionsofW.Va.Code§11-9-1etseq.applytothe tax credit. §110-13KK-15§110-13KK-14. Severability. 15.1.14.1. IfanyprovisionofW.Va.Code§11-13KK-1,etseq.orthisrule,ortheapplicationthereof,is for any reason adjudged by any court of competent jurisdiction to be invalid, the judgment may not affect, impair, or invalidate the remainder of W. Va. Code §11-13KK-1, et seq. or this rule, but shall be confined in its operation to the provision thereof directly involved in the controversy in which the judgment shall have been rendered, and the applicability of the provision to other persons or circumstances may not be affected thereby. 15.2.14.2. IfanyprovisionofW.Va.Code§11-13KK-1,etseq.orthisrule,ortheapplicationthereof,is made invalid or inapplicable by reason of the repeal or any other invalidation of any statute, section, or portion therein addressed or referred to, such invalidation or inapplicability may not affect, impair, or invalidate the remainder of W. Va. Code §11-13KK-1, et seq. or this rule, but shall be confined in its operationtotheprovisionthereofdirectlyinvolvedwith,pertainingto,addressing,orreferringtothestatute, section,orportion,andtheapplicationoftheprovisionwithregardtootherstatutes,sections,orportionsorin other instances not affected by any such repealed or invalid statute, section, or portion may not be abrogated or diminished in any way. §110-13KK-16. Effective date. The credit allowed by W. Va. Code §11-13KK-1, et seq., and this rule is allowable for qualified investment property placed in service or use on or after July 1, 2021. 14