W. Va. Code R. § 110-6F-2

Current through Register Vol. XLI, No. 52, December 27, 2024

Section 110-6F-2 - Definitions

As used in this rule and unless the context clearly requires a different meaning, the following terms have the meaning ascribed in this section.

2.1. "Betterment." -- See Section 2.3.1.1.b.2 of this rule.

2.2. "Certified capital addition property" and "qualified capital addition to a manufacturing facility" -- The terms "certified capital addition property" and "qualified capital addition to a manufacturing facility" are defined in W. Va. Code '11-6F-2. Those definitions incorporate the terms "personal property" and "real property," which are, in turn, in part defined by reference to certain statutory definitions of personal and real property which are broad and expansive in scope. However, W. Va. Code '11-6F-4 of the Act limits the property to which the Act applies to long term capital asset type property, and makes the Act inapplicable to intangibles, inventories or expense items such as work in process, raw materials, or consumable supplies, etc. which are owned or used by the Taxpayer for a comparatively short time and then sold, consumed, used up or disposed of. The Act repeatedly refers to "capital" additions as the qualifying property.

2.2.1. The Act provides special property tax valuation for capital additions, and not for purchases of inventory and other non-capitalized property. Therefore, the definitions of the terms "qualified capital addition to a manufacturing facility" and "certified capital addition property" do not mean or include certain types of property:

2.2.1.1. Exclusions. -- The following property or costs of property (by lease or purchase) for the following are excluded from the definitions of "certified capital addition property" and "qualified capital addition to a manufacturing facility," without regard to whether the costs or investments in the property are capitalized or otherwise: repairs, facility maintenance or other maintenance, airplanes, motor vehicles licensed by the Division of Motor Vehicles, inventories, non-capitalized property, property that does not create additional manufacturing production capacity and replacement property, except that certain replacement property qualifies as specified in this rule. Notwithstanding the fact that pollution abatement equipment typically does not create additional manufacturing capacity, investment in pollution abatement property counts toward the measure of qualified capital addition property. Investment in pollution abatement property shall not mean or include costs of repairs, equipment maintenance or ongoing operating expenses associated with pollution control property.

2.2.1.1.a. For purposes of this definition, the term "non-capitalized property" means property, the cost of which is not required to be capitalized for federal income tax purposes under the Internal Revenue Code or the rules, regulations or policies implemented or promulgated by the United States Internal Revenue Service. Property is capitalized for purposes of the Act when the cost of the property is required to be capitalized for federal income tax purposes under the Internal Revenue Code or the rules, regulations or policies implemented or promulgated by the United States Internal Revenue Service.

2.2.1.1.b. For purposes of this definition, the term "replacement property" means property acquired by purchase or lease for the purpose of replacing other property in a facility, the investment in which would not have been made but for the loss of service, destruction, removal or other loss of the property which the replacement property is intended to replace.

2.2.1.1.b.1. Replacement property shall not typically constitute qualified capital addition property, notwithstanding that the property may be capitalized for federal income tax purposes or a lease of the property may otherwise qualify under this rule and notwithstanding the fact that its construction or installation may result in an increase in productive capacity.

2.2.1.1.b.2. However, significant betterments shall be recognized as qualified capital addition property. Betterments, in combination with other qualified capital addition property which (including the betterment) has an aggregate cost in excess of $50 million, may be treated as a qualified capital addition to a manufacturing facility. The term "betterment" means and is limited to replacement property which enlarges productive capacity, economic efficiency or the quality, efficiency or extent of pollution abatement capabilities of the facility in which the replacement property is installed or placed. A betterment shall be treated as significant if it enlarges productive capacity, economic efficiency or the quality, efficiency or extent of pollution abatement capabilities of the facility by at least twelve percent over the capacities or capabilities measured at their maximum, of the facility at the time the property which the replacement property is intended to replace was in operation.

2.2.1.1.b.3. Replacement property which is installed or constructed to replace property that was destroyed by fire, explosion, flood, storm or other casualty constitutes qualified capital addition property, but the measure of the cost of the replacement property for purposes of the Act shall be reduced by any insurance proceeds or other proceeds received in compensation for the loss.

Example 1:

Company XYZ is a large manufacturing firm. A large boiler used in the manufacturing process is replaced in the facility due to the wear and physical deterioration of the boiler resulting from use in the manufacturing process.

Company XYZ replaces the old boiler with a new boiler which has a higher pressure rating and productivity than the old boiler. XYZ Company capitalizes the purchase for federal income tax purposes.

The new boiler is not qualified for special valuation under the Act. Even though the replacement of the old boiler is a capitalized investment and even though the new boiler shall improve productivity at the facility, the acquisition and installation of the new boiler is essentially a maintenance operation intended mainly to maintain ongoing day to day operations of the plant. The increase in productive capacity and efficiency were incidental to the installation, not significant and not the primary reason for the investment.

Had the old boiler not worn out, the investment would not have been made. The investment in the new boiler was not intended to result in a significant expansion of the operation. It was a mere replacement of existing property for the purpose of keeping operations going. Only significant betterments constitute qualified capital addition property.

Example 2:

The manufacturing facility suffers a casualty where the boiler building catches fire and the old boiler is destroyed. This is an extraordinary and catastrophic fire. The destruction of the boiler is not the result of ordinary wear associated with the fire used to run the boiler in day to day operation.

The old boiler is replaced with a new boiler, and associated construction occurs. The replacement property costs $2,000,000. The insurance proceeds received by the Taxpayer in compensation for the loss amount to $1,500,000. The amount of the cost of the new boiler and structure that shall qualify as qualified capital addition property for purposes of the Act is $500,000. It is assumed that other capital additions to the facility are made at the same time so as to aggregate to more than $50 million, in accordance with the requirements of the Act.

2.2.1.1.c. Occasionally, manufacturers in West Virginia have seen fit to lease, purchase or construct residential dwellings or housing in West Virginia for the purpose of providing long term or temporary housing for certain management personnel or other company personnel or for visiting dignitaries, company officers or guests of the company. The terms "qualified capital addition to a manufacturing facility" and "certified capital addition property" do not mean or include any houses, entertainment facilities, guest accommodations, dwellings or similar facilities, without regard to whether the property is purchased or leased, or whether the cost of the property is capitalized for federal income tax purposes, and without regard to whether a lease of the property might otherwise qualify under this rule.

2.2.1.1.d. The terms "qualified capital addition property," "qualified capital addition to a manufacturing facility" and "certified capital addition property" do not mean or include any property acquired by purchase or lease from or between related entities. The Tax Commissioner may waive this prohibition against related entity acquisitions if the property was acquired from a related entity for its fair market value and there is no manipulation of the cost of, or amount of investment in, qualified capital addition property for the purpose of gaining entitlement to special property valuation under the Act.

2.2.2. Pollution abatement property or specialized manufacturing production property as certified capital addition property and qualified capital additions to a manufacturing facility. -- Qualification of property for special valuation under the pollution control facilities provisions of W. Va. Code '11-6A-1 et seq. or as specialized manufacturing production property under W. Va. Code '11-6E-1 et seq. shall not affect application of the provisions of the Act. The cost of property to be counted toward the $50 million threshold shall be counted notwithstanding the fact that the property may qualify for special property tax valuation under the aforementioned provisions. However, property subject to valuation under W. Va. Code ''11-6A-1 et seq. and 11-6E-1 et seq. shall receive permanent special valuation under those provisions, whereas valuation under the Act applies for a maximum of 10 years.

2.2.3. Leased property as qualified capital addition property, certified capital addition property or qualified capital additions to a manufacturing facility. -- The policies that shall govern treatment of leased property for purposes of determining whether it shall be counted toward the cost of qualified capital addition property shall, to the extent possible, be parallel with the treatment of leased property for purposes of determining whether leased property shall be counted toward the original cost of a preexisting facility, as discussed in the definition of the term "original cost."

2.2.3.1. Leased property shall not typically constitute qualified capital addition property to the lessee because the lessor, and not the lessee, is ordinarily legally responsible for payment of the property tax on leased property.

2.2.3.2. Leased real or tangible personal property which a lessee is required to treat as purchased property for federal income tax purposes may constitute qualified capital addition property to the extent of the amount represented by such property is capitalized for federal income tax purposes if the written lease specifically makes the lessee responsible for payment of property taxes on the leased property.

2.2.3.3. Where the qualified capital addition property in a manufacturing facility incorporates leased tangible personal property under a lease that has a primary term of at least 75% of the useful life of the property, and where the written lease for that property specifically makes the lessee responsible for payment of the property taxes on the leased property, the leased property may constitute qualified capital addition property.

2.2.3.4. Where the qualified capital addition property in a manufacturing facility incorporates leased real property under a lease that has a primary lease term of at least ten years, and where the written lease for that property specifically makes the lessee responsible for payment of the property taxes on the leased property, the leased property may constitute qualified capital addition property.

2.2.3.5. The cost of leased real or tangible personal property for purposes of determining the cost of qualified capital addition property is the discounted present value of the rent reserved for the primary term of the lease, but not to exceed ten years. The discount rate for this computation shall be prescribed by the Tax Commissioner from time to time.

2.2.3.6. The extent to which the cost of leased property may qualify as qualified capital addition property under the Act may be adjusted by the Tax Commissioner, depending on whether the lease payments are reflective of a fair market value lease rate. Only those costs of leased property imposed pursuant to a written lease agreement may qualify to be counted toward the cost of qualified capital addition property.

2.2.3.7. In the case of real or tangible personal property purchased by a Taxpayer and sold to a leasing company or other entity and then leased back to the Taxpayer which originally purchased the property (a so called sale and lease back): Where the lease otherwise qualifies to be counted toward the measure of qualified capital addition property, the cost of the sale/lease back property to be counted toward the measure of cost of qualified capital addition property is the original purchase price cost of the property to the Taxpayer prior to the sale of the property to the leasing company or lessor.

2.3. "Derivative products" -- means manufactured products that are made directly from polymers.

2.4. "Enrolled" or "enrollment" -- "Enrollment" is the act of placing property on the property tax rolls or records of the taxing jurisdiction in the name of the Taxpayer. Property is first "enrolled" and "enrollment" of a given item of property first occurs when the property is first placed on the property books of the taxing jurisdiction in the name of the Taxpayer.

2.5. "Feedstock" -- means raw materials or production inputs which are directly used in the manufacture of polymers.

2.6. "Fifty million dollar threshold" -- Under W. Va. Code ''11-6F-2(d) and 3, a Taxpayer is entitled to the special valuation allowed under the Act when at least $50 million of qualified capital addition property has been enrolled in the name of the Taxpayer. The special valuation shall be granted beginning in the tax year when the aggregate total value of enrolled qualified capital addition property enrolled in the name of the Taxpayer has exceeded $50 million and for allowable succeeding years in accordance with W. Va. Code ''11-6F-3 and 4 of the Act.

2.7. "Intangibles" See Section 6.4.1.3.i.4.1(6) of this rule.

2.8. "Original cost," as that term is used with reference to a preexisting facility, and not to new investment, or the terms "original cost before a capital addition" or "original cost of a preexisting facility." --

2.8.1. Under W. Va. Code '11-6F-2(d), the preexisting manufacturing facility must have a total original cost before the capital addition of at least one hundred million dollars. Manufacturing facilities may in the aggregate carry with them an original cost that is no longer reflective of the current fair market value of the property. It is typical that the fair market value of manufacturing facilities, because of depreciation, inflation, and various market economic forces shall differ in some degree from original cost. It could be that a facility may have an original cost exceeding the $100 million minimum set forth in W. Va. Code '11-6F-2(d), but have a fair market value after physical deterioration and economic obsolescence, that is minimal. It could be that a facility could have a market value well in excess of the original cost due to economic factors that would make the construction of a similar facility far more expensive than original cost.

2.8.2. "Original cost," as that term is used with reference to a preexisting facility, and not to new investment, or the terms "original cost before a capital addition" or "original cost of a preexisting facility" means the total, original, undepreciated cost, unadjusted for inflation or deflation, of capitalized property and certain leased property physically in service at a facility immediately prior to the placement of certified capital addition property in service at the facility, excluding property enumerated as excluded under this rule. As a general rule, original cost is the basis to the Taxpayer of the property for federal income tax purposes (prior to any federal adjustments) at the time of the acquisition by the Taxpayer of the property and adjusted by subsequent capital additions or improvements to the property and partial disposition of the property, by reason of sale, exchange or abandonment, etc. Depreciation is not taken into account in determining the original cost of the property. Original cost shall include installation costs, transportation, sales and excise taxes, planning costs, and other costs associated with the acquisition of a given asset to the extent that the costs are capitalized for federal income tax purposes.

2.8.2.1. Excluded property

2.8.2.1.a. Airplanes, motor vehicles, non-capitalized property and qualified capital addition property. -- There shall be excluded from the determination of "original cost" or "original cost before a capital addition" or "original cost of a preexisting facility" the following property whether purchased or leased: Airplanes; motor vehicles licensed by the Division of Motor Vehicles; inventories and non-capitalized property; qualified capitol addition property to be included as part of the certified capital addition property (including construction in progress); and any property acquired by purchase or lease from a related entity or between related entities. The Tax Commissioner may waive the prohibition against related entity acquisitions if the property was acquired from a related entity for its the fair market value and there is no manipulation of the measure of the cost of, or the amount of investment in, qualified capital addition property for the purpose of gaining entitlement to special property valuation under the Act.

2.8.2.1.b. For purposes of this definition, the term "non-capitalized property" means property, the cost of which is not required to be capitalized for federal income tax purposes under the Internal Revenue Code or the rules, regulations or policies implemented or promulgated by the United States Internal Revenue Service.

2.8.2.2. Property no longer in service. -- There shall be excluded from the determination of "original cost" or "original cost before a capital addition" or "original cost of a preexisting facility" the cost of any property, whether purchased or leased, which has been removed from service, scrapped, or permanently shut down or placed in mothball mode, notwithstanding that the property may remain on the premises, or in the facility or on the facility grounds. Any property sold, no longer owned by the Taxpayer, or removed from the premises or otherwise permanently out of service shall not count toward the measure of original cost.

2.8.2.3. Residential and entertainment property. -- Occasionally, manufacturers in West Virginia have seen fit to lease, purchase or construct residential dwellings or housing in West Virginia for the purpose of providing long term or temporary housing for certain management personnel or other company personnel or for visiting dignitaries, company officers or guests of the company. There shall be excluded from the determination of "original cost" or "original cost before a capital addition" or "original cost of a preexisting facility" the cost of any houses, entertainment facilities, guest accommodations, dwellings or similar facilities, whether leased or purchased (constructed or otherwise), without regard to whether the cost of the property is capitalized for federal income tax purposes and without regard to whether the property is leased under lease terms which would otherwise qualify under this rule.

2.8.3. Original cost and leased property. -- Leased property shall not typically count toward the measure of original cost to the lessee. However, certain types of leased property shall be counted.

2.8.3.1. Leases capitalized for federal income tax purposes. -- Real or tangible personal property still under lease immediately prior to the placement of certified capital addition property in service at the facility may be counted toward the measure of original cost if the lessee is required to treat the leased property as purchased property for federal income tax purposes and the written lease specifically makes the lessee responsible for payment of the property tax on the leased property. The amount of the original cost of the leased property for purposes of the Act is the amount capitalized for federal income tax purposes represented by the property.

2.8.3.2. Leases of Tangible personal property. -- Where the preexisting manufacturing facility incorporates leased tangible personal property under a lease that, at the time the lease was entered into had a primary lease term of at least 75% of the useful life of the leased tangible personal property, and where the written lease for that property specifically makes the lessee responsible for payment of the property taxes on the leased property, the leased tangible personal property still under lease at the time qualified capital addition property is enrolled may be counted toward the measure of original cost of the preexisting facility.

2.8.3.3. Leases of realty. -- In the case of leases of real property which at the time the lease was entered into had a primary lease term of at least ten years, and where the written lease for that property specifically makes the lessee responsible for payment of the property taxes on the leased property, the cost of the leased real property still under lease at the time qualified capital addition property is first enrolled in the name of the Taxpayer may be counted toward the measure of original cost of the preexisting facility.

2.8.3.4. The extent to which the cost of leased real or tangible personal property may qualify may be adjusted by the Tax Commissioner, depending on whether the lease payments are reflective of a fair market value lease rate. Only those costs of leased property imposed pursuant to a written lease agreement may qualify to be counted toward original cost.

2.8.3.5. Except for sale and lease back property, the cost of leased property that qualifies to be counted for purposes of determining original cost under the Act is the rent paid for the property prior to the date when any item of qualified capital addition property is enrolled in the name of the Taxpayer over the primary term of the lease or the bygone portions of the property, and any subsequent lease renewals that have been exercised.

2.8.3.6. Sale and lease back property. -- In the case of property purchased by a Taxpayer and sold to a leasing company or other entity, and then leased back to the Taxpayer which originally purchased the property (a so called sale and lease back): As with other leases, a sale/lease back lease counts toward the original cost of a preexisting facility if the property meets the criteria set forth in this section for qualification (i.e., the lease is capitalized for federal income tax purposes, or a tangible personal property lease having a primary term of 75% of useful life, or a realty lease having a 10 year or more primary term, and the lessee is required by the written terms of the lease to pay the property tax on the leased property).

2.8.3.7. If the sale/lease back lease otherwise qualifies to be counted toward the measure of original cost of the preexisting facility, the measure of original cost of the sale/lease back property to be counted as part of the cost of the preexisting facility is the original purchase price cost of the property to the Taxpayer prior to the sale of the property to the leasing company or lessor.

2.9. "Placed in service" -- Qualified capital addition property becomes a qualified capital addition to a manufacturing facility which is qualified for special valuation under the Act when the property is placed in service, without regard to the point in time when the property is purchased, physically installed or physically placed in operation. Qualified capital addition property enrolled in the name of the Taxpayer before the $50 million threshold has been exceeded shall not be treated as having been placed in service for purposes of the Act until the $50 million threshold has been exceeded and at least $50 million of the qualified capital addition property has been enrolled in the name of the Taxpayer. Qualified capital addition property in excess of $50 million that is enrolled in the name of the Taxpayer on or after the date of enrollment of property representing the $50 million threshold amount shall be treated as having been placed in service when enrolled in the name of the Taxpayer. Property assessed as construction in progress for purposes of this determination shall be treated as placed in service in the same manner as other qualified capital addition property in accordance with this subsection.

2.10. "Preexisting facility" or "preexisting manufacturing facility" -- mean a manufacturing facility, as defined in W. Va. Code '11-6F-2(b), and the attributes thereof at the manufacturing facility (excluding all qualified capital addition property) immediately prior to the enrollment of qualified capital addition property which shall become certified capital addition property when the $50 million threshold is exceeded.

2.11. "Property tax year" or "tax year" -- means the calendar year following the July first assessment day. The term "tax year" for purposes of the property tax is defined in W .Va. Code ' 11-5-3 to mean the calendar year following the July first assessment day, or in the case of a public service business assessed pursuant to W. Va. Code ' 11-6-1 et seq., the calendar year beginning on the January first assessment day.

2.12. "Qualified capital addition property" -- means property not otherwise disqualified or excluded from qualifying as certified capital addition property or as a qualified capital addition to a manufacturing facility under the provisions of the Act or this rule, which may potentially qualify as certified capital addition property and as a qualified capital addition to a manufacturing facility if the $50 million threshold and the other requirements of the Act are ultimately fulfilled by investment in the property and, after the $50 million threshold has been exceeded, qualified capital addition property means certified capital addition property and comprises the qualified capital addition to a manufacturing facility.

2.13. "Related entity" -- The term "related entity" means:

2.13.1. A corporation, partnership association or trust controlled by the Taxpayer;

2.13.2. An individual corporation, partnership, association or trust that is in control of the Taxpayer;

2.13.3. A corporation, partnership, association or trust controlled by an individual, corporation, partnership, association or trust that is in control of the Taxpayer; or

2.13.4. A member of the same controlled group as the Taxpayer.

2.13.5. For purposes of this rule, "control," with respect to a corporation means ownership, directly or indirectly, of stock possessing fifty percent (50%) or more of the total combined voting power of all classes of the stock of the corporation entitled to vote. "Control," with respect to a trust, means ownership, directly or indirectly, of fifty percent (50%) or more of the beneficial interest in the principal or income of the trust. The ownership of stock in a corporation, of a capital or profits interest in a partnership or association or of a beneficial interest in a trust shall be determined in accordance with the rules for constructive ownership of stock provided in United States Internal Revenue Code ' 267(c), as amended, other than paragraph (3) of that section.

2.14. "Replacement property" is defined in Section 2.3.1.1.b of this rule.

2.15. "Statutory effective date" -- means the effective date of W. Va. Code '11-6F-1 et seq. W. Va. Code '11-6F-6 states that W. Va. Code '11-6F-1 et seq. is effective for tax years beginning on and after July 1, 1997. The term "tax year" for purposes of the property tax is defined in W. Va. Code '11-5-3 to mean the calendar year following the July first assessment day, or in the case of a public service business assessed pursuant to W. Va. Code '11-6-1 et seq., the calendar year beginning on the January first assessment day.

2.15.1. For Taxpayers other than public service businesses, the provisions of W. Va. Code '11-6F-1 et seq. are effective for property assessed on July 1, 1997 for the January 1 to December 31, 1998 tax year, and thereafter. Property assessed prior to July 1, 1997 is not subject to the treatment allowed under W. Va. Code '11-6F-1 et seq. For public service businesses, the provisions of the Act are effective for property assessed on January 1, 1998 for the January 1 to December 31, 1998 tax year and thereafter.

W. Va. Code R. § 110-6F-2