Imposition Of Privilege Tax

2.1. The municipal business and occupation tax is a tax imposed upon persons for the act or privilege of engaging in business activities. The tax is measured by the application of rates against values of products, gross proceeds of sale or gross income of the business, as the case may be.

2.1.1. All persons engaging in business activities in a municipality which has ordinances providing for a municipal business and occupation tax pursuant to the authority granted by the Legislature in W. Va. Code §8-13-5 are subject to the municipal business and occupation tax unless specifically exempted by statute or by these rules and regulations.

2.1.2. Certain occupations and business activities are classified, and the classifications are significant inasmuch as the tax liability varies because of the different rates established for the types of business activities engaged in by the taxpayer. The business activity usually determines the taxable classification, and where different business activities are conducted, the taxpayer is liable for tax under each taxable classification involved.

2.1.3. The various business classifications and the maximum tax rates a municipality may apply thereto are presented in Table 110-26A at the end of this regulation. For a definitive treatment of each particular business classification, See Sections 2A through 2K of these rules and regulations.

2.2. Determination of values, general.

2.2.1. The following rules for determining the taxable value of natural resource products or articles manufactured within the State shall apply equally to producers and manufacturers engaged in such activities within the State. The values determined under these rules will be uniformly applied in computing the taxes imposed by statute.

2.2.2. The term "Value of Products", includes the value of by- products, and except as provided herein, shall be determined by gross proceeds of sales whether such sales are at wholesale or at retail, to which shall be added all subsidies and bonuses received with respect to the production, manufacturing, or sale thereof. Under the production and manufacturing classifications of the municipal business and occupation tax, the value of products extracted or manufactured shall be determined by the gross proceeds of sales in every instance in which a bona fide sale of products is made, and whether sold at wholesale or at retail.

2.2.3. If any person who is liable for any tax under the production classification (See Section 2A of these rules and regulations) or the manufacturing classification (See Section 2B of these rules and regulations) ships or transports his products or any part thereof out of a municipality without making sale of such products, the value of the products in the condition or form in which they exist immediately before transportation out of the municipality shall be the basis for the assessment of the tax, except in those instances in which another measure of the tax is expressly provided.

2.2.4. In determining the value of natural resources or manufactured products delivered to purchasers, there may be deducted from the gross proceeds of sales so much thereof as the taxpayer can show to be outgoing freight charges from the point at which the shipment originates in a municipality to the point of delivery. Freight charges, to be deductible, must actually be paid by the manufacturer or producer. However, no deduction will be allowed for expenses incurred by the taxpayer through the use of his own equipment in transporting items produced or manufactured.

2.3. Determination of values, manufacturing. - There are certain instances in which persons who manufacture, process or prepare products for sale are not readily able to determine the value of the products for purposes of the municipal business and occupation tax. In these instances, the following rules for determining taxable value shall apply.

2.3.1. Transportation outside the municipality without sale thereof. If any person manufactures, compounds or prepares for sale, within a municipality, products or articles which are shipped or transported outside the municipality without making sale of such products or articles, the value of the products in the condition in which they exist immediately before transportation outside the municipality shall be the basis for the assessment of tax imposed under the manufacturing classification (See W. Va. Code §11-13-2b (1987) and Section 2B of these rules and regulations) of the municipal business and occupation tax law. Whenever the situation, as described in the preceding sentence, arises, the taxpayer, to determine the value of said products for purposes of this tax, shall apply the following rules in the order stated:

2.3.1.1. The value of such products shall be determined by the actual gross proceeds of the subsequent sale of the products, whether such sale is at wholesale or at retail, as if such sale had been made at the time of shipment.

2.3.1.2. If no sale or shipment is made in the tax year in which the manufacture occurs, the gross value shall be reported for the tax year in which the subsequent sale of the products is made and shall be determined by the actual gross proceeds of the subsequent sale of the products, whether such sale is at wholesale or at retail.

2.3.2. Transported outside the municipality with sale thereof. If any person manufactures, compounds or prepares for sale, within a municipality, products or articles which are shipped or transported outside the municipality as a result of a bona fide sale of such products or articles, the value of such products or articles shall be determined in accordance with the following rules.

2.3.2.1. The actual gross proceeds of such sale, whether such sale was at retail or wholesale, to which shall be added all subsidies and bonuses received to manufacture or make sale of the product, shall be the value of such product for purposes of the municipal business and occupation tax. The full amount received from such sale shall be reported under the manufacturing classification of the municipal business and occupation tax return.

2.3.2.2. In determining value set forth and defined in subsection 2.3.2.1 above, the taxpayer shall be permitted to deduct from gross proceeds of sale the amount actually paid by him to transport the products outside the municipality, but no deduction will be allowed for expenses incurred by him through the use of his own equipment in transporting items manufactured.

2.3.3. Sales to affiliates. In determining value in regard to sales from one to another of affiliated companies or persons, or under other circumstances where the relation between the vendor and vendee is such that gross proceeds from the sale are not indicative of the true value of the subject matter of the sale, the following rules shall be applied in the order stated.

2.3.3.1. Whenever sales are made to affiliates, the value shall correspond to the gross proceeds from the sale of similar products of like quality and character and in similar quantities between persons of no common interest.

2.3.3.2. If there are no sales between parties of no common interest by which the taxpayer may value his sales to affiliates, the value shall correspond to the gross proceeds from sales by the taxpayer to nonrelated purchasers of similar products of like quality and character and in similar quantities and shall include all subsidies and bonuses.

2.3.3.3. In the absence of sales of similar products as a guide to value, such value may be determined by a cost basis. In such cases there shall be included every item of cost attributable to the particular article manufactured, including direct and indirect overhead costs. There shall be added to this total manufacturing cost the average markup realized by the taxpayer on all products manufactured, compounded or prepared for sale.

2.3.4. Manufactured products consumed by the manufacturer.

2.3.4.1. Whenever a person manufactures, compounds or prepares final completed products, and such products are commercially consumed or used by such person, a value must then be reported under the manufacturing classification for purposes of the municipal business and occupation tax. This is to effect equality of municipal business and occupation tax liability between manufacturers who sell their entire output and those who use all or a portion of their output themselves. In other words, the tax liability is based upon the total value of the manufactured products, and it is immaterial that a portion or the whole of the output may be used by the manufacturer and is not sold.

2.3.4.2. The article or product manufactured by the taxpayer and consumed in his business, to be taxable under the manufacturing classification of the municipal business and occupation tax act, must be a final completed product which is not subject to additional preparing, processing or compounding by the same manufacturer.

2.3.4.3. In other words, a manufactured product which is used to become a component of another product manufactured by the same manufacturer and which, of course, loses its identity therein, is not subject to the rule imposed by this subsection. To illustrate: Certain chemical compounds are manufactured or prepared and are consumed by the same manufacturer in the process of manufacturing a completely new or final completed chemical substance. In this instance the originally manufactured chemical compound which is consumed in and becomes a part of the substance is not required to have a value placed thereon for purposes of this tax because the tax is exacted therefrom when a value is placed on the new substance. Chemicals used in processing include chemical substances which are manufactured by the taxpayer to unite with other chemical substances or which produce a chemical reaction therewith, as contrasted with merely a physical change therein.

2.3.4.4. However, if a manufactured product which is to become a component part of another product and lose its identity therein is shipped outside the municipality for additional processing, a value must be placed on each product and reported under manufacturing classification. (For apportionment of sales price of such article, See Section 2b of these rules.)

2.3.4.5. A final completed product which is manufactured by the taxpayer and used or consumed in his business must have a value placed thereon and must be reported under the manufacturing classification for tax purposes. Such product would be one which does not become a component part of another product or one which does not lose its identity. To illustrate: Saws, jigs, cutting tools, etc. that are manufactured by a furniture manufacturer are final completed products subject to tax. Partially manufactured products sold within or without the municipality are final completed products subject to this tax. The taxpayer is relieved from placing a value on and reporting for tax purposes only those products manufactured within the municipality which become component parts of other products within the municipality and lose their identity in the other products.

2.3.4.6. In those cases where a person partially or wholly consumes or makes use of his final completed manufactured, compounded or prepared products, a value must be placed on such products, in accordance with the following rules in the order stated. In all instances where products or articles are consumed by the manufacturer and are consumed at a point distant from the place of manufacturing, no freight charges paid by the manufacturer will be allowed as a deduction in determining value under these rules, unless consideration has been given such charges in the method by which the values were determined.

2.3.4.6.a. The value of the article consumed or used shall be determined according to the selling price at the place of use or consumption of similar products of like quality or character.

2.3.4.6.b. In absence of sales of similar products as a guide to value, such value may be determined by applying to the consumed product the average price at which sales are made during the taxable year to customers of the manufacturer.

2.3.4.6.c. In the absence of sales to customers as a guide to value, such value may be determined upon a cost basis, in which case there shall be included every item of cost attributable to that particular article, including all direct and indirect overhead costs and by adding thereto the average markup realized by the manufacturer on his products.

2.4. Determining of values, production of natural resources.

2.4.1. Under the production classification of the municipal business and occupation tax law (See W. Va. Code §13-11-2(a) (1987) and Section 2.2 of these rules and regulations) the value of natural resources products produced shall be determined by the gross proceeds of sales in every instance in which a bona fide sale of such products is made, and whether sold at wholesale or retail. In determining the value of natural resource products delivered to purchasers, there may be deducted from the gross proceeds of sales so much thereof as the taxpayer can prove to be actual outgoing freight charges (paid by him) from the point at which the shipment originates in the municipality to the point of delivery. However, no deduction is permitted for expenses incurred by him through the use of his own equipment in transporting items produced.

2.4.2. There are certain instances in which persons who produce natural resource products are not readily able to determine the value of said products for purposes of the municipal business and occupation tax. In these instances the rules which follow are to be applied. Whenever possible, and unless otherwise provided in these rules, the value of natural resource products produced within the municipality shall be determined by actual gross proceeds derived from said sale thereof (whether at retail or at wholesale) by the producer.

2.4.3. Transportation outside the municipality without sale thereof. If any person produces within a municipality natural resource products which are shipped or transported outside the municipality without making sale of such products, the value of the natural resource products in the condition in which they exist immediately before transportation outside the municipality shall be the basis for the assessment of tax under the production classification of the municipal business and occupation tax law (See Section 2A of these rules and regulations). Whenever the situation, as described in the preceding sentence, arises, the taxpayer, to determine the value of his natural resource products for the purposes of this tax, shall apply the following rules in the order stated.

2.4.3.1. The value of such natural resource products shall be determined by the actual gross proceeds of the subsequent sale of the products, whether such sale is at wholesale or retail, as if such sale had been made at the time of shipment.

2.4.3.2. If no sale or shipment is made in the tax year in which the manufacture occurs, the gross value shall be reported for the tax year in which the subsequent sale of the products is made and shall be determined by the actual gross proceeds of the subsequent sale of the products, whether such sale is at wholesale or at retail.

2.4.4. Transportation outside the municipality with sale thereof. If any person severs, extracts, reduces to possession or produces for sale, profit or commercial use, within a municipality, any natural resource products which are shipped or transported outside the municipality as a result of a sale of such products, the value of such natural resource products shall be determined in accordance with the following rules.

2.4.4.1. The actual gross proceeds of such sale, whether such sale was at retail or wholesale, to which shall be added all subsidies and bonuses received with respect to the production or sale of the product, shall be the value of such product for the purposes of the municipal business and occupation tax. The full amount received from such sale shall be reported under the production classification on the municipal business and occupation tax return.

2.4.4.2. In determining value as set forth and defined in subsection 2.4.4.1, the taxpayer shall be permitted to deduct from the gross proceeds of sale the amount actually paid by him to transport the products outside the municipality, but no deduction will be allowed for expenses incurred by him through the use of his own equipment in transporting natural resources produced.

2.4.5. Sales to affiliates. In determining the value in regard to sales from one to another affiliated companies or persons, or other circumstances where the relationship between the vendor and vendee is such that the gross proceeds from the sale are not indicative of the true value of the subject matter of the sale, the following rules shall be applied in the order stated.

2.4.5.1. Whenever sales are made to affiliates, the value shall correspond to the gross proceeds from the sale of similar products of like quality and character and in similar quantities between persons of no common interest.

2.4.5.2. If there are no sales between parties of no common interest by which the taxpayer may value his sales to affiliates, the sales shall correspond to the gross proceeds from sales by the taxpayer to nonrelated purchasers of similar products of like quality and character and in similar quantities and shall include all subsidies and bonuses.

2.4.5.3. In the absence of sales of similar natural resource products as a guide to value, such value may be determined by a cost basis. In such cases there shall be included every item of cost attributable to the particular natural resource product produced, including direct and indirect overhead costs. There shall be added to this total production cost the average markup realized by the taxpayer on all natural resource products produced.

2.4.6. Natural resource products consumed by the producer. Whenever a person produces natural resource products, and such products are commercially consumed or used by such person, a value must be placed upon the consumed natural resource products. This value must then be reported under the production classification for purposes of the municipal business and occupation tax. In other words, the tax liability is based upon the total value of the produced natural resources, and is immaterial that a portion or the whole of the output may be used by the producer and is not sold. Whenever natural resource products produced within a municipality are used or consumed by the producer in his business, whether within or without the municipality, the value of such products shall be determined by the following rules in the order stated. In all instances where natural resources are consumed by the producer and are consumed at a point distant from the point of production no freight charges paid by the producer will be allowed as a deduction in determining value under these rules, unless due consideration has been given such charges in the method by which the values were determined.

2.4.6.1. The value of the natural resource product consumed or used shall be determined according to the selling price at the place of use or consumption of similar products of like quality and character by other taxpayers.

2.4.6.2. In the absence of sales of similar natural resource products as a guide to value, value shall be determined by applying to the used or consumed product the average price at which sales are made during the taxable year to customers of the producer.

2.4.6.3. In the absence of sales to customers as a guide to value, such value may be determined upon cost basis, in which case there shall be included every item of cost attributable to that particular natural resource product, including all direct or indirect overhead costs and by adding thereto the average markup realized by the producer on his natural resource products.

2.5. Manufacturing and selling articles within the state. -- Persons who manufacture, compound or prepare, within a municipality, products or articles for sale, profit or commercial use and make sale of the same within the municipality, must place a value on said products or articles and report the same under the manufacturing classification on the municipal business and occupation tax return. Said value shall be determined in accordance with the following rules.

2.5.1. Sales at wholesale.

2.5.1.1. If any person manufactures, compounds or prepares within a municipality, products or articles and makes sale thereof at wholesale within or without the municipality, the entire gross proceeds derived therefrom shall be reported under the manufacturing classification on the municipal business and occupation tax return.

2.5.1.2. Where the manufacturer makes sale thereof at wholesale within the municipality, the entire gross proceeds derived from such wholesale sales must also be required to be reported under the wholesale classification on the municipal business and occupation tax return.

2.5.2. Sales at retail.

2.5.2.1. If any person manufactures, compounds or prepares, within a municipality, products or articles and makes sale thereof at retail within or without the municipality, the sales value of such products shall be reported under the manufacturing classification on the municipal business and occupation tax return.

2.5.2.2. The entire gross proceeds derived from such retail sale shall also be reported under the retail sales classification of the municipal business and occupation tax return where the manufacturer makes sale thereof at retail within the municipality.

2.6. Producing and selling natural resource products within the State. - Persons who produce, within a municipality, natural resource products and make sale of the same within or without the municipality, must place a value on the natural resource products and report the same under the production classification on the municipal business and occupation tax return. Said value shall be determined in accordance with the following rules.

2.6.1. Sales at wholesale.

2.6.1.1. If any person produces, within a municipality, natural resource products and makes sale thereof at wholesale within or without the municipality, the entire gross proceeds derived therefrom shall be reported under the production classification on the municipal business and occupation tax return.

2.6.1.2. The amount derived from such sale at wholesale shall be reported under the wholesale sales classification on the municipal business and occupation tax return if sale of the natural resource product is made within the municipality.

2.6.2. Sales at retail.

2.6.2.1. If any person produces, within a municipality, natural resource products and makes sale thereof at retail within or without the municipality, the sales value of such products shall be reported under the production classification on the municipal business and occupation tax return.

2.6.2.2. The entire gross proceeds derived from the sale at retail shall also be reported under the retail classification on the municipal business and occupation tax return if sale of the natural resource products is made within the municipality.