Board of Tax and Revenue Appeals Proposal – H.B. 2423

Composition of board and term

Jurisdiction of board

Reassessment, refund, reconsideration of adverse agency action, and any other legislatively authorized matters.

Appeal Process:

Notice of assessment )

Petition for reassessment > Administrative hearing

Petition for refund )

Appeal to the tax commissioner §11-10-10

Appeal to the board of tax and revenue §11-10A-11

Administrative Notices issued each year announce guidelines for tax practitioners to understand the position that will be taken by the State Tax Department regarding tax rates, interest rates, capitalization rates, appraisals, property valuation, productivity, trends and depreciation factors.

Admin. Notice 2000-02 Property Tax -- State Tax Commissioner's Statement for the Determination of the Capitalization Rates for Producing Coal, Oil and Gas and Other Mined Minerals for Property Tax Purposes for Tax Year 2000, Pursuant to §§ 110 CSR 1I-4.1.7, 1J-4.5.1 and 1K-4.1.7. The International Association of Assessing Officers text Property Appraisal and Assessment Administration, 1990, defines a capitalization rate as: "Any rate used to convert an estimate of income to an estimate of market value; the ratio of net operating income to market value." In other words a rate used to convert an estimate of future income into an estimate of present value.

Generally, there are three (3) components that must be considered and if appropriate developed and included in an overall capitalization rate. These components are: the discount component, the recapture component, and the property tax component.

Admin. Notice 2000-03 Royalty Rates for Coal Categories: surface, deep, steam and metallurgic

In West Virginia, natural resources royalty rates are generally negotiated at a stated price per ton or as a percent of the selling price per ton of the resource produced. As most leases are negotiated as a percentage of selling price, it is necessary to obtain lease and sales information and to analyze this information in order to develop leasing and sales price patterns typical of the industry. The Department's review of coal industry leasing patterns during the previous eight- (8) years reveals that leases for surface mining operations (5.96%) are typically higher than for deep mining operations (5.63%). Review of sales prices reported in Coal Outlook, Coal Week and from Tax Year 1999 returns, further reveal a difference in typical selling prices of steam coal ($28.36 per ton) and metallurgical coal ($33.12 per ton).

Thus, royalty rates typically negotiated by the coal industry have been as follows:

Steam Coal/Deep Mine

$28.36 per ton X 5.63% = $1.60 per ton

Metallurgical Coal/ Deep Mine

$33.12 per ton X 5.63% = $1.87 per ton

Steam Coal/Surface Mine

$28.36 per ton X 5.96% = $1.69 per ton

Metallurgical Coal/ Surface Mine

$33.12 per ton X 5.96% = $1.97 per ton

Admin. Notice 2000-04 Decline Rates for Producing Oil & Gas

The income stream generated from a producing oil or gas well is directly dependent upon the quantity of the natural resource produced from the well. Once drilled an oil or gas well will experience a sharper production decline, typically for the first two years of production. This is known as flush production. Thereafter production decline levels off into what is known as settled production. The rate of production decline is dependent upon the physical location of the well and the stratigraphic formation(s) from which the well is producing.

Admin. Notice 2000-05 Producing Properties, Coal, Oil & Gas

There are three generally accepted approaches to value that must be considered when estimating market value of property for ad valorem tax purposes. These are the cost, market, and income approaches. These approaches to value must be considered and should be developed, if appropriate, to properly estimate market value in compliance with generally accepted appraisal principles. The Tax Department developed and relies on an income approach appraisal as the income approach as the only one of the three generally accepted approaches to value that can properly be developed to yield reasonable estimates of current market value when used in a mass appraisal environment.

Admin. Notice 2000-06 Operating Expenses for Oil and Gas Production

As a result of questionnaires returned by oil and gas producers regarding information concerning annual ordinary operating expenses, the Tax Department has developed the following criteria for the direct ordinary operating expenses as a result of this research activity. Direct ordinary operating expenses will be estimated to be 25% of the gross receipts derived from gas production, not to exceed $5,000, 30% of gross receipts derived from oil production, not to exceed $7,000, and 30% of the gross receipts derived from enhanced recovery oil wells, not to exceed $9,000. As required in the amended Rule, the Tax Department will biennially review such rates.

Admin. Notice 2000-07 Soil Productivity Maps for Managed Timberland

Soil productivity maps were developed and delivered to the Department in 1985. These maps were used (with the exception of Webster County) as a basis for grading and pricing approved managed timberland applications for Tax Year 2000.

Admin. Notice 2000-08 Property Tax – In-place tonnage per acre-foot

The specific gravity of bituminous coal ranges between 1.15 and 1.5 depending on rank, moisture content, and ash content, and averages 1.32. The Legislative Rules equation for the determination of tons per acre-foot is as follows:

62.4 lbs. water 43,560 ft3 natural resource

per ft3 water X per acre-ft. X specific gravity

2000 lbs./ton = tons per acre-ft.

Admin. Notice 2000-09 Use Market Comparable Approach for Research Other Natural Resources

The market approach to value is based upon the assumption that the recent selling price of comparable properties, if properly analyzed and adjusted, will yield a reasonable estimate of current market value. Consistent with the above referenced Legislative Rule, the State Tax Department developed a market comparable approach for reserve other mineral properties. The Department has reviewed sales from 1989 through 1999 in various fashions and has constructed measures of central tendency concerning sales transacted during the aforementioned period of time. These sales have been analyzed according to methods established in § 110 CSR 1K-4.2 for reserve other natural resource properties. The Department published and filed final variables on September 1, 1999.

Admin. Notice 2000-10 Reserve Oil, Gas and Coal Properties – Use Income Approach

The income approach to value is based upon the assumption that a property is worth the future income, discounted to present worth, that it will generate for the prospective buyer. In the oil and gas industry, a common business practice of negotiating advance payments ("delay rentals") for the right to, at some future date, produce oil and gas has developed. By analyzing the amount and duration, typically, of delay rentals and by discounting the resulting income series to present worth an estimate of the probable selling price of reserve oil and gas properties can be developed. This procedure contained in § 110 CSR 1J-4.7 is the method used by the Department to develop, on a county-by-county basis, the per acre market value of reserve (non-producing acreage) oil and gas properties.

Admin. Notice 2000-11

	Reserve coal properties to be appraised based upon coal bed mapping information form which a reserve coal valuation model (RCVM) is derived. RCVM will be phased-in over a five year period beginning this year. This phase-in will be accomplished by combining the RCVM value with a transitional coal valuation model (TCVM) value.
	For Tax Year 2000, reserve coal will be appraised using 20% RCVM value in combination with 80% TCVM value. Each succeeding year the RCVM portion of the appraisal will increase by 20% and the TCVM portion will decrease by 20% until 100% RCVM is used for Tax Year 2004 and beyond.

Admin Notice 2000-12 Cost Approach to Value Appraisals of Industrial Personal Property: Trend Factor: Depreciation Factor

Costs used in the cost approach can be original, acquisition, replacement, or reproduction costs, although often only original or acquisition costs are readily available. Original cost is the cost of acquisition of a property. Reproduction cost is the cost of reproducing an exact replica of a property. Replacement cost is the cost of replacing a property with one of like utility. The cost approach may be most consistently applied to machinery, equipment, furniture, fixtures, and leasehold improvements because of the availability of reliable data such as the original or acquisition cost. The State Tax Department trends the original or acquisition cost to today's replacement cost and depreciates the replacement cost, based on age and condition, to estimate a property's current market value. This process is recommended by the International Association of Assessing Officers' Standards on the Valuation of Personal Property.

Admin. Notice 2000-13 Green Guide for Heavy Equipment

The Green Guide for Administrative Valuation and Assessment of Used Construction Equipment provides a comprehensive, reliable, and up-to-date source for estimates of current market value of construction equipment manufactured during the past ten years. The values presented in the Green Guide represent a nationwide average for equipment in typical working condition. Any dollar amounts shown in this guide are adjusted to fit the mechanical condition of a specific unit. Market conditions also have a bearing on the value of equipment and can vary in different areas.

Admin. Notice 2000-14 Allocation or Separation of Values of a Pollution Control Facility Pursuant to §110 CSR 6-4

The two methods by which a pollution control facility will be allocated or separated to establish that portion of value attributable to pollution control activity are the Component method and Substitution method. The component method of allocation or separation of values requires the identification of the specific item or component of machinery and/or equipment which is used for the purpose of pollution abatement control but which is also an integral part of the production process and the identification of the acquisition cost of the specific item or component.

Admin. Notice 2000-15 Computer Assisted Mass Appraisal for Residential Real Estate

CAMA will separately value raw land and structures. This software provides for the entry of data by the local Assessor concerning "comparable sales" of land in particular "neighborhoods" in the county and then prices the value of this land on a "price per front foot" or by acreage. All such data is entered by tax map and parcel number. In addition, this software contains "replacement cost" pricing features for structures that will allow the local Assessor to enter data such as the size and dimensions of a structure and its rooms, construction materials utilized, quality of construction, date of construction, present condition, style, mechanical systems such as air conditioning and/or furnace, bathrooms, porches, decks, garages, basements, chimneys, exterior and outbuildings.

Admin. Notice 2000-16 Capitalization Rates for Managed Timberland

	The International Association of Assessing Officers text Property Appraisal and Assessment Administration, 1990, defines a capitalization rate as: "Any rate used to convert an estimate of income to an estimate of market value; the ratio of net operating income to market value." In other words a rate used to convert an estimate of future income into an estimate of present value.
	The average statewide capitalization rate (based on a 5-year weighted moving average of various components) for managed timberland is determined annually by the Tax Commissioner. The rate is based on the assumption of a discounted cash flow model based upon harvest intervals reflected in Appendix 4 of § 110 CSR 1H.
	Generally, there are three components that must be considered. These components are: the discount component, the recapture component, and the property tax component. The development of the components is discussed in the Rule under Sections § 110 CSR 1H-12.1.

Admin. Notice 2000-17 Interest Rates

The rate of interest on underpayments and overpayments of taxes, and on public contracts when final payment is delayed, will be 9 percent for the period beginning July 1, 2000, and ending December 31, 2000, inclusive.

Admin. Notice 2000-19 Tax Liens

State tax liens must be filed and docketed with the county commission of the county wherein such real estate or personal property is located to be enforceable against a purchaser, without notice, or lien creditor. The county clerk has the legal authority and responsibility to index tax liens filed with the county. See West Virginia Code §38-10C-2 and §38-3-5.

Admin. Notice 2000-20

The rate of interest on underpayments and overpayments of taxes, and on public contracts when final payment is delayed, will be 8 percent for the period beginning January 1, 2000, and ending June 30, 2000, inclusive.

Admin. Notice 2000-21

Small Business Investment and Jobs Expansion Tax Credit (Small Business Credit) - Notice of Inflation Adjustments for Tax Years Beginning in 2000.

Administrative Decisions are issued by and Administrative Law Judge following an assessment against a taxpayer, petition for reassessment filed and a hearing held on the record. Most frequently, a taxpayer appeals the assessment of additional commercial sales and service tax or personal income tax, interest and penalties. Administrative Law Judges continue to hear State Business and Occupational Tax petitions for reassessment filed in the early 1980s. The delay comes from stays granted pending the outcome of the Armco and Ashland Oil cases before the U.S. Supreme Court.

Admin. Dec. 97-611 PS - Issued - 1-13-00

An individual’s belief that the action or inaction of government concerning a collateral matter has deprived him or her of federal or state constitutional rights does not justify a refusal to file tax returns or to pay taxes. Similarly, a religious belief in conflict with the payment of taxes affords no basis for resisting the tax.

Admin. Dec. - 95-452 U - Issued - 1-20-00

Although the Petitioner’s dancers work a forty (40)-hour week and dance routines established by the Petitioner, the fact remains that the dancers possess considerable freedom when actually performing their dance routines and when fraternizing with customers and since they are treated as independent contractors for payment purposes, said dancers are independent contractors and not employees for sales and use tax purposes.

	Pursuant to 110 C.S.R. 15, § 33.4.5 a service is purchased for resale when it is subcontracted out by the person who was contracted with to perform the service initially. However, the regulation is not applicable in this instance since the Petitioner is not collecting tax from its customers on the value of the dance services which it claims are being resold and because on this record Petitioner’s customers are not in fact purchasing the services of an exotic dancer by payment of a cover charge but are merely granted admission for the purpose of obtaining entertainment services or food or beverages, to be provided by the Petitioner.
	Petitioner’s liability for use tax is not extinguished until such tax is paid pursuant to W. Va. Code § 11-15A-2(b) and therefore since the tax was not collected by the dancers the purchaser remains liable therefor.
	Since fraternizing, unlike barbering and manicuring does not require that touching take place for the service to be rendered, the activity of fraternization does not constitute a personal service under 110 C.S.R. 15, § 35.1.
	Massaging services performed by exotic dancers are not exempt since the skill level is not the same as rendered by a masseuse or a masseur and because the dancers are not performing the activities of kneading, rubbing, or manipulating, to condition the body, as required by 110 C.S.R. 15, § 80.1.

Admin. Dec. 99-236 PS - ISSUED - 12/20/99

Petitioner's failure to timely file his 1995 personal income tax return as required by W. Va. Code § 11-21-15 and his failure to proffer any defense as to why the untimely filing occurred as further required by W. Va. Code § 11-10-9 mandates that the assessment be upheld in total.

Admin. Dec. 94-161 RN - ISSUED - 12/13/99

CORPORATION NET INCOME TAX--ACRS ADJUSTMENT UNCONSTITUTIONAL--The Circuit Court of Kanawha County in the case of Bell Atlantic-West Virginia, Inc. v. Paige ruled that W. Va. Code § 11-24-6(b)(5) was violative of Article X, § 1 of the West Virginia Constitution and therefore unconstitutional thereby mandating that Petitioner’s claim for refund be granted.

Admin. Dec. 96-459 RC - ISSUED - 11/18/99

	Petitioner claims refund is due to an exemption on its purchases of tangible personal property directly used in the performance of environmental quality or protection work for a customer engaged in the business of transmission. Refund denied due to previous finding in earlier administrative decision involving said Petitioner.
	Based upon the refusal of the West Virginia Supreme Court of Appeals to hear the State Tax Department’s petition for appeal from the ruling of the Circuit Court of Jackson County reversing the earlier administrative decision in favor of the State Tax Department, the consumers sales and service tax refund plus all statutory interest is granted.

Admin. Dec. 99-097 P - ISSUED - 11/30/99

	Under W. Va. Code § 11-10-9, a taxpayer must bear the burden of proving that a tax assessment is incorrect or invalid, in whole or in part.
	The State Tax Department will not waive additions to tax included in a personal income tax assessment against a taxpayer for his failure to pay tax expected to be due at the due date of the return, when the taxpayer did not provide any justifiable cause for his failure to comply with the duty to pay tax when due.

Admin. Dec. 98-393 WS, 98-395 NS, 98-396 FNS - ISSUED 11/30/99

WITHHOLDING TAX--CORPORATION NET INCOME TAX--BUSINESS FRANCHISE TAX--BURDEN OF PROOF--The State Tax Commissioner will affirm the estimated tax assessments against a taxpayer who fails to carry its burden of proof with respect to the actual tax liabilities due the State of West Virginia during the assessment periods.

Admin. Dec. 90-163 B & 90-164 C - ISSUED 10/25/99

BUSINESS AND OCCUPATION TAX AND CONSUMERS SALES AND SERVICE TAX--AUDIT ADJUSTMENTS--When a petition for reassessment shows clearly on its face, along with supporting documentation, that the assessment should be adjusted to reflect the correct amount of tax due for that audit period or periods, the same will be so adjusted.

Admin. Dec. 84-366 B - ISSUED 10/25/99

BUSINESS AND OCCUPATION TAX--ASSESSMENT WITHDRAWN--Pending business and occupation tax assessment can be withdrawn in instances where it is independently verified that further action is meaningless, given the fact that the Petitioner has ceased to exist, has no assets, and there is no successor corporation.

Admin. Dec. 95-059 CS(R) - ISSUED - 10/25/99

CONSUMERS SALES AND SERVICE TAX--ADDITIONS TO TAX WAIVED--Pursuant to W. Va. Code § 11-10-18(a)(1)-(2), additions to tax may be waived when the failure to file and/or pay the required tax was due to reasonable cause and was not due to willful neglect.

Admin. Dec. 85-380 B, 85-381 B

Valuation of items manufactured in West Virginia and sold at retail here must be calculated at one hundred percent (100%) of the retail sales price, in accordance with BOT Reg. § 2.05(B) (1974).

Admin. Dec. 92-673 – issued 9/20/99

Petitioner appeals assessment of corporate income tax since available net operating loss carried back to assessment date would eliminate the increased income tax due. The tax was abated.

Admin. Dec. 83-079B – issued 9/17/99

State Tax Department will abate a business and occupation tax assessment to comply with the holdings in the Armco and Ashland Oil decisions of the United States Supreme Court. B&O Tax abated.

Admin. Dec. 91-233PS – issued 9/21/99

Petitioner showed reasonable cause for waiver of additions to tax under W. Va. Code § 11-10-18(a) (1)-(2), since the Internal Revenue Code allows a taxpayer a period not to exceed two (2) years in which to file an amended return reflecting what gain, if any, was derived from the sale of one’s personal residence. Assessment modified, additions to tax waived.

Admin. Dec. 94-484G – issued 9/23/99

	Purchases of groceries and other items used or consumed by towboat crew while the vessel is on the river are not considered to be directly used or consumed in the transportation business and are not, therefore, exempt from the imposition of use tax.
	Where Petitioner did not show that transactions between affiliated companies were at arm’s length, and where the books of the two (2) companies did not indicate that such was the case, Petitioner is not entitled to the resale exemption.

Admin. Dec. 95-90 – issued 9/20/99

Reasonable cause and lack of willful neglect shown for waiver of penalty under W. Va. Code § 11-14A-16, where a showing was made that Petitioner’s vehicles never entered the State of West Virginia in order to conduct business and this was the first time a no-tax-due return was not filed.

WV Judicial Determinations

Supreme Court Decisions

IN RE: Tax Assessment Against American Bituminous Power Partners, L.P. January 2000 term

	Of the three (3) approaches to value, the cost approach may be most consistently applied to machinery, equipment, furniture, fixtures, and leasehold improvements because of the availability of data. The market approach is used less frequently, principally due to a lack of meaningful sales. The income approach is not normally used because of the difficulty in estimating future net benefits to be derived except in the case of certain kinds of leased equipment.
	The Commissioner has consistently reiterated this pronouncement on several occasions. See Tax Department Administrative Notice 99-12 (Jan. 29, 1999) (noting that "the [income] approach has limited use in the appraisal of industrial machinery, equipment, furniture, fixtures, and leasehold improvements because of the difficulty in establishing future net benefits"); Tax Department Administrative Notice 95-13 (Jan. 30, 1995).
	Title 110, series 1P of the West Virginia Code of State Rules confers upon the State Tax Commissioner discretion in choosing and applying the most accurate method of appraising commercial and industrial properties. The exercise of such discretion by will not be disturbed upon judicial review absent a showing of abuse of discretion. Because the circuit court in this case interpreted the regulation at issue as expressly mandating that the Tax Commissioner utilize a particular method of valuation, we conclude that the lower court committed reversible error.

JOHN HOUYOUX, d/b/a AEROLEASE v. James H. Paige, Commissioner (Sept. 1999 term)

Pursuant to the provisions of West Virginia Code § 11-10-14(l)(1) (1999), a claim seeking a refund of sales taxes is subject to a three-year statute of limitations when the vendor to whom the sales tax was paid filed the sales tax return relative to the purchases at issue. When, however, the vendor fails to file the requisite sales tax return, the applicable limitations period is two years from the date the purchaser paid the sales taxes.

Mayhew v. Mayhew, 205 W.Va. 490, 519 S.E.2d 188 (1999)

	Passive appreciation of separate property of either of the parties to a marriage, or that increase which is due to inflation or to a change in market value resulting from conditions outside the control of the parties, is separate property which is not subject to equitable distribution.
	Active appreciation of separate property of either of the parties to a marriage, or that increase which results from (A) an expenditure of funds which are marital property, including an expenditure of such funds which reduces indebtedness against separate property, extinguishes liens, or otherwise increase the net value of separate property, or (BO work performed by either or both of the parties during the marriage is marital property which is subject to equitable distribution.
	Five-step test for active or passive appreciation analysis:
	Whether the property, in general, is either separate or marital property;
	Placing a value on the nonmarital property at the commencement of the action;
	The value of the nonmarital property, before it became subject to the active and passive appreciation analysis;
	The circuit court calculation of the property’s value at the commencement of the action, in relation to its value on the date gifted;
	A determination as to what extent the increase in the value of the nonmarital property is active appreciation or passive appreciation.

The resulting amount due to active appreciation is marital property and subject to equitable distribution.

City of Clarksburg v. Grandeotto, Inc., et al, 204 W.Va. 404, 513 S.E.2d 177 (1998).

An ordinance which imposes a municipal service fee pursuant to W. Va. Code, 8-13-13 upon the owners of buildings at an annual rate plus a percentage based upon the square footage of space contained in each structure on the lot for the sole purpose of defraying the cost of fire and flood protection services is a user fee rather than a tax and therefore, is not in violation of the Tax Limitation Amendment found in W. Va. Const. Art. X, § 1.

Marjorie E. Daniel, et al, v United National Bank, 202 W. Va. 648, 505 S.E. 2d 711 (1998).

Marjorie Daniel and her two stepdaughters initiated action to compel the bank to distribute certain funds held in a trust created by Marjorie's deceased husband. In granting the summary judgment, the circuit court concluded that, by virtue of a particular letter written to United National Bank on behalf of Marjorie and her stepdaughters, Marjorie disclaimed her interest in the trust under the Uniform Disclaimer of Property Interests Act, W. Va. Code § 42-6-1 et seq. United argues, in part, that the letter was not an effective disclaimer as it did not comply with the requirements of the Uniform Disclaimer of Property Interests Act. The Supreme Court agreed and granted summary judgment in favor of United National Bank.

A proper disclaimer shall describe the property or interest disclaimed, declare the disclaimer and extent thereof, be signed by the disclaimant and be acknowledged in such a manner as would authorize a deed to be admitted to record.

Wellsburg Unity Apartments, Inc. v. Brooke County Commission, 202 W. Va. 283, 503 S.E.2d 851 (1998).

	When a corporation is granted a tax exempt status under Section 501(c)(3) of the Internal Revenue Code of 1986, that corporation is deemed to be a charitable organization under 110 C.S.R. § 3-19.1
	Real property that is used exclusively for charitable purposes and is not held or leased for profit is exempt from ad valorem real property taxation. W. Va. Code § 11-3-9.
	In order for real property to be exempt from ad valorem property taxation, a two-prong test must be met: (1) the corporation or other entity must be deemed to be a charitable organization under 26 U.S.C. § 501(c)(3) or 501(c)(4) as is provided in 110 C.S.R. § 3-19.1; and (2) the property must be used exclusively for charitable purposes and must not be held or leased out for profit as is provided in W. Va. Code § 11-3-9.

 

Kings Daughters Housing, Inc. v. James Paige, Commissioner, 203 W.Va. 74, 506 S.E.2d 329 (1998).

"Rent subsidies," paid to Kings Daughters Housing, Inc., by the United States Department of Housing and Urban Development to make decent housing available to certain elderly citizens, constitute "grants" within the meaning of the West Virginia sales tax law pursuant to W. Va. Code § 11-15-9. As a result, Kings Daughters Housing, Inc., was entitled to exemption from the West Virginia sales tax.

A charitable organization must receive more than 50% of its support from gifts, grants, charitable contributions or membership fees. The common definition of "subsidy" is: "A grant of money made by government in aid of the promoters of any enterprise, work, or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public."

 

Consumer Sales and Use Tax

The Body Shop, Inc. v. State Tax Commissioner (Kanawha County Circuit Court, October 13, 1999).

Sale of substantially all of the business assets of an auto body shop to The Body Shop, Inc. created a "successor" in business for the purposes of title 110 of Code of State Regulations. Asset purchase agreement was interpreted to say the Taxpayer was buying the whole business with the exception of tools or other materials that were removed.

Melrose Enterprises, Ltd. v. State Tax Commissioner ( Mercer County Circuit Court, May 15, 2000).

Soft drinks offered to customers while waiting for an oil change are purchased for resale and th