Current through Register Vol. XLI, No. 38, September 20, 2024
4.1.
Method for determining value of active mining property.
4.1.1. General. -- The value of Active Mining
Property is the value per active acre multiplied by the amount of active acres.
In no case shall the active mining property be valued at less than its value as
reserve property.
4.1.2.
Determination of active mining property. -- The designation of "Active Mining
Property" is determined as follows:
4.1.2.a.
An Operator may designate or assign a portion of a parcel to an Active Mining
Property when only that portion is suitable for mining purposes. For
determining the actual area of the Active Mining Property, the operator shall
include all contiguous parcels or portions of parcels containing the mineable
natural resource(s) which are under lease, regardless of ownership. Parcels
that are not leased or owned and that fall within the mining portion of the
Active Mining Property shall have the requisite mineable resource valued at the
applicable reserve rate for the life of the mining operation.
4.1.2.b. For purposes of determining the
actual area of the active mining property, the operator shall treat all
contiguous parcels or portions of parcels containing the mineable natural
resource(s) that are under lease, regardless of ownership, as active mining
property. If more than one (1) natural resource is being mined under a permit,
each natural resource represents a separate active mining property.
4.1.2.c. If the permitted operation has not
begun production by the July 1st assessment date, the operator shall report the
mineable natural resource(s) on an active property return and value them as
reserves for the applicable tax year. Once a parcel or a portion of a parcel
has been assigned to or designated as an active mining property, the parcel, or
portion of the parcel, shall continue to be listed on the active return, filed
annually, until such time as the permit has been retired.
4.1.2.d. Should the mining operation cease
production after January 1st but prior to July 1st of the most recent calendar
year preceding the July 1st assessment date, and there is mineable natural
resource(s) remaining, the remainder shall be valued at the reserve rate for
the current tax year.
4.1.2.e. Any
permitted mining operation producing only one (1) natural resource shall be
designated as "Active Mining Property". If the mining operation is producing
more than one (1) natural resource, each natural resource shall be designated
as an "Active Mining Property".
4.1.2.f. If the mining operation is producing
a natural resource at different locations, portals and/or faces under one (1)
specific permit, that operation shall be designated as one (1) "Active Mining
Property". If the production of the natural resource involves different mining
techniques (surface, auger or deep mining method), or if mining sites are
separate and generally independent, then those sites shall be designated as
separate "Active Mining Properties".
4.1.2.g. For use in this rule, the maximum
active mining portion for each natural resource is fifteen (15) years
multiplied by the annual acres mined, except for salt. The active mining
portion around each salt production well is a maximum of thirty-five (35)
acres. After a well's first year of production, active mining property shall be
derived by subtracting acres mined from the thirty-five (35) acres.
4.1.2.h. If the available mineable acreage of
the natural resource being mined is less than the maximums listed the foregoing
subdivision 4.1.2.g, the total available acreage may be considered for
designation as active mining property.
4.1.3. Determination of average annual
production -- Average annual production, as defined in Section 3 of this rule,
is determined as follows:
4.1.3.a. An
arithmetic mean shall be calculated on tonnage by the producer and verified by
the Tax Commissioner through research of the West Virginia Office of Miner's
Health, Safety and Training and/or audit-derived information for the three (3)
most recent calendar years preceding the July 1st assessment date.
4.1.3.b. If there was no production in either
the second (2nd) and/or third (3rd) most recent calendar years, an arithmetic
mean of the available year(s) production shall be used.
4.1.4. Value per active acre -- Application
of the valuation formula for active mining property shall be based on the
actual quantity of resource produced and sold. Factors to be used for the
specific active mining property are: resource thickness in feet (Thk); tons per
acre foot (Appendix A, Formula 2); Clean Resource Recovery Rate (RR%); Royalty
Rate (Roy%); net present value Multiplier (M); and, Mine Life in years (ML).
See Appendix A, Formula 3 of this rule for the formula to determine the value
per active acre.
4.1.5. Thickness
(ft). -- As defined in Section 3 of this rule, thickness is determined as
follows:
4.1.5.a. An arithmetic mean shall be
taken of thickness as reported by producers and verified by the Commissioner
through research of West Virginia Office of Miner's Health, Safety, and
Training records and/or audit-derived information for the three (3) most recent
calendar years prior to the July 1st assessment date.
4.1.5.b. If there has been no production in
either the second and/or third most recent calendar years, an arithmetic mean
of the available years shall be used.
4.1.6. Royalty rate. -- For use in the
formula prescribed by this rule, the royalty rates shall be determined for each
natural resource and types of mining operations. These royalties shall include
specific rates for:
4.1.6.a.
limestone/dolomite mines;
4.1.6.b.
sandstone (industrial) and/or aggregate mines;
4.1.6.c. clay and/or shale surface
mines;
4.1.6.d. clay and/or shale
underground mines;
4.1.6.e. sand
and gravel surface mines; and
4.1.6.f. salt brine wells.
Royalty rates shall be established annually by the Tax
Commissioner after review of both recorded and unrecorded, willing
seller-willing buyer natural resource property leases that have occurred in the
State of West Virginia during at least the five (5) calendar years prior to the
appraisal date, and through inspection of other appropriate information. This
review shall place a greater emphasis on information from leases transacted
during the most recent years. For those natural resources involved in few or no
recorded lease agreements, the Tax Commissioner shall derive a royalty rate
through surveys conducted by his or her staff, data provided by the other
pertinent State agencies, and other appropriate information as may be made
available from the specific natural resource producers. The Tax Commissioner
shall maintain this summary report of royalty rates and file the results in the
State Register on or before July 1st of each year; shall accept written public
comment on the tentative values until August 1st of each year; and, shall file
final royalty rates in the State Register on or before September 1st of each
year. From this data, the Tax Commissioner shall select the royalty rates that
best typify transactions. In order to convert percentage royalty rates into
specific value per ton rates, the Tax Commissioner shall, if necessary, conduct
a review of the specific natural resource selling prices in West Virginia by
requesting the selling prices from private purchasers, the State Department of
Highways, and the West Virginia Geological and Economic Survey, as well as
other informative sources available, and select specific selling price rates
based on prices best typifying activity in each appraisal year. The selected
selling prices per ton when multiplied by the percentage royalty rate shall
result in a royalty price per ton.
4.1.7. Capitalization rate. -- A single
statewide capitalization rate for other mined natural resources shall be
determined annually by the Tax Commissioner through the use of generally
accepted methods of determining these rates. The rate shall be based on the
assumption of a level, non-inflating income series. The capitalization rate
used to value other mined natural resources shall be developed considering a
discount rate determined by the summation technique.
4.1.
7.1. Discount component -- The summation technique shall be used
in developing a discount component of the capitalization rate. The five
subcomponents of the discount rate are:
4.1.7.1.a. Safe rate -- The safe rate shall
reflect a rate of return that an investor could expect on an investment of
minimal risk. It shall be developed through review of interest rates offered on
thirteen-week United States Treasury Bills for a period of three (3) calendar
years prior to the appraisal date.
4.1.7.1.b. Nonliquidity rate -- The
nonliquidity rate shall be developed through an annual study to determine a
reasonable estimate of time that natural resource property, when offered for
sale, remains on the market. The time determined shall be used to identify
United States Treasury Bills with similar time differentials in excess of
thirteen-week Treasury Bills. The interest differential between these
securities shall be used to represent the nonliquidity rate. For example, if it
is determined that other natural resource property remains on the market for an
average of nine months (39 weeks) before being sold, the nonliquidity rate
shall be derived by taking the rate on one (1) year Treasury Bills minus the
rate on thirteen-week Treasury Bills.
4.1.7.1.c. Risk rate -- The relative degree
of risk of an investment in other natural resource property is difficult to
determine from published interest rates. Interest rates required on loans for
acquisition and/or development of other natural resource properties shall be
calculated by adding two percent (2%) to the Prime Rate Charged By banks as
published in the Economic Indicators Prepared By The Council Of Economic
Advisors For The Joint Economic Committee for each of the three calendar years
prior to the July 1 assessment date. The three year average shall be compared
to interest rates offered on thirteen-week United States Treasury Bills for the
same three (3) calendar year period. The difference between the two, combined
with bands of investment analysis, shall be used as a basis to estimate the
risk rate.
4.1.7.1.d. Management
rate -- The management rate represents the cost of managing the investment, not
the cost of managing the other natural resource property. Because the
management rate has historically been one-half of one percent (0.5%) of the
value of investment portfolios, for purposes of determining the discount
component the management rate shall be one-half of one percent
(0.5%).
4.1.7.1.e. Inflation rate
(negative) -- Nominal interest rates, including the "safe rate" mentioned, are
higher than real rates by an amount representing expectation of future
inflation. However, net annual income from other natural resource property is
to be estimated assuming level future royalties (no inflation). The
capitalization rate must be a real rate, net of expectation of inflation. The
inflation rate shall be estimated through analysis of the most recent three (3)
calendar year's urban consumer price index as determined by the United States
Department of Labor, Bureau of Labor Statistics.
4.1.7.2. In determining the discount
component of the capitalization rate, the Tax Commissioner shall deduct the
inflation rate from the sum of the safe rate, nonliquidity rate, risk rate, and
management rate.
4.1.7.3. Property
tax component -- This component shall be estimated by multiplying the
assessment rate by the statewide average of tax rates for Class III property.
At the present time, research indicates that royalty rates on other natural
resources include a component for property tax, with no additional compensation
from the producer. As a result, the property tax component shall be used in the
capitalization rate. If this described general practice changes and property
taxes are paid as additional compensation, the use of this component shall be
deleted.
4.1.7.4. Results of
capitalization rate summary -- The data used for development of components
referenced in Paragraph 4.1.9.1 of this rule shall be reported and filed
annually by the Tax Commissioner in the State Register on or before July 1st of
each year. Public comment on the tentative results shall be accepted until the
subsequent August 1st, and the final results shall be filed in the State
Register on or before September 1st of each year.
4.2. Valuation of reserves. --
Reserve valuation rates for limestone, sandstone, clay and shale, sand and
gravel, and salt shall be determined annually by the Tax Commissioner after
review of recorded willing seller-willing buyer natural resource,
production-specific, property sales that have occurred in the State of West
Virginia during at least the five (5) calendar years prior to the July 1st
appraisal date, through inspection of other appropriate information, and from
quantitative data that might reflect current market values. This review shall
place a greater emphasis on the most current data. For those natural resource
properties involved in few or no recorded sale agreements, the Tax Commissioner
may also derive the valuation through reviews conducted by his or her staff,
data provided by other State agencies, and other appropriate information as may
be made available by the specific natural resource producers involved. The Tax
Commissioner: shall maintain this review of natural resource property sales and
file summarized results in the State Register on or before July 1st of each
year; shall accept written public comment on the tentative valuations until the
subsequent August 1st; and shall file the final valuations for each natural
resource in the State Register on or before September 1st of each
year.
4.3. Valuation of unmineable
other natural resource properties. -- Properties in this category are valued at
one dollar ($1.00) per acre.
4.4.
Valuation of mined-out other natural resource properties. -- Properties in this
category are valued at one dollar ($1.00) per acre.
4.5. Valuation of barren other natural
resource properties. -- Properties in this category are valued at one dollar
($1.00) per acre.
4.6. Total other
natural resource valuation. -- The total other natural resource valuation for
any parcel shall involve the value for all active acres, all reserve acres, all
unmineable acres, all mined out and all barren acreage.
4.7. Leasehold interests. -- This rule
generally attributes the value of the natural resource to the owner of the
natural resource property. In those circumstances where the owner of the
property is subject to a lease requiring the owner to permit mining at royalty
rates substantially below current market values, the owner may petition the Tax
Commissioner, to attribute a portion of the value of the natural resource
determined by this formula to the leaseholder.
4.8. Farm properties. -- The natural resource
rights that are part of a "fee" estate where the use of the surface has
qualified for farm use appraisal shall be valued as described in 110 C.S.R. 1A,
Valuation of Farmland and Structures Situated Thereon For Ad Valorem Property
Tax Purposes.
4.9. Property
reports. -- On or before September 1st of each year the producer shall file an
Annual Appraisal Report for Production of Other Mined Minerals with the Tax
Commissioner with acknowledgment to the natural resource owners and the county
assessors in the counties where the mines is located. On or before September
16th of each year the natural resource owner of any property that is part of a
permitted mining operation shall file an Annual Appraisal Return for Reserve
Mineral Properties with the Tax Commissioner. Owners of natural resource
properties may file an Annual Appraisal Return for Reserve Mineral Properties,
on or before September 16th, with the Tax Commissioner; otherwise, the
properties shall be valued using the best available information.
4.10. Confidentiality -- All information
provided by or on behalf of a natural resources property owner or by or on
behalf of an owner of an interest in natural resources property to any state or
county representative for use in the valuation or assessment of natural
resources property or for use in the development or maintenance of a
legislatively funded mineral mapping or geologic information system is
confidential. The information is exempt from disclosure under provisions of W.
Va. Code '29B-1-4,
and shall be kept, held, and maintained confidential except to the extent the
information is needed by the State Tax Commissioner to defend an appraisal
challenged by the owner or lessee of the natural resources property subject to
the appraisal: Provided, That this section may not be construed to prohibit
publication or release of information generated as part of the minerals mapping
or geologic information system, whether in the form of aggregated statistics,
maps, articles, reports, professional talks, or otherwise presented in
accordance with generally accepted practices and in a manner so as to preclude
the identification or determination of information about particular property
owners.
