Allocation and Apportionment for tax years beginning on and after January 1, 2022

6.1. This section heading will apply to all tax years beginning on and after January 1, 2022. C corporations having a fiscal tax year ending after January 1, 2022, and before December 31, 2022, will fall under the transition rules under section heading 6a. Tax years ending before January 1, 2022, will fall under allocation and apportionment rules under section heading 7.

6.2. "Business activities" include all activities engaged in by the corporation, and includes those activities giving rise to both business income and nonbusiness income.

6.2.1. If the business activities of a taxpayer take place entirely within this state, then the taxpayer does not allocate its nonbusiness income or apportion its business income using the apportionment methodologies prescribed by the statute, and the entire net income of the corporation is subject to the corporation net income tax.

6.2.1.a. The business activities of a taxpayer are considered to have taken place in their entirety within this state if the taxpayer is not taxable in another state.

6.2.1.b. "Not taxable in another state" means the taxpayer is not subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporation stock tax in another state, and another state has no jurisdiction to subject the taxpayer to a net income tax.

6.2.2. A combined group apportions the group's adjusted federal taxable income from unitary business when one or more of the members of the combined group engage in business only within the State of West Virginia, but one or more other members of the combined group engage in business activities partially in West Virginia and partially outside of West Virginia.

6.2.3. If all business activities of all combined group members take place entirely within West Virginia, then the entire net income of each combined group member is subject to the West Virginia corporation net income tax without apportionment.

6.3. Allocation of non-business income -- Pursuant to W. Va. Code §11-24-7(d), if the business activities of a taxpayer take place partially within and partially without this state and the taxpayer is also taxable in another state, then rents and royalties from real or tangible personal property, capital gains, interest, dividends or patent or copyright royalties shall be allocated to the extent that they constitute nonbusiness income of the taxpayer.

6.3.1. The extent of use of tangible personal property in a state is determined by multiplying the nonbusiness rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is used in the state in which the property was located at the time the rental or royalty payer obtained possession.

6.3.2. If property is in this state for any part of a day, that time shall be counted as a full day.

6.3.3. Examples.

Example 1. Corporation A was formed in Ohio and has its main offices there. Corporation A owns an apartment complex in West Virginia and leases computers to users located in West Virginia. The nonbusiness net rental income from the rental of the apartment complex is allocated to West Virginia for purposes of the West Virginia Corporation Net Income Tax. Likewise, the nonbusiness net rental income received by Corporation A as a lessor of computers in this state is allocated to this state.

Example 2. Corporation Z was formed in State X and has its commercial domicile in the State of West Virginia. Corporation Z leases tangible personal property to customers in State K and derives nonbusiness income from that activity. State K has no corporation net income tax. The net receipts from leasing tangible personal property in State K are allocated entirely to the State of West Virginia.

Example 3. Corporation Alpha, organized and headquartered in California, leases coal mining equipment in West Virginia. Alpha began leasing equipment in West Virginia on April 1 and is a calendar year taxpayer. The coal mining equipment was not in this state until April 1, the date the lease commenced. The property is leased in this state for 275 of the 365 days in the year. If rental income from the coal mining equipment located in the State of West Virginia is nonbusiness income, and if Alpha Corporation netted $15,000 for leasing this equipment for the entire year, Alpha would include in West Virginia income the following amount: 275/365 x $15,000 = $11,301.37.

If Alpha Corporation has adequate records to show the net rental income from the equipment while the equipment was leased in this state, then it may use the actual net rental income and not "apportion" its allocation of net rental income.

6.4. Apportionment -- Business activities partially within and partially without this state.

6.4.1. Where a corporation has business activities partially within and partially without this state, all income of the corporation is apportioned, except nonbusiness income specifically identified in W. Va. Code §11-24-7(d), which is allocated. Where a corporation has business activities that are in West Virginia and other states, its other net nonbusiness income that was not allocated under W. Va. Code §11-24-7(d) and all of its net business income will be apportioned.

6.4.1.a. Where a corporation has income from business activities partially within this state and partially outside of this state, all net income, after deducting those items specifically allocated under W. Va. Code §11-24-7(d), shall be apportioned to this state by multiplying the net income by a fraction, the numerator of which is the gross receipts of the taxpayer derived from transactions and activity in the regular course of its trade or business in this state during the taxable year, less returns and allowances attributable to the gross receipts from the West Virginia activity. The denominator of the fraction is the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business during the taxable year and reflected in its gross income reported and as appearing on the taxpayer's Federal Form 1120 and consisting of those certain pertinent portions of the elements of gross income set forth. This fraction is known as the "sales factor." Note that this subdivision does not apply if the corporation is subject to a special apportionment method under W. Va. Code §§11-24-7a or 7b, or is authorized to use a special apportionment method pursuant to W. Va. Code §11-24-7(h).

6.4.1.b. The only sales to be included in the sales factor are those which produce business income.

6.4.1.c. If either the numerator or the denominator includes interest or dividends from obligations of the United States government which are exempt from taxation by this state, the amount of the interest and dividends, if any, shall be subtracted from the numerator or denominator in which it is included.

6.4.2. Sales factor denominator. -- The denominator of the sales factor includes the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, unless otherwise excluded in this rule.

6.4.3. Sales factor numerator. -- The numerator of the sales factor shall include gross receipts attributable to this state and derived by the taxpayer from transactions and activity in the regular course of its trade or business. All interest income, service charges, carrying charges, or time-price differential changes incidental to the gross receipts shall be included regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness.

6.4.4. Rules for determining what is included in the gross receipts of a sale in certain circumstances --

6.4.4.a. In the case of a taxpayer engaged in manufacturing and selling or purchasing and reselling goods or products, "sales" includes all gross receipts from the sales of such goods or products (or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period) held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Gross receipts for this purpose mean gross sales less returns and allowances, and includes all interest income, service charges, carrying charges, or time-price differential charges incidental to such sales. Federal and state excise taxes (including sales taxes) shall be included as part of such receipts if such taxes are reflected in the taxpayer's gross income reported and as appearing on the taxpayer's Federal Form 1120.

6.4.4.b. In the case of cost fixed fee contracts, such as the operation of a government-owned plant for a fee, "sales" includes the entire reimbursed cost, plus the fee.

6.4.4.c. In the case of a taxpayer engaged in providing services, such as the operation of an advertising agency, or the performance of equipment service contracts, or research and development contracts, "sales" includes the gross receipts from the performance of the services including fees, commissions, and similar items.

6.4.4.d. In the case of a taxpayer engaged in renting real or tangible personal property, "sales" includes the gross receipts from the rental, lease, or licensing of the use of the property.

6.4.4.e. In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible personal property such as patents and copyrights, "sales" includes the gross receipts therefrom.

6.4.5. Example -- General Apportionment Formula:

The following is an example of how the apportionment formula works in the context of the corporation net income tax:

A hypothetical corporation has facilities and operations in Pennsylvania, West Virginia, New York, and California.

The corporation has sales in 47 of the 50 states of the USA.

The apportionment formula is as follows:

|Sales in WV |
|Sales in USA |

Federal Taxable Income -- The corporation has $10,000,000 in federal adjusted gross income from all operations in the USA after West Virginia modifications and adjustments. These modifications and adjustments are for certain items that are required to be added to, or subtracted from, federal taxable income before apportionment.

Sales in the USA -- The total sales of the corporation in the entire USA (all of the 47 states in which the corporation has sales) are $435,009,000.

Sales in West Virginia -- The total sales of the corporation in West Virginia are $104,000.

The apportionment formula, using these values, would be as follows:

|104,000 |
|435,009,000 |

OR

0.000239 -- This is the apportionment factor.

Assuming that the corporation has no allocable West Virginia income, out of all of the operations in the USA, 0.000239 of the operations of the corporation are attributable to West Virginia operations and activity.

Net federal taxable income from all operations in the USA, after WV modifications and adjustments is $10,000,000.

Applying the apportionment formula, West Virginia taxable income is:
|Federal Taxable Income (After | |Apportionment Factor | |WV Taxable Income |
|Adjustments) | | | | |
|$10,000,000 |x |0.000239 |= |$2,390.00 |

The final computation of the tax is as follows. The hypothetical corporation has federal taxable income after modifications and adjustments allocated and apportioned to West Virginia in the amount of $2,390.00. The tax rate for the given year is 8.75%.

Tax is .0875 x $2,390.00 = $209.13 (rounded).

Tax is $209.13.

6.4.6. In filing returns with this state, if the taxpayer departs from or modifies the basis for excluding or including gross receipts in the sales factor used in returns for prior years, the taxpayer shall disclose that information by attaching a statement, setting forth the nature and effect of the change, to the corporation net income tax return for the current year.

6.4.7. Determining what gross receipts are attributable to this state: Sales from a unitary member that does not have nexus with West Virginia. -- West Virginia is a "Joyce State." The Joyce case (Appeal of Joyce, Inc., 66 SBE 069, 1966 WL 1411 (Cal. St. Bd. Eq.) (Nov. 23, 1966)) and the Finnegan case (Appeal of Finnigan Corp., 88- SBE-022-A, 1990 WL 15164 (Cal. St. Bd. Eq.) (Jan. 24, 1990)) were tax matters brought before the California State Board of Equalization. States that follow the decision in the Joyce case are known as "Joyce States."

6.4.7.a.. The issue for which these cases have become known relates to the determination of the sales that are included in the numerator of the sales factor.

In synopsis, the basic distinction is as follows:

Joyce -- If a unitary group member has nexus with the state, then "in state" gross receipts of that member are included in the sales factor numerator, but not if the member does not have nexus with the state, determined on a "stand alone" basis.

Finnigan -- If one or more unitary group members has nexus with the state, then "in state" gross receipts of all unitary group members are included in the sales factor numerator, including "in state" gross receipts of a unitary group member that, itself, does not have nexus with the state, determined on a "stand alone" basis.

6.4.7.b. Because West Virginia is a "Joyce State," if the unitary member does not have nexus with West Virginia, or if the unitary member is not taxable under the protections of PL 86-272, then that unitary member's gross receipts derived from transactions and activity in the regular course of its trade or business in West Virginia are not included in the numerator of the sales factor when the tax return is prepared, and for combined group members, when the combined report is prepared.

6.4.8. Determining what gross receipts are attributable to this state: Allocation of sales of tangible personal property. --

6.4.8.a. Sales of tangible personal property are in this state if the property is received in this state by the purchaser, other than the United States government, regardless of the f.o.b. point or other conditions of the sale. In the case of delivery by common carrier or other means of transportation, the place at which the property is ultimately received after all transportation has been completed shall be considered as the place at which the property is received by the purchaser, regardless of where title passes or other conditions of sale. Direct delivery in this state, other than for purposes of transportation, to a person or firm designated by the purchaser, constitutes delivery to the purchaser in this state, and direct delivery outside this state to a person or firm designated by the purchaser does not constitute delivery to the purchaser in this state, regardless of where title passes or other conditions of sale. The sales of tangible personal property are also in this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state and the purchaser is the United States government.

6.4.8.b. Where tangible personal property is sold and the terms of the sale require the purchaser to pick up the property or otherwise receive the property in this state, the sale is to be treated as a sale taking place in this state.

6.4.8.c. In the case of sales requiring by their terms the delivery of tangible personal property by common carrier, contract carrier or by other means of transportation excluding pickup by the customer in this state, whether directly or indirectly, the place at which the property is ultimately received after all transportation has been completed shall be considered as the place at which the property is received by the purchaser.

6.4.8.d. Direct delivery in this state, other than for purposes of transportation, to a person or firm designated by a purchaser constitutes delivery to the purchaser in this state regardless of where title passes, or other conditions of sale.

6.4.8.e. Direct delivery outside this state to a person or firm designated by a purchaser does not constitute delivery to the purchaser in this state, regardless of where title passes, or other conditions of sale.

6.4.8.f. Examples. --

Example 1. Baubles, Inc. is located in Huntington, West Virginia, and makes sales of tangible personal property to an Ohio company. The terms of sale require the Ohio company to pick up the merchandise from the loading dock at Baubles. The sale is to be treated by Baubles as a sale taking place in this state.

Example 2. Alpha Corporation, which manufactures a highly sophisticated device used in mining, purchases certain tangible personal property from a company located in Virginia. Alpha Corporation, located in Bergoo, West Virginia is required by the terms of the sales contract to pick up the merchandise at the Virginia company's loading dock in Virginia. The sale is to be treated as not occurring in West Virginia by the Virginia company, absent other nexus with West Virginia.

Example 3. RPS, Inc., is located in Morgantown, West Virginia and makes sales of tangible personal property. Some of the sales contracts require RPS to ship the goods to companies located outside of this state via common carrier. The sales of the tangible personal property shipped by the carrier are not included as West Virginia sales.

6.4.8.g. Special rules. --

6.4.8.g.1. Where substantial amounts of gross receipts arise from an incidental or occasional sale of a fixed asset used in the regular course of the taxpayer's trade or business, the gross receipts shall be excluded from the sales factor. For example, gross receipts from the sale of a factory or plant will be excluded.

6.4.8.g.2. Insubstantial amounts of gross receipts arising from incidental or occasional transactions or activities may be excluded from the sales factor unless the exclusion would materially affect the amount of income apportioned to this state. For example, the taxpayer ordinarily may include or exclude from the sales factor gross receipts from such transactions as the sale of office furniture, business automobiles, etc.

6.4.8.g.3. Where the income producing activity of a taxpayer other than a banking or financial institution, in respect to business income from intangible personal property, can be readily identified, the income is included in the denominator of the sales factor and, if the income producing activity occurs in this state, the numerator of the sales factor as well. For example, usually the income producing activity can be readily identified in respect to interest income received on deferred payments on sales of tangible personal property and income from the sale, licensing, or other use of intangible personal property.

6.4.8.g.4. Where the business income from intangible property cannot readily be attributed to any particular income producing activity of a taxpayer other than a banking or financial institution, the income cannot be assigned to the numerator of the sales factor for any state and shall be excluded from the denominator of the sales factor. For example, where business income in the form of dividends received on stock, royalties received on patents or copyrights, or interest received on bonds, debentures, or government securities results from the mere holding of the intangible personal property by the taxpayer, the dividends, royalties, and interest shall be excluded from the denominator of the apportionment factor.

6.4.9. No Throw Rule -- All other sales of tangible personal property delivered or shipped to a purchaser within a state in which the taxpayer is not taxed are excluded from the numerator of the sales factor, but remain in the denominator. This is commonly known as the no throw rule.

6.4.9.a. "Not taxed in another state" means that, in another state, the taxpayer is not subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporation stock tax, and another state has no jurisdiction to subject the taxpayer to a net income tax.

6.4.9.b. Application of the no throw rule when computing the unitary group's apportionment factor numerator in the group's combined report. The use of a combined report does not disregard the separate identities of the taxpayer members of the combined group. Consequently, the no throw rule is applied on a corporation-by-corporation basis and is not applied as if the combined group were a single taxpayer. The separate corporation apportionment factor numerators are then aggregated to determine the numerator of the apportionment factor of the combined group.

6.4.9.c. Examples. --

Example 1. When all sales of tangible personal property produce income from unitary group business activity. -- A combined group engaged in unitary business activity consists of Corporations A, B, and C. The combined group makes sales to customers in West Virginia and in State 1 and 2. But not every member of the combined group makes sales to customers in all of those states and, in some of the states, the member is not subject to an income tax because of Public Law 86-272. When computing the numerator of the combined group's apportionment factor for purposes of the West Virginia combined report, the no throw rule will be applied separately to each member of the combined group and the aggregate adjusted numerator will be the sales factor numerator for the combined group engaged in unitary business activity.

|Sales Factor Determination under No Throw Rule |
| |Total Sales = Denominator |Numerator |
| |WV |State 1 |State 2 |WV | State 1 |State 2 |
|Corporation A |$5 million |$5 million |$6 million |$5 million |N/A |N/A |
|Corporation B |$10 million, but |$ 7 million |No Sales |$5 million |N/A |N/A |
| |$5 million not | | | | | |
| |taxable | | | | | |
|Corporation C |$5 million |$ 3 million, but |$4 million, but $2 |$5 million |N/A |N/A |
| | |not taxable |million not taxable| | | |
|Sub-total: |$20 million |$15 million |$10 million |$15 million |N/A |N/A |
|Total |$45 million in Denominator |$15 million in Numerator |

Example 2. When some but not all sales of tangible personal property produce income from unitary group business activity. -- A combined group engaged in unitary business activity consists of Corporations A, B, C and D. Corporations A and C also have income from business activity that is not unitary business activity. The combined group makes sales to customers in States 1, 2, 3, 4, 5 and 6. But not every member of the combined group makes sales to customers in all of those states and, in some of the states, the member is not subject to an income tax because of Public Law 86-272. Because Corporations A and C have receipts from sales of tangible personal property that produce business income from unitary business activity and receipts from sales of tangible personal property that produces business income from other business activities that are not unity business activities, the apportionment factor numerators and denominators of Corporations A and C shall be further analyzed so that only sales of tangible personal property from unitary business activity are included when apportioning the business income from unitary business activity.

Example 3. -- When a partnership owned in part by a corporation has taxable nexus in one or more states into which the corporation sells tangible personal property, but the corporation does not otherwise have taxable nexus with those states. A combined group engaged in unitary business activity consists of Corporations A, B, C and D. The combined group makes sales to customers in States 1, 2, 3, 4, 5 and 6. However, Corporations A and C do not sell tangible personal property to customers in all of those states or, in some of the states, Corporations A and C are not subject to an income tax because of application of Public Law 86-272. Corporations A and C each own an interest in partnerships engaged in unitary business activity with the combined group. These partnerships have taxable nexus with states into which Corporations A and C sell tangible personal property and in which Corporations A and C do not have taxable nexus if their partnership interests are disregarded. Each corporation's share of sales reflected in the apportionment factors of the partnerships are included in the apportionment factors of Corporation A and C, which are the corporate owners of the partnerships. As a consequence, all members of the combined group have taxable nexus with all of the states into which they sell tangible personal property, and the no throw does not apply to this combined group.

6.4.10. Determining what gross receipts are attributable to this state: Allocation of sales of intangible property. -- West Virginia uses market-based sourcing to determine if the gross receipts from the sales of intangible property are attributable to West Virginia, as discussed in subsection 6.5 of this rule.

6.5 Market-Based Sourcing. -- Receipts, other than receipts described in W. Va. Code §11-24-7(e)(11) (from sales of tangible personal property) are in West Virginia within the meaning of W.Va. Code §11-24-7(b) and this rule if and to the extent that the taxpayer's market for the sales is in West Virginia. In general, the provisions in this subsection establish uniform rules for (1) determining whether and to what extent the market for a sale other than the sale of tangible personal property is in West Virginia, (2) reasonably approximating the state or states of assignment where the state or states cannot be determined, and (3) excluding receipts from the sale of intangible property from the numerator and denominator of the apportionment factor pursuant to W.Va. Code §11-24-7(e)(13)(B).

6.5.1. Definitions. -- For the purposes of section heading 6 of this Rule:

6.5.1.a. "Billing address" means the location indicated in the books and records of the taxpayer as the primary mailing address relating to a customer's account as of the time of the transaction, as kept in good faith in the normal course of business and not for tax avoidance purposes.

6.5.1.b. "Broadcast customer" means a person, corporation, partnership, limited liability company, or other entity, such as an advertiser or a platform distribution company, that has a direct connection or contractual relationship with the broadcaster under which revenue is derived by a broadcaster.

6.5.1.c. "Broadcaster" means a taxpayer that is a television broadcast network, a cable program network, or a television distribution company. The term "broadcaster" does not include a platform distribution company.

6.5.1.d. "Business customer" means a customer that is a business operating in any form, including a sole proprietorship. Sales to a non-profit organization, to a trust, to the U.S. Government, to a foreign, state, or local government, or to an agency or instrumentality of that government are treated as sales to a business customer and must be assigned consistent with the rules for those sales.

6.5.1.e. "Individual customer" means a customer that is not a business customer.

6.5.1.f. "Intangible property" generally means property that is not physical or whose representation by physical means is merely incidental and includes, without limitation, copyrights; patents; trademarks; trade names; brand names; franchises; licenses; trade secrets; trade dress; information; know-how; methods; programs; procedures; systems; formulae; processes; technical data; designs; licenses; literary, musical, or artistic compositions; information; ideas; contract rights including broadcast rights; agreements not to compete; goodwill and going concern value; securities; and, except as otherwise provided in this rule, computer software.

6.5.1.g. "Place of order" means the physical location from which a customer places an order for a sale other than a sale of tangible personal property from a taxpayer, resulting in a contract with the taxpayer.

6.5.1.h. "Film programming" means one or more performances, events, or productions (or segments of performances, events, or productions) intended to be distributed for visual and auditory perception, including but not limited to news, entertainment, sporting events, plays, stories, or other literary, commercial, educational, or artistic works.

6.5.1.i. "Population" means the most recent population data maintained by the U.S. Census Bureau for the year in question as of the close of the taxable period.

6.5.1.j. "Related party" means:

6.5.1.j.1. A stockholder who is an individual, or a member of the stockholder's family set forth in section 318 of the Internal Revenue Code if the stockholder and the members of the stockholder's family own, directly, indirectly, beneficially, or constructively, in the aggregate, at least 50 percent of the value of the taxpayer's outstanding stock;

6.5.1.j.2. A stockholder, or a stockholder's partnership, limited liability company, estate, trust, or corporation, if the stockholder and the stockholder's partnerships, limited liability companies, estates, trusts, and corporations own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50 percent of the value of the taxpayer's outstanding stock; or

6.5.1.j.3. A corporation, or a party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of the Internal Revenue Code if the taxpayer owns, directly, indirectly, beneficially, or constructively, at least 50 percent of the value of the corporation's outstanding stock. The attribution rules of the Internal Revenue Code apply for purposes of determining whether the ownership requirements of this definition have been met.

6.5.1.j.4. The provisions of this rule regarding sales between related parties do not apply to sales that are treated as intercompany transactions between affiliated corporations filing a consolidated West Virginia return which are deferred as provided in section heading 13d of this Rule.

6.5.1.k. "State where a contract of sale is principally managed by the customer" means the primary location at which an employee or other representative of a customer serves as the primary contact person for the taxpayer with respect to the day-to-day execution and performance of a contract entered into by the taxpayer with the customer.

6.5.2. General Principles of Application; Contemporaneous Records. -- In order to satisfy the requirements of this rule, a taxpayer's assignment of receipts other than receipts from sales of tangible personal property must be consistent with the following principles:

6.5.2.a. This rule provides various assignment rules that apply sequentially in a hierarchy. For each sale to which a hierarchical rule applies, a taxpayer must make a reasonable effort to apply the primary rule applicable to the sale before seeking to apply the next rule in the hierarchy (and must continue to do so with each succeeding rule in the hierarchy, where applicable). For example, in some cases, the applicable rule first requires a taxpayer to determine the state or states of assignment, and if the taxpayer cannot do so, the rule requires the taxpayer to reasonably approximate the state or states. In these cases, the taxpayer must attempt to determine the state or states of assignment (i.e., apply the primary rule in the hierarchy) in good faith and with reasonable effort before it may reasonably approximate the state or states.

6.5.2.b. A taxpayer's method of assigning its receipts, including the use of a method of approximation, where applicable, must reflect an attempt to obtain the most accurate assignment of receipts consistent with the regulatory standards set forth in this rule, rather than for tax avoidance purposes. A method of assignment that is reasonable for one taxpayer may not necessarily be reasonable for another taxpayer, depending upon the applicable facts.

6.5.3. Rules of Reasonable Approximation. --

6.5.3.a. In General. -- In general, this rule establishes uniform rules for determining whether and to what extent the market for a sale other than the sale of tangible personal property is in West Virginia. This rule also sets forth rules of reasonable approximation, which apply if the state or states of assignment cannot be determined. In some instances, the reasonable approximation must be made in accordance with specific rules of approximation prescribed in this rule. In other cases, the applicable rule permits a taxpayer to reasonably approximate the state or states of assignment using a method that reflects an effort to approximate the results that would be obtained under the applicable rules or standards set forth in this rule.

6.5.3.b. Approximation Based Upon Known Sales. In an instance where, applying the applicable rules set forth in §110-24-6.5.7 (Sale of a Service), a taxpayer can ascertain the state or states of assignment of a substantial portion of its receipts from sales of substantially similar services ("assigned receipts"), but not all of those sales, and the taxpayer reasonably believes, based on all available information, that the geographic distribution of some or all of the remainder of those sales generally tracks that of the assigned receipts, it must include receipts from those sales which it believes track the geographic distribution of the assigned receipts in its sales factor in the same proportion as its assigned receipts. This rule also applies in the context of licenses and sales of intangible property where the substance of the transaction resembles a sale of goods or services.

6.5.3.c. Related-Party Transactions. -- Information Imputed from Customer to Taxpayer. Where a taxpayer has receipts subject to this rule from transactions with a related-party customer, information that the customer has that is relevant to the sourcing of receipts from these transactions is imputed to the taxpayer.

6.5.4. Rules with Respect to Exclusion of Receipts from the Sales Factor. --

6.5.4.a. The apportionment factor only includes those amounts defined as sales under W. Va. Code §11-24-7(e) and applicable rules.

6.5.4.b. Certain receipts arising from the sale of intangibles are excluded from the numerator and denominator of the sales factor pursuant to W.Va. Code §11-24-7(e)(13)(B).

6.5.5. Sale, Rental, Lease, or License of Real Property. -- In the case of a sale, rental, lease, or license of real property, the receipts from the sale are in West Virginia if and to the extent that the property is in West Virginia.

6.5.6. Rental, Lease, or License of Tangible Personal Property. -- In the case of a rental, lease, or license of tangible personal property, the receipts from the sale are in West Virginia if and to the extent that the property is in West Virginia.

6.5.6.a. The rental, lease, licensing or other use of tangible personal property in this state is a separate income producing activity from the rental, lease, licensing or other use of the same property while located in another state; consequently, if property is within and without this state during the rental, lease, or licensing period, gross receipts attributable to this state shall be measured by the ratio which the days the property was physically present or was used in this state bears to the total days of the physical location or use of the property everywhere during that period, including the days it was physically located or used in a state in which the taxpayer is not taxed within the meaning of that term as provided in §110-24-6.4.10 of this rule.

6.5.6.b. Example. -- The taxpayer is the owner of ten railroad cars. During the current tax year, the total of the days each railroad car was present in this state was 60 days. The receipts attributable to the use of each of the railroad cars in this state are a separate item of income and shall be determined as follows:

|( |10 cars X 60 days each |) |X Total receipts = Receipts attributable to this state. |
| |365 days in 1 year X 10 cars | | |

6.5.7. Sale of a Service. --

6.5.7.a. General Rule. The receipts from a sale of a service are in West Virginia if and to the extent that the service is delivered to a location in West Virginia. In general, the term "delivered to a location" refers to the location of the taxpayer's market for the service, which may not be the location of the taxpayer's employees or property. The rules to determine the location of the delivery of a service in the context of several specific types of service transactions are set forth in §110-24-6.5.7.b through §110-24-6.5.7.d of this rule.

6.5.7.b. In-Person Services. --

6.5.7.b.1. In General. Except as otherwise provided in §110-24-6.5.7.b of this rule, in-person services are services that are physically provided in person by the taxpayer, where the customer or the customer's real or tangible property upon which the services are performed is in the same location as the service provider at the time the services are performed. This rule includes situations where the services are provided on behalf of the taxpayer by a third-party contractor. Examples of in-person services include, without limitation, warranty and repair services; cleaning services; plumbing services; carpentry; construction contractor services; pest control; landscape services; medical and dental services, including medical testing, x-rays, and mental health care and treatment; childcare; hair cutting and salon services; live entertainment and athletic performances; and in-person training or lessons. In-person services include services within the description above that are performed at (1) a location that is owned or operated by the service provider or (2) a location of the customer, including the location of the customer's real or tangible personal property. Various professional services, including legal, accounting, financial and consulting services, and other similar services as described in §110-24-6.5.7.d of this rule, although they may involve some amount of in-person contact, are not treated as in-person services within the meaning of §110-24-6.5.7.b of this rule.

6.5.7.b.2 Assignment of Receipts. --

6.5.7.b.2.A. Rule of Determination. Except as otherwise provided in §110-24-6.5.7.b.2 of this rule, if the service provided by the taxpayer is an in-person service, the service is delivered to the location where the service is received. Therefore, the receipts from a sale are in West Virginia if and to the extent the customer receives the in-person service in West Virginia. In assigning its receipts from sales of in-person services, a taxpayer must first attempt to determine the location where a service is received, as follows:

6.5.7.b.2.B. If the service is performed with respect to the body of an individual customer in West Virginia (e.g., hair cutting or x-ray services) or in the physical presence of the customer in West Virginia (e.g., live entertainment or athletic performances), the service is received in West Virginia.

6.5.7.b.2.C. If the service is performed with respect to the customer's real estate in West Virginia or if the service is performed with respect to the customer's tangible personal property at the customer's residence or in the customer's possession in West Virginia, the service is received in West Virginia.

6.5.7.b.2.D. If the service is performed with respect to the customer's tangible personal property and the tangible personal property is to be shipped or delivered to the customer, whether the service is performed within or outside West Virginia, the service is received in West Virginia if the property is shipped or delivered to the customer in West Virginia.

6.5.7.b.3. Rule of Reasonable Approximation. -- If the state or states where a service is actually received cannot be determined, the taxpayer must reasonably approximate such state or states.

6.5.7.b.4. Examples. -- For purposes of the examples, it is irrelevant whether the services are performed by an employee of the taxpayer or by an independent contractor acting on the taxpayer's behalf.

Example 1: Salon Corp has retail locations in West Virginia and in other states where it provides hair cutting services to individual and business customers, the latter of whom are paid for through the means of a company account. The receipts from sales of services provided at Salon Corp's in-state locations are in West Virginia. The receipts from sales of services provided at Salon Corp's locations outside West Virginia, even when provided to residents of West Virginia, are not receipts from in-state sales.

Example 2: Landscape Corp provides landscaping and gardening services in West Virginia and in neighboring states. Landscape Corp provides landscaping services at the in-state vacation home of an individual who is a resident of another state and who is located outside West Virginia at the time the services are performed. The receipts from sale of services provided at the in-state location are in West Virginia.

Example 3: Same facts as Example 2, except that Landscape Corp provides the landscaping services to Retail Corp, a corporation with retail locations in several states, and the services are with respect to those locations of Retail Corp that are in West Virginia and in other states. The receipts from the sale of services provided to Retail Corp are in West Virginia to the extent the services are provided in West Virginia.

Example 4: Camera Corp provides camera repair services at an in-state retail location to walk-in individual and business customers. In some cases, Camera Corp actually repairs a camera that is brought to its in-state location at a facility that is in another state. In these cases, the repaired camera is then returned to the customer at Camera Corp's in-state location. The receipts from sale of these services are in West Virginia.

Example 5: Same facts as Example 4, except that a customer located in West Virginia mails the camera directly to the out-of-state facility owned by Camera Corp to be fixed and receives the repaired camera back in West Virginia by mail. The receipts from sale of the service are in West Virginia.

Example 6: Teaching Corp provides seminars in West Virginia to individual and business customers. The seminars and the materials used in connection with the seminars are prepared outside the state, the teachers who teach the seminars include teachers that are resident outside the state, and the students who attend the seminars include students that are resident outside the state. Because the seminars are taught in West Virginia, the receipts from sales of the services are in West Virginia.

6.5.7.c. Services Delivered to the Customer or on Behalf of the Customer or Delivered Electronically Through the Customer. --

6.5.7.c.1. In General. If the service provided by the taxpayer is not an in-person service within the meaning of §110-24-6.5.7.b of this rule or a professional service within the meaning of §110-24-6.5.7.d of this rule, and the service is delivered to or on behalf of the customer, or delivered electronically through the customer, the receipts from a sale are in West Virginia if and to the extent that the service is delivered in West Virginia. For purposes of §110-24-6.5.7.c of this rule, a service that is delivered "to" a customer is a service in which the customer and not a third party is the recipient of the service. A service that is delivered "on behalf of" a customer is one in which a customer contracts for a service but one or more third parties, rather than the customer, is the recipient of the service, such as fulfillment services, or the direct or indirect delivery of advertising to the customer's intended audience (see §110-24-6.5.7.c.2.A of this rule and Example 4 under §110-24-6.5.7.c.2.A.3 of this rule). A service can be delivered to or on behalf of a customer by physical means or through electronic transmission. A service that is delivered electronically "through" a customer is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to an end user or other third-party recipient.

6.5.7.c.2. Assignment of Receipts. -- The assignment of receipts to a state or states in the instance of a sale of a service that is delivered to the customer or on behalf of the customer, or delivered electronically through the customer, depends upon the method of delivery of the service and the nature of the customer. Separate rules of assignment apply to services delivered by physical means and services delivered by electronic transmission. (For purposes of §110-24-6.5.7.c of this rule, a service delivered by an electronic transmission is not a delivery by physical means). If a rule of assignment set forth in §110-24-6.5.7.c of this rule depends on whether the customer is an individual or a business customer, and the taxpayer acting in good faith cannot reasonably determine whether the customer is an individual or business customer, the taxpayer must treat the customer as a business customer.

6.5.7.c.2.A. Delivery to or on Behalf of a Customer by Physical Means Whether to an Individual or Business Customer. -- Services delivered to a customer or on behalf of a customer through a physical means include, for example, product delivery services where property is delivered to the customer or to a third party on behalf of the customer; the delivery of brochures, fliers, or other direct mail services; the delivery of advertising or advertising-related services to the customer's intended audience in the form of a physical medium; and the sale of custom software (e.g., where software is developed for a specific customer in a case where the transaction is properly treated as a service transaction for purposes of corporate taxation) where the taxpayer installs the custom software at the customer's site. The rules in §110-24-6.5.7.c.2.A of this rule apply whether the taxpayer's customer is an individual customer or a business customer.

6.5.7.c.2.A.1. Rule of Determination. -- In assigning the receipts from a sale of a service delivered to a customer or on behalf of a customer through a physical means, a taxpayer must first attempt to determine the state or states where the service is delivered. If the taxpayer is able to determine the state or states where the service is delivered, it must assign the receipts to that state or states.

6.5.7.c.2.A.2. Rule of Reasonable Approximation. -- If the taxpayer cannot determine the state or states where the service is actually delivered, it must reasonably approximate the state or states.

6.5.7.c.2.A.3. Examples:

Example 1: Direct Mail Corp, a corporation based outside West Virginia, provides direct mail services to its customer, Business Corp. Business Corp contracts with Direct Mail Corp to deliver printed fliers to a list of customers that is provided to it by Business Corp. Some of Business Corp's customers are in West Virginia and some of those customers are in other states. Direct Mail Corp will use the postal service to deliver the printed fliers to Business Corp's customers. The receipts from the sale of Direct Mail Corp's services to Business Corp are assigned to West Virginia to the extent that the services are delivered on behalf of Business Corp to West Virginia customers (i.e., to the extent that the fliers are delivered on behalf of Business Corp to Business Corp's intended audience in West Virginia).

Example 2: Ad Corp is a corporation based outside West Virginia that provides advertising and advertising-related services in West Virginia and in neighboring states. Ad Corp enters into a contract at a location outside West Virginia with an individual customer who is not a West Virginia resident to design advertisements for billboards to be displayed in West Virginia and to design fliers to be mailed to West Virginia residents. All of the design work is performed outside West Virginia. The receipts from the sale of the design services are in West Virginia because the service is physically delivered on behalf of the customer to the customer's intended audience in West Virginia.

Example 3: Same facts as Example 2, except that the contract is with a business customer that is based outside West Virginia. The receipts from the sale of the design services are in West Virginia because the services are physically delivered on behalf of the customer to the customer's intended audience in West Virginia.

Example 4: Fulfillment Corp, a corporation based outside West Virginia, provides product delivery fulfillment services in West Virginia and in neighboring states to Sales Corp, a corporation located outside West Virginia that sells tangible personal property through a mail order catalog and over the Internet to customers. In some cases when a customer purchases tangible personal property from Sales Corp to be delivered in West Virginia, Fulfillment Corp will, pursuant to its contract with Sales Corp, deliver that property from its fulfillment warehouse located outside West Virginia. The receipts from the sale of the fulfillment services of Fulfillment Corp to Sales Corp are assigned to West Virginia to the extent that Fulfillment Corp's deliveries on behalf of Sales Corp are to recipients in West Virginia.

Example 5: Software Corp, a software development corporation, enters into a contract with a business customer, Buyer Corp, which is physically located in West Virginia, to develop custom software to be used in Buyer Corp's business. Software Corp develops the custom software outside West Virginia, and then physically installs the software on Buyer Corp's computer hardware located in West Virginia. The development and sale of the custom software is properly characterized as a service transaction, and the receipts from the sale are assigned to West Virginia because the software is physically delivered to the customer in West Virginia.

Example 6: Same facts as Example 5, except that Buyer Corp has offices in West Virginia and several other states but is commercially domiciled outside West Virginia and orders the software from a location outside West Virginia. The receipts from the development and sale of the custom software service are assigned to West Virginia because the software is physically delivered to the customer in West Virginia.

6.5.7.c.2.B. Delivery to a Customer by Electronic Transmission. Services delivered by electronic transmission include, without limitation, services that are transmitted through the means of wire, lines, cable, fiber optics, electronic signals, satellite transmission, audio or radio waves, or other similar means, whether or not the service provider owns, leases, or otherwise controls the transmission equipment. In the case of the delivery of a service by electronic transmission to a customer, the following rules apply.

6.5.7.c.2.B.1. Services Delivered by Electronic Transmission to an Individual Customer. --

6.5.7.c.2.B.1.a. Rule of Determination. -- In the case of the delivery of a service to an individual customer by electronic transmission, the service is delivered in West Virginia if and to the extent that the taxpayer's customer receives the service in West Virginia. If the taxpayer can determine the state or states where the service is received, it must assign the receipts from that sale to that state or states.

6.5.7.c.2.B.1.b. Rules of Reasonable Approximation. -- If the taxpayer cannot determine the state or states where the customer actually receives the service but has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, it must reasonably approximate the state or states. If a taxpayer does not have sufficient information from which it can determine or reasonably approximate the state or states in which the service is received, it must reasonably approximate the state or states using the customer's billing address.

6.5.7.c.2.B.2. Services Delivered By Electronic Transmission to a Business Customer. --

6.5.7.c.2.B.2.a. Rule of Determination. -- In the case of the delivery of a service to a business customer by electronic transmission, the service is delivered in West Virginia if and to the extent that the taxpayer's customer receives the service in West Virginia. If the taxpayer can determine the state or states where the service is received, it must assign the receipts from that sale to the state or states. For purposes of §110-24-6.5.7.c.2.B.2 of this rule, it is intended that the state or states where the service is received reflect the location at which the service is directly used by the employees or designees of the customer.

6.5.7.c.2.B.2.b. Rule of Reasonable Approximation. -- If the taxpayer cannot determine the state or states where the customer actually receives the service but has sufficient information regarding the place of receipt from which it can reasonably approximate the state or states where the service is received, it must reasonably approximate the state or states.

6.5.7.c.2.B.2.c. Secondary Rule of Reasonable Approximation. -- In the case of the delivery of a service to a business customer by electronic transmission where a taxpayer does not have sufficient information from which it can determine or reasonably approximate the state or states in which the service is received, the taxpayer must reasonably approximate the state or states as set forth in this rule. In these cases, unless the taxpayer can apply the safe harbor set forth in §110-24-6.5.7.c.2.B.2.d of this rule, the taxpayer must reasonably approximate the state or states in which the service is received as follows: first, by assigning the receipts from the sale to the state where the contract of sale is principally managed by the customer; second, if the state where the customer principally manages the contract is not reasonably determinable, by assigning the receipts from the sale to the customer's place of order; and third, if the customer's place of order is not reasonably determinable, by assigning the receipts from the sale using the customer's billing address; provided, however, if the taxpayer derives more than five percent of its receipts from sales of services from any single customer, the taxpayer is required to identify the state in which the contract of sale is principally managed by that customer.

6.5.7.c.2.B.2.d. Safe Harbor. -- In the case of the delivery of a service to a business customer by electronic transmission, a taxpayer may not be able to determine, or reasonably approximate under §110-24-6.5.7.c.2.B.2.b of this rule, the state or states in which the service is received. In these cases, the taxpayer may, in lieu of the rule stated at §110-24-6.5.7.c.2.B.2.c of this rule apply the safe harbor stated in this subsection. Under this safe harbor, a taxpayer may assign its receipts from sales to a particular customer based upon the customer's billing address in a taxable year in which the taxpayer (1) engages in substantially similar service transactions with more than 250 customers, whether business or individual, and (2) does not derive more than five percent of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of services delivered by electronic transmission to a business customer, and not otherwise.

6.5.7.c.2.B.2.e. Related-Party Transactions. -- In the case of a sale of a service by electronic transmission to a business customer that is a related party, the taxpayer may not use the secondary rule of reasonable approximation in §110-24-6.5.7.c.2.B.2.c of this rule but may use the rule of reasonable approximation in §110-24-6.5.7.c.2.B.2.b of this rule, and the safe harbor in §110-24-6.5.7.c.2.B.2.d of this rule, provided that the department may aggregate sales to related parties in determining whether the sales exceed five percent of receipts from sales of all services under that safe harbor provision if necessary or appropriate to prevent distortion.

6.5.7.c.2.B.3. Examples. -- In these examples, unless otherwise stated, assume that the taxpayer is not related to the customer to which the service is delivered. Also, assume if relevant, unless otherwise stated, that the safe harbor set forth at §110-24-6.5.7.c.2.B.2.d of this rule does not apply.

Example 1: Support Corp, a corporation that is based outside West Virginia, provides software support and diagnostic services to individual and business customers that have previously purchased certain software from third-party vendors. These individual and business customers are located in West Virginia and other states. Support Corp supplies its services on a case-by-case basis when directly contacted by its customer. Support Corp generally provides these services through the Internet but sometimes provides these services by phone. In all cases, Support Corp verifies the customer's account information before providing any service. Using the information that Support Corp verifies before performing a service, Support Corp can determine where its services are received, and therefore must assign its receipts to these locations. The receipts from sales made to Support Corp's individual and business customers are in West Virginia to the extent that Support Corp's services are received in West Virginia.

Example 2: Online Corp, a corporation based outside West Virginia, provides web-based services through the means of the Internet to individual customers who are resident in West Virginia and in other states. These customers access Online Corp's web services primarily in their states of residence, and sometimes, while traveling, in other states. For a substantial portion of its receipts from the sale of services, Online Corp can either determine the state or states where the services are received, or, where it cannot determine the state or states, it has sufficient information regarding the place of receipt to reasonably approximate the state or states. However, Online Corp cannot determine or reasonably approximate the state or states of receipt for all of the sales of its services. Assuming that Online Corp reasonably believes, based on all available information, that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its services generally tracks those for which it does have this information, Online Corp must assign to West Virginia the receipts from sales for which it does not know the customers' location in the same proportion as those receipts for which it has this information.

Example 3: Same facts as 2, except that Online Corp reasonably believes that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its web-based services do not generally track the sales for which it does have this information. Online Corp must assign the receipts from sales of its services for which it lacks information as provided to its individual customers using the customers' billing addresses.

Example 4: Net Corp, a corporation based outside West Virginia, provides web-based services to a business customer, Business Corp, a company with offices in West Virginia and two neighboring states. Particular employees of Business Corp access the services from computers in each Business Corp office. Assume that Net Corp determines that Business Corp employees in West Virginia were responsible for 75 percent of Business Corp's use of Net Corp's services, and Business Corp employees in other states were responsible for 25 percent of Business Corp's use of Net Corp's services. In this case, 75 percent of the receipts from the sales are received in West Virginia. Assume alternatively that Net Corp lacks sufficient information regarding the location or locations where Business Corp's employees used the services to determine or reasonably approximate the location or locations. Under these circumstances, if Net Corp derives five percent or less of its receipts from sales to Business Corp, Net Corp must assign the receipts under §110-24-6.5.7.c.2.B.2.c of this rule to the state where Business Corp principally managed the contract, or if that state is not reasonably determinable, to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable, to the state of Business Corp's billing address. If Net Corp derives more than five percent of its receipts from sales of services to Business Corp, Net Corp is required to identify the state in which its contract of sale is principally managed by Business Corp and must assign the receipts to that state.

Example 5: Net Corp, a corporation based outside West Virginia, provides web-based services through the means of the Internet to more than 250 individual and business customers in West Virginia and in other states. Assume that for each customer Net Corp cannot determine the state or states where its web services are actually received and lacks sufficient information regarding the place of receipt to reasonably approximate the state or states. Also assume that Net Corp does not derive more than five percent of its receipts from sales of services to a single customer. Net Corp may apply the safe harbor stated in §110-24-6.5.7.c.2.B.2.d of this rule and may assign its receipts using each customer's billing address.

6.5.7.c.2.C. Services Delivered Electronically Through or on Behalf of an Individual or Business Customer. -- A service delivered electronically "on behalf of" the customer is one in which a customer contracts for a service to be delivered electronically but one or more third parties, rather than the customer, is the recipient of the service, such as the direct or indirect delivery of advertising on behalf of a customer to the customer's intended audience. A service delivered electronically "through" a customer to third-party recipients is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other third-party recipients.

6.5.7.c.2.C.1. Rule of Determination. -- In the case of the delivery of a service by electronic transmission, where the service is delivered electronically to end users or other third-party recipients through or on behalf of the customer, the service is delivered in West Virginia if and to the extent that the end users or other third-party recipients are in West Virginia. For example, in the case of the direct or indirect delivery of advertising on behalf of a customer to the customer's intended audience by electronic means, the service is delivered in West Virginia to the extent that the audience for the advertising is in West Virginia. In the case of the delivery of a service to a customer that acts as an intermediary in reselling the service in substantially identical form to third-party recipients, the service is delivered in West Virginia to the extent that the end users or other third-party recipients receive the services in West Virginia. The rules in this subsection apply whether the taxpayer's customer is an individual customer or a business customer and whether the end users or other third-party recipients to which the services are delivered through or on behalf of the customer are individuals or businesses.

6.5.7.c.2.C.2. Rule of Reasonable Approximation. -- If the taxpayer cannot determine the state or states where the services are actually delivered to the end users or other third-party recipients either through or on behalf of the customer, it must reasonably approximate the state or states.

6.5.7.c.2.C.3. Select Secondary Rules of Reasonable Approximation. --

6.5.7.c.2.C.3.a. If a taxpayer's service is the direct or indirect electronic delivery of advertising on behalf of its customer to the customer's intended audience, and if the taxpayer lacks sufficient information regarding the location of the audience from which it can determine or reasonably approximate that location, the taxpayer must reasonably approximate the audience in a state for the advertising using the following secondary rules of reasonable approximation. If a taxpayer is delivering advertising directly or indirectly to a known list of subscribers, the taxpayer must reasonably approximate the audience for advertising in a state using a percentage that reflects the ratio of the state's subscribers in the specific geographic area in which the advertising is delivered relative to the total subscribers in that area. For a taxpayer with less information about its audience, the taxpayer must reasonably approximate the audience in a state using the percentage that reflects the ratio of the state's population in the specific geographic area in which the advertising is delivered relative to the total population in that area.

6.5.7.c.2.C.3.b. If a taxpayer's service is the delivery of a service to a customer that then acts as the taxpayer's intermediary in reselling that service to end users or other third-party recipients, and if the taxpayer lacks sufficient information regarding the location of the end users or other third-party recipients from which it can determine or reasonably approximate that location, the taxpayer must reasonably approximate the extent to which the service is received in a state by using the percentage that reflects the ratio of the state's population in the specific geographic area in which the taxpayer's intermediary resells the services, relative to the total population in that area.

6.5.7.c.2.C.3.c. When using the secondary reasonable approximation methods provided above, with regard to the relevant specific geographic area, include only the areas where the service was substantially and materially delivered or resold. Unless the taxpayer demonstrates the contrary, it will be presumed that the area where the service was substantially and materially delivered or resold does not include areas outside the United States.

6.5.7.c.2.C.4. Examples:

Example 1: Cable TV Corp, a corporation that is based outside of West Virginia, has two revenue streams. First, Cable TV Corp sells advertising time to business customers pursuant to which the business customers' advertisements will run as commercials during Cable TV Corp's televised programming. Some of these business customers, though not all of them, have a physical presence in West Virginia. Second, Cable TV Corp sells monthly subscriptions to individual customers in West Virginia and in other states. The receipts from Cable TV Corp's sale of advertising time to its business customers are assigned to West Virginia to the extent that the audience for Cable TV Corp's televised programming during which the advertisements run is in West Virginia. If Cable TV Corp is unable to determine the actual location of its audience for the programming and lacks sufficient information regarding audience location to reasonably approximate the location, Cable TV Corp must approximate its West Virginia audience using the percentage that reflects the ratio of its West Virginia subscribers in the geographic area in which Cable TV Corp's televised programming featuring the advertisements is delivered relative to its total number of subscribers in that area. To the extent that Cable TV Corp's sales of monthly subscriptions represent the sale of a service, the receipts from these sales are properly assigned to West Virginia in any case in which the programming is received by a customer in West Virginia. In any case in which Cable TV Corp cannot determine the actual location where the programming is received and lacks sufficient information regarding the location of receipt to reasonably approximate the location, the receipts from these sales of Cable TV Corp's monthly subscriptions are assigned to West Virginia where its customer's billing address is in West Virginia. Whether and to the extent that the monthly subscription fee represents a fee for a service or for a license of intangible property does not affect the analysis or result as to the state or states to which the receipts are properly assigned.

Example 2: Network Corp, a corporation that is based outside of West Virginia, sells advertising time to business customers pursuant to which the customers' advertisements will run as commercials during Network Corp's televised programming as distributed by unrelated cable television and satellite television transmission companies. The receipts from Network Corp's sale of advertising time to its business customers are assigned to West Virginia to the extent that the audience for Network Corp's televised programming during which the advertisements will run is in West Virginia. If Network Corp cannot determine the actual location of the audience for its programming during which the advertisements will run and lacks sufficient information regarding audience location to reasonably approximate the location, Network Corp must approximate the receipts from sales of advertising that constitute West Virginia sales by multiplying the amount of advertising receipts by a percentage that reflects the ratio of the West Virginia population in the specific geographic area in which the televised programming containing the advertising is run relative to the total population in that area.

Example 3: Web Corp, a corporation that is based outside West Virginia, provides internet content to viewers in West Virginia and other states. Web Corp sells advertising space to business customers pursuant to which the customers' advertisements will appear in connection with Web Corp's internet content. Web Corp receives a fee for running the advertisements that is determined by reference to the number of times the advertisement is viewed or clicked upon by the viewers of its website. The receipts from Web Corp's sale of advertising space to its business customers are assigned to West Virginia to the extent that the viewers of the internet content are in West Virginia, as measured by viewings or clicks. If Web Corp is unable to determine the actual location of its viewers and lacks sufficient information regarding the location of its viewers to reasonably approximate the location, Web Corp must approximate the amount of its West Virginia receipts by multiplying the amount of receipts from sales of advertising by a percentage that reflects the West Virginia population in the specific geographic area in which the content containing the advertising is delivered relative to the total population in that area.

Example 4: Retail Corp, a corporation that is based outside of West Virginia, sells tangible personal property through its retail stores located in West Virginia and other states and through a mail order catalog. Answer Co, a corporation that operates call centers in multiple states, contracts with Retail Corp to answer telephone calls from individuals placing orders for products found in Retail Corp's catalogs. In this case, the phone answering services of Answer Co are being delivered to Retail Corp's customers and prospective customers. Therefore, Answer Co is delivering a service electronically to Retail Corp's customers or prospective customers on behalf of Retail Corp and must assign the proceeds from this service to the state or states from which the phone calls are placed by the customers or prospective customers. If Answer Co cannot determine the actual locations from which phone calls are placed and lacks sufficient information regarding the locations to reasonably approximate the locations, Answer Co must approximate the amount of its West Virginia receipts by multiplying the amount of its fee from Retail Corp by a percentage that reflects the West Virginia population in the specific geographic area from which the calls are placed relative to the total population in that area.

Example 5: Web Corp, a corporation that is based outside of West Virginia, sells tangible personal property to customers via its internet website. Design Co designed and maintains Web Corp's website, including making changes to the site based on customer feedback received through the site. Design Co's services are delivered to Web Corp, the proceeds from which are assigned pursuant to §110-24-6.5.7.c.2.B of this rule. The fact that Web Corp's customers and prospective customers incidentally benefit from Design Co's services and may even interact with Design Co in the course of providing feedback, does not transform the service into one delivered "on behalf of" Web Corp to Web Corp's customers and prospective customers.

Example 6: Wholesale Corp, a corporation that is based outside West Virginia, develops an internet-based information database outside West Virginia and enters into a contract with Retail Corp whereby Retail Corp will market and sell access to this database to end users. Depending on the facts, the provision of database access may be either the sale of a service or the license of intangible property or may have elements of both, but for purposes of analysis it does not matter. Assume that on the particular facts applicable in this example Wholesale Corp is selling database access in transactions properly characterized as involving the performance of a service. When an end user purchases access to Wholesale Corp's database from Retail Corp, Retail Corp in turn compensates Wholesale Corp in connection with that transaction. In this case, Wholesale Corp's services are being delivered through Retail Corp to the end user. Wholesale Corp must assign its receipts from sales to Retail Corp to the state or states in which the end users receive access to Wholesale Corp's database. If Wholesale Corp cannot determine the state or states where the end users actually receive access to Wholesale Corp's database and lacks sufficient information regarding the location from which the end users access the database to reasonably approximate the location, Wholesale Corp must approximate the extent to which its services are received by end users in West Virginia by using a percentage that reflects the ratio of the West Virginia population in the specific geographic area in which Retail Corp regularly markets and sells Wholesale Corp's database relative to the total population in that area. It does not matter for purposes of the analysis whether Wholesale Corp's sale of database access constitutes a service or a license of intangible property, or some combination of both.

6.5.7.d. Professional Services. --

6.5.7.d.1. In General. Except as otherwise provided in §110-24-6.5.7.d of this rule, professional services are services that require specialized knowledge and in some cases require a professional certification, license, or degree. These services include the performance of technical services that require the application of specialized knowledge. Professional services include, without limitation, management services, bank and financial services, financial custodial services, investment and brokerage services, fiduciary services, tax preparation, payroll and accounting services, lending services, credit card services (including credit card processing services), data processing services, legal services, consulting services, video production services, graphic and other design services, engineering services, and architectural services. Nothing in this rule applies to services provided by a financial institution that must apportion and allocate its income under W. Va. Code §11-24-7b.

6.5.7.d.2. Overlap with Other Categories of Services.

6.5.7.d.2.A. Certain services that fall within the definition of "professional services" set forth in §110-24-6.5.7.d of this rule are nevertheless treated as "in-person services" within the meaning of §110-24-6.5.7.b of this rule and are assigned under the rules of that subdivision. Specifically, professional services that are physically provided in person by the taxpayer such as carpentry, certain medical and dental services, or childcare services, where the customer or the customer's real or tangible property upon which the services are provided is in the same location as the service provider at the time the services are performed, are "in-person services" and are assigned as such, notwithstanding that they may also be considered "professional services." However, professional services where the service is of an intellectual or intangible nature, such as legal, accounting, financial, and consulting services, are assigned as professional services under the rules of §110-24-6.5.7.d of this rule, notwithstanding the fact that these services may involve some amount of in- person contact.

6.5.7.d.2.B. Professional services may in some cases include the transmission of one or more documents or other communications by mail or by electronic means. In some cases, all or most communications between the service provider and the service recipient may be by mail or by electronic means. However, in these cases, despite this transmission, the assignment rules that apply are those set forth in (4)(d) of this rule, and not those set forth in §110-24-6.5.7.c of this rule, pertaining to services delivered to a customer or through or on behalf of a customer.

6.5.7.d.3. Assignment of Receipts. -- In the case of a professional service, it is generally possible to characterize the location of delivery in multiple ways by emphasizing different elements of the service provided, no one of which will consistently represent the market for the services. Therefore, the location of delivery in the case of professional services is not susceptible to a general rule of determination and must be reasonably approximated. The assignment of receipts from a sale of a professional service depends in many cases upon whether the customer is an individual or business customer. In any instance in which the taxpayer, acting in good faith, cannot reasonably determine whether the customer is an individual or business customer, the taxpayer must treat the customer as a business customer. For purposes of assigning the receipts from sale of a professional service, a taxpayer's customer is the person that contracts for the service, irrespective of whether another person pays for or also benefits from the taxpayer's services.

6.5.7.d.3.A. General Rule. Receipts from sales of professional services other than those services described in §110-24-6.5.7.d.3.B of this rule (architectural and engineering services) and §110-24-6.5.7.d.3.C of this rule (transactions with related parties) are assigned in accordance with §110-24-6.5.7.d.3.A of this rule.

6.5.7.d.3.A.1. Professional Services Delivered to Individual Customers. -- Except as otherwise provided in §110-24-6.5.7.d of this rule, in any instance in which the service provided is a professional service and the taxpayer's customer is an individual customer, the state or states in which the service is delivered must be reasonably approximated as set forth in §110-24-6.5.7.d.3.A.1 of this rule. In particular, the taxpayer must assign the receipts from a sale to the customer's state of primary residence, or, if the taxpayer cannot reasonably identify the customer's state of primary residence, to the state of the customer's billing address; provided, however, in any instance in which the taxpayer derives more than five percent of its receipts from sales of all services from an individual customer, the taxpayer must identify the customer's state of primary residence and assign the receipts from the service or services provided to that customer to that state.

6.5.7.d.3.A.2. Professional Services Delivered to Business Customers. -- Except as otherwise provided in §110-24-6.5.7.d of this rule, in any instance in which the service provided is a professional service and the taxpayer's customer is a business customer, the state or states in which the service is delivered must be reasonably approximated as set forth in this subparagraph. In particular, unless the taxpayer may use the safe harbor set forth at §110-24-6.5.7.d.3.A.3 of this rule, the taxpayer must assign the receipts from the sale as follows: first, by assigning the receipts to the state where the contract of sale is principally managed by the customer; second, if the place of customer management is not reasonably determinable, to the customer's place of order; and third, if the customer place of order is not reasonably determinable, to the customer's billing address; provided, however, in any instance in which the taxpayer derives more than five percent of its receipts from sales of all services from a customer, the taxpayer is required to identify the state in which the contract of sale is principally managed by the customer.

6.5.7.d.3.A.3. Safe Harbor; Large Volume of Transactions. -- Notwithstanding the rules set forth in §110-24-6.5.7.d.3.A.1 and §110-24-6.5.7.d.3.A.2 of this rule, a taxpayer may assign its receipts from sales to a particular customer based on the customer's billing address in any taxable year in which the taxpayer (1) engages in substantially similar service transactions with more than 250 customers, whether individual or business, and (2) does not derive more than five percent of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of §110-24-6.5.7.d.3.A of this rule and not otherwise.

6.5.7.d.3.B. Architectural and Engineering Services with respect to Real or Tangible Personal Property. -- Architectural and engineering services with respect to real or tangible personal property are professional services within the meaning of §110-24-6.5.7.d of this rule. However, unlike in the case of the general rule that applies to professional services, (1) the receipts from a sale of an architectural service are assigned to a state or states if and to the extent that the services are with respect to real estate improvements located, or expected to be located, in the state or states; and (2) the receipts from a sale of an engineering service are assigned to a state or states if and to the extent that the services are with respect to tangible or real property located in the state or states, including real estate improvements located in, or expected to be located in, the state or states. These rules apply whether or not the customer is an individual or business customer. In any instance in which architectural or engineering services are not described in §110-24-6.5.7.d.3.B of this rule, the receipts from a sale of these services must be assigned under the general rule for professional services.

6.5.7.d.3.C. Related-Party Transactions. -- In any instance in which the professional service is sold to a related party, rather than applying the rule for professional services delivered to business customers in §110-24-6.5.7.d.3.A.2 of this rule, the state or states to which the service is assigned is the place of receipt by the related party as reasonably approximated using the following hierarchy: (1) if the service primarily relates to specific operations or activities of a related party conducted in one or more locations, then to the state or states in which those operations or activities are conducted in proportion to the related-party's payroll at the locations to which the service relates in the state or states; or (2) if the service does not relate primarily to operations or activities of a related party conducted in particular locations, but instead relates to the operations of the related party generally, then to the state or states in which the related party has employees, in proportion to the related-party's payroll in those states. The taxpayer may use the safe harbor provided by §110-24-6.5.7.d.3.A.3 of this rule provided that the department may aggregate the receipts from sales to related parties in applying the five percent rule if necessary or appropriate to avoid distortion.

6.5.7.d.3.D. Examples. -- Unless otherwise stated, assume in each of these examples, where relevant, that the customer is not a related party and that the safe harbor set forth at §110-24-6.5.7.d.3.A.3 of this rule does not apply.

Example 1: Broker Corp provides securities brokerage services to individual customers who are residents in West Virginia and in other states. Broker Corp is not a financial institution required to report under W.Va. Code §11-24-7b. Assume that Broker Corp knows the state of primary residence for many of its customers, and where it does not know the state of primary residence, it knows the customer's billing address. Also assume that Broker Corp does not derive more than five percent of its receipts from sales of all services from any one individual customer. If Broker Corp knows its customer's state of primary residence, it must assign the receipts to that state. If Broker Corp does not know its customer's state of primary residence, but rather knows the customer's billing address, it must assign the receipts to that state.

Example 2: Same facts as Example 1, except that Broker Corp has several individual customers from whom it derives, in each instance, more than five percent of its receipts from sales of all services. Receipts from sales to customers from whom Broker Corp derives five percent or less of its receipts from sales of all services must be assigned as described in Example 24. For each customer from whom it derives more than five percent of its receipts from sales of all services, Broker Corp is required to determine the customer's state of primary residence and must assign the receipts from the services provided to that customer to that state. In any case in which a five percent customer's state of primary residence is West Virginia, receipts from a sale made to that customer must be assigned to West Virginia; in any case in which a five percent customer's state of primary residence is not West Virginia, receipts from a sale made to that customer are not assigned to West Virginia.

Example 3: Architecture Corp provides building design services as to buildings located, or expected to be located, in West Virginia to individual customers who are resident in West Virginia and other states, and to business customers that are based in West Virginia and other states. The receipts from Architecture Corp's sales are assigned to West Virginia because the locations of the buildings to which its design services relate are in West Virginia or are expected to be in West Virginia. For purposes of assigning these receipts, it is not relevant where, in the case of an individual customer, the customer primarily resides or is billed for the services, and it is not relevant where, in the case of a business customer, the customer principally manages the contract, placed the order for the services, or is billed for the services. Further, these receipts are assigned to West Virginia even if Architecture Corp's designs are either physically delivered to its customer in paper form in a state other than West Virginia or are electronically delivered to its customer in a state other than West Virginia.

Example 4: Law Corp provides legal services to individual clients who are resident in West Virginia and in other states. In some cases, Law Corp may prepare one or more legal documents for its client as a result of these services and/or the legal work may be related to litigation or a legal matter that is ongoing in a state other than where the client is resident. Assume that Law Corp knows the state of primary residence for many of its clients, and where it does not know this state of primary residence, it knows the client's billing address. Also assume that Law Corp does not derive more than five percent of its receipts from sales of all services from any one individual client. If Law Corp knows its client's state of primary residence, it must assign the receipts to that state. If Law Corp does not know its client's state of primary residence, but rather knows the client's billing address, it must assign the receipts to that state. For purposes of the analysis it is irrelevant whether the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or the litigation or other legal matter that is the underlying predicate for the services is in another state.

Example 5: Law Corp provides legal services to several multistate business clients. In each case, Law Corp knows the state in which the agreement for legal services that governs the client relationship is principally managed by the client. In one case, the agreement is principally managed in West Virginia; in the other cases, the agreement is principally managed in a state other than West Virginia. If the agreement for legal services is principally managed by the client in West Virginia, the receipts from sale of the services are assigned to West Virginia; in the other cases, the receipts are not assigned to West Virginia. In the case of receipts that are assigned to West Virginia, the receipts are so assigned even if (1) the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or (2) the litigation or other legal matter that is the underlying predicate for the services is in another state.

Example 6: Consulting Corp, a company that provides consulting services to law firms and other customers, is hired by Law Corp in connection with legal representation that Law Corp provides to Client Co. Specifically, Consulting Corp is hired to provide expert testimony at a trial being conducted by Law Corp on behalf of Client Co. Client Co pays for Consulting Corp's services directly. Assuming that Consulting Corp knows that its agreement with Law Co is principally managed by Law Corp in West Virginia, the receipts from the sale of Consulting Corp's services are assigned to West Virginia. It is not relevant for purposes of the analysis that Client Co is the ultimate beneficiary of Consulting Corp's services, or that Client Co pays for Consulting Corp's services directly.

Example 7: Advisor Corp, a corporation that provides investment advisory services and is not a financial institution required to report under W. Va. Code §11-24-7b, provides investment advisory services to Investment Co. Investment Co is a multistate business client of Advisor Corp that uses Advisor Corp's services in connection with investment accounts that it manages for individual clients, who are the ultimate beneficiaries of Advisor Corp's services. Assume that Investment Co's individual clients are persons that are resident in numerous states, which may or may not include West Virginia. Assuming that Advisor Corp knows that its agreement with Investment Co is principally managed by Investment Co in West Virginia, receipts from the sale of Advisor Corp's services are assigned to West Virginia. It is not relevant for purposes of the analysis that the ultimate beneficiaries of Advisor Corp's services may be Investment Co's clients, who are residents of numerous states.

Example 8: Advisor Corp, a corporation that provides investment advisory services and is not a financial institution required to report under W. Va. Code §11-24-7b, provides investment advisory services to Investment Fund LP, a partnership that invests in securities and other assets. Assuming that Advisor Corp knows that its agreement with Investment Fund LP is principally managed by Investment Fund LP in West Virginia, receipts from the sale of Advisor Corp's services are assigned to West Virginia. Note that it is not relevant for purposes of the analysis that the partners in Investment Fund LP are residents of numerous states.

Example 9: Design Corp is a corporation based outside West Virginia that provides graphic design and similar services in West Virginia and in neighboring states. Design Corp enters into a contract at a location outside West Virginia with an individual customer to design fliers for the customer. Assume that Design Corp does not know the individual customer's state of primary residence and does not derive more than five percent of its receipts from sales of services from the individual customer. All of the design work is performed outside West Virginia. Receipts from the sale are in West Virginia if the customer's billing address is in West Virginia.

6.5.8. License or Lease of Intangible Property. --

6.5.8.a. General Rules. --

6.5.8.a.1. The receipts from the license of intangible property are in West Virginia if and to the extent the intangible is used in West Virginia. In general, the term "use" is construed to refer to the location of the taxpayer's market for the use of the intangible property that is being licensed and is not to be construed to refer to the location of the property or payroll of the taxpayer. The rules that apply to determine the location of the use of intangible property in the context of several specific types of licensing transactions are set forth at §110-24-6.5.8.b through §110-24-6.5.8.e of this rule. For purposes of the rules set forth in §110-24-6.5.8 of this rule, a lease of intangible property is to be treated the same as a license of intangible property.

6.5.8.a.2. In general, a license of intangible property that conveys all substantial rights in that property is treated as a sale of intangible property for purposes of this rule. Note, however, that for purposes of §110-24-6.5.8 and §110-24-6.5.9 of this rule, a sale or exchange of intangible property is treated as a license of that property where the receipts from the sale or exchange derive from payments that are contingent on the productivity, use, or disposition of the property.

6.5.8.a.3. Intangible property licensed as part of the sale or lease of tangible property is treated under this rule as the sale or lease of tangible property.

6.5.8.a.4. Nothing in §110-24-6.5.8 of this rule is to be construed to allow or require inclusion of receipts in the sales factor that are not included in the definition of "sales" pursuant to W. Va. Code §11-24-3a or related rules, or that are excluded from the numerator and the denominator of the sales factor pursuant to West Virginia §11-24-7(e)(13)(B)(ii)(III). So, to the extent that the transfer of business "goodwill" or similar intangible property, including, without limitation, "going concern value" or "workforce in place," may be characterized as a license or lease of intangible property, receipts from such transaction must be excluded from the numerator and the denominator of the taxpayer's sales factor.

6.5.8.b. License of a Marketing Intangible. -- Where a license is granted for the right to use intangible property in connection with the sale, lease, license, or other marketing of goods, services, or other items (i.e., a marketing intangible) to a consumer, the royalties or other licensing fees paid by the licensee for that marketing intangible are assigned to West Virginia to the extent that those fees are attributable to the sale or other provision of goods, services, or other items purchased or otherwise acquired by consumers or other ultimate customers in West Virginia. Examples of a license of a marketing intangible include, without limitation, the license of a service mark, trademark, or trade name; certain copyrights; the license of a film, television, or multimedia production or event for commercial distribution; and a franchise agreement. In each of these instances the license of the marketing intangible is intended to promote consumer sales. In the case of the license of a marketing intangible, where a taxpayer has actual evidence of the amount or proportion of its receipts that is attributable to West Virginia, it must assign that amount or proportion to West Virginia. In the absence of actual evidence of the amount or proportion of the licensee's receipts that are derived from West Virginia consumers, the portion of the licensing fee to be assigned to West Virginia must be reasonably approximated by multiplying the total fee by a percentage that reflects the ratio of the West Virginia population in the specific geographic area in which the licensee makes material use of the intangible property to regularly market its goods, services, or other items relative to the total population in that area. If the license of a marketing intangible is for the right to use the intangible property in connection with sales or other transfers at wholesale rather than directly to retail customers, the portion of the licensing fee to be assigned to West Virginia must be reasonably approximated by multiplying the total fee by a percentage that reflects the ratio of the West Virginia population in the specific geographic area in which the licensee's goods, services, or other items are ultimately and materially marketed using the intangible property relative to the total population of that area. Unless the taxpayer demonstrates that the marketing intangible is materially used in the marketing of items outside the United States, the fees from licensing that marketing intangible will be presumed to be derived from within the United States.

6.5.8.c. License of a Production Intangible. -- If a license is granted for the right to use intangible property other than in connection with the sale, lease, license, or other marketing of goods, services, or other items, and the license is to be used in a production capacity (a "production intangible"), the licensing fees paid by the licensee for that right are assigned to West Virginia to the extent that the use for which the fees are paid takes place in West Virginia. Examples of a license of a production intangible include, without limitation, the license of a patent, a copyright, or trade secrets to be used in a manufacturing process, where the value of the intangible lies predominately in its use in that process. In the case of a license of a production intangible to a party other than a related party where the location of actual use is unknown, it is presumed that the use of the intangible property takes place in the state of the licensee's commercial domicile (where the licensee is a business) or the licensee's state of primary residence (where the licensee is an individual). If the department can reasonably establish that the actual use of intangible property pursuant to a license of a production intangible takes place in part in West Virginia, it is presumed that the entire use is in this state except to the extent that the taxpayer can demonstrate that the actual location of a portion of the use takes place outside West Virginia. In the case of a license of a production intangible to a related party, the taxpayer must assign the receipts to where the intangible property is actually used.

6.5.8.d. License of a Mixed Intangible. -- If a license of intangible property includes both a license of a marketing intangible and a license of a production intangible (a "mixed intangible") and the fees to be paid in each instance are separately and reasonably stated in the licensing contract, the department will accept that separate statement for purposes of this rule. If a license of intangible property includes both a license of a marketing intangible and a license of a production intangible and the fees to be paid in each instance are not separately and reasonably stated in the contract, it is presumed that the licensing fees are paid entirely for the license of the marketing intangible except to the extent that the taxpayer or the department can reasonably establish otherwise.

6.5.8.e. License of a Broadcasting Intangible. -- Where a broadcaster grants a license to a broadcast customer for the right to use film programming, the licensing fees paid by the licensee for such right are assigned to West Virginia to the extent that the broadcast customer is located in West Virginia. In the case of business customers, the broadcast customer's location shall be determined using the broadcast customer's commercial domicile. In the case of individual customers, the broadcast customer's location shall be determined using the address of the broadcast customer listed in the broadcaster's records.

6.5.8.f. License of Intangible Property where Substance of Transaction Resembles a Sale of Goods or Services. --

6.5.8.f.1. In general. In some cases, the license of intangible property will resemble the sale of an electronically delivered good or service rather than the license of a marketing intangible or a production intangible. In these cases, the receipts from the licensing transaction are assigned by applying the rules set forth in §110-24-6.5.7.c.2.B and §110-24-6.5.7.c.2.C of this rule, as if the transaction were a service delivered to an individual or business customer or delivered electronically through an individual or business customer, as applicable. Examples of transactions to be assigned under §110-24-6.5.8.e of this rule include, without limitation, the license of database access, the license of access to information, the license of digital goods, and the license of certain software (e.g., where the transaction is not the license of pre-written software that is treated as the sale of tangible personal property).

6.5.8.f.2. Sublicenses. -- Pursuant to §110-24-6.5.8.e.1 of this rule, the rules of §110-24-6.5.7.c.2.B of this rule may apply where a taxpayer licenses intangible property to a customer that in turn sublicenses the intangible property to end users as if the transaction were a service delivered electronically through a customer to end users. In particular, the rules set forth at §110-24-6.5.7.c.2.B of this rule that apply to services delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other recipients may also apply with respect to licenses of intangible property for purposes of sublicense to end users. For this purpose, the intangible property sublicensed to an end user shall not fail to be substantially identical to the property that was licensed to the sublicensor merely because the sublicense transfers a reduced bundle of rights with respect to that property (e.g., because the sublicensee's rights are limited to its own use of the property and do not include the ability to grant a further sublicense), or because that property is bundled with additional services or items of property.

6.5.8.f.3. Examples. -- In these examples, unless otherwise stated, assume that the customer is not a related party.

Example 1: Crayon Corp and Dealer Co enter into a license contract under which Dealer Co as licensee is permitted to use trademarks that are owned by Crayon Corp in connection with Dealer Co's sale of certain products to retail customers. Under the contract, Dealer Co is required to pay Crayon Corp a licensing fee that is a fixed percentage of the total volume of monthly sales made by Dealer Co of products using the Crayon Corp trademarks. Under the contract, Dealer Co is permitted to sell the products at multiple store locations, including store locations that are both within and without West Virginia. Further, the licensing fees that are paid by Dealer Co are broken out on a per store basis. The licensing fees paid to Crayon Corp by Dealer Co represent fees from the license of a marketing intangible. The portion of the fees to be assigned to West Virginia are determined by multiplying the fees by a percentage that reflects the ratio of Dealer Co's receipts that are derived from its West Virginia stores relative to Dealer Co's total receipts.

Example 2: Program Corp, a broadcaster that is based outside West Virginia, licenses programming that it owns to business customers, such as cable networks, that in turn will offer the programming to their customers on television or other media outlets in West Virginia and in all other U.S. states. License fees received by Program Corp are assigned to West Virginia to the extent that the business customer is commercially domiciled in West Virginia. Each of these licensing contracts constitutes the license of a marketing intangible. For each licensee, assuming that Program Corp lacks evidence of the actual number of viewers of the programming in West Virginia, the component of the licensing fee paid to Program Corp by the licensee that constitutes Program Corp's West Virginia receipts is determined by multiplying the amount of the licensing fee by a percentage that reflects the ratio of the West Virginia audience of the licensee for the programming relative to the licensee's total U.S. audience for the programming. Note that the analysis and result as to the state or states to which receipts are properly assigned would be the same to the extent that the substance of Program Corp's licensing transactions may be determined to resemble a sale of goods or services, instead of the license of a marketing intangible.

Example 3: Network Corp, a broadcaster that is based outside of West Virginia, delivers programming that it owns to individual customers in West Virginia and in other U.S. States. Network Corp's receipts from each individual broadcast customer will be assigned to West Virginia if the address of the broadcast customer listed in the broadcaster's records is in West Virginia.

Example 4: Moniker Corp enters into a license contract with Wholesale Co. Pursuant to the contract, Wholesale Co is granted the right to use trademarks owned by Moniker Corp to brand sports equipment that is to be manufactured by Wholesale Co or an unrelated entity, and to sell the manufactured equipment to unrelated companies that will ultimately market the equipment to consumers in a specific geographic region, including a foreign country. The license agreement confers a license of a marketing intangible, even though the trademarks in question will be affixed to property to be manufactured. In addition, the license of the marketing intangible is for the right to use the intangible property in connection with sales to be made at wholesale rather than directly to retail customers. The component of the licensing fee that constitutes the West Virginia receipts of Moniker Corp is determined by multiplying the amount of the fee by a percentage that reflects the ratio of the West Virginia population in the specific geographic region relative to the total population in that region. If Moniker Corp is able to reasonably establish that the marketing intangible was materially used throughout a foreign country, then the population of that country will be included in the population ratio calculation. However, if Moniker Corp is unable to reasonably establish that the marketing intangible was materially used in the foreign country in areas outside a particular major city, then none of the foreign country's population beyond the population of the major city is include in the population ratio calculation.

Example 5: Formula, Inc and Appliance Co enter into a license contract under which Appliance Co is permitted to use a patent owned by Formula, Inc to manufacture appliances. The license contract specifies that Appliance Co is to pay Formula, Inc a royalty that is a fixed percentage of the gross receipts from the products that are later sold. The contract does not specify any other fees. The appliances are both manufactured and sold in West Virginia and several other states. Assume the licensing fees are paid for the license of a production intangible, even though the royalty is to be paid based upon the sales of a manufactured product (i.e., the license is not one that includes a marketing intangible). Because the department can reasonably establish that the actual use of the intangible property takes place in part in West Virginia, the royalty is assigned based to the location of that use rather than to location of the licensee's commercial domicile, in accordance with §110-24-6.5.8.a of this rule. It is presumed that the entire use is in West Virginia except to the extent that the taxpayer can demonstrate that the actual location of some or all of the use takes place outside West Virginia. Assuming that Formula, Inc can demonstrate the percentage of manufacturing that takes place in West Virginia using the patent relative to the manufacturing in other states, that percentage of the total licensing fee paid to Formula, Inc under the contract will constitute Formula, Inc's West Virginia receipts.

Example 6: Axel Corp enters into a license agreement with Biker Co in which Biker Co is granted the right to produce motor scooters using patented technology owned by Axel Corp, and also to sell the scooters by marketing the fact that the scooters were manufactured using the special technology. The contract is a license of both a marketing and production intangible, i.e., a mixed intangible. The scooters are manufactured outside West Virginia. Assume that Axel Corp lacks actual information regarding the proportion of Biker Co.'s receipts that are derived from West Virginia customers. Also assume that Biker Co is granted the right to sell the scooters in a U.S. geographic region in which the West Virginia population constitutes 25 percent of the total population during the period in question. The licensing contract requires an upfront licensing fee to be paid by Biker Co to Axel Corp and does not specify what percentage of the fee derives from Biker Co's right to use Axel Corp's patented technology. Because the fees for the license of the marketing and production intangible are not separately and reasonably stated in the contract, it is presumed that the licensing fees are paid entirely for the license of a marketing intangible, unless either the taxpayer or the department reasonably establishes otherwise. Assuming that neither party establishes otherwise, 25 percent of the licensing fee constitutes West Virginia receipts.

Example 7: Same facts as Example 5, except that the license contract specifies separate fees to be paid for the right to produce the motor scooters and for the right to sell the scooters by marketing the fact that the scooters were manufactured using the special technology. The licensing contract constitutes both the license of a marketing intangible and the license of a production intangible. Assuming that the separately stated fees are reasonable, the department will: (1) assign no part of the licensing fee paid for the production intangible to West Virginia, and (2) assign 25 percent of the licensing fee paid for the marketing intangible to West Virginia.

Example 8: Better Burger Corp, which is based outside West Virginia, enters into franchise contracts with franchisees that agree to operate Better Burger restaurants as franchisees in various states. Several of the Better Burger Corp franchises are in West Virginia. In each case, the franchise contract between the individual and Better Burger provides that the franchisee is to pay Better Burger Corp an upfront fee for the receipt of the franchise and monthly franchise fees, which cover, among other things, the right to use the Better Burger name and service marks, food processes, and cooking know-how, as well as fees for management services. The upfront fees for the receipt of the West Virginia franchises constitute fees paid for the licensing of a marketing intangible. These fees constitute West Virginia receipts because the franchises are for the right to make West Virginia sales. The monthly franchise fees paid by West Virginia franchisees constitute fees paid for (1) the license of marketing intangibles (the Better Burger name and service marks), (2) the license of production intangibles (food processes and know-how), and (3) personal services (management fees). The fees paid for the license of the marketing intangibles and the production intangibles constitute West Virginia receipts because in each case the use of the intangibles is to take place in West Virginia. The fees paid for the personal services are to be assigned pursuant to §110-24-6.5.7 of this rule.

Example 9: Online Corp, a corporation based outside West Virginia, licenses an information database through the means of the Internet to individual customers that are resident in West Virginia and in other states. These customers access Online Corp's information database primarily in their states of residence and sometimes while traveling in other states. The license is a license of intangible property that resembles a sale of goods or services and are assigned in accordance with §110-24-6.5.8.e of this rule. If Online Corp can determine or reasonably approximate the state or states where its database is accessed, it must do so. Assuming that Online Corp cannot determine or reasonably approximate the location where its database is accessed, Online Corp must assign the receipts made to the individual customers using the customers' billing addresses to the extent known. Assume for purposes of this example that Online Corp knows the billing address for each of its customers. In this case, Online Corp's receipts from sales made to its individual customers are in West Virginia in any case in which the customer's billing address is in West Virginia.

Example 10: Net Corp, a corporation based outside West Virginia, licenses an information database through the means of the Internet to a business customer, Business Corp, a company with offices in West Virginia and two neighboring states. The license is a license of intangible property that resembles a sale of goods or services and are assigned in accordance with §110-24-6.5.8.e of this rule. Assume that Net Corp cannot determine where its database is accessed but reasonably approximates that 75 percent of Business Corp's database access took place in West Virginia, and 25 percent of Business Corp's database access took place in other states. In that case, 75 percent of the receipts from database access is in West Virginia. Assume alternatively that Net Corp lacks sufficient information regarding the location where its database is accessed to reasonably approximate the location. Under these circumstances, if Net Corp derives five percent or less of its receipts from database access from Business Corp, Net Corp must assign the receipts under §110-24-6.5.7.c.2.B.2 of this rule to the state where Business Corp principally managed the contract, or if that state is not reasonably determinable, to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable, to the state of Business Corp's billing address. If Net Corp derives more than five percent of its receipts from database access from Business Corp, Net Corp is required to identify the state in which its contract of sale is principally managed by Business Corp and must assign the receipts to that state.

Example 11: Net Corp, a corporation based outside West Virginia, licenses an information database through the means of the Internet to more than 250 individual and business customers in West Virginia and in other states. The license is a license of intangible property that resembles a sale of goods or services, and receipts from that license are assigned in accordance with §110-24-6.5.8.e of this rule. Assume that Net Corp cannot determine or reasonably approximate the location where its information database is accessed. Also assume that Net Corp does not derive more than five percent of its receipts from sales of database access from any single customer. Net Corp may apply the safe harbor stated in §110-24-6.5.7.c.2.B.2.d of this rule and may assign its receipts to a state or states using each customer's billing address.

Example 12: Web Corp, a corporation based outside of West Virginia, licenses an internet-based information database to business customers who then sublicense the database to individual end users that are resident in West Virginia and in other states. These end users access Web Corp's information database primarily in their states of residence and sometimes while traveling in other states. Web Corp's license of the database to its customers includes the right to sublicense the database to end users, while the sublicenses provide that the rights to access and use the database are limited to the end users' own use and prohibit the individual end users from further sublicensing the database. Web Corp receives a fee from each customer based upon the number of sublicenses issued to end users. The license is a license of intangible property that resembles a sale of goods or services and are assigned by applying the rules set forth in §110-24-6.5.7.c.2.B of this rule. If Web Corp can determine or reasonably approximate the state or states where its database is accessed by end users, it must do so. Assuming that Web Corp lacks sufficient information from which it can determine or reasonably approximate the location where its database is accessed by end users, Web Corp must approximate the extent to which its database is accessed in West Virginia using a percentage that represents the ratio of the West Virginia population in the specific geographic area in which Web Corp's customer sublicenses the database access relative to the total population in that area.

6.5.9. Sale of Intangible Property; Assignment of Receipts. -- The assignment of receipts to a state or states in the instance of a sale or exchange of intangible property depends upon the nature of the intangible property sold. For purposes of §110-24-6.5.9 of this rule, a sale or exchange of intangible property includes a license of that property where the transaction is treated for tax purposes as a sale of all substantial rights in the property and the receipts from transaction are not contingent on the productivity, use, or disposition of the property. For the rules that apply where the consideration for the transfer of rights is contingent on the productivity, use, or disposition of the property.

6.5.9.a. Contract Right or Government License that Authorizes Business Activity in Specific Geographic Area. -- In the case of a sale or exchange of intangible property where the property sold or exchanged is a contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area, the receipts from the sale are assigned to a state if and to the extent that the intangible property is used or is authorized to be used within the state. If the intangible property is used or may be used only in this state, the taxpayer must assign the receipts from the sale to West Virginia. If the intangible property is used or is authorized to be used in West Virginia and one or more other states, the taxpayer must assign the receipts from the sale to West Virginia to the extent that the intangible property is used in or authorized for use in West Virginia, through the means of a reasonable approximation.

6.5.9.b. Sale that Resembles a License (Receipts are Contingent on Productivity, Use, or Disposition of the Intangible Property). -- In the case of a sale or exchange of intangible property where the receipts from the sale or exchange are contingent on the productivity, use, or disposition of the property, the receipts from the sale are assigned by applying the rules set forth in §110-24-6.5.8 of this rule (pertaining to the license or lease of intangible property).

6.5.9.c. Sale that Resembles a Sale of Goods and Services. -- In the case of a sale or exchange of intangible property where the substance of the transaction resembles a sale of goods or services and where the receipts from the sale or exchange do not derive from payments contingent on the productivity, use, or disposition of the property, the receipts from the sale are assigned by applying the rules set forth in §110-24-6.5.8.e. of this rule (relating to licenses of intangible property that resemble sales of goods and services). Examples of these transactions include those that are analogous to the license transactions cited as examples in §110-24-6.5.8.e of this rule.

6.5.9.d. Excluded Receipts. -- Receipts from the sale of intangible property are not included in the sales factor in any case in which the transaction does not give rise to sales within the meaning of W. Va. Code §11-24-3a. In addition, in any case in which the sale of intangible property does result in sales within the meaning of West Virginia §11-24-7(e)(13)(B), those sales are excluded from the numerator and the denominator of the taxpayer's sales factor. The sale of intangible property that is excluded from the numerator and denominator of the taxpayer's sales factor under this provision includes, but is not limited to, the sale of business "goodwill," the sale of an agreement not to compete, or similar intangible property.

6.5.9.e. Examples. --

Example 1: Sports League Corp, a corporation that is based outside West Virginia, sells the rights to broadcast the sporting events played by the teams in its league in all 50 U.S. states to Network Corp. Although the games played by Sports League Corp will be broadcast in all 50 states, the games are of greater interest in the northwest region of the country, including West Virginia. Because the intangible property sold is a contract right that authorizes the holder to conduct a business activity in a specified geographic area, Sports League Corp must attempt to reasonably approximate the extent to which the intangible property is used in or may be used in West Virginia. For purposes of making this reasonable approximation, Sports League Corp may rely upon audience measurement information that identifies the percentage of the audience for its sporting events in West Virginia and the other states.

Example 2: Inventor Corp, a corporation that is based outside West Virginia, sells patented technology that it has developed to Buyer Corp, a business customer that is based in West Virginia. Assume that the sale is not one in which the receipts derive from payments that are contingent on the productivity, use, or disposition of the property. Inventor Corp understands that Buyer Corp is likely to use the patented technology in West Virginia, but the patented technology can be used anywhere (i.e., the rights sold are not rights that authorize the holder to conduct a business activity in a specific geographic area). The receipts from the sale of the patented technology are excluded from the numerator and denominator of Inventor Corp's sales factor.

6.5.10. Special Rules. --

6.5.10.a. Software Transactions. -- A license or sale of pre-written software for purposes other than commercial reproduction (or other exploitation of the intellectual property rights) transferred on a tangible medium is treated as the sale of tangible personal property, rather than as either the license or sale of intangible property or the performance of a service. In these cases, the receipts are in West Virginia as determined under the rules for the sale of tangible personal property set forth under W. Va. Code §11-24-7(e)(11) and related rules. In all other cases, the receipts from a license or sale of software are to be assigned to West Virginia as determined otherwise under this rule (e.g., depending on the facts, as the development and sale of custom software, see §110-24-6.5.7.c of this rule, as a license of a marketing intangible, see §110-24-6.5.8.b of this rule, as a license of a production intangible, see §110-24-6.5.8.c of this rule, as a license of intangible property where the substance of the transaction resembles a sale of goods or services, see §110-24-6.5.8.e of this rule, or as a sale of intangible property, see §110-24-6.5.9 of this rule).

6.5.10.b. Sales or Licenses of Digital Goods or Services. -- In general. In the case of a sale or license of digital goods or services, including, among other things, the sale of various video, audio, and software products, or similar transactions, the receipts from the sale or license are assigned by applying the same rules as are set forth in §110-24-6.5.7.c.2.B and §110-24-6.5.7.c.2.C of this rule, as if the transaction were a service delivered to an individual or business customer or delivered through or on behalf of an individual or business customer. For purposes of the analysis, it is not relevant what the terms of the contractual relationship are or whether the sale or license might be characterized, depending upon the particular facts, as, for example, the sale or license of intangible property or the performance of a service.