West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-06F - Property Tax Valuation Of Certain Manufacturing Property › Section 110-6F-2 - Definitions

Current through Register Vol. XLI, No. 28, July 12, 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.