West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-13A - Severance Tax
Section 110-13A-2 - Definitions

Universal Citation: 110 WV Code of State Rules 110-13A-2

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

As used in these regulations and unless the context clearly requires a different meaning, the following terms shall have the meanings ascribed herein, and shall apply in the singular or in the plural.

2.1. Coal. -- The term "coal" means and includes any material composed predominantly of a solid, brittle, stratified, combustible carbonaceous rock formed by the decomposition of vegetation, containing varying quantities of the elements of carbon, hydrogen, oxygen and nitrogen. "Coal" shall include but is not limited to peat, lignite, bituminous, anthracite and various intermediary forms of coal.

2.2. Contract Miner. -- The term "contract miner" means a person engaged as an independent contractor in producing natural resource products which are owned by another or others, as tangible personal property, immediately after they are severed, extracted, reduced to possession and produced.

2.3. Delegate. -- The term "delegate" in the phrase "or his delegate" when used in reference to the Tax Commissioner, means any officer or employee of the Tax Department duly authorized by the Tax Commissioner, directly or indirectly, by one or more redelegations of authority, to perform the function mentioned or described in the Severance Tax Act or these regulations.

2.4. Economic Interest. -- The term "economic interest" for purposes of the Severance Tax Act is synonymous with the economic interest required by 26 U.S.C. 611 and in effect on December 31, 1985 which entitle the taxpayer to a depletion deduction for federal income tax purposes: Provided, That a person who only receives an arm's-length royalty shall not be considered as having an economic interest for purposes of the Severance Tax Act.

2.4.1. An economic interest, for federal income tax purposes, is possessed in every case in which a person has acquired by investment any interest in mineral in place or standing timber and secures, by any form of legal relationship, income derived from the extraction of the mineral or severance of the timber, to which he must look for a return of his capital. A person who has no capital investment in the mineral deposit or standing timber does not possess an economic interest merely because through a contractual relation he possesses a mere economic or pecuniary advantage derived from production. For example, an agreement between the owner of an economic interest and another entitling the latter to purchase or process the product upon production or entitling the latter to compensation for extraction or cutting does not convey a depletable economic interest.

2.5. Extraction of Ores or Minerals From the Ground. -- The phrase "extraction of ores or minerals from the ground" includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining.

2.5.1. Extraction of ores or minerals from the ground shall not include the removal of natural gas from underground storage facilities into which the natural gas has been mechanically injected following its initial removal from the earth: Provided, That the appropriate severance tax was reported and paid at the time the natural gas was produced, if such production occurred in West Virginia.

2.5.2. Extraction of ores or minerals from the ground shall not include "landfill gas technology" by which gas or gaseous compounds are extracted from sanitary landfill areas, which gas or compound was generated as a by-product of the materials composing the landfill.

2.5.3. Extraction of ores or minerals from the ground shall not include the production of gas or gaseous compounds by any biomass decomposition technologies.

2.5.4. Extraction of ores or minerals from the ground shall include the production of coalbed methane or coalbed gas.

2.6. Fiduciary. -- The term "fiduciary" means and includes, a guardian, trustee, executor, administrator, receiver, conservator or any person acting in any fiduciary capacity for any person.

2.7. Gross Value. -- The term "gross value" in the case of natural resources means the market value of the natural resource product, in the immediate vicinity, where severed, determined after application of post production processing generally applied by the industry to obtain commercially marketable or usable natural resource products. The value of natural resource products produced shall be determined by the gross proceeds of sales in every instance in which a bona fide sale of such products is made at the point where production ends, and whether sold at wholesale or retail. In determining the value of natural resource products delivered to purchasers there may be deducted from the gross proceeds of sales so much thereof as the taxpayer can prove to be actual outgoing freight charges (paid by him) from the point at which shipment originates in this State to the point of delivery. However, no deduction is permitted for expenses incurred by him through the use of his own equipment in transporting items produced. No deduction is permitted for expenses incurred to transport items from the point of severance to the processing plant (or loading facilities), when treatment processes are considered part of the production or mining taxable as such pursuant to W. Va. Code '11-13A-4. Further, no deduction will be allowed for sales commissions, royalties, or other costs, expenses or fees incurred by a producer and ultimately paid to third parties. For a discussion of "gross value" see Section 3 of these regulations.

2.8. Mining. -- The term "mining" includes not merely the extraction of ores or minerals from the ground but also those treatment processes considered as mining under the Severance Tax Act and those treatment processes necessary or incidental thereto.

2.9. Natural Resource. -- The term "natural resource" means all forms of minerals including, but not limited to, rock, stone, limestone, coal, shale, gravel, sand, clay, natural gas, oil and natural gas liquids which are contained in or on the soils or waters of this State, and includes standing timber.

2.10. Partnership or Partner. -- The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which natural resources are severed, extracted, reduced to possession and produced or prepared in this State for sale, profit or commercial use. The term "partner" includes a member of such a syndicate, group, pool, joint venture or organization.

2.10.1. An unincorporated organization is a "partnership" under the Severance Tax Act even though, for Federal income tax purposes, the members of the unincorporated organization elect under I.R.C. '761 to be excluded from treatment as a partnership.

2.11. Person or Company. -- The terms "person" or "company" are herein used interchangeably and include any individual, firm, partnership, mining partnership, joint venture, association, corporation, trust or any other group or combination acting as a unit, and the plural as well as the singular number, unless the intention to give a more limited meaning is declared by the content.

2.12. Processed or Processing. -- The terms "processed" or "processing" as applied in the Severance Tax Act, does not include in the case of:

2.12.1. limestone quarried or mined, any activity after the stone is severed and reduced to possession on the surface;

2.12.2. natural gas, any conversion or refining process;

2.12.3. oil, any conversion or refining process;

2.12.4. timber, any cuts after the tree is severed, topped and delimbed. See Burruss v. Hardesty, W. Va. 297 S.E.2d 836 (1981).

2.13. Producers. -- For purposes of these regulations, the word "producer" shall mean and include, but not be limited to, every person who engages in the business of severing, extracting, mining, quarrying, reducing to his possession and producing for his sale, profit or commercial use any natural resource products from his own land or from the land of another under a right or license granted by lease or contract, either directly or by contracting with others for the necessary labor or mechanical services. A person who produces natural resource products for use or consumption in his own business, whether located within or without the State, is a producer for the purposes of the severance tax - and taxed accordingly. A producer must have a direct interest in the minerals in place and look solely to mineral sales proceeds for his income from the production.

2.14. Related Parties. -- The term "related parties" means two or more persons, organizations or businesses owned or controlled directly or indirectly by the same interests. Control exists if a contract or lease, either written or oral, is entered into whereby one party mines or processes natural resources owned or held by another party and the owner or lessor participates in the severing, processing or marketing of the natural resources or receives any value other than an arm's length passive royalty interest. In the case of related parties, the Tax Commissioner may apportion or allocate the receipts between or among such persons, organizations or businesses if he determines that such apportionment or allocation is necessary to more clearly reflect gross value.

2.15. Sale. -- The term "sale" includes any transfer of the ownership or title to property, whether for money or in exchange for other property or services, or any combination thereof.

2.16. Severance Tax Act. -- The term "Severance Tax Act" means the tax imposed by W. Va. Code '11-13A-1 et seq.

2.17. Severing or Severed. -- The terms "severing" or "severed" mean the physical removal of the natural resources from the earth or waters of this State by any means: Provided, That "severing" or "severed" shall not include:

2.17.1. the removal of natural gas from underground storage facilities into which the natural gas has been mechanically injected following its initial removal from the earth;

2.17.2. any separation process for natural gas or oil commonly employed to obtain marketable natural resource products after the gas or oil is produced at the well-head;

2.17.3. any processing of limestone or sandstone that occurs after the privilege of producing stone by quarrying or mining ends;

2.17.4. any processing of timber that occurs after the privilege of producing timber ends.

2.18. Stock. -- "Stock" includes shares in an association, joint-stock, company or corporation.

2.19. Tax Commissioner. -- "Tax Commissioner" means the Tax Commissioner of the State of West Virginia, or his delegate.

2.20. Taxable Year. -- "Taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the severance tax liability is computed, and shall be the same as the taxpayer's taxable year federal income tax purposes. "Taxable year" means, in case of a return made for a fractional part of a year under the provisions of W. Va. Code '11-13A-23, or under regulations promulgated by the Tax Commissioner, the period for which such return is made.

2.21. Taxpayer. -- The term "taxpayer" means and includes any individual, partnership, joint venture, association, corporation, receiver, trustee, guardian, executor, administrator, fiduciary or representative of any kind engaged in the business of severing or processing (or both severing and processing) natural resources in this State for sale or use. In instances where contracts (either oral or written) are entered into whereby persons, organizations or businesses are engaged in the business of severing or processing (or both severing and processing) a natural resource but do not obtain title to or do not have an economic interest therein, the party who owns the natural resource immediately after its severance or has an economic interest therein (except a person who only receives an arms-length royalty) is the taxpayer.

2.22. This Code. -- "This Code" means the Code of West Virginia, one thousand nine hundred thirty-one, as amended.

2.23. This State. -- "This State" means the State of West Virginia.

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