Combined Reporting

13a.1. For tax years beginning on and after the January 1, 2009, any taxpayer engaged in a unitary business with one or more other corporations shall file a combined report which includes the income, determined under W. Va. Code §§11-24-13c or 13d, and the allocation and apportionment of income provisions of W. Va. Code §§11-24-1, et seq., of all corporations that are members of the unitary business.

13a.1.a. The income of an insurance company shall not be included in a combined report filed under W. Va. Code §§11-24-1, et seq. and the allocation or apportionment of income related to the insurance company shall not be included in and the apportionment factors of an insurance company shall not be included in the combined report, unless specifically required to be included by the Tax Commissioner.

13a.1.b. An insurance company, unless otherwise exempt from or excluded from tax under W. Va. Code §§11-24-1, et seq. or other provisions of the W. Va. Code, shall file a separate corporation net income tax return.

13a.2. Determination of unitary business. The term "unitary business" is defined in W. Va. Code §§11-24-1, et seq. as a single economic enterprise that is made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts.

13a.2.a. For purposes of W. Va. Code §§11-24-1, et seq. and W. Va. Code §§11-23-1, et seq. a partnership shall be treated as conducted by its partners, whether directly held or indirectly held through a series of partnerships, to the extent of the partner's distributive share of the partnership's income, regardless of the percentage of the partner's ownership interest or the percentage of its distributive or any other share of partnership income. A business conducted directly or indirectly by one corporation through its direct or indirect interest in a partnership is unitary with that portion of a business conducted by one or more other corporations through their direct or indirect interest in a partnership if there is a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts and the corporations are members of the same commonly controlled group.

13a.2.b. More than fifty percent ownership rule -- For purposes of this rule, the term commonly controlled group, with reference to any Taxpayer, means and includes all related entities as defined in this rule, in the aggregate.

13a.2.b.1. The term "related entity" means:

13a.2.b.1.1. An individual, corporation, partnership, affiliate, association or trust or any combination or group thereof controlled by the taxpayer;

13a.2.b.1.2. An individual, corporation, partnership, affiliate, association or trust or any combination or group thereof that is in control of the taxpayer;

13a.2.b.1.3. An individual, corporation, partnership, affiliate, association or trust or any combination or group thereof controlled by an individual, corporation, partnership, affiliate, association or trust or any combination or group thereof that is in control of the taxpayer; or

13a.2.b.1.4. A member of the same controlled group as the taxpayer, as the term "controlled group" is defined in Section 267 of the Internal Revenue Code of 1986, as amended.

13a.2.b.2. For purposes of this section, "control," with respect to a corporation, means ownership, directly or indirectly, of stock possessing more than fifty percent of the total combined voting power of all classes of the stock of the corporation entitled to vote. "Control," with respect to a trust, means ownership, directly or indirectly, of more than fifty percent of the beneficial interest in the principal or income of the trust. The ownership of stock in a corporation, of a capital or profits interest in a partnership or association or of a beneficial interest in a trust shall be determined in accordance with the rules for constructive ownership of stock provided in Section 267(c) of the United States Internal Revenue Code of 1954, as amended, other than paragraph (3) of that section.

13a.3. Unitary business.

13a.3.a. Determination of a unitary or separate Business.

13a.3.a.1. A corporation subject to taxation may be engaged in more than one "trade or business." In those cases, it is necessary to determine the business income attributable to each separate trade or business. The income of each business is then apportioned by a formula which takes into consideration the in-state and out-of-state factors which relate to the respective trade or business subject to apportionment.

13a.3.a.2. In addition, a corporation may be engaged in a single trade or business in combination with another commonly owned and controlled corporation or corporations. In those cases, it is necessary to determine the total business income of all corporations attributable to the single trade or business. The combined income of the single trade or business shall be apportioned by formula which takes into consideration the in-state and out-of-state factors of each corporation which relate to that single trade or business.

13a.3.a.3. When business segments of a single corporation or the business activities of more than one corporation constitute a single trade or business, the single trade or business is said to constitute a "unitary business."

13a.3.a.4. A unitary business exists when the operations of the business segments of a corporation or group of commonly owned and controlled corporations contribute to or depend on each other in such a way as to result in functional integration between the segments. Functional integration refers to transfers between or pooling among business segments of such items as products or services, technical information, marketing information, distribution systems, purchasing and intangibles (such as patents, copyrights, formulas, processes, trade secrets, and the like) in a manner which substantially affects the segments' business operations related to such activities as development, manufacture, production, extraction, distribution or sale of its products or services.

13a.3.a.5. Evidence of functionally integrating factors. -- The determination of whether or not the operations of business segments are functionally integrated will turn on the facts and circumstances of the case. Several factors may evidence that the operations of business segments are functionally integrated. A non-exclusive list of those factors is found in subparagraph 13a.3.a.6.A. Generally, several functionally integrating factors will exist in a unitary business, although a unitary business may exist as a result of few factors or even one factor if the factor or factors involved are particularly significant. In determining whether a unitary business exists, factors should not be examined in isolation. Instead, it should be determined whether the factors which are present, in combination, result in a functionally integrated business. In addition, the presence or absence of any one factor or any particular factors is not necessarily determinative as to whether a unitary business exists, although absence of all of the factors described in this subsection will generally result in a finding that a unitary business does not exist.

13a.3.a.6. Functionally integrating factors. -- A non-exclusive listing of factors to be considered in determining whether business segments are functionally integrated appears in subparagraph 13a.3.a.6.A.

13a.3.a.6.A. The existence or non-existence of the following factors will assist in the determination of whether "unity of operations" exits with respect to an affiliated group. The existence or non-existence of any one factor, by itself, is normally not determinative of whether the element has or has not been satisfied. Nor is this list a limitation on the factors that may be considered in determining whether unity of operations exists:

13a.3.a.6.A.1. Common or centralized purchasing;

13a.3.a.6.A.2. Common or centralized advertising;

13a.3.a.6.A.3. Common or centralized employees, including sales force;

13a.3.a.6.A.4. Common or centralized accounting;

13a.3.a.6.A.5. Common or centralized legal support;

13a.3.a.6.A.6. Common or centralized retirement plan;

13a.3.a.6.A.7. Common or centralized insurance coverage;

13a.3.a.6.A.8. Common or centralized marketing;

13a.3.a.6.A.9. Common or centralized cash management;

13a.3.a.6.A.10. Common or centralized research and development;

13a.3.a.6.A.11. Common or centralized offices;

13a.3.a.6.A.12. Common or centralized manufacturing facilities;

13a.3.a.6.A.13. Common, centralized, or intercompany financing;

13a.3.a.6.A.14. Common or centralized computer systems and support;

13a.3.a.6.A.15. Common or centralized management;

13a.3.a.6.A.16. Common or centralized labor relations;

13a.3.a.6.A.17. Common or centralized pension plans;

13a.3.a.6.A.18. Common or centralized personnel recruitment;

13a.3.a.6.A.19. Intercompany sales, exchanges, or transfers;

13a.3.a.6.A.20. Common, centralized, or intercompany transfer or pooling of technical information;

13a.3.a.6.A.21. Common or centralized distribution system, including but not limited to common or centralized transportation facilities, or common or centralized warehousing facilities, or common or centralized order fulfillment systems, inventory control systems or other distribution systems or subsystems, or any combination thereof.

13a.3.a.7. Intercompany sales, exchanges, or transfers.

13a.3.a.7.A. Sales, exchanges, or transfers (hereinafter "sales") of products, services, intangibles, or the like between business segments are important indicia of functional integration. The significance of intercompany sales will be a function of both the character of the items sold and percentage of total sales or purchases represented by the intercompany sales. Intercompany sales at a given level take on greater significance if there is a limited sales or purchasing market for the items or if valuable trade name or other intangibles are associated with the sales, or both.

13a.3.a.7.B. The fact that intercompany sales are at a readily determinable market price does not negate the importance of the sales as a functionally integrating factor, because the sales generally represent an assured market for the seller and a guaranteed source of supply for the purchaser.

13a.3.a.7.C. As the percentage of intercompany sales to the total sales of the selling segment increases or as the percentage of intercompany purchases of the purchasing segment's total purchases increases, the more important the purchases and sales become as a unitary factor.

13a.3.a.7.C.1. For purposes of this rule, where goods, services, or intangibles are transferred without charge, percentages of cost (or cost of goods sold) may be used in lieu of percentage of sales or purchases. For purposes of this rule, management stewardship activities are not considered an intercompany sale or transfer of services. Generally, intercompany sales or purchases in excess of 10% will be considered a significant, although not necessarily determinative, unitary factor. Sales of less than 10% become relatively less significant as the percentage of sales declines, but a small percentage of sales may nevertheless be considered significant if the sales represent goods or services which are particularly important to the purchaser's operations.

13a.3.a.7.C.2. Example. - Business segments A and B are commonly owned and controlled. Segment A grows citrus and other fruit. Segment B manufactures soft drinks. A sells to B oils extracted from the skin of a special variety of fruit for use in B's soft drinks. This oil is not significantly available from other sources. The sales represent only a small portion of A's total sales and B's total purchases. The unusual flavor produced by the oil is a major factor in the character of the soft drink. Consumer taste tests demonstrate a strong preference for the soft drink with this oil as an ingredient. The intercompany sales between A and B would be considered a significant unitary factor.

13a.3.a.7.D. Sales, exchanges, or transfers between business segments may be disregarded where intercompany sales are used as a device to assert unitary combination for tax avoidance purposes.

13a.3.a.7.D.1. Example: Company A is a West Virginia corporation with operations in West Virginia and other states. These operations are non-unitary with sister Corporations B and D, which operate entirely outside of West Virginia. B and C have had significant net operating losses for many years.

13a.3.a.7.D.1.(a). A's apportionment factors cause 90% of A's net income to be apportioned to West Virginia.

13a.3.a.7.D.1.(b). A enters into a fraudulent collusive tax avoidance scheme with its sister corporations to cause A to sell to B and C office supplies valued at less than $500 that are simply purchased and resold by A. A, B and C are not in the office supply business, and office supplies have nothing to do with A, B or C's regular business operations, except as simple consumable items used in their respective offices.

13a.3.a.7.D.1.(c). B and C each sell two used office computers to A which would have otherwise been sold for salvage value. A, B and C are not in the computer business, and computers have nothing to do with A, B or C's regular business operations, except as simple consumable items used in their respective offices. A does not use the computers and sells them less than one week after receiving them for salvage value.

13a.3.a.7.D.1.(d). A, B and C falsely assert that they are unitary businesses by reason of the intercompany sales. Because B and C have no operations in West Virginia and no nexus with West Virginia, and because of the dilutive effect of the inclusion of B's and C's denominator numbers in A's apportionment factors for A's combined unitary tax return, A now apportions less than 30% of A's income to West Virginia, thereby decreasing taxable income for West Virginia tax purposes.

13a.3.a.8. Common marketing.

13a.3.a.8.A. When business segments share substantial common marketing features, the features can be an important characteristic of functional integration when the marketing results in significant mutual advantage. For this purpose, common marketing exists when a substantial portion of the business segments' products, services, intangibles, or the like are distributed or sold to a common customer, or the business segments use a common trade name or other common identification, and the common identification is a significant factor in purchasers' decisions to purchase the respective products or services.

13a.3.a.8.A.1. Example. - Business segments A and B are commonly owned and controlled. A manufactures small tools and garden implements. B manufactures auto replacement parts and accessories. Both A and B jointly sell a substantial portion of both segment's total production to various hardware store chains, which then sell both product lines to the public. As a result of the common sales, both segments are able to obtain preference on shelf space and greater merchant participation in product promotion of each segment. The common sales would be considered a functionally integrating factor.

13a.3.a.8.A.2. Example. - Commonly owned and controlled segments A, B, and C manufacture furniture, carpeting, and household appliances, respectively. All three product lines are sold under the name "Alpha" which is a nationally recognized trade name. A, B and C jointly participate in advertising to portray the "Alpha" name as a symbol of quality and value. Based on consumer studies, the "Alpha" name is a significant factor in the consumer's decision to purchase the respective products. The common use of the trade name "Alpha" would be considered a functionally integrating factor.

13a.3.a.8.B. Common use of an advertising agency does not constitute common marketing, absent circumstances described in paragraph 13a.3.a.8.A. In addition, shared use of a commonly owned and controlled business segment which provides advertising services is not common marketing described by this subparagraph, absent circumstances described in paragraph 13a.3.a.8.A.

13a.3.a.9. Common, centralized, or intercompany transfer or pooling of technical information. -- Evidence of functional integration may be indicated by transfers or pooling of technical information, know-how, or research and development, if the transfer or pooling represents a significant economy of scale or the information shared is particularly important to the segments' operations.

13a.3.a.10. Common distribution system. -- Business segments may demonstrate evidence of functional integration by use of a common distribution system, under which inventory control and accounting, storage, trafficking, and transportation are controlled through a common network.

13a.3.a.11. Common purchasing. -- Evidence of functional integration may be indicated by common purchasing of substantial quantities of products, services intangibles, or the like from the same source, where the purchasing results in a significant economy of scale, or where the products, services, intangibles, or the like are not readily available from other sources and are particularly important to each segment's operations or sales.

13a.3.a.12. Centralized management.

13a.3.a.12.A. Centralization of management exists when directors, officers or management employees jointly participate in management decisions which significantly affect the respective business segments. Transfer of officers or management employees between business segments may also provide evidence of centralization of management.

13a.3.a.12.B. The presence of centralized management may support a finding that the operations of commonly owned and controlled business segments are unitary.

13a.3.a.12.C. Centralization of management is more significant as a unitary factor when business segments are engaged in the same general line of business or constitute steps in a vertically integrated enterprise than in other business contexts, because of the opportunity the respective segments have in making use through the central management of readily transferable knowledge and expertise of the operations of the other segment and developing coordination between the business segments.

13a.3.a.12.D. Factors accorded little weight. -- Factors such as common legal services, accounting, tax administration, and financial reporting will generally be accorded little weight in the determination of whether business segments are functionally integrated.

13a.3.a.12.E. The presence of a unitary business will be presumptively shown by the presence of the following:

13a.3.a.12.E.1. Same general line of business: There is a strong presumption that a corporation or a commonly owned and controlled group of corporations is engaged in a unitary business when its activities are in the same general line. For example, a corporation which operates a chain of retail grocery stores will almost always be engaged in a unitary business.

13a.3.a.12.E.2. Steps in a vertical process: A corporation or a commonly owned or controlled group of corporations is almost always engaged in a unitary business when its various divisions or segments are engaged in different steps in a vertically structured enterprise. For example, a corporation which explores for and mines copper ores; concentrates, smelts, and refines the copper ores; fabricates the refined copper into consumer products and distributes the products (whether by intercompany fee or purchase, or without charge) is engaged in a unitary business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the corporation's executive offices.

13a.3.a.12.F. Business segments which are neither in the same general line of business nor steps in a vertical process are presumptively engaged in separate businesses, absent a determination that the respective segments are functionally integrated.

13a.3.a.12.F.1. In the event that a business segment is functionally integrated with a second business segment and the second business segment is functionally integrated with a third business segment, the first, second and third business segments constitute a unitary business notwithstanding the fact that the first and third business segments are not functionally integrated with each other. In the event a second business segment's functional integration is not substantially viewed from the perspective of either a first or third business segment, the first, second and third business segments shall not constitute a unitary business.

13a.3.a.12.F.1.(a). Example. -- Business segments A, B, and C are commonly owned and controlled. A is an architectural firm. B is a construction company which builds office and apartment buildings. C is a manufacturer of finished steel. A provides architectural services to B, representing half of the total architectural services it provides. C designs, fabricates, and sells the superstructures used in the construction of B's office and apartment buildings. The steel superstructures constitute 20% of B's construction purchases. A and C have no intercompany sales, common marketing, pooling of technical knowledge, common distribution system or common purchases. Nevertheless, A, B, and C constitute a unitary business because B is functionally integrated with both A and C.

13a.3.a.12.F.1.(b). Example. -- Business segments A, B, and C are commonly owned and controlled. A is in the business of oil exploration, extraction, and refining. B is a charter air transportation company. C produces motion pictures. A and C have no intercompany sales, common marketing, pooling of technical knowledge, or common distribution system. A uses B's service for transporting oil executives, engineers and geologists to remote oil exploration and drilling sites. C uses B's services for flying movie executives and actors to movie locations and business meetings. A and C's common purchases are limited to the transportation services provided by B. A's use of B's service constitutes 20% of B's total charter sales. C's use of B's service constitutes 40% of B's total charter sales. However, B's service represents less than a hundredth of a percent of A's total purchases and only two tenths of a percent of C's total purchases. Despite the fact that B is functionally integrated with both A and C, A, B, and C do not constitute a unitary business.

13a.3.a.12.G. Where the taxpayer asserts that business segments are or are not unitary, the taxpayer has the burden of proof. Failure by the taxpayer to produce requested evidence which lies within the control of the taxpayer gives rise to a presumption that the evidence would be unfavorable if provided.

13a.3.a.12.H. No divisional segregation or separation for purposes of determining unitary group member status, income, or attributes. The determining factor in designation of a unitary activity is the character of the activity engaged in and not the organizational structure of the business components engaging in the activity. If a corporation or other entity is organized into divisions or other functional units or business segments not constituting separate legal entities, the corporation or entity so organized shall, as a whole, be presumed to be the unitary member if it is engaged in unitary business activity. However, if the corporation is engaged in more than one trade or business, then the determination of income attributable to each separate trade or business, authorized under paragraph 13a.3.a.1. of this rule shall be made, and the determination of income attributable to each separate trade or business engaged in with another commonly owned and controlled corporation or corporations, authorized under paragraph 13a.3.a.2. of this rule shall be made. No operations, income, or apportionment factor attributes of any such division, functional unit or business segment shall otherwise be subtracted, segregated or separated from those of the combined group.

13a.3.b. Establishment of unity for acquired entities and newly formed entities.

13a.3.b.1. Newly Acquired Corporations. When a corporation that is a member of a unitary group acquires another corporation, a presumption exists against a finding of a unitary relationship during the first reporting period unless a unitary relationship already existed at the time of the acquisition. The presumption may be rebutted by proving that the corporations are unitary. If the presumption is rebutted, then the corporations shall be considered unitary as of the date of acquisition, unless the evidence shows that unity was established as of another date.

13a.3.b.1.A. In the next succeeding reporting period after the first reporting period subsequent to an acquisition whereby a corporation that is a member of a unitary group acquires another corporation, and for all reporting periods thereafter, a presumption of a unitary relationship exists. The presumption may be rebutted by proving that the corporations are not unitary.

13a.3.b.2. Newly Formed Corporations or entities. When a corporation that is a member of a unitary group forms another corporation, a presumption exists in favor of finding unity between the two corporations or entities as of the date of formation. Any party may rebut the presumption by proving that the corporations or entities are not unitary or became unitary at a later date

13a.3.b.2.A. For purposes of this rule, a newly formed corporation or entity includes but is not limited to: a corporate reorganization whereby a corporate divestiture, split-up or split off occurs, or one or more new subsidiaries is formed, or one or more new subsidiaries is acquired and substantially all of the assets and operations of an existing division or operation are placed into or under the administrative or operational responsibility of the acquired entity, or a partnership is created or formed, or an existing corporation changes its form of doing business from one organizational structure to one or more new organizational structures or merges several subsidiary entities into an existing or newly formed entity.

13a.3.b.3. Unitary members compute their liability relating to a year when a member is added to or departs from the unitary group as follows:

13a.3.b.3.A. If a corporation becomes a member of a unitary group during the group's common accounting period, or ceases to be a member during that period, the other members shall take into account the appropriate portion of the part year member's income and the apportionment data of the part-year member in computing their tax liabilities.

13a.3.b.3.A.1. A part-year unitary member shall compute its liability as follows:

13a.3.b.3.A.1.(a). Business income attributable to the portion of the year during which the part-year unitary member was a unitary group member is combined with business income of the other unitary group members for the same portion of the year, and the total income is apportioned to West Virginia on a combined apportionment basis; and

13a.3.b.3.A.1.(b). Business income attributable to the portion of the year during which the part-year unitary member was not a unitary member is apportioned to West Virginia on the basis of the part year member's separate apportionment data for the part of the year during which the part-year unitary member was not a unitary member. The corporation shall file a separate return for this portion of its income.

13a.3.c. Holding Companies. A passive parent holding company that directly or indirectly controls one or more operating company subsidiaries engaged in a unitary business shall be considered to be engaged in a unitary business and includable in a combined report with the subsidiary or subsidiaries. An intermediate passive holding company shall be considered to be engaged in a unitary business with the parent and subsidiary or subsidiaries and includable in a combined report with them.

13a.3.d. Statute of limitations. If the statute of limitations applicable to refund claims and assessments is open with respect to a particular member of the combined group, the statute of limitations is open with respect to that particular Taxpayer notwithstanding the fact that the statute of limitations may have expired for one or more other members of the combined group.

13a.3.d.1. The statute of limitations applicable to refund claims and assessments for members of a combined reporting group which have filed their tax return based on a fiscalized reporting period matched to the accounting period of a principal member shall be the statute of limitations determined and computed based on the fiscalized accounting period.

13a.3.d.2. If a return is filed pursuant to a combined report, the Tax Commissioner may examine and audit that return, and collect any deficiency from a combined group member for whom the statute of limitations for assessments has not expired, even if the statute of limitations for other members which filed pursuant to the same combined report has expired. Any deficiency assessed pursuant to the audit or examination will not cause a reopening of the statute of limitations for those other members for which the statute of limitations has expired who filed pursuant to the same combined report.

§§110-24-13b. Reserved for Future Use.