W. Va. Code R. § 110-23-3

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-23-3 - Definitions

3.1. General. -- When used in these regulations, terms defined in this Section shall have the meanings ascribed to them herein unless a different meaning is clearly required by either the context in which the term is used, or by specific definition.

3.2. Business franchise tax act. -- The term "Business Franchise Tax Act" means W. Va. Code '11-23-1 et seq.

3.3. Business income. -- The term "business income" means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management and disposition of the property or the rendering of services in connection therewith constitute integral parts of the taxpayer's regular trade or business operations.

3.4. Capital. -- The term "capital" of a taxpayer means:

3.4.1. In the case of corporations, except an electing small business corporation, the average of the beginning and ending year balances of the sum of the following entries from Schedule L of the "Federal Form 1120," prepared following generally accepted accounting principles, and as filed by the taxpayer with the Internal Revenue Service for the taxable year:

3.4.1.1. The amount or value of all common and preferred stock of the taxpayer;

3.4.1.2. The amount of paid-in or capital surplus;

3.4.1.3. The amount of retained earnings, appropriated and unappropriated;

3.4.1.4. Less the cost of treasury stock.

3.4.2. S Corporations. -- In the case of an electing small business corporation, the average of the beginning and ending year balances of the sum of the following entries from Schedule L of the Federal Form 1120S, prepared following generally accepted accounting principles, and as filed by the taxpayer with the Internal Revenue Service for the taxable year:

3.4.2.1. The amount or value of all common and preferred stock of the taxpayer;

3.4.2.2. The amount of paid-in or capital surplus;

3.4.2.3. The amount of retained earnings, appropriated and unappropriated;

3.4.2.4. The amount of shareholders' undistributed taxable income;

3.4.2.5. The amount of the accumulated adjustments accounts;

3.4.2.6. The amount of the other adjustments account;

3.4.2.7. Less the cost of treasury stock.

3.4.3. Partnerships. -- In the case of a partnership, the average of the beginning and ending year balances of the amount or value of partners' capital accounts from Schedule L of Federal Form 1065, prepared following accepted accounting principles, and as filed by the taxpayer with the Internal Revenue Service for the taxable year.

3.4.4. In circumstances where the Schedule L of Federal Form 1120, 1120S or 1065, as filed with the United States Internal Revenue Service, has not been prepared in accordance with generally accepted accounting principles, the taxpayer shall file a copy of such Schedule L with the State Tax Department, adjusted in accordance with the requirements of the Tax Commissioner under W. Va. Code '11-23-3(b)(2)(D), and Section 3.4.5 of these regulations, if such adjustment is required. The taxpayer shall not be required to file with the West Virginia Tax Department a Schedule L of Federal Form 1120, 1120S or 1065 prepared in accordance with generally accepted accounting principles, except for the adjustments specified under W. Va. Code '11-23-3(b)(2)(D), and Section 3.4.5 of these regulations, if any, for purposes of the West Virginia Business Franchise Tax, unless the taxpayer has filed such Schedule L, prepared in accordance with generally accepted accounting principles, for federal income tax purposes with the United States Internal Revenue Service for the taxable year.

3.4.5. Additional Items in Capital. -- The term "capital" for purposes of the business franchise tax includes such adjustments as the Tax Commissioner deems necessary to properly reflect capital and such additional items from the accounts of the taxpayer as the Tax Commissioner may by regulation prescribe, which fairly represent the net equity of the taxpayer as defined in accordance with generally accepted accounting principles.

3.4.6. Allowance for Certain Government Obligations and Obligations Secured by Residential Property. -- As to both corporations and partnerships, capital must be multiplied by a fraction equal to one minus a fraction:

3.4.6.1. The numerator of which is the average of the monthly beginning and ending account balances during the taxable year (account balances to be determined at cost in the same manner as obligations, investments and loans are reported on Schedule L of the "Federal Form 1120" or Federal Form 1065) of the following:

3.4.6.1.a. Obligations and securities of the United States, or of any agency, authority, commission or instrumentality of the United States and any other corporation or entity created under the authority of the United States Congress for the purpose of implementing or furthering an objective of national policy;

3.4.6.1.a.1. The term "obligation," for purposes of subsection 3.4.6.1.a, means a direct obligation of one of the enumerated entities issued under law for valuable consideration, and includes bonds, notes, certificates of indebtedness, Treasury bills, and interim certificates issued for an obligation. It does not include, for example, an overpayment of federal income tax.

3.4.6.1.a.2. The term "obligations and securities of the United States or any agency, authority, commission or instrumentality of the United States and any other corporation or entity created under the authority of the United States Congress for the purpose of implementing or furthering an objective of national policy" means securities of any such agency, authority, commission, instrumentality, corporation or entity; or direct obligations of the United States government or any such agency, authority, commission, instrumentality, corporation or entity whereby any such entity is the obligor. Obligations or securities for which the federal government or any such agency, authority, commission, instrumentality, corporation or entity acts as a mere guarantor, rather than the direct obligor, shall not constitute obligations or securities of the United States or any such agency, authority, commission, instrumentality, corporation or entity for purposes of the West Virginia business franchise tax and these regulations.

3.4.6.1.a.3. Example: Financial instruments issued by private institutions obliged to make timely payment of principal and interest which are guaranteed by a federal agency that pledges the full faith and credit of the United States to guarantee the timely payment of interest and principal if the issuer defaults are not obligations of the United States or any agency, authority, commission or instrumentality of the United States or any corporation or entity created under the authority of the United States Congress. The federal agency bears only a secondary and contingent obligation to pay, and thus is a guarantor rather than an obligor.

3.4.6.1.b. Obligations of the State of West Virginia or any political subdivision of the State of West Virginia;

3.4.6.1.c. Investments or loans primarily secured by mortgages, or deeds of trust, on residential property located in the State of West Virginia and occupied by nontransients;

3.4.6.1.c.1. The term "residential property" means an abode and dwelling for human habitation intended to be inhabited for a permanent or indeterminate and lengthy period of time. The term does not include hotels, motels, inns, motor inns, lodges and similar short-term lodging accommodations, but does include apartments, condominiums, single family dwellings, multiple family dwellings, apartment complexes, nursing homes and housing developments. This term shall include property primarily used as such an abode and dwelling without regard to whether the property is also used for commercial purposes, so long as it is primarily used as a residence.

3.4.6.1.c.2. The term "nontransient" means natural persons, rather than corporations, who own their residence or who have a lease for their residence which has a primary term of not less than ninety (90) days or such persons who hold a weekly or monthly periodic tenancy or a tenancy at will in their residence but who have resided at the residence for a period of more than eighty-nine (89) days.

3.4.6.1.d. And loans primarily secured by a lien or security agreement on residential property in the form of a mobile home, modular home or double-wide, located in the State of West Virginia and occupied by nontransients.

3.4.6.1.d.1. For purposes of this subsection, the term "lien or security agreement" shall include a uniform commercial code security interest agreement.

3.4.6.1.e. The term "investments or loans primarily secured by mortgages or deeds of trust, on residential property" shall include construction loans for the construction of residential property so secured.

3.4.6.2. The denominator of which is the average of the monthly beginning and ending account balances of the total assets of the taxpayer which are shown on Schedule L of the "Federal Form 1120," as filed by the taxpayer with the Internal Revenue Service or, in the case of partnerships, Schedule L of Federal Form 1065, as filed by the taxpayer with the Internal Revenue Service, or in the case of taxpayers not required to file such schedules or forms with the Internal Revenue Service, the pro forma version thereof.

3.4.6.3. For purposes of this regulation, the average of the monthly beginning and ending account balances shall be determined for any given account by adding the account balance on the first day of the month to the account balance on the last day of the month and dividing the resulting sum by two. The averages resulting from this procedure shall, for each of the twelve (12) months of the taxable year, or, in the case of short taxable years for the number of months in the taxable year, be added together, and the sum shall then be divided by twelve (12) in the case of taxable years having twelve (12) months, or shall be divided by the number of months in the taxable year for short taxable years. The resulting figure shall be the average of the monthly beginning and ending balance for any account described under this Section 3 of the these regulations.

3.4.6.3.a. When a taxpayer maintains records insufficient to clearly establish the monthly beginning and ending account balances, the average of the monthly beginning and ending account balances shall be deemed to be zero unless the taxpayer can otherwise affirmatively establish to the satisfaction of the Tax Commissioner the amount of the average monthly beginning and ending account balances.

3.5. Commercial domicile. -- The term "commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed: Provided, That the commercial domicile of a financial organization, which is subject to regulation as such, shall be at the place designated as its principal office with its regulating authority.

3.5.1. The term "directed or managed" for purposes of these regulations shall mean the guidance and control exerted by the executive officers or managerial authorities of a corporation over the business affairs of the corporation. In the case of parent and subsidiary corporations or other related or affiliated corporations, any direction, management, guidance or control exerted by the executive officers or managerial authorities of parent corporations over or upon subsidiary corporations or the management thereof, or by the executive officers or managerial authorities of related or affiliated corporations over or upon other related or affiliated corporations or the management thereof, shall not constitute the direction or management of the corporation for purposes of the West Virginia business franchise tax or these regulations.

3.6. Commissioner or Tax Commissioner. -- The terms "Commissioner" or "Tax Commissioner" are used interchangeably in these regulations, and mean the Tax Commissioner of the State of West Virginia, or his delegate.

3.7. Compensation. -- The term "compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services.

3.8. Corporation. -- The term "corporation" includes any corporation, S corporation, joint-stock company and any association or other organization which is taxable as a corporation under federal income tax laws or the income tax laws of West Virginia, or which is treated as an S corporation under federal income tax law.

3.9. 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 State Tax Department duly authorized by the Tax Commissioner directly, or indirectly by one or more redelegations of authority, to perform the functions mentioned or described in W. Va. Code '11-23-1 et seq. or these regulations.

3.10. Doing business. -- The term "doing business" means any activity of a corporation or partnership which enjoys the benefits and protection of the government and laws of the State of West Virginia, except the activities of agriculture and farming.

3.10.1. For purposes of these regulations, the terms "agriculture" and "farming" shall mean the production of food, fiber, and woodland products (but not timbering activity) by means of cultivation, tillage of the soil and by the conduct of animal, livestock, dairy, apiary, equine or poultry husbandry, horticultural, or any other plant or animal production activity and all farm practices related, usual or incidental thereto, including the storage, packing, shipping and marketing of agricultural or farm products, but not including any manufacturing, milling or processing of such products by persons other than the producer thereof.

3.10.2. The activities of agriculture and farming shall mean such activities, as defined herein, occurring on not less than five (5) acres of land and the improvements thereon, used in the aforementioned activities, and shall mean only such agriculture and farming activities resulting in the production of at least one thousand dollars ($1,000.00) of agriculture or farming products per annum through the conduct of the business of farming as the principal activity of the corporation or partnership in the manner described in W. Va. Code '11-1A- 10 et seq. and the regulations related thereto.

3.11. Domestic corporation. -- The term "domestic corporation" means a corporation organized under the laws of the State of West Virginia, and certain corporations organized under the laws of the State of Virginia before the twentieth day of June, 1863. Every other corporation is a foreign corporation.

3.12. Federal Form 1120. -- The term "Federal Form 1120" means the annual federal income tax return of any corporation made pursuant to the United States Internal Revenue Code of 1986, as amended, or in successor provisions of the laws of the United States in respect to the taxable income of a corporation, and filed with the Federal Internal Revenue Service. In the case of a corporation that elects to file a federal income tax return as part of an affiliated group, but files as a separate corporation under the Business Franchise Tax Act, then as to such corporation, the term "Federal Form 1120" means the pro forma Federal Form 1120. In the case of S corporations, the term "Federal Form 1120" means Federal Form 1120S.

3.12.1. For purposes of the West Virginia business franchise tax and these regulations, the term "Federal Form 1120" shall mean a pro forma Federal Form 1120 for those corporations not required by federal law to file a Federal Form 1120.

3.12.2. The term "Schedule L of Federal Form 1120" shall mean the balance sheet required to be filed with the federal income tax return, whether designated Schedule L or otherwise. For those corporations not required by federal law to file a "Federal Form 1120" or a balance sheet, whether designated Schedule L or otherwise, with their federal income tax return, the term "Schedule L of Federal Form 1120" shall mean the pro forma Schedule L of Federal Form 1120.

3.13. Federal Form 1065. -- The term "Federal Form 1065" means the annual federal income tax return or filing of a partnership made pursuant to Section 6031 of the United States Internal Revenue Code of 1986, as amended, or renumbered, or in successor provisions of the laws of the United States in respect to the income of a partnership, and filed with the Internal Revenue Service.

3.13.1. For purposes of the West Virginia business franchise tax and these regulations, the term "Federal Form 1065" shall mean a pro forma Federal Form 1065 for those partnerships not required by federal law to file a Federal Form 1065.

3.13.2. The term "Schedule L of Federal Form 1065" shall mean the balance sheet required to be filed with the federal partnership tax return or filing, whether designated Schedule L or otherwise. For those partnerships not required by federal law to file a Federal Form 1065 or a balance sheet, whether designated Schedule L or otherwise, with their federal partnership return, the term "Schedule L of Federal Form 1065" shall mean the pro forma Schedule L of Federal Form 1065.

3.14. 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.

3.15. Financial organization. -- The term "financial organization" means:

3.15.1. A holding company or a subsidiary thereof. As used in this section "holding company" means a corporation registered under the federal bank holding company act of 1956 or registered as a savings and loan holding company other than a diversified savings and loan holding company (as defined in section 408(a)(1)(F) of the Federal National Housing Act ( 12 U.S.C. 1730(a)(1)(F));

3.15.2. A regulated financial corporation or a subsidiary thereof. As used in this section "regulated financial corporation" means:

3.15.2.1. An institution, the deposits, shares or accounts of which are insured under the Federal Deposit Insurance Act, or by the Federal Savings and Loan Insurance Corporation;

3.15.2.2. An institution that is a member of a federal home loan bank;

3.15.2.3. Any other bank or thrift institution incorporated or organized under the laws of a state that is engaged in the business of receiving deposits;

3.15.2.4. A credit union incorporated and organized under the laws of this state;

3.15.2.5. A production credit association organized under 12 U.S.C. 2071;

3.15.2.6. A corporation organized under 12 U.S.C. 611 through 631 (an Edge Act corporation); or

3.15.2.7. A federal or state agency or branch of foreign bank (as defined in 12 U.S.C. 3101); or

3.15.3. A corporation which derives more than fifty percent of its gross business income from one or more of the following activities:

3.15.3.1. Making, acquiring, selling or servicing loans or extensions of credit. Loans and extensions of credit include:

3.15.3.1.a. Secured or unsecured consumer loans;

3.15.3.1.b. Installment obligations;

3.15.3.1.c. Mortgages or other loans secured by real estate or tangible personal property;

3.15.3.1.d. Credit card loans;

3.15.3.1.e. Secured and unsecured commercial loans of any type; and

3.15.3.1.f. Loans arising in factoring.

3.15.3.2. Leasing or acting as an agent, broker or advisor in connection with leasing real and personal property that is the economic equivalent of an extension of credit (as defined by the Federal Reserve Board in 12 C.F.R. 225.25(b)(5)) .

3.15.3.3. Operating a credit card business.

3.15.3.4. Rendering estate or trust services.

3.15.3.5. Receiving, maintaining or otherwise handling deposits.

3.15.3.6. Engaging in any other activity with an economic effect comparable to those activities described in Section 3.15.3.1, 3.15.3.2, 3.15.3.3, 3.15.3.4 or 3.15.3.5 of the regulations.

3.16. Fiscal year. -- The term "fiscal year" means an accounting period of twelve (12) months ending on any day other than the last day of December, and on the basis of which the taxpayer is required to report for federal income tax purposes.

3.17. Includes and including. -- The terms "includes" and "including" when used in a definition contained in this article shall not be deemed to exclude other things otherwise within the meaning of the term being defined.

3.18. Parent and subsidiary corporation. -- A "parent corporation" is a corporation which owns, directly or indirectly, on average during the taxable year more than fifty percent (50%) of the stock of all classes of another corporation. A corporation which is so-owned by a parent corporation is defined to be a "subsidiary corporation." The types of ownership interest which will qualify corporations as parent and subsidiary corporations shall include direct and indirect ownership interests among members of the same controlled group as defined in Section 267(f)(1) of the United States Revenue Code of 1986, as amended.

3.19. Partnership and partner. -- The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation or venture is carried on, and which is not a trust or estate, a corporation or a sole proprietorship. or an unincorporated organization which, under Section 761 of the Internal Revenue Code of 1986, as amended, is not treated as a partnership for the taxable year for federal income tax purposes. The term "partner" includes a member in such a syndicate, group, pool, joint venture or organization which is a partnership.

3.19.1. The term "partnership" and the term "partner" shall not include any joint venture or joint venturer that has elected under Section 761 of the United States Internal Revenue Code not to report as a partnership for federal income tax purposes.

3.19.2. The term "partner," "corporate partner" or the term "parent-partner" means and includes a corporation owning an interest in a partnership as a general or limited partner.

3.20. Person. -- The term "person" includes any corporation or partnership.

3.21. Pro forma return. -- The term "pro forma return," when used in these regulations, means the return which a taxpayer would have filed with the Internal Revenue Service had it not elected to file as part of a consolidated group for federal income tax purposes.

3.21.1. Pro forma statements, forms, schedules or documents. -- The term "pro forma" when applied to statements, forms, schedules or documents means that statement, form, schedule or document drawn up or drafted to conform to the applicable rules, regulations, informational requirements and format for the statement, form, schedule or document upon which the pro forma statement, form, schedule or document is to be based as if the taxpayer were required to file such statement, form, schedule or document for federal income tax purposes and in accordance with federal income tax law.

3.22. Sales. -- The term "sales" means all gross receipts of the taxpayer which are "business income," as defined in these regulations.

3.23. State. -- The term "state" means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States. and any foreign country or political subdivision thereof.

3.24. Stock. -- The term "stock" includes shares in a corporation, association or joint stock company. The term does not include nonvoting stock which is limited and preferred as to dividends, or treasury stock. The term "stock owned by a corporation" shall include stock owned directly by such corporation and stock which is subject to an option to acquire stock.

3.25. Taxable year. -- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxpayer's tax liability is computed under the Business Franchise Tax Act. The term "taxable year" means, in the case of a return made for a fractional part of a year (short taxable year) under the provisions of the Business Franchise Tax Act, or under these regulations, the period for which such return is made.

3.25.1. The term "taxable year for federal income tax purposes" or the term "filing year for federal income tax purposes" means the fiscal or calendar year for which the taxpayer is required to report for federal income tax purposes in accordance with federal income tax law for purposes of the annual federal income tax return or for purposes of federal informational returns.

3.26. Taxable in another state. -- The term "taxable in another state" for purposes of apportionment under Section 110-23-5 of these regulations means those circumstances where a taxpayer:

3.26.1. Is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax in such other state; or

3.26.2. Would be subject to a net income tax if such other state imposed such a tax.

3.27. Taxpayer. -- The term "taxpayer" means any person as defined in these regulations subject to the tax imposed by W. Va. Code '11-23-1 et seq.

3.28. This Code. -- The term "this code" means the code of West Virginia, 1931, as amended.

3.29. This State. -- The term "this State" means the State of West Virginia.

3.30. Treasury stock. -- The term "treasury stock" means shares of a corporation which have been issued and have been subsequently acquired by and belong to such corporation, and have not been cancelled or restored to the status of authorized but unissued shares. Treasury stock is deemed to be issued shares, but not outstanding shares.

3.31. W. Va. Code. -- The term "W. Va. Code" means the Code of West Virginia of 1931, as amended.

3.32. Meaning of terms. -- Any term used in these regulations shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required by the context or by definition in these regulations. Any reference in these regulations to the laws of the United States, or to the Internal Revenue Code or to the federal income tax law shall mean the provisions of the laws of the United States relating to the determination of income for federal income tax purposes. All amendments made to the laws of the United States prior to January 1, 1989 shall be given effect in determining taxes imposed by the Business Franchise Tax Act for the tax period beginning January 1, 1988. No amendment to laws of the United States made after December 31, 1988 shall be given effect unless superseding West Virginia statutory law shall have been passed giving effect to such amendments for purposes of the West Virginia Business Franchise Tax Act.

W. Va. Code R. § 110-23-3