Charleston Area Tax Group PDF

Review of current state tax developments. Check back for updates.

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.

B. West Virginia

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

1. Decisions

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.

Syllabus points

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.

Summary of Case

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.

Syllabus Points

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).

Summary of Case

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."

C. Cases in Other Courts

Nothing to report.

IV. ADMINISTRATIVE ACTIVITY
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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

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:
bullet    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.

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/