West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-01K - Valuation Of Natural Resources other Than Coal, Oil Or Natural Gas For Ad Valorem Property Tax Purposes › Section 110-1K-4 - Valuation Methods

Current through Register Vol. XLI, No. 28, July 12, 2024
4.1.
				Method for determining value of active mining property.
4.1.1. General. -- The value of Active Mining
				Property is the value per active acre multiplied by the amount of active acres.
				In no case shall the active mining property be valued at less than its value as
				reserve property.
4.1.2.
				Determination of active mining property. -- The designation of "Active Mining
				Property" is determined as follows:
4.1.2.a.
				An Operator may designate or assign a portion of a parcel to an Active Mining
				Property when only that portion is suitable for mining purposes. For
				determining the actual area of the Active Mining Property, the operator shall
				include all contiguous parcels or portions of parcels containing the mineable
				natural resource(s) which are under lease, regardless of ownership. Parcels
				that are not leased or owned and that fall within the mining portion of the
				Active Mining Property shall have the requisite mineable resource valued at the
				applicable reserve rate for the life of the mining operation.
4.1.2.b. For purposes of determining the
				actual area of the active mining property, the operator shall treat all
				contiguous parcels or portions of parcels containing the mineable natural
				resource(s) that are under lease, regardless of ownership, as active mining
				property. If more than one (1) natural resource is being mined under a permit,
				each natural resource represents a separate active mining property.
4.1.2.c. If the permitted operation has not
				begun production by the July 1st assessment date, the operator shall report the
				mineable natural resource(s) on an active property return and value them as
				reserves for the applicable tax year. Once a parcel or a portion of a parcel
				has been assigned to or designated as an active mining property, the parcel, or
				portion of the parcel, shall continue to be listed on the active return, filed
				annually, until such time as the permit has been retired.
4.1.2.d. Should the mining operation cease
				production after January 1st but prior to July 1st of the most recent calendar
				year preceding the July 1st assessment date, and there is mineable natural
				resource(s) remaining, the remainder shall be valued at the reserve rate for
				the current tax year.
4.1.2.e. Any
				permitted mining operation producing only one (1) natural resource shall be
				designated as "Active Mining Property". If the mining operation is producing
				more than one (1) natural resource, each natural resource shall be designated
				as an "Active Mining Property".
4.1.2.f. If the mining operation is producing
				a natural resource at different locations, portals and/or faces under one (1)
				specific permit, that operation shall be designated as one (1) "Active Mining
				Property". If the production of the natural resource involves different mining
				techniques (surface, auger or deep mining method), or if mining sites are
				separate and generally independent, then those sites shall be designated as
				separate "Active Mining Properties".
4.1.2.g. For use in this rule, the maximum
				active mining portion for each natural resource is fifteen (15) years
				multiplied by the annual acres mined, except for salt. The active mining
				portion around each salt production well is a maximum of thirty-five (35)
				acres. After a well's first year of production, active mining property shall be
				derived by subtracting acres mined from the thirty-five (35) acres.
4.1.2.h. If the available mineable acreage of
				the natural resource being mined is less than the maximums listed the foregoing
				subdivision 4.1.2.g, the total available acreage may be considered for
				designation as active mining property.
4.1.3. Determination of average annual
				production -- Average annual production, as defined in Section 3 of this rule,
				is determined as follows:
4.1.3.a. An
				arithmetic mean shall be calculated on tonnage by the producer and verified by
				the Tax Commissioner through research of the West Virginia Office of Miner's
				Health, Safety and Training and/or audit-derived information for the three (3)
				most recent calendar years preceding the July 1st assessment date.
4.1.3.b. If there was no production in either
				the second (2nd) and/or third (3rd) most recent calendar years, an arithmetic
				mean of the available year(s) production shall be used.
4.1.4. Value per active acre -- Application
				of the valuation formula for active mining property shall be based on the
				actual quantity of resource produced and sold. Factors to be used for the
				specific active mining property are: resource thickness in feet (Thk); tons per
				acre foot (Appendix A, Formula 2); Clean Resource Recovery Rate (RR%); Royalty
				Rate (Roy%); net present value Multiplier (M); and, Mine Life in years (ML).
				See Appendix A, Formula 3 of this rule for the formula to determine the value
				per active acre.
4.1.5. Thickness
				(ft). -- As defined in Section 3 of this rule, thickness is determined as
				follows:
4.1.5.a. An arithmetic mean shall be
				taken of thickness as reported by producers and verified by the Commissioner
				through research of West Virginia Office of Miner's Health, Safety, and
				Training records and/or audit-derived information for the three (3) most recent
				calendar years prior to the July 1st assessment date.
4.1.5.b. If there has been no production in
				either the second and/or third most recent calendar years, an arithmetic mean
				of the available years shall be used.
4.1.6. Royalty rate. -- For use in the
				formula prescribed by this rule, the royalty rates shall be determined for each
				natural resource and types of mining operations. These royalties shall include
				specific rates for:
4.1.6.a.
				limestone/dolomite mines;
4.1.6.b.
				sandstone (industrial) and/or aggregate mines;
4.1.6.c. clay and/or shale surface
				mines;
4.1.6.d. clay and/or shale
				underground mines;
4.1.6.e. sand
				and gravel surface mines; and
4.1.6.f. salt brine wells.
Royalty rates shall be established annually by the Tax
				  Commissioner after review of both recorded and unrecorded, willing
				  seller-willing buyer natural resource property leases that have occurred in the
				  State of West Virginia during at least the five (5) calendar years prior to the
				  appraisal date, and through inspection of other appropriate information. This
				  review shall place a greater emphasis on information from leases transacted
				  during the most recent years. For those natural resources involved in few or no
				  recorded lease agreements, the Tax Commissioner shall derive a royalty rate
				  through surveys conducted by his or her staff, data provided by the other
				  pertinent State agencies, and other appropriate information as may be made
				  available from the specific natural resource producers. The Tax Commissioner
				  shall maintain this summary report of royalty rates and file the results in the
				  State Register on or before July 1st of each year; shall accept written public
				  comment on the tentative values until August 1st of each year; and, shall file
				  final royalty rates in the State Register on or before September 1st of each
				  year. From this data, the Tax Commissioner shall select the royalty rates that
				  best typify transactions. In order to convert percentage royalty rates into
				  specific value per ton rates, the Tax Commissioner shall, if necessary, conduct
				  a review of the specific natural resource selling prices in West Virginia by
				  requesting the selling prices from private purchasers, the State Department of
				  Highways, and the West Virginia Geological and Economic Survey, as well as
				  other informative sources available, and select specific selling price rates
				  based on prices best typifying activity in each appraisal year. The selected
				  selling prices per ton when multiplied by the percentage royalty rate shall
				  result in a royalty price per ton.
4.1.7. Capitalization rate. -- A single
				statewide capitalization rate for other mined natural resources shall be
				determined annually by the Tax Commissioner through the use of generally
				accepted methods of determining these rates. The rate shall be based on the
				assumption of a level, non-inflating income series. The capitalization rate
				used to value other mined natural resources shall be developed considering a
				discount rate determined by the summation technique.
4.1.
				7.1. Discount component -- The summation technique shall be used
				in developing a discount component of the capitalization rate. The five
				subcomponents of the discount rate are:
4.1.7.1.a. Safe rate -- The safe rate shall
				reflect a rate of return that an investor could expect on an investment of
				minimal risk. It shall be developed through review of interest rates offered on
				thirteen-week United States Treasury Bills for a period of three (3) calendar
				years prior to the appraisal date.
4.1.7.1.b. Nonliquidity rate -- The
				nonliquidity rate shall be developed through an annual study to determine a
				reasonable estimate of time that natural resource property, when offered for
				sale, remains on the market. The time determined shall be used to identify
				United States Treasury Bills with similar time differentials in excess of
				thirteen-week Treasury Bills. The interest differential between these
				securities shall be used to represent the nonliquidity rate. For example, if it
				is determined that other natural resource property remains on the market for an
				average of nine months (39 weeks) before being sold, the nonliquidity rate
				shall be derived by taking the rate on one (1) year Treasury Bills minus the
				rate on thirteen-week Treasury Bills.
4.1.7.1.c. Risk rate -- The relative degree
				of risk of an investment in other natural resource property is difficult to
				determine from published interest rates. Interest rates required on loans for
				acquisition and/or development of other natural resource properties shall be
				calculated by adding two percent (2%) to the Prime Rate Charged By banks as
				published in the Economic Indicators Prepared By The Council Of Economic
				Advisors For The Joint Economic Committee for each of the three calendar years
				prior to the July 1 assessment date. The three year average shall be compared
				to interest rates offered on thirteen-week United States Treasury Bills for the
				same three (3) calendar year period. The difference between the two, combined
				with bands of investment analysis, shall be used as a basis to estimate the
				risk rate.
4.1.7.1.d. Management
				rate -- The management rate represents the cost of managing the investment, not
				the cost of managing the other natural resource property. Because the
				management rate has historically been one-half of one percent (0.5%) of the
				value of investment portfolios, for purposes of determining the discount
				component the management rate shall be one-half of one percent
				(0.5%).
4.1.7.1.e. Inflation rate
				(negative) -- Nominal interest rates, including the "safe rate" mentioned, are
				higher than real rates by an amount representing expectation of future
				inflation. However, net annual income from other natural resource property is
				to be estimated assuming level future royalties (no inflation). The
				capitalization rate must be a real rate, net of expectation of inflation. The
				inflation rate shall be estimated through analysis of the most recent three (3)
				calendar year's urban consumer price index as determined by the United States
				Department of Labor, Bureau of Labor Statistics.
4.1.7.2. In determining the discount
				component of the capitalization rate, the Tax Commissioner shall deduct the
				inflation rate from the sum of the safe rate, nonliquidity rate, risk rate, and
				management rate.
4.1.7.3. Property
				tax component -- This component shall be estimated by multiplying the
				assessment rate by the statewide average of tax rates for Class III property.
				At the present time, research indicates that royalty rates on other natural
				resources include a component for property tax, with no additional compensation
				from the producer. As a result, the property tax component shall be used in the
				capitalization rate. If this described general practice changes and property
				taxes are paid as additional compensation, the use of this component shall be
				deleted.
4.1.7.4. Results of
				capitalization rate summary -- The data used for development of components
				referenced in Paragraph 4.1.9.1 of this rule shall be reported and filed
				annually by the Tax Commissioner in the State Register on or before July 1st of
				each year. Public comment on the tentative results shall be accepted until the
				subsequent August 1st, and the final results shall be filed in the State
				Register on or before September 1st of each year.