Current through Register Vol. XLI, No. 38, September 20, 2024
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.
