West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-21F - The Coal Severance Tax Rebate
Section 110-21F-2 - Definitions

Universal Citation: 110 WV Code of State Rules 110-21F-2

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

2.1. General Rule. -- Unless a specific definition is provided in subsection 2.2 of this section, or the context in which the term is used clearly requires a different meaning, the terms used in this rule have the definitions provided under W. Va. Code §§ 11-13EE-1, et seq.; 11-10-1, et seq.; 11-13A-1, et seq.; 11-21-1, et seq.; and 11-24-1, et seq.

2.2. Terms defined.

2.2.1. "Base period" means the five-year period directly preceding the year the qualifying capital investment in new machinery and equipment was placed into service. See W.Va. Code § 11-13EE-2(b)(2).
2.2.1.a. When a business has not been in business for five years, but has been in business for at least two years, the base period is the most recent tax year prior to making the investment.

2.2.1.b. "Base period" applies to every threshold to rebate eligibility, including severance tax paid, tons mined, and employment levels.

2.2.2. "Base period annual average severance taxes" means the annual average of the state portion of severance taxes under W. Va. Code § 11-13A-3 during the five-year period directly preceding the year the qualifying capital in new machinery and equipment was placed into service. The annual average of severance taxes is found by taking the cumulative total of the state portion of severance taxes paid from all mines operated within the state by the eligible taxpayer and dividing the aggregate cumulative total of the state portion of severance taxes by five. See W.Va. Code § 11-13EE-2(b)(3).

2.2.3. "Coal loading facility" is defined in W. Va. Code § 11-13E-2(b)(1). An investment in a new or expanded coal loading facility may be eligible for the credit allowed by W. Va. Code § 11-13E-3 against the business and occupation tax. If the credit allowed by W.Va. Code § 11-13E-3 is claimed by the taxpayer, then the cost of the coal loading facility is not eligible as qualified investment for purposes of the coal tax rebate.

2.2.4. "Directly used or consumed in the production of coal" means used or consumed in those activities or operations that constitute an integral and essential part of the production of coal, as contrasted with and distinguished from those activities or operations that are simply incidental, convenient or remote to the production of coal.
2.2.4.a. Uses of tangible personal property that constitute direct use or consumption in the production of coal include only:
2.2.4.a.1. New machinery or new equipment that is depreciable, or amortizable, and has a useful life of five or more years for federal income tax purposes, and that is directly used in the production of coal in this state;

2.2.4.a.2. Transportation of coal within the coal mine from the coal face or coal deposit to the exterior of the mine or to a point where the extracted coal is transported away from the mine;

2.2.4.a.3. Directly and physically recording the flow of coal during the production of coal including those coal treatment processes specified in W. Va. Code § 11-13A-4;

2.2.4.a.4. Safety equipment and apparatus directly used in the production of coal, or to secure the safety of mine personnel in direct use in the production of coal;

2.2.4.a.5. Controlling or otherwise regulating atmospheric conditions required to produce coal;

2.2.4.a.6 Transformers, pumps, rock dusting equipment or other property used to supply electricity or water, or to supply or apply rock dust directly used in the production of coal;

2.2.4.a.7. Storing, removal or transportation of economic waste, including coal gob, resulting from the production of coal;

2.2.4.a.8. Engaging in pollution control or environmental quality or protection activity directly relating to the production of coal; or

2.2.4.a.9. Otherwise using as an integral and essential part of the production of coal.

2.2.4.b. Uses of tangible personal property which do not constitute direct use or consumption in the production of coal include, but are not limited to:
2.2.4.b.1. Heating and illumination of office buildings;

2.2.4.b.2. Janitorial or general cleaning activities;

2.2.4.b.3. Personal comfort of personnel: Provided, that safety equipment and apparatus directly used in the production of coal or to secure the safety of mine personnel is direct use in the production of coal when the tangible personal property is depreciable, or amortizable, for federal income tax purposes and has a useful life of five or more years for federal income tax purposes when it is placed in service or use;

2.2.4.b.4. Production planning, scheduling of work or inventory control;

2.2.4.b.5. Marketing, general management, supervision, finance, training, accounting and administration;

2.2.4.b.6. Measuring or determining weight, and ash content, water content;

2.2.4.b.7. An activity or function incidental or convenient to the production of coal, rather than an integral and essential part of these activities. See W. Va. Code § 11-13EE-2(b)(13).

2.2.5. "Eligible taxpayer" means:
2.2.5.a. Any person who pays the tax imposed by W. Va. Code § 11-13A-3 on the privilege of producing coal for sale, profit or commercial use for at least two years before the capital investment in new machinery or new equipment is placed in service or use in this state; or

2.2.5.b. A taxpayer that has experienced a change in business composition through merger, acquisition, split-up, spin-off or other ownership changes or changes in the form of the business organization from limited liability company to C corporation, or partnership, or from one form of business organization to a different form of business organization, may constitute an eligible taxpayer if the entity currently operating in this state was operating in a different form of business organization in this state at least two years before the capital investment in new machinery or equipment is placed in service or use in this state. In the case of a business composition change through merger, acquisition, split-up, spin-off or other ownership changes, the current business may constitute an eligible taxpayer if at least 50 percent of the business assets of such component were actively and directly used in coal production activity in this state for such two-year period. If at least 50 percent of the assets of the current entity were not actively and directly used in coal production activity in this state for such two-year period, then the current entity resulting from a business composition change through merger, acquisition, split-up, spin-off or other ownership shall not constitute an eligible taxpayer. See W. Va. Code § 11-13EE-2(b)(15).

2.2.5.c. When the rebate applicant is part of a controlled or affiliated group, for purposes of determining the increase in the state portion of severance taxes paid, the increase in coal production tonnage, and the increase in full-time and full-time equivalent employment, the term, "eligible taxpayer" includes all members of the rebate applicant's controlled or affiliated group. Thus, the increase in the state portion of severance taxes is determined by subtracting the base period annual average severance taxes paid by the eligible taxpayer's controlled or affiliated group for all coal mined in this state from the state portion of severance taxes paid by year for which the rebate is claimed. Likewise, the "eligible taxpayer's" total aggregate production tonnage and total employment figures referenced in W. Va. Code § 11-13EE-3(c) are determined by reference to the controlled group or affiliated group's total aggregate production tonnage and total employment numbers across all mines operated by the controlled or affiliated group within the state.

2.2.6. "Full-time employee" means an employee who is compensated by an annual salary and who works, on average, at least 35 hours per week.

2.2.7. "Full-time equivalent employee" means the quotient obtained by dividing the total number of hours for which hourly employees were compensated for employment over the 12-month period in question by 1,820.

2.2.8. "Gross proceeds" means the value, whether in money or other property, actually proceeding from the sale or lease of tangible personal property, or from the rendering of services, without any deduction for the cost of property sold or leased or expenses of any kind. See W. Va. Code § 11-13A-2(b)(5).

2.2.9. "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. For every natural resource, "gross value" is reported as follows:
2.2.9.a. For natural resources severed or processed (or both severed and processed) and sold during a reporting period, gross value is the gross proceeds received or receivable by the taxpayer.

2.2.9.b. In a transaction involving related parties, gross value shall not be less than the fair market value for natural resources of similar grade and quality.

2.2.9.c. In the absence of a sale, gross value shall be the fair market value for natural resources of similar grade and quality.

2.2.9.d. If severed natural resources are purchased for the purpose of processing and resale, the gross value is the amount received or receivable during the reporting period reduced by the amount paid or payable to the taxpayer actually severing the natural resource. If natural resources are severed outside the State of West Virginia and brought into the State of West Virginia by the taxpayer for the purpose of processing and sale, the gross value is the amount received or receivable during the reporting period reduced by the fair market value of natural resources of similar grade and quality and in the same condition immediately preceding the processing of the natural resources in this state.

2.2.9.e. If severed natural resources are purchased for the purpose of processing and consumption, the gross value is the fair market value of processed natural resources of similar grade and quality reduced by the amount paid or payable to the taxpayer actually severing the natural resource. If severed natural resources are severed outside the State of West Virginia and brought into the State of West Virginia by the taxpayer for the purpose of processing and consumption, the gross value is the fair market value of processed natural resources of similar grade and quality reduced by the fair market value of natural resources of similar grade and quality and in the same condition immediately preceding the processing of the natural resources.

2.2.9.f. In all instances, the gross value shall be reduced by the amount of any federal energy tax imposed upon the taxpayer after June 1, 1993, but shall not be reduced by any state or federal taxes, royalties, sales commissions or any other expense. See W. Va. Code § 11-13A-2(c)(6).

2.2.10. "Infrastructure improvements to real property" means those improvements to the basic physical systems of a mine. Such infrastructure upgrades include, but are not limited to, materials used for construction of sewage, water, electrical, telecommunications, and ventilation systems, including ventilation fans, as well as transportation systems, including haul roads or access roads, culverts, and belt lines, and coal processing and conveying equipment, including machinery to reduce the size of coal or to separate coal from refuse, and the equipment used to convey coal to or remove coal and refuse from the machinery.

2.2.11. "Improvements to real property" means those improvements made to buildings, structures, fixtures, and other capital improvements, which are permanently affixed to the land in a manner that they are part of the realty.

2.2.12. "Mining" includes not merely the extraction of ores or minerals from the ground, but also those treatment processes necessary or incidental thereto.

2.2.13. "New property" or "new tangible personal property" means:
2.2.13.a. New property is limited to new machinery and equipment that meets all of the following requirements:
2.2.13.a.1. The new property is directly used in the production of coal in this state,

2.2.13.a.2. The new property is depreciable or amortizable by the coal producer for federal income tax purposes,

2.2.13.a.3. The new property has a useful life of five or more years for federal income tax purposes when placed in service or use in this state, and

2.2.13.a.4. The new property is purchased or leased by the taxpayer on or after July 1, 2019, when the original use by anyone of the property in this state is by the taxpayer, and the property results in increased coal production.

2.2.13.b. Equipment and machinery that has been remanufactured will be treated as new property for purposes of the Coal Severance Tax Rebate provided that each of the following requirements has been met:
2.2.13.b.1. If purchased or leased, the remanufactured equipment or machinery must have been purchased or leased from a third party in an arm's length transaction.

2.2.13.b.2. The equipment or machinery must have been purchased or leased and placed into service or use on or after July 1, 2019, and meet all other requirements set forth in order to obtain this rebate.

2.2.13.b.3. In order to qualify as new equipment for the rebate, the remanufactured equipment or machinery must have been retitled and assigned a new vehicle or equipment identification number (or manufacturer's equivalent) prior to its purchase or lease.

2.2.13.b.4. The remanufactured equipment or machinery must be treated as new equipment or machinery for federal income tax purposes.

2.2.13.b.5. Under no circumstances can the same piece of machinery or equipment be claimed in the same tax year as a capitalized repair and as a purchase of new equipment for purposes of this rebate, even if it has been retitled and assigned two different vehicle or equipment identification numbers (or manufacturer's equivalent).

2.2.13.b.6. Adequate records will be required to establish entitlement to this rebate on the basis of purchase of a remanufactured or remanufacture and retitle of equipment or machinery.

2.2.13.c. New property does not include any of the following:
2.2.13.c.1. Tangible personal property acquired from a person whose relationship to the person acquiring it would result in disallowance of deductions under I.RC § 267 or 707 (b):

2.2.13.c.2. Tangible personal property acquired by one component member of a controlled group from another component member of the same controlled group;

2.2.13.c.3. Tangible personal property where the basis of the tangible personal property or improvements to property for federal income tax purposes, in the hands of the person acquiring it, is determined:
2.2.13.c.3.1. In whole or in part by reference to the federal adjusted basis of the property in the hands of the person from whom it was acquired; or

2.2.13.c.3.2. Under I.R.C § 1014 (e). See W. Va. Code § 11-13EE-2(b)(24).

2.2.13.c.4. Used equipment or machinery;

2.2.13.c.5. The repair or replacement of a component part does not constitute remanufacture of the equipment or machinery and, accordingly, does not qualify as new property. For purposes of this paragraph, "component part" includes, but is not limited to, chassis, roof bolts, belts, shields, individual body parts, hoses, piping, control panels, wheels, tires, tracks, rollers, paint, hydraulics, mechanical parts, transmissions, steering mechanisms, fuel systems, brakes, axles, engines, or motors. However, repair costs will be eligible for this rebate if capitalized. See W. Va. Code § 11-13EE-2(b)(4) and (23).

2.2.13.c.6. Remanufactured equipment or machinery that was titled to the taxpayer seeking the rebate, or any affiliate, subsidiary, or parent company, prior to its remanufacture. However, repair costs will be eligible for this rebate if capitalized. See W. Va. Code § 11-13EE-2(b)(4) and (23).

2.2.14. "Property purchased or leased for business expansion" means:
2.2.14.a. Included property. -- Except as provided in subdivision 2.2.14.b. of this rule, the term "property purchased or leased for business expansion" means tangible personal property, but only if the property was purchased, or leased, and placed in service for direct use by the taxpayer in the production of coal in West Virginia. This term includes only:
2.2.14.a.1. New tangible personal property placed in service or use by the taxpayer on or after July 1, 2019, with respect to which depreciation, or amortization in lieu of depreciation, is allowable in determining the personal or corporation net income tax liability of the business, or its equity owners, under W. Va. Code §§ 11-21-1, et seq., or 11-24-1, et seq., and has a useful economic life at the time the property is placed in service or use in this state of five or more years.

2.2.14.a.2. New tangible personal property acquired by written lease having a primary term of five years or more, that is depreciable or amortizable by the lessor or lessee for federal income tax purposes and has a useful life of five or more years for federal income purposes when it is placed in service or use in this state, and when the lease commences and was executed by the parties thereto on or after July 1, 2019, if used as a component part of a new or expanded coal mining operation in this state shall be included within this definition.

2.2.14.a.3. Repair or refurbishment costs to tangible personal property directly used in the production of coal that are incurred on or after July 1, 2019, which are capitalized for federal income tax purposes.

2.2.14.b. Excluded property. -- The term "property purchased or leased for business expansion" shall not include:
2.2.14.b.1. Machinery or equipment owned or leased by the taxpayer for which credit was taken or is claimed under any other article in chapter 11 of the West Virginia Code;

2.2.14.b.2. Repair costs, including materials used in the repair, unless for federal income tax purposes the repair costs must be capitalized and not expensed;

2.2.14.b.3. Motor vehicles licensed by the West Virginia Division of Motor Vehicles;

2.2.14.b.4. Airplanes and helicopters;

2.2.14.b.5. Off-premise transportation equipment;

2.2.14.b.6. Machinery or equipment that is primarily used outside this state;

2.2.14.b.7. Machinery or equipment that is acquired incident to the purchase of the stock or assets of the seller except as otherwise provided in W. Va. Code § 11-13EE-1, et seq.;

2.2.14.b.8. Coal loading facilities for which the taxpayer has claimed credit under W.Va. Code § 11-13E-1, et. seq.;

2.2.14.b.9. Used machinery and equipment; and

2.2.14.b.10. Improvements to real property, although tangible personal property used for infrastructure improvements to real property may qualify.

2.2.14.c. Purchase date. -- New machinery or new equipment shall be deemed to have been purchased prior to July 1, 2019, if:
2.2.14.c.1. The machinery or equipment was owned by the taxpayer prior to July 1, 2019, or was acquired by the taxpayer pursuant to a binding purchase contract that was in effect prior to July 1, 2019; or

2.2.14.c.2. In the case of leased machinery and equipment, there was a binding written lease or contract to lease identifiable machinery or equipment in effect prior to July 1, 2019. See W. Va. Code § 11-13EE-2(b)(23).

2.2.15. "Purchase" means any acquisition of new machinery or new equipment directly used or consumed in the production of coal, but only if:
2.2.15.a. The tangible personal property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of deductions under I.R.C. § 267 or § 707 (b);

2.2.15.b. The tangible personal property is not acquired by one component member of a controlled group from another component member of the same controlled group; and

2.2.15.c. The basis of the tangible personal property or improvements to property for federal income tax purposes, in the hands of the person acquiring it, is not determined:
2.2.15.c.1. In whole or in part by reference to the federal adjusted basis of the property in the hands of the person from whom it was acquired; or

2.2.15.c.2. Under I.R.C. § 1014 (e). See W. Va. Code § 11-13EE-2(b)(24).

2.2.16. "Qualified coal mining activity" means any business or other activity subject to the tax imposed by W. Va. Code § 11-13A-3 on the privilege of severing, extracting, reducing to possession and producing coal for sale, profit or commercial use including the treatment process described as mining in W. Va. Code § 11-13A-4(a)(1). See W. Va. Code § 11-13EE-2(b)(25).

2.2.17. "Qualified investment" or "qualified investment property" for purposes of this rule means a capital investment in machinery or equipment directly used in the production of coal in this state that is depreciable, or amortizable, for federal income tax purposes and has a useful life for federal income tax purposes of five or more years when it is placed in service or use in this state and the investment results in increased coal production at the mine where the qualified investment is made. Qualified investments are limited to the following:
2.2.17.a. Tangible personal property in the form of new machinery and new equipment that is purchased on or after July 1, 2019, and placed in service for direct use in the production of coal, when the original or first use of the machinery or equipment in the state commences on or after July 1, 2019;

2.2.17.b. Tangible personal property in the form of new machinery and new equipment that is leased by the taxpayer and placed in service in this state for direct use in the production of coal by the taxpayer on or after July 1, 2019, if the original or first use of the machinery or equipment by anyone in this state commences on or after July 1, 2019, and the new machinery or new equipment is depreciable, or amortizable, for federal income tax purposes and has a useful life of five or more years for federal income tax purposes;

2.2.17.c. Tangible personal property in the form of materials used for infrastructure improvements to real property on or after July 1, 2019, and placed in service for direct use in the production of coal, when the original or first use of the materials used for the infrastructure upgrades commences in this state on or after July 1, 2019; and

2.2.17.d. Repair or refurbishment costs to tangible personal property directly used in the production of coal that are incurred on or July 1, 2019, which are capitalized for federal income tax purposes.

2.2.18. "Rebate" means the amount allowable as a rebate under W. Va. Code § 11-13EE-3. See W. Va. Code § 11-13EE-2(b)(27).

2.2.19. "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. "Sale" includes a lease of property, whether the transaction be characterized as a rental, lease, hire, bailment or license to use. "Sale" also includes rendering services for a consideration, whether direct or indirect.

2.2.20. "Severance Tax" for purposes of this rule means the tax imposed in W. Va. Code § 11-13A-3(a) on the privilege of engaging or continuing within this state in the business of severing coal, extracting coal, reducing coal to possession and producing coal for sale, profit or commercial use computed at the five percent rate of tax. "Severance tax" for purposes of this rule does not include any other rate of severance tax.

2.2.21. "Severing" or "severed" means the physical removal of the natural resources from the earth or waters of this state by any means.

2.2.22. "State portion of severance taxes payable" or "state portion of severance taxes paid" or "state portion of severance taxes due" means the portion of severance taxes due under W. Va. Code § 11-13A-3(a), when computed at the 4.65 percent rate of tax, before credit for the minimum severance tax paid. See W. Va. Code § 11-13EE-2(b)(29). "State portion of severance tax" for purposes of this rule does not include any other rate of severance tax.

2.2.23. "State Tax Commissioner" or "Tax Commissioner" means the Commissioner of the West Virginia State Tax Department or his or her designee.

2.2.24. "Tangible personal property" means, and is limited to, new machinery and new equipment that is depreciable, or amortizable, for federal income tax purposes and that has a useful life of five or more years for federal income tax purposes when it is placed in service or use in this state. See W. Va. Code § 11-13EE-2(b)(30).

2.2.25. "Taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which a tax liability is computed under W. Va. Code § 11-13A-1, et seq. In the case of a return made under W. Va. Code § 11-13A-1, et seq., or regulations of the Tax Commissioner, for a fractional part of a year, the term "taxable year" means the period for which such return is made.

2.2.26. "Taxpayer" means any person exercising the privilege of severing, extracting, reducing to possession, and producing coal for sale, profit, or commercial use, which privilege is taxable under W. Va. Code § 11-13A-3(a). See W. Va. Code § 11-13EE-2(b)(31).

2.2.27. "This code" means the Code of West Virginia, 1931, as amended. See W. Va. Code § 11-13EE-2(b)(32).

2.2.28. "This state" means the State of West Virginia. See W. Va. Code § 11-13EE-2(b)(33).

2.2.29. "United States Internal Revenue Code" or "Internal Revenue Code," or "I.R.C." means the Internal Revenue Code as defined in W. Va. Code § 11-24-3. See W. Va. Code § 11-13EE-2(b)(34).

2.2.30. "Used property" means property that has been previously owned or put to a purpose by someone other than the taxpayer. Used property is any property that is not new property as defined in this rule.

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