West Virginia Business Franchise Tax Phase-Out Could Benefit the Oil and Gas Industry in 2015

In an effort to compete for new and expanding businesses, West Virginia has eliminated its business franchise tax as of January 1, 2015.

The elimination of the franchise tax could improve the net cash flow of oil and gas producers and supporting businesses located in West Virginia.

The franchise tax is a tax on the privilege of doing business in the state.  In general, the term “doing business” encompassed any activity that a corporation, partnership or limited liability company performed in the state.

All corporations, both foreign and domestic (including S corporations), partnerships and limited liability companies are potentially subject to the tax, unless specifically exempted by law.  However, if an LLC has only one member and has elected to be treated as a single member LLC for federal income tax purposes, the company is not subject to the business franchise tax.

The business franchise tax is based upon the capital of corporations, which is defined as the average of the beginning and ending balances of: 1) the value of common and preferred stock; 2) plus retained earnings; 3) plus paid-in capital surplus; 4) less treasury stock.  The capital of partnerships is defined as the average of the beginning and ending balances of the partners’ capital accounts.  Multi-state businesses apportion the amount of taxable capital to West Virginia using a formula consisting of payroll, property and a double-weighted sales factor.

West Virginia’s business franchise tax started in 1987 at 0.55% and grew to 0.75% in 1989.  In 2014, the tax rate was 0.1%, or 10 cents per $100 of taxable capital. 

The scheduled phase-out of the business franchise tax is illustrated as follows:

Calendar Year 2008 2009 2010 2011 2012 2013 2014 2015
% of taxable capital 0.55% 0.48% 0.41% 0.34% 0.28% 0.20% 0.10% 0.00%

If you have any questions regarding the impact of the West Virginia business franchise tax on your business, do not hesitate to contact Mark A. DiPietrantonio, West Virginia CPA.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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