W. Va. Code R. § 110-24-3

Current through Register Vol. XLI, No. 45, November 8, 2024

Section 110-24-3 - Definitions

3.1. Meaning of terms - general rule. -- Any term used in W. Va. Code §§ 11-24-1, et seq., and in this rule have the same meaning as when used in a comparable context in the laws of the United States of America, as those laws relate to federal income taxation, unless a different meaning is clearly required by the context or by specific definition in article twenty-four, or in this rule.

3.1.a. Any reference in W. Va. Code §§ 11-24-1, et seq., and in this rule, to the laws of the United States means the provisions of the Internal Revenue Code, as amended, and any other provisions of the laws of the United States of America as those laws relate to the determination of income for federal income tax purposes. West Virginia Code § 11-24-3 contains the most recent updating of terms used in W. Va. Code §§ 11-24-1, et seq.

3.2. Additional Terms Defined.

3.2.a. "Combined group" and "unitary group" are used interchangeably in this rule and mean the group of all persons whose income and apportionment factors are required to be taken into account pursuant to W. Va. Code §§ 11-24-1, et seq. in determining the taxpayer's share of the net business income or loss apportionable to this state.

3.2.b. "Combined report" means a schedule or schedules, as required by W. Va. Code §§ 11-24-1, et seq. and this rule or any other rules or procedures established by the Tax Commissioner, which are to be attached to a taxpayer's annual corporation net income tax return and which report the income and apportionment information of all corporations that are members of the taxpayer's combined group, as well as any supporting information required by the Commissioner.

3.2.c. "Commonly owned" or "Common ownership" mean, in general, that more than 50% of the voting control of one or more corporations or other entities, as applicable in the context, is directly or indirectly owned by one or more common owners, whether corporate or non-corporate, subject to the following specific rules and examples.

3.2.c.1. Direct and Indirect Voting Control, and Tiered Ownership. - If the same person or any related persons holds directly or indirectly more than 50% of the voting control of a corporation (e.g., a parent corporation), that person is considered to hold indirectly any stock or other interest in ownership or control in a lower-tier corporation (e.g., a subsidiary corporation) that is directly or indirectly held by the parent corporation. Accordingly, by way of illustration, a parent corporation and any one or more corporations, whether or not in a direct chain, connected through direct or indirect stock ownership, where more than 50% of the voting control of each subsidiary corporation is directly or indirectly owned by a corporation or any related persons, are treated as commonly owned or under common ownership, and subject to inclusion in a combined group.

Example 1. Corporation A, a widely held publicly-traded corporation, owns 51% of the stock of Corporation B; B owns 51% of Corporation C; and C owns 60% of Corporation D. Corporations A, B, C, and D are all treated as commonly owned or under common ownership, and subject to inclusion in a combined group.

Example 2. Same facts as in Example 1, except Corporation C owns 40% of Corporation D, with another 20% of D being owned by an individual who owns 100% of Corporation A. All of Corporations A, B, C, and D are, again, treated as commonly owned or under common ownership, and subject to inclusion in a combined group. Corporation D is treated as commonly owned through the aggregation of C's 40% ownership in D and the related individual's 20% ownership in D.

3.2.c.2. Related Versus Unrelated Owners.

3.2.c.2.A. Two or more corporations, where stock representing more than 50% of the voting control of each corporation is owned directly or indirectly by the same person or any related persons, whether corporate or non-corporate, are treated as commonly owned or under common ownership, and subject to inclusion in a combined group. A common owner or owners need not be members of the combined group.

Example 3. Individual X owns 51% of Corporation A, 60% of Corporation B, and 100% of Corporation C. Corporations A, B, and C are all treated as commonly owned or under common ownership, and subject to inclusion in a combined group. This same conclusion would be reached if X owned 35% of B and X's wife, a related person, owned 25% of B, so that together X and his wife owned 60% of B.

Example 4. Foreign Corporation F owns 100% of the stock of Corporation A which is organized in the U.S. and of Corporation B which is also organized in the U.S. Corporations A and B each directly or indirectly own various corporate subsidiaries in separate chains leading up to A and B, where the voting control of each subsidiary is more than 50% owned by a higher-tier corporation in the chain. Corporations A and B and all of their respective direct and indirect subsidiaries are treated as commonly owned or under common ownership, and subject to inclusion in a single combined group. Assuming that no worldwide election is made, and that F is not a foreign corporation that would be included in a "water's edge" combined group under W. Va. Code § 11-24-13f(a), F itself would not be subject to inclusion in the combined group.

3.2.c.2.B. Two or more corporations are not treated as commonly owned or under common ownership, and subject to inclusion in a combined group, solely because the corporations have one or more unrelated owners in common, where aggregation of the ownership of the unrelated owners would be necessary in order to represent more than 50% of the voting control of any of the corporations.

Example 5. Individual I-1 owns stock representing 40% of the voting control of Corporation A and stock representing 20% of the voting control of Corporation B. Individual I-2. owns 30% of A and 45% of B. I-1 and I-2. are not related persons, and A and B are not otherwise related persons. A and B are not treated as commonly owned or under common ownership, and thus are not subject to inclusion in a combined group.

3.2.c.3. Stapled entities. -- Two or more corporations that are "stapled entities" are treated as commonly owned or under common ownership, and subject to inclusion in a combined group. Stapled entities are entities where, by reason of their form of ownership, or restrictions on transfer of ownership, or other terms or conditions, whether existing by operation of law, by written contract, or otherwise, in the case of a transfer of one or more ownership interests, require more than 50% of the voting control of each entity to be transferred.

3.2.c.4. Corporations under common ownership. -- A group of corporations under common ownership may be engaged in one or more unitary businesses.

Example 6. Assuming the same facts as in Example 4 of this subdivision, both A and B and all of their direct and indirect subsidiaries are engaged in unitary business X. In addition, A and all of its subsidiaries are engaged in unitary business Y, but B and its subsidiaries are not engaged in unitary business Y. A and B and all of their respective direct and indirect subsidiaries would be included in a combined group with respect to unitary business X, and A and all of its direct and indirect subsidiaries would be included in a combined group with respect to unitary business Y. Corporation A and all of its respective direct and indirect subsidiaries need to divide their respective adjusted federal taxable incomes to properly assign the portion thereof fairly attributable to each unitary business. This example assumes that the corporations have no other business or nonbusiness income.

3.2.c.5. Related Parties; Constructive Ownership. - In determining whether a person is a related person or is considered to hold stock or other ownership or control interests in an entity that is directly held by another person, the constructive ownership rules described in Internal Revenue Code §318 generally apply, except that:

3.2.c.5.A. In applying IRC §318(a)(2), if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50% of the voting control of a corporation, it is considered to own all of the stock or other ownership or control interests in the corporation; and

3.2.c.5.B. If a person has an option to acquire stock or other ownership interests in an entity, the stock or other ownership interests are treated as owned by that person only to the extent determined by the Tax Commissioner to be necessary to prevent tax avoidance.

3.2.c.6. Common ownership. -- In determining common ownership, the Tax Commissioner may take into account any plan or arrangement, whether existing by operation of law, by contract, or otherwise, for bestowing or shifting ownership or voting control, in addition to the terms of any actual stock ownership or control.

3.2.d. "Combined return" means the annual return filed by a combined group member under W. Va. Code §§ 11-24-1, et seq., or the single annual return filed by the taxable members of a combined group pursuant to the annual election made under W. Va. Code § 11-24-13e.

3.2.e. "Intercompany transaction" means a transaction between corporations which are members of the same combined reporting group immediately after the transaction.

3.2.f. "Principal member" means the member of the combined reporting group whose accounting period is used as a reference period for all members of the combined reporting group to aggregate and apportion combined report business income of the group. A principal member need not be a taxpayer member.

3.2.g. "Unitary business" means a single economic enterprise that is made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts.

3.2.h. "Water's-edge combined report" means a combined report that includes all of the entities described in W. Va. Code §§ 11-24-13f(a)(1) through (7) that are members of the combined group.

3.2.i. "Worldwide election" means an election by a taxable member of the combined group on behalf of all of the members of the group engaged in a unitary business to treat as its combined group, for purposes of W. Va. Code § 11-24-13f, all members that are engaged in the unitary business, wherever located, on such terms and in keeping with the requirements of the corporation net income tax that are further explained in rules of the Tax Commissioner and any forms and instructions or other notices that are issued by the Tax Commissioner.

W. Va. Code R. § 110-24-3