Charleston Area Tax Group
REVIEW OF CURRENT STATE TAX
DEVELOPMENTS
May 22, 2003
I. LEGISLATION
A. Federal legislation
Today, May 22nd, the Subcommittee on Commercial and Administrative Law
of the House Judiciary Committee will mark-up HR 49, the Internet Non-discrimination
Act. This legislation would permanently extend the moratorium on taxation of Internet
access charges and repeal the grandfather clause for states whose access taxes were
protected under the original Internet Tax Freedom Act.
The Subcommittee will very likely report out the legislation and
approve moving the legislation to consideration by the full Judiciary Committee.
Consideration was being given to revising the definition of
"access" in the legislation. While discussions continue between the land-line
telephone and cellular industries regarding revisions to the current definition, these
industries have not reached consensus. Consequently, the Subcommittee is expected to
consider HR 49 without making changes to the current access definition. Future revisions
to the definition could be made during consideration of HR 49 before the full Judiciary
Committee.
Some believe that the Subcommittee will repeal the grandfather clause.
However, it should be noted that four Members of the Subcommittee and nine Members of the
full Judiciary Committee are from states that are currently grandfathered under the
Internet Tax Freedom Act.
It is not expected that legislation affecting the Streamlined Sales Tax
System of Administration will be attached or considered in conjunction with consideration
of HR 49.
See attached list of tax bills and their effective dates.
II. MULTISTATE ACTIVITY - STREAMLINED SALES TAX.
Streamlined Project States are continuing to meet. Massachusetts and
New York are the latest states whose Legislatures have authorized their revenue department
to participate in the project and also as implementing state. California is now
participating in the Project as an observing state, which means California can attend
meeting and participate but cannot vote.
The project is close to finishing work on rules for determining tax
liability when the manufacturer, wholesaler or retailer bundles for a single
non-discretionary price to the consumer a taxable good or service with a nontaxable good
or service, or any combination thereof, and on defining "digital equivalent of
tangible personal property. Work is continuing on exemption administration, registration,
development of zip plus 4 data bases, audit standards, developing uniform definitions for
telecommunication businesses, bundling of telecommunication services. We are also working
with the Council on State Taxation to develop a checklist by which states and businesses
can determine whether or not a state’s sales and use tax laws conform to applicable
requirements of the Streamlined Sales and Use Tax Agreement.
To date, Arkansas, Indiana, Kansas, Kentucky, Nebraska, North Dakota,
South Dakota, Utah, Washington, West Virginia and Wyoming have enacted necessary
legislation. The Washington legislation fails to adopt destination sourcing for local
sales taxes and some of other states, including West Virginia, have delayed effective
dates for conforming their laws, such as January 1, 2004 and July 1, 2004.
III. COURT ACTIVITY
A. United States Supreme Court
Franchise Tax Board of California v. Hyatt, et al., 538 U.S.
___ (2003), S.Ct.
No. 02-42. Here, the U.S. Supreme Court affirmed a decision of the Supreme Court of Nevada
that effectively allowed a taxpayer to challenge assessment activities of one state by
means of a tort action filed in another state. The taxpayer, a former California resident,
asserted that he had moved to Nevada in September 1991, but California believed that the
taxpayer did not relocate to Nevada until April 1992, and assessed the taxpayer with
substantial amounts of tax for 1991 and 1992, on income that had been received during the
period in dispute. While contesting the assessments in the California administrative
processes, the taxpayer also filed tort actions against California in Nevada, because
California’s sovereign immunity statute precluded such actions in California. The
taxpayer sued California for several torts, including violations of privacy rights,
outrageous conduct, abuse of process, fraud and negligent misrepresentation. In 2001, the
Supreme Court of Nevada unanimously concluded that there was no evidence, aside from the
taxpayer’s own conclusory allegations, that California had engaged in any of the
alleged tortious activity, and instructed the lower court to grant California’s
motion for summary judgment, based on principles of sovereign immunity, full faith and
credit, and comity. In April 2002, the same court unanimously reversed itself and ruled
that the Nevada courts had jurisdiction to determine the intentional tort claims brought
by the taxpayer. The court ruled that, while principles of comity, under which the courts
of one state voluntarily give effect to the laws and judicial decisions of another state,
indicated that the Nevada courts should have refrained from determining the negligence
claims, because California’s immunity for negligent acts did not contravene any
Nevada interest, the same could not be said of the intentional tort claims. The U.S.
Supreme Court has now affirmed the second decision of the Nevada Supreme Court, in a
unanimous opinion by Justice O’Connor, dated April 23, 2003. The Court first ruled
that it would not overrule a 1979 decision in which it had determined that nothing about
Eleventh Amendment sovereign immunity, or the Full Faith and Credit Clause of the federal
constitution, or the principle of comity explicitly prevented a state from being sued in
another state’s courts. The Court then rejected California’s assertion that the
earlier case did not involve a state’s core sovereign responsibilities, while in this
case the Full Faith and Credit Clause required Nevada to apply California’s immunity
statute to avoid interference with California’s core sovereign responsibility of
enforcing its income tax laws. The Court determined that it would not engage in any kind
of balancing test to decide, as between two conflicting state laws, which represented the
more core sovereign responsibility.
2. Petition for Certiorari Denied
Fernandes v. Sparta Township, N.J., (N.J. Tax Ct., 9/3/02), S.Ct.
No. 02-1176 (petition for certiorari denied March 31, 2003). Here, the New Jersey Tax
Court denied in all respects the taxpayer’s motion seeking a change of venue, a stay
of proceedings pending appeal, the disqualification of the attorney representing the
defendant municipality, and the judge’s recusal. The court also denied the
taxpayer’s contention that a stay was justified because the taxpayer had suffered
irreparable injury due to the court’s failure to require the municipality to file an
answer in this local property tax appeal, because the court rules did not require that
such a response be filed. (71 U.S.L.W. 3559)
Jefferson Smurfit Corn. v. Dept. of Treasury, 639 N.W.2d 269 (Mich.
Ct. App., 11/13/01), review denied, No. 120925 (Mich., 12/11/02), S.Ct. No. 02-1335
(petition for certioraria filed March 13, 2003; petition denied May 19, 2003). During the
tax year in question, Michigan’s single business tax allowed for a site-based capital
assets deduction for assets located in the state. In 1999, a Michigan court of claims
determined that the deduction violated the internal consistency aspect of the fair
apportionment requirement of the Complete Auto Transit test. The Michigan Court of Appeals
then reversed that ruling, and held that, because the deduction is available for any
taxpayer, multistate or in-state, and was not designed to punish multistate taxpayers who
chose not to increase their Michigan presence, the deduction did not have a discriminatory
effect on interstate commerce in violation of the Commerce Clause.
Palais Royal, Inc. v. Strayhorn, 81 S.W.3d 909 (Tex. Ct. App.,
7/26/02), S.Ct. No. 02-1352 (petition for certitorari file March 12, 2003; petition denied
May 5, 2003). Texas amended its corporate franchise tax base in 1992, and a taxpayer that
reported on a fiscal year basis asserted that state and federal constitutional
considerations of equal protection and uniformity were violated because it was required to
employ the new tax base earlier, i.e., for its fiscal year beginning in February 1990,
than calendar year taxpayers who would use the year beginning January 1,1992. The Texas
Court of Appeal overturned the district court’s decision and rejected the
taxpayer’s claims, finding that the amended statute required all taxpayers to employ
a twelve-month period ending on or before December 31, 1991, so that all taxpayers falling
within the taxpayer’s class were treated equally, and there was no violation of
uniformity or equal protection concerns. The court also rejected the taxpayer’s
retroactive tax and other due process claims.
3. Petitions for Certiorari Filed
Fisher v. New York State Commissioner of Taxation and Finance, 289
A.D.2d 723, 734 N.Y.S.2d 656 (N.Y. App. Div., 12/13/01), S.Ct. No. 02-1382 (petition for
certiorari filed January 9, 2003). Here, the New York courts denied a taxpayer’s
claims that he should not have been liable for penalties and interest on his personal
income tax liability and that he was entitled to a new hearing due to due process
considerations.
Hameroff v. Agency for Health Care Administration, 816 So.2d 1145
(Fla. Dist. Ct. App., 4/26/02), review denied, 835 So.2d 266 (Fla., 12/30/02), S.Ct. No.
02-1483 (petition for certiorari filed April
—‘
2003). Here, the Florida District Court of Appeal,
First District, rejected a claim by medical service providers that fees they were required
to pay (similar to other fees that had been interpreted by the Florida courts to be taxes
in a previous case) violated state and federal considerations of due process and equal
protection. The court determined that the plaintiffs had failed to negate every
conceivable rational basis the legislature might have had for enacting the legislation,
while the court could surmise that the legislature imposed the fees on the plaintiffs to
level the economic playing field with hospitals that were forced to impose higher charges
for services because they were burdened with a greater expense of indigent inpatient care.
Nivens, eta!. v. Gllchrist, 319 F.3d 151 (4th Cir., 2/11/03), S.Ct.
No. 02-1477 (petition for certiorai filed April 4, 2003). Here, the Fourth Circuit Court
of Appeals affirmed a district court’s abstention on comity grounds from adjudicating
a defendant’s double jeopardy claim based on the assessment of a controlled
substances tax by North Carolina. The court determined that there was no exceptional
circumstance present that would justify deviation from the principle of comity, under
which the federal courts will defer to an ongoing state court proceeding. The court found
that the defendant had not shown that his proceeding through the state courts would be
futile because of an earlier state court ruling that the drug tax did not constitute
double jeopardy, because the tax had been amended in response to a finding of
constitutional violation by the federal courts.
Unisys Corp. v. Pennsylvania Board of Finance and Revenue, 812 A.2d
448 (Pa., 10/25/02), S.Ct. No. 002-1 543 (petition for certiorari filed April 23, 2003).
Pennsylvania’s franchise tax is based on the actual value of the taxpayer, which is
calculated using a formula based on net worth, which includes the net worth of any entity
in which the taxpayer owns stock, and average net income, which is calculated on a
separate-company basis but includes dividends received from investee corporations. The
three apportionment factors are calculated on a separate-company basis. The taxpayer
asserted that it was a violation of Commerce Clause and due process concerns to
require that taxable value be calculated on a consolidated basis while apportionment is
calculated on a separate-company basis, based on the 44.5% increase in its tax resulting
from the use of the separate-company apportionment factors. In 1999, the Commonwealth
Court of Pennsylvania determined that the statutory scheme presented no constitutional
violation, as the 44.5% disparity "is not even remotely close to the 266% and 300%
disparities" determined to be unconstitutional in U.S. Supreme Court cases cited by
the taxpayer. The court also, however, held that "a variance of this magnitude,
although not of constitutional proportions, requires statutory relief," based on the
UDITPA §18 language in the statute, that allows for a special apportionment when the
standard apportionment does not "fairly represent" the activity of the taxpayer
in the state. In 2002, a divided Supreme Court of Pennsylvania reversed the Commonwealth
Court’s ruling that special apportionment was required. The supreme court ruled that,
because the taxpayer had calculated its alternative apportionment on a purely unitary
basis when the tax base was actually a hybrid of unitary and separate factors, the
taxpayer had not presented the court with an alternative fair apportionment, and had,
therefore, failed to meet its burden of showing that the separate-company apportionment
was unfair, under either statutory or constitutional standards.
B. West Virginia Supreme Court of Appeals
1. Consolidated Natural Gas Company v. Palmer, Docket No. 30735,
decided May 6, 2003, reversing the lower court decision.
1. ""Interpreting a statute or an administrative rule or
regulation presents a purely legal question subject to de novo review.""
Syl. Pt. 1, Appalachian Power Co. v. State Tax Dept., 195 W.Va. 573, 466 5. E.2d
424 (1995).
2. ""Statutes which.
. . have a common purpose will be regarded in pan materia to
assure recognition and implementation of the legislative intent."" Syl. Pt. 5,
in part, Fruehauf Corp. v. Huntington Moving & Storage Co., 159 W.Va. 14, 217
S.E.2d 907 (1975).
3. For gas storage businesses,
""
gross income"" included in the numerator of
the tax credit fraction set forth in West Virginia Code §
11-23-17(b) (1989) (RepI. Vol. 2002) is gross
receipts received as compensation for the business of providing all gas reservoir
injection, storage and withdrawal services.
4. ""Where the language of a statute is free from ambiguity,
its plain meaning is to be accepted and applied without resort to
interpretation."" Syl. Pt. 2, Crockett v. Andrews, 153 W.Va. 714, 172
S.E.2d 384 (1970).
5. A business’s gross revenue which is included in the denominator
of the tax credit fraction set forth in West Virginia Code
§§ 11-23-17(b) (1989) (RepI. Vol.
2002) is all revenue received from all business activity in West Virginia regardless of
whether a profit is realized.
CNG and its approximately twenty affiliated companies operate natural
gas wells, storage reservoirs and pipeline facilities in West Virginia as well as other
states. One of the affiliates, CNG Transmission Corporation (hereinafter ""CNG
Transmission""), is headquartered in Clarksburg, West Virginia. CNG Transmission
operates pipelines and in so doing owns or manages gas storage fields and facilities
including storage of gas in depleted oil and gas fields. Within the allowable rates set by
the Federal Energy Regulatory Commission, CNG charges its customers gas storage fees for
various storage activities. These income-generating storage activities fall into four
categories: (1) injection of gas into a storage reservoir; (2) withdrawal of gas from a
storage reservoir; (3) storage capacity rights, which may be likened to rental of gas
storage space; and (4) storage demand rights, purchase of which entitles a customer to
withdraw gas from the company’s storage reservoirs.
CNG is responsible for payment of the business franchise tax and the
business and occupation tax (hereinafter ""B&O tax"") properly
levied on these gas storage activities and/or properties. While the business franchise tax
applies to all major companies engaging in business in West Virginia, the B&O tax
applies only to utilities doing business in the state. Under the business franchise tax
statute, tax credits are available to utilities that are subject to both the franchise tax
and the B&O tax. Acting as the parent company, CNG filed its West Virginia based
business franchise tax returns for the tax years 1991 through 1995 on a consolidated
basis, that is, a single return was filed for CNG and its affiliates, including CNG
Transmission. CNG claimed that it qualified for the tax credit allowed by West Virginia
Code
§ 11-23-17(b)
as an offset to its business franchise tax liability and that income from all of its
storage activities in West Virginia should be included in the tax credit calculation. The
tax department initially denied that the tax credit was available to taxpayers such as
CNG. In accordance with the procedures set forth in West Virginia Code Chapter 11, Article
10, CNG challenged this determination by timely filing a petition with the tax
commissioner, who assigned an administrative law judge to conduct necessary hearings on
the matter. In the Administrative Decision dated August 10, 2000, which resulted from this
process, the tax commissioner ruled that the tax credit was indeed applicable to CNG as a
taxpayer paying the B&O tax on gas storage under West Virginia Code § 11-13-2e. However, the
Administrative Decision limited the amount of gas storage income which could be factored
into the calculation of the tax credit thereby significantly reducing the amount of the
tax credit from that which CNG calculated.
CNG also disagreed with another ruling contained in the Administrative
Decision regarding whether the fees from management services one CNG affiliate provides
for another is included in the tax credit calculation. The Administrative Decision held
that even though the revenue generated from these services produces essentially no income,
they must be accounted for as gross receipts in the tax credit calculation.
CNG appealed these rulings to the Circuit Court of Harrison County. By
its order dated November 5, 2001, the circuit court upheld the Administrative Decision
regarding what income from gas storage activities should be included in the tax credit
calculation. However, the lower court concluded in essence that the revenue from
management services should not be part of the tax credit calculation because the services
produce no income.
CNG appealed the circuit court’s determination of what constitutes
income from gas storage activities. The tax commissioner has filed a cross appeal
regarding the management services ruling.
The Supreme Court of Appeals reversed the lower court with respect to
the factors included in the numerator and denominator set forth in West Virginia
Code
§ 11-23-17(b).
The matter is remanded to the circuit court for correction of the order and for
recalculation of the tax credit by the tax commissioner.
2. State of West Virginia ex rel. West Virginia Citizens Action
Group v. West Virginia Economic Development Grant Committee, Docket No. 31125, decided
May 16, 2003, affirming and reversing in part the decision of the lower court.
1. ""Article V, section 1 of the Constitution of West
Virginia which prohibits any one department of our state government from exercising the
powers of the others, is not merely a suggestion; it is part of the fundamental law of our
State and, as such, it must be strictly construed and closely followed."" Syl.
Pt. 1, State ex rel. Barker. Manchin, 167 W.Va. 155, 279 S.E.2d 622 (1981).
2. Due to the resulting encroachment on the executive power of
appointment, the provisions of West Virginia Code
§
29-22-1 8a(d)(3) (Supp. 2002) that direct the
presiding officers of each house of the Legislature to submit a list of prospective
candidates to the Governor for the chief executive’s selection of certain members of
the West Virginia Economic Grant Committee are in violation of the separation of powers
provision found in article five, section one of the West Virginia Constitution.
3. The provisions of West Virginia Code
§ 29-22-18a(d)(3) (Supp. 2002) that
direct the Legislature’s involvement in the appointment process of the members of the
West Virginia Economic Grant Committee are in violation of the appointments provision
found in article seven, section eight of the West Virginia Constitution.
4. ""As a general rule the Legislature, in delegating
discretionary power to an administrative agency, such as a board or a commission, must
prescribe adequate standards expressed in the statute or inherent in its subject matter
and such standards must be sufficient to guide such agency in the exercise of the power
conferred upon it."" Syl. Pt. 3, Quesenberryv. Estep, 142 W.Va. 426,95
S.E.2d 832 (1956).
5. When an enabling statute such as West Virginia Code
§§ 29-22-18a(d)(3)
(Supp. 2002) extends discretion to the executive branch in contemplation of an expenditure
of public funds with only a broad statement of legislative intent and insufficient
legislative guidance for the execution of that legislative intent, the Legislature has
wrongfully delegated its powers to legislate in violation of article six, section one of
the West Virginia Constitution.
6. ""The Legislature may not designate funds that will be
used to liquidate a revenue bond issue out of a current tax source that flows into the
general revenue fund. If this practice were permitted, then a debt would be created that
would burden the existing general revenue fund in violation of Section 4 of Article X of
the West Virginia Constitution."" I. Pt. 2, State ex rel. Marockie v.
Wagoner, 190 W.Va. 467, 438 S.E.2d 810 (1993), overruled on other grounds by State
ex rel. W. Va. Regi. Jail Auth. v. WVa. mv. Mgt. Bd.. 203 W.Va. 413, 421, 508 S.E.2d
130, 138 (1998).
7. ""This method of funding the School Building
Authority’s revenue bonds does not violate section 4 of article X of the West
Virginia Constitution since the monies allocated to the school building debt service
fund are a new revenue source and since the legislature specifically provided in WVa.
Code, 29-22-18 [1990 and 1994] that the net profits from the West Virginia Lottery are
not to be treated as part of the general revenue of the State."" Syl. Pt. 3, in
part, State ex rel. Marockie v. Wagoner, 191 W.Va. 458, 446 S.E.2d 680 (1994).
8. ""A legislative declaration of purpose, while not
conclusive, is entitled not only to respect but to a prima facie acceptance of its
correctness."" Syl. Pt. 6, State ex rel. W Va. Hous. Dev. Fund v. Waterhouse,
158 W.Va. 196, 212 S.E.2d 724 (1974).
During the 2002 regular session, the Legislature enacted Committee
Substitute for H. B. 4005 that, among other things, amended section 29-22-18a (state
excess lottery fund) of the State lottery statutes, by authorizing the West Virginia
Economic Development Authority, upon direction from the Governor, to issue revenue bonds
secured by annual payments of up to $19 million from the State excess lottery fund, for a
period of 30 years, and to use proceeds from sale of the bonds to pay for all or a portion
of the cost of constructing, equipping, improving or maintaining economic development
projects, capital improvement projects and infrastructure projects that promote economic
development in West Virginia. To determine which projects would receive funding the
Legislature created a nine-member committee comprised of the governor, or his or her
designee, the secretary of the department of tax and revenue, the executive director of
the West Virginia development office, three persons appointed by the governor from a list
of five names to be submitted to the governor by the president of the West Virginia
senate, and three persons appointed by the governor from a list of five names to be
submitted to the governor by the speaker of the West Virginia house of delegates. The
committee was directed to meet as often as necessary and take recommendations from any
source whatever regarding possible projects to be funded, in whole or in part, and to
certify a list of project that would receive fund from bond proceeds.
The West Virginia Citizens Action Group institute legal proceeding on
September 2, 2002, raising numerous constitutional challenges including, but not limited
to:
(1) that the mechanism specified by the Legislature by which the
citizen members were appointed violated the separation of powers clause in article V,
§ 1 of the State
Constitution and the governor’s powers of appointment as set forth in article VII, § 8 of the State
Constitution;
(2) that the Legislature’s grant of authority to the committee was
an unconstitutional delegation of the Legislature’s powers in violation of article
VI,
§ 1 of
the State Constitution; and
(3) that the grants violated article X,
§§ 4 and 6 of the State Constitution.
All of WVCAG’s challenges were rejected by the lower court, except
that the lower court did order the Grant Committee to reconsider the Wheeling Victorian
Outlet project in light of the other project applications.
The Supreme Court of Appeals conclude that:
(1) the appointment mechanism for the Grant Committee contained in West
Virginia Code
§ 29-22-1 8a(d)(3) violates the separation of powers provision of the State
Constitution found in article V, § 1, and the appointments provision found in article VII, § 8;
(2) based upon the lack of sufficient standards provided for the
Committee’s use in evaluating the submitted grant projects pursuant to the provisions
of West Virginia Code
§§ 29-22- 1 8a(d)(3), the Legislature has wrongfully delegated its
powers in violation of article VI, § 1 of the State Constitution; and
(3) the funding mechanism did not violate article X,
§ 4 or § 6 of the State
Constitution.
Due to these constitutional infirmities, the actions previously taken
by the Committee with regard to approving various grant applications were declared by the
Court to be of no force and effect. Accordingly, the decision of the Circuit Court of
Kanawha County was affirmed with regard to the lower court’s upholding of the
statutory provisions which govern the bond issuance and repayment mechanisms, but reversed
as to the lower court’s findings regarding the constitutionality of the appointment
process and delegation of legislative power.
The Court provided guidance to the Legislature on how to fix the
constitutional defects in subsection 29-22-18a(d) writing "[a]ssuming that the
Legislature desires to proceed with this statutory approach of encouraging economic
development, it is incumbent upon the Legislature to amend the subject legislation to
provide for the executive appointment of the members of the Grant Committee without use of
a submitted list of nominees from the presiding officers of the two houses of the
Legislature and to further provide the necessary guidance in the form of legislative
standards that will enable the Committee to perform its statutory task of reviewing and
selecting among the submitted project applications in accord with the announced
legislative objective of economic development."
Nothing to report.
IV. ADMINISTRATIVE ACTIVITY
 | A. Administrative Decisions
· SEVERANCE TAX —
HYBRID VALUATION THEORIES NOT ALLOWABLE — Because
the Tax Commissioner is not part of the legislative branch of government, she lacks the
authority to allow well head valuation schemes which seek to permit unauthorized
transportation deductions, to exclude wells in determining average pool pricing, and to
use joint venture pricing arrangements or deductions, all without statutory basis, when
determining well head valuation of natural gas and oil for severance tax purposes;
instead, the taxpayer is limited to the valuation methods set forth in 110 C.S.R 13A-2a.10
and 4.8 — 4.8.4, without revisions or
substitutions. ADMIN DECS. — 00-011 SV. ISSUED
—02114102 — SUBMITTED FOR DECISION — 02/25/02.
|
· SEVERANCE TAX — HYBRID VALUATION
THEORIES NOT ALLOWABLE — Because the Tax Commissioner is not part of the legislative branch of government, she lacks the authority to
allow well head valuation schemes which seek to permit unauthorized transportation deductions, to exclude wells in determining average pool pricing, and
to use joint venture pricing arrangements or deductions, all without
statutory basis, when determining well head valuation of natural gas and oil for severance tax purposes; instead, the taxpayer is limited to the
valuation methods set forth in 110 C.S.R 13A-2a.10 and 4.8 — 4.8.4, without revisions or
substitutions. ADMIN DEC. — 00-195 RSV. ISSUED — 02/14/02 — SUBMITTED FOR DECISION — 02/25/02.
·
PURCHASERS’ USE TAX
— RETAILERS’ SERVICES PROMOTING AND MARKETING THE PRODUCTS OF
A MANUFACTURER CONSTITUTE TAXABLE SERVICES — The agreement under which a retailer undertakes to sell, promote,
and market a product and provide space for the display of the product manufacturer’s
fixtures, signs, and other promotional materials, constitutes taxable services provided by
the retailer. As such, any payments made by the manufacturer to the retailer on account of
providing space and performing other promotional and marketing services are properly
subject to the purchasers’ use tax. ADMIN DEC. —
01-116 U. ISSUED —
02/14/03 — SUBMITTED FOR DECISION — 03/25/02.
· PERSONAL INCOME TAX
— BURDEN OF PROOF NOT MET
— Failure
of the Petitioners to prove that the assessment is incorrect and contrary to law, in whole
or in part, as required by the W. Va. Code § 11-10-9, mandates that the same be upheld in toto. ADMIN DEC. — 01-352 P. ISSUED —02/14/03.
· CONSUMERS’ SALES AND SERVICE TAX
AND BUSINESS FRANCHISE TAX
— ESTIMATED ASSESSMENTS SUPPLANTED BY ACTUAL INCOME AND CAPITAL
FIGURES — Post-audit
this tribunal will, upon investigation, accept actual income and capital information
supplied by the Petitioner in lieu of tax estimates. ADMIN DECS. — 01-376 C, 01-377 U, 01-378 FN &
01-379 FS. ISSUED - 02/28/03.
·
PERSONAL INCOME TAX
— INNOCENT SPOUSE RELIEF NOT APPROVED — For co-Petitioner to obtain relief from
assessment based upon federal income tax changes requires approval from the Internal Revenue Service as to "innocent
spouse" relief, rather than just application for such relief. ADMIN DEC. — 01-427 PS. ISSUED — 02/14/03.
· PURCHASERS’ USE TAX
- EXCEPTION TO INTEGRATED
MANUFACTURERICONTRACTOR RULE NOT APPLICABLE — Finding by tribunal that duct-work for all intents and purposes was
finished when it was brought into West Virginia for use in Petitioner’s contracting
business nullifies the exception in the integrated manufacturer/contractor rule because no
further manufacturing took place at the job site. ADMIN DEC. — 01-556 U. ISSUED — 02/20/03 — SUBMITTED FOR DECISION ON
BRIEFS — 02/1
0/03.
· CONSUMERS’ SALES AND SERVICE TAX
— BURDEN OF PROOF NOT MET
— Failure
of the Petitioner to prove that the assessment is incorrect and contrary to law, in whole
or in part, as required by W. Va. Code § 11-10-9,
mandates that the assessment be upheld. ADMIN DEC. —01-611. ISSUED - 02/14/03.
· PURCHASERS’ USE TAX
- EXEMPTIONS REQUIRE
MANUFACTURING "ACTIVITIES" TO BE ON-GOING —
Purchases of raw materials for pollution monitoring services and services for the
removal of contaminated waste are not exempt under W. Va. Code §
11-15-9(b)(2), 11-15-2(d)(2)(M), and 11-15-2(d)(2)(L),
because Petitioner’s manufacturing activities had ceased after 1997 and, therefore,
the essential requirement of manufacturing "activities" had ended. ADMIN DEC. —01-702 U. ISSUED - 02/28/03
— SUBMITTED FOR DECISION ON BRIEFS — 12/06/02.
· PURCHASERS’ USE TAX — EXEMPTION STATUTES
STRICTLY CONSTRUED — Petitioner claiming exemption to taxation statute has the burden of proving
clearly that it is entitled to the exemption, and the exemption shall be strictly
construed against the taxpayer. Wooddell v. Dailey, 160 W. Va. 85, 230 S.E.2d 466
(1976). ADMIN DEC. — 01-702 U. ISSUED - 02/28/03 —SUBMITTED
FOR DECISION ON BRIEFS — 12/06/02.
· PURCHASERS’ USE TAX — PROFESSIONAL SERVICES
EXCEPTION NOT APPLICABLE —Failure of environmental laboratories to meet either the minimum
education prong or the continuing education prong of the four (4)-part test set forth in
110 C.S.R. 15, § 8.1.1.1 mandates that the exception is not applicable. ADMIN DEC. — 01-702 U. ISSUED - 02/28/03 — SUBMITTED FOR DECISION ON
BRIEFS — 12/06/02.
· PURCHASERS’ USE TAX — PROFESSIONAL SERVICES
EXCEPTION UNPROVEN — Because the environmental laboratories in question failed to meet the minimum
education requirement of a college degree for all of its supervisory personnel signifies
that Petitioner did not meet all four (4) prongs of the four (4)-part test as provided for
in 110 C.S.R. 15, § 8.1.1.1 and, therefore, the
environmental services provided to the Petitioner are not excepted from use tax as
professional services. ADMIN DEC. — 01-640 U.
ISSUED - 02/28/02 — SUBMITTED
FOR DECISION ON BRIEFS — 10/18/02.
· COAL SEVERANCE TAXES - MINIMUM COAL SEVERANCE TAX - TAX COMMISSIONER’S
AUTHORITY TO DECLARE STATUTE UNCONSTITUTIONAL AS APPLIED —
The State Tax Commissioner, as a part of the executive branch of state
government, lacks the authority, under W. Va. Const. art. V, §
1, to declare a statute unconstitutional on its face; on the other hand, the
State Tax Commissioner does have the limited authority to declare a state tax statute
unconstitutional as applied to the particular set of circumstances involved. ADMIN
DECS. — 00-409 RSV, 01-021 RSV, 03-001 RSV &
03-002 RSV. ISSUED — 03/31/03 — SUBMITTED FOR DECISION ON BRIEFS —07/17/002.
· COAL SEVERANCE TAXES — MINIMUM COAL SEVERANCE
TAX — STATUTES
CONSTITUTIONAL AS APPLIED TO FOREIGN EXPORTS —
The coal severance tax statutes, W. Va. Code §§ 11-13A-3 [1997] and 11-13A-6 [19971, and a
related excise tax statute, W. Va. Code §§ 11-12B-1
[1990] et seq. (the minimum coal severance tax), are constitutional, under the
Federal Import-Export Clause, U.S. Const. art. I, § 10,
cI. 2, as applied to coal severed and processed in this State and which immediately
thereafter enters the "stream of export" to purchasers in foreign countries; the
more modern precedents of the Supreme Court of the United States actually applying that
federal constitutional provision, such as Itel Containers International Corp. v.
Huddleston, 507 U.S. 60, 122 L. Ed. 2d 421, 113 S. Ct. 1095 (1993), and Limbach v.
Hooven & Allison Co., 466 U.S. 353 80 L. Ed. 2d 356, 104 5. Ct. 1837 (1984),
instead of utilizing a per se rule exempting goods in transit, actually utilize two tests
for determining the validity of state taxation of foreign exports under such provision,
namely, (1) a foreign relations test and (2) a state harmony test; neither of these is
violated here, see, e.g., Virginia Indonesia Co. v. Harris County Appraisal District, 910
SW. 2d 905, 922-25 (Tex. 1995) (Hecht, J., dissenting), and Department of Revenue v.
Association of Washington Stevedoring Companies, 435 U.S. 734, 764, 55 L. Ed. 2d 682
___ 98 5 Ct. 1388, 1406 (1978) (Powell, J.,
concurring). ADMIN DECS. — 00-409 RSV, 01-021 RSV,
03-001 RSV & 03-002 RSV. ISSUED — 03/31/03 — SUBMITTED FOR DECISION ON BRIEFS — 07/17/002.
· CORPORATE NET INCOME TAX - INTEREST DUE ON REFUND — WARRANT NOT TIMELY
ISSUED - "MATHEMATICALLY
CORRECT" REFUND CLAIM SUPPORTED BY "NECESSARY DOCUMENTATION" — Under W. Va. Code § 11-10-14d(a) [1996),
the State Tax Commissioner owes interest on an overpayment of West Virginia corporate net
income tax when the state warrant for the tax refund is not made within six (6) months
after the date that the taxpayer files a "lawful, mathematically correct, uncontested
claim for refund[.]"
A "mathematically correct" corporate net income tax refund
claim, for purposes of W. Va. Code § 11-10-14d(a) & (b)(2) [1996], means such a claim that
"appears on its face to be [mathematically] correct," W. Va. Code § 11-10-14d(b)(2) [1996];
a de minimus mathematical error discovered during a post-filing audit does not mean
that the claim at the time of filing was not "mathematically correct" under this
statute.
In addition, the "necessary documentation" mandated by W. Va.
Code § 11-10-14d(b)(2)
[1996] to support such an "uncontested" claim for refund of corporate net income
tax means all of the information required by statute or legislative regulations to be set
forth in or enclosed with the corporate net income tax return at the time of filing, not
every detailed supporting form, schedule, analysis, data, or documents requested — at one time or piecemeal — after filing, to verify
the lawfulness and accuracy of the return.
The State Tax Commissioner is protected in this context by W. Va. Code § 1 1-10-14d(c) [1996],
which authorizes the Commissioner to issue a timely tax assessment, to recover any amount,
including statutory interest, believed to have been erroneously refunded. ADMIN DEC. — 0 1-521 RN. ISSUED — 03/21/03 — CASE SUBMITTED 03/13/03.
· CONSUMERS’ SALES AND SERVICE TAX — PROFESSIONAL SERVICES
EXCEPTION UNPROVEN — Because the environmental
laboratories in question failed to meet the minimum education requirement of a college
degree for all of its supervisory personnel signifies that Petitioner did not meet all
four (4) prongs of the four (4)-part test as provided for in 110 C.S.R. 15, § 8.1.1.1 and, therefore, the environmental services by the
Petitioner are not excepted from consumers’ sales and service tax as professional
services. ADMIN DEC. — 02-369 C. ISSUED — 03/03/03.
· COAL SEVERANCE TAXES - TAX COMMISSIONER’S
AUTHORITY TO DECLARE STATUTE UNCONSTITUTIONAL AS APPLIED — The State Tax Commissioner, as a part
of the executive branch of state government, lacks the authority, under W. Va. Const. art.
V, § 1, to
declare a statute unconstitutional on its face; on the other hand, the State Tax
Commissioner does have the limited authority to declare a state tax statute
unconstitutional as applied to the particular set of circumstances involved. ADMIN
DEC. — 02-320
RSV. ISSUED — 03/31/03
— SUBMITTED FOR
DECISION ON BRIEFS — 10/31/02.
· COAL SEVERANCE TAXES — STATUTES CONSTITUTIONAL
AS APPLIED TO FOREIGN EXPORTS — The coal severance tax statutes, W. Va. Code §§ 11-13A-3 [1997] and
11-13A-6 [1997] are constitutional, under the Federal Import-Export Clause, U.S. Const.
art. I, § 10,
cI. 2, as applied to coal severed and processed in this State and which immediately
thereafter enters the "stream of export" to purchasers in foreign countries; the
more modern precedents of the Supreme Court of the United States actually applying that
federal constitutional provision, such as Itel Containers International Corp. v.
Huddleston, 507 U.S. 60, 122 L. Ed. 2d 421, 113 5. Ct. 1095 (1993), and Limbach v.
Hooven & Allison Co, 466 U 5 353, 80 L. Ed. 2d 356, 104 5. Ct. 1837 (1984),
instead of utilizing a per se rule exempting goods in transit, actually utilize two tests
for determining the validity of state taxation of foreign exports under such provision,
namely, (1) a foreign relations test and (2) a state harmony test; neither of these is
violated here, see, e.g., Virginia Indonesia Co. v. Harris County Appraisal District, 910
SW. 2d 905, 922-25 (Tex. 1995) (Hecht, J., dissenting), and Department of Revenue v.
Association of Washington Stevedoring Companies, 435 U.S. 734, 764, 55 L. Ed. 2d 682
___ 98 5 Ct. 1388,
1406 (1978) (Powell, J., concurring). ADMIN DEC. —
02-320 RSV. ISSUED —
03/31/03 — SUBMITTED FOR DECISION ON BRIEFS —
10/31/02.
· PURCHASERS’ USE TAX - RETAILERS’ SERVICES
PROMOTING AND MARKETING THE PRODUCTS OF A MANUFACTURER CONSTITUTE TAXABLE SERVICES — The Agreement under which
a retailer undertakes to sell, promote, and market a product and provide space for the
display of the product manufacturer’s fixtures, signs, and other promotional
materials, constitutes taxable services provided by the retailer. As such, any payments
made by the manufacturer to the retailer on account of providing space and performing
other promotional and marketing services are properly subject to the purchasers’ use
tax. ADMIN DEC. — 01-624 U. ISSUED 04/24/03 —SUBMITTED FOR DECISION — 0 1/03/03.
· PURCHASERS’ USE TAX — STATUTORY ADMINEMENT(s)
INTEND TO CHANGE PREEXISTING LAW — Statutory changes are intended to be prospective in nature unless
expressly made to be retrospective. ADMIN DEC. — 01-624 U. ISSUED 04/24/03 — SUBMITTED FOR DECISION —01/03/03.
· SEVERANCE TAX - RECLAMATION TAX - SPECIAL TAX ON COAL - BURDEN OF PROOF —Assessments will be revised
post-audit as permitted by W. Va. Code § 11-1 OA-1 0(e) [2002], if Petitioner can prove that a portion of the
assessments were paid by another entity. ADMIN DECS. —02-254
SV, 02-255 K & 02-256 CP. ISSUED — 04/24/03 — SUBMITTED FOR DECISION — 01/10/03.
· BROAD-BASED HEALTH CARE PROVIDER TAX
AND PURCHASERS’ USE TAX — BURDEN OF PROOF NOT MET — Refusal
and/or failure of the Petitioner to provide any meaningful or otherwise exculpatory
evidence proving that the assessments are incorrect and contrary to law, in whole or in
part, as required by W. Va. Code § 1 1-1OA-10(e),
mandates that the same be upheld in toto. ADMIN DECS. — 02-623
FN, 02-624 U & 02-625 HP. ISSUED 04/17/03.
· CONSUMERS’ SALES AND SERVICE TAX — STATUTE OF LIMITATIONS
NOT APPLICABLE —Because W. Va. Code § 11-15-21(a) mandates that an annual consumers’ sales and
service tax return be filed on or before thirty (30) days after the end of the tax year,
the three (3)-year statute of limitations provided for in W. Va. Code § 11-10-15(a) runs from
that date and not from the due date of each monthly consumers’ sales and service tax
return. ADMIN DEC. — 02-693 C. ISSUED —04/24/03 — SUBMITTED FOR DECISION — 03/26/03.
B. Administrative Notices
| 2003-18 — Notice of Adjusted Interest Rates On
Tax Underpayments and Overpayments and on Public Contracts For the Period of July 1, 2003
through December 31, 2003 — Issued April 15, 2003.
|
West Virginia Code §§1 1-10-17 and 17a require the Tax Commissioner to establish
interest rates every six months based on the adjusted prime rate charged by banks. The
interest rate shall not be less than 8 percent.
Notice is hereby given that for the period beginning July 1, 2003, and ending December
31, 2003, inclusive, the rate of interest on underpayments of tax will be 9.5 percent, and
the rate of interest on overpayments of taxes, and on public contracts when final payment
is delayed, will be 8 percent.
C. Administrative Rules
110 CSR 10G, Alternative Dispute Resolution of Tax Disputes, this proposed
legislative rule was modified and subsequently approved by the Legislative Rule-Making
Review Committee and refiled in the State Register on April 21, 2003.
110 CSR 17A, Tobacco Products Excise Tax on Floorstocks, after a 30-day public comment
period expired (no public comments were received), this proposed procedural rule was
adopted and filed in the State Register.
Rules projects:
A proposed Sales Tax Holiday Procedure rule will be filed for a 30-day public comment
period. A proposed legislative rule on motor fuel taxes will be filed for a 30-day public
comment period.
D. Property Tax Rulings
03-11 Real property composed of both land and structures situated thereon that is
owned by the county commission and leased to taxpayer is not exempt from ad valorem
taxation because taxpayer has not provided information sufficient to demonstrate the
Assessor’s decision is incorrect. Issued 2/28/03.
03-12 Real property deeded to a non-profit organization in September is not exempt from
ad valorem taxation because it did not own the property on the assessment date. It is also
my ruling that the ad valorem taxes on the property that is the subject of this ruling are
the liability of the owners of record of the property on the assessment date. Issued
2/28/03.
E. Other Publications
·
Publication: TSD-398 (Revised: March 2003)
Reduced Severance Tax Rate for Thin Seam Coal Produced from New Mines
·
Press Release (Revised: 04/23/2003)
Important Information for WV Filers Participating in the IRS Offshore Voluntary Compliance
Initiative
· Form: WV/CIG (Originated: April 2003)
Retailer - Inventory Report (Tax Code 08) Due
Date: May 31, 2003
· Form: Schedule C (Revised: April 2003)
Credit for B&O Tax Payable
· Executive Summary (HB 3014 passed March 5,
2003)
Main Street Fairness Act of 2003
· Administrative
Notice 2003-18 (Issued: 4/15/2003)
Notice of Adjusted Interest Rates on Tax Underpayments and Overpayments and on Public
Contracts for the Period of July 1, 2003 through December 31, 2003.
· Form: IT-102-1 (Revised: March 2003)
Affidavit of WV Income Tax Withheld
· Form: BRT-FR (Revised: March 2003)
Foreign Retailer Voluntarily Collecting and Remitting User Tax on Sales to West
Virginia Customers.
· The publication PROPERTY TAX INCREMENT FINANCING IN
WEST VIRGIN, A Guide for Counties and Class I and II Municipalities, is available in
an Acrobat file for download from the Internet at the website for the Department of Tax
and Revenue, http://www.state.wv.us/taxrev/ or the website for the West Virginia
Development Office, http://www.wvdo.oro/business/financinQ.html.
F. Internet Sites
Tax Division’s site for forms/publications: http://www.state.wv.us/taxrev/forms.html
West Virginia Legislature’s Home Page: http://www.legis.state.wv.us/