Period of Time Over Which Property is Placed in Service

6.1. W. Va. Code §11-6F-4 requires that an application for certification of capital addition property be filed with the Tax Commissioner "on or before the date the property is first required to be reported on an annual return for ad valorem property tax purposes."

6.2. A Taxpayer may apply for certification of a project investment that is to be placed in service or phased in over a period of years at a total cost of more than $50 million and comply with W. Va. Code §11-6F-4 if the application for certification is filed before the first items of investment property (either as a completed facility or as construction in progress) are required to be reported on a property tax return.

6.3. Certified capital addition property shall be placed in service as part of a defined plan for an integrated capital addition to a manufacturing facility over a definite and limited period of time based upon the Taxpayer's plan for the expansion. It may be that a Taxpayer shall undertake a development where the investment shall be made over a number of years for a single expansion. There is no set maximum time limitation period for the placement of the integrated investment property in service.

6.4. In some cases expansion may take place in phases where one portion of the plant expansion (such as a production line or unit) may be placed in operation, and other phases of the expansion shall then be later placed into operation as they are built. The Tax Commissioner shall certify multi-phase projects if the project phases can be reasonably included as components of a plan for an integrated capital addition to a manufacturing facility. However, if there is a substantial expanse of time or delay (either planned or unplanned) between the placement of one phase into operation, and the commencement of construction or operation of a succeeding phase, the Tax Commissioner may determine that the expansions resulting from those purported phased investments are not part of a plan for integrated capital additions to a manufacturing facility, but instead are a series of discrete non-integrated investments. A time gap or delay of more than 1 year shall be considered substantial.

6.4.1. If investments are determined to be discrete non-integrated investments, the property acquired with the investments shall qualify separately for special property valuation under the Act. Each non-integrated investment shall independently meet the $50 million investment threshold requirement.

6.4.2. In the case of integrated multi-phase investments, the total qualified investment combining all integrated phases of the development shall typically be included in the measure of investment in qualified capital addition property for determining whether it meets the $50 million investment threshold requirement and, once the threshold had been exceeded, toward the amount of the certified capital addition.

6.5. Plan for an integrated capital addition -- Qualified capital addition property shall be placed in service as part of a discrete, defined plan for an integrated capital addition to a manufacturing facility over a definite and limited period of time based upon the Taxpayer's plan for the expansion. The property may be placed in service over a period of less than one year, or more than one year or in phases. Phased investments or phased in investments shall be made pursuant to a plan for an integrated capital addition where one or more portions of the plant expansion (such as a production line or unit) may be placed in operation, and other phases of the expansion shall then be later placed into operation in due course as they are concurrently or consecutively constructed or installed. Although integrated phased investments that take more than one year to complete are multiple year investments, other multiple year investments may not be phased investments in that the investment in non-phased multiple year integrated investments are enrolled in the name of the Taxpayer year by year as construction in progress, and the qualified capital addition property goes into actual operation at one point in time, rather than in phases. A so called "turn key" project, where the entire operation substantially commences upon the completion of construction of the facility, would constitute a capital addition to a manufacturing facility resulting from a multiple year non-phased integrated investment.

6.5.1. Integration between qualified capital addition property and preexisting facilities. -- Although physical integration between the preexisting facility and the qualified capital addition property (to the extent that the qualified capital addition property must be located within two miles of the preexisting facility) is required in W. Va. Code §11-6F-2(d), the extent to which qualified capital addition property must be economically or functionally integrated with the preexisting facility shall vary on a case by case basis.

6.5.1.2. It is possible that qualified capital addition property may consist of an entirely new plant, operation or process which manufactures an entirely new product or product line in such a way that the qualified capital addition property may not be in any way integrated with, or related to, the preexisting facility or its operations, except for the fact that it is owned by the same person that owns the preexisting facility and it is located within two miles of the preexisting facility. In that case, the property may qualify for special property tax valuation under the Act if the property is otherwise qualified, and if the investment plan itself constitutes a discrete, definite plan for an integrated investment in qualified capital addition property.

6.5.1.3. Criteria indicating the existence of a plan for an integrated capital addition to a manufacturing facility. -- The following criteria relating to a proposed capital addition to a manufacturing facility indicate the possible existence of a plan for an integrated capital addition, but no single factor or combination of factors is dispositive of the issue of integration.

6.5.1.3.a. Evidence that an investment is to be made for the accomplishment of a single economic expansion or development, and that the purchase of any major property component or any major service component of the development shall not and would not be made unless investment in the remaining major components are also made;

6.5.1.3.b. The existence, for a substantial time prior to the enrollment of any qualified capital addition property, of a written plan for the capital addition showing: projected amounts of investment to be placed in service, a detailed schedule for construction and commencement of operations (either in phases or otherwise) and a detailed set of technical engineering and construction plans for the expansion;

6.5.1.3.c. The existence, for a substantial time prior to the enrollment of any proposed qualified capital addition property, of minutes of the Board of Directors of the Taxpayer showing the presentation of a proposal for the planned capital addition, deliberations of the Board of Directors regarding the proposed capital addition and approval of the plan by the Board;

6.5.1.3.d. The presentation of a proposal for or demonstration of the plan for the capital addition to the shareholders or owners of the Taxpayer a substantial time prior to the enrollment of any proposed qualified capital addition property;

6.5.1.3.e. Minutes of the Board of Directors showing authorization of expenditures of the Taxpayer for the capital addition;

6.5.1.3.f. idence of the encumbrance of funds in the accounting records of the Taxpayer for the capital addition;

6.5.1.3.g. Submission of filings, applications and documentation relating to the proposed project with Federal and State agencies such as the Federal Energy Regulatory Commission, the Securities Exchange Commission, or with air, water and solid waste permitting agencies and similar governmental agencies a substantial time prior to the enrollment of any proposed qualified capital addition property;

6.5.1.3.h. The preparation and submission of applications for financing with public or private sources of financial resources, the issuance of securities for the financing of the proposed capital addition, and the incurring of debt and other obligations for the financing of the project a substantial time prior to the enrollment of any proposed qualified capital addition property; and

6.5.1.3.i. Phased investments. -- In the case of phased investments, physical, engineering, economic and functional integration of the qualified capital addition property placed in service shall typically be shown for all phases of the investment. The investment phases shall be integrated with each other and typically shall be integrated with the preexisting facility.

6.5.1.3.i.1. Physical integration occurs where the qualified capital addition property is located in or on the premises of a preexisting facility or in near proximity to, or incorporated as part of, a preexisting production unit of the preexisting facility.

6.5.1.3.i.2. Engineering integration occurs where the qualified capital addition property is deliberately designed to operate in coordination with other parts of the preexisting production machinery and apparatus at the facility so as to improve productivity, quality control or overall capacity of the manufacturing operation at the facility.

6.5.1.3.i.3. Economic integration occurs where the capital addition is designed to enhance the overall economic efficiency of the preexisting manufacturing facility by either decreasing costs per unit of production, or increasing net revenues.

6.5.1.3.i.4. Factors indicating functional integration. -- The determination of whether or not the operations resulting from phased investments and preexisting facilities are functionally integrated (both between phases and between the preexisting facility and the property represented by the phased investment) turns on the facts and circumstances of the case. Several factors may evidence that the operations are functionally integrated. A non-exclusive list of these factors is found below. Generally, several functionally integrating factors shall exist in a given business, although functional integration may exist as a result of few factors or even one factor, if the factor or factors involved are particularly significant. In determining whether functional integration exists, factors should not be examined in isolation. Instead, it should be determined whether the factors which are present, in combination, result in functional integration between phased investment property and the preexisting facility. In addition, the presence or absence of any one factor or any particular factors is not necessarily determinative as to whether a functional integration exists, although absence of all of the factors described in this subsection shall generally result in a finding that functional integration does not exist.

6.5.1.3.i.4.1. Factors. -- A non-exclusive listing of factors to be considered in determining whether business segments are functionally integrated include the following:

(1) Functional integration may be indicated where the capital addition, in conjunction with other preexisting assets at the manufacturing facility is operated to send, receive, exchange or transfer products, materials or goods between the qualified capital addition property and production, storage, receiving, or shipping units of the preexisting facility. The greater the quantity of these exchanges as a percentage of overall exchanges, the more significant this factor becomes;

(2) Functional integration is indicated where there is common management of both the qualified capital addition property and the preexisting facility;

(3) Functional integration is indicated where there is a common use or transfer of technical information, know-how or research and development on a significant scale between operations of the preexisting facility and operations engaged in with the qualified capital addition property;

(4) A distribution system common to operations represented by property acquired in investment phases and to one or more production units of the preexisting facility for either production inputs or production outputs is indicative of functional integration;

(5) Evidence of functional integration may be found in use of a common distribution system under which inventory control and accounting, storage, trafficking and transportation are controlled through a common network for both the capital addition and the preexisting facility;

(6) Evidence of functional integration may be indicated by common purchasing or supply of substantial quantities of products, services, intangibles, or the like from the same source for both the preexisting facility and the qualified capital addition property, where the supply results in a significant economy of scale, or where the products, services, intangibles, or the like are not readily available from other sources and are particularly important to each component of the Taxpayer's business, both the preexisting facility and the qualified capital addition property. For purposes of this provision the term "intangibles" means and includes, but is not limited to, patents, copyrights, formulas, processes, trade secrets, trademarks, and similar property;

(7) Centralized management may indicate functional integration and exists when directors, officers or management employees jointly participate in management decisions which significantly affect the operations of the property resulting from phased capital investment and the operations of the preexisting facility. The transfer of officers or management employees between business segments may also provide evidence of centralization of management;

(7a) The mere presence of centralized management is not sufficient to support a finding that the operations relating to the property acquired through phased investment and of the preexisting facility are functionally integrated. Only those centralized management activities which contribute to the integration of the operations under consideration constitute a functionally integrating factor. Centralized efforts to fulfill investment stewardship responsibilities, such as the implementation of a uniform system of internal controls, or regulatory reporting requirements, such as the establishment of centralized information processing, are not determinative for this purpose;

(7b) When operations resulting from the phased investment in qualified capital addition property and operations of the preexisting facility are carried on in the same general line of business or constitute steps in a vertically integrated enterprise, the centralized management is more significant as a factor indicative of functional integration than in other business contexts because of the opportunity the respective operations have in making use through such central management of readily transferable knowledge and expertise between operations, and developing coordination between the operations;

(8) Other factors. -- Functional integration of business segments are generally not be evidenced by such factors (alone or in combination with other factors described by this subparagraph) as common financing, advertising, labor relations, warehousing (in the absence of a central distribution system), pension plans, insurance, and personnel recruitment. However, these factors do not clearly demonstrate that functional integration exists, they may, in combination with the factors described, demonstrate sufficient additional evidence of functional integration to warrant a finding that functional integration exists.

6.5.1.3.i.4.2. Factors accorded little weight. -- Factors such as common legal services, accounting, tax administration, and financial reporting shall generally be accorded little weight in the determination of whether operations relating from property acquired through phased investment and preexisting facilities are functionally integrated.

6.5.1.3.i.4.3. The presence of functional integration shall be presumptively shown by the presence of the following:

(1) Same general line of business: There is a strong presumption that the property acquired through phased investment and the preexisting facility are functionally integrated when the activities engaged in with the qualified capital addition property and the preexisting facility are in the same general line of business.

(2) Steps in a vertical process: The operations resulting from use of the property acquired through phased investments and the operations of the preexisting facility are functionally integrated when the qualified capital addition property and preexisting facility are used in different steps in a vertically structured enterprise. For example, a corporation which explores for and mines copper ores; concentrates, smelts and refines the copper ores and fabricates the refined copper into consumer products and distributes these products and is engaged in a vertically integrated and functionally integrated business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the corporation's executive offices.

6.5.1.3.i.4.4. Phased investments in which qualified capital addition property placed in operation is not used either in the same general line of business as the other property attributable to other phases or in steps in a vertical process, are presumptively non-integrated investments absent a determination that the respective segments are functionally integrated.

6.5.1.3.i.4.5. In the event that one phase of a capital addition is functionally integrated with a second phase, and the second phase is functionally integrated with a third phase, the first, second and third phases constitute functionally integrated phases notwithstanding the fact that the first and third phases are not functionally integrated with each other. The preceding sentence shall not apply where the second phase's functional integration with one phase is not substantial viewed from the perspective of either of the remaining phases. All three phases, in turn, shall be treated as functionally integrated with the preexisting facility if any one of the functionally integrated phases is functionally integrated with the preexisting facility.

6.5.1.3.i.4.6. Where the Taxpayer asserts that property acquired through phased investment and the preexisting facility are functionally integrated, the Taxpayer has the burden of proof. Failure by the Taxpayer to produce requested evidence which lies within the control of the Taxpayer gives rise to a presumption that the evidence would be unfavorable if provided.