W. Va. Code R. § 110-1K-4

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-1K-4 - Valuation Methods

4.1. Method for determining value of active mining property.

4.1.1. General. -- The value of Active Mining Property is the value per active acre multiplied by the amount of active acres. In no case shall the active mining property be valued at less than its value as reserve property.

4.1.2. Determination of active mining property. -- The designation of "Active Mining Property" is determined as follows:

4.1.2.a. An Operator may designate or assign a portion of a parcel to an Active Mining Property when only that portion is suitable for mining purposes. For determining the actual area of the Active Mining Property, the operator shall include all contiguous parcels or portions of parcels containing the mineable natural resource(s) which are under lease, regardless of ownership. Parcels that are not leased or owned and that fall within the mining portion of the Active Mining Property shall have the requisite mineable resource valued at the applicable reserve rate for the life of the mining operation.

4.1.2.b. For purposes of determining the actual area of the active mining property, the operator shall treat all contiguous parcels or portions of parcels containing the mineable natural resource(s) that are under lease, regardless of ownership, as active mining property. If more than one (1) natural resource is being mined under a permit, each natural resource represents a separate active mining property.

4.1.2.c. If the permitted operation has not begun production by the July 1st assessment date, the operator shall report the mineable natural resource(s) on an active property return and value them as reserves for the applicable tax year. Once a parcel or a portion of a parcel has been assigned to or designated as an active mining property, the parcel, or portion of the parcel, shall continue to be listed on the active return, filed annually, until such time as the permit has been retired.

4.1.2.d. Should the mining operation cease production after January 1st but prior to July 1st of the most recent calendar year preceding the July 1st assessment date, and there is mineable natural resource(s) remaining, the remainder shall be valued at the reserve rate for the current tax year.

4.1.2.e. Any permitted mining operation producing only one (1) natural resource shall be designated as "Active Mining Property". If the mining operation is producing more than one (1) natural resource, each natural resource shall be designated as an "Active Mining Property".

4.1.2.f. If the mining operation is producing a natural resource at different locations, portals and/or faces under one (1) specific permit, that operation shall be designated as one (1) "Active Mining Property". If the production of the natural resource involves different mining techniques (surface, auger or deep mining method), or if mining sites are separate and generally independent, then those sites shall be designated as separate "Active Mining Properties".

4.1.2.g. For use in this rule, the maximum active mining portion for each natural resource is fifteen (15) years multiplied by the annual acres mined, except for salt. The active mining portion around each salt production well is a maximum of thirty-five (35) acres. After a well's first year of production, active mining property shall be derived by subtracting acres mined from the thirty-five (35) acres.

4.1.2.h. If the available mineable acreage of the natural resource being mined is less than the maximums listed the foregoing subdivision 4.1.2.g, the total available acreage may be considered for designation as active mining property.

4.1.3. Determination of average annual production -- Average annual production, as defined in Section 3 of this rule, is determined as follows:

4.1.3.a. An arithmetic mean shall be calculated on tonnage by the producer and verified by the Tax Commissioner through research of the West Virginia Office of Miner's Health, Safety and Training and/or audit-derived information for the three (3) most recent calendar years preceding the July 1st assessment date.

4.1.3.b. If there was no production in either the second (2nd) and/or third (3rd) most recent calendar years, an arithmetic mean of the available year(s) production shall be used.

4.1.4. Value per active acre -- Application of the valuation formula for active mining property shall be based on the actual quantity of resource produced and sold. Factors to be used for the specific active mining property are: resource thickness in feet (Thk); tons per acre foot (Appendix A, Formula 2); Clean Resource Recovery Rate (RR%); Royalty Rate (Roy%); net present value Multiplier (M); and, Mine Life in years (ML). See Appendix A, Formula 3 of this rule for the formula to determine the value per active acre.

4.1.5. Thickness (ft). -- As defined in Section 3 of this rule, thickness is determined as follows:

4.1.5.a. An arithmetic mean shall be taken of thickness as reported by producers and verified by the Commissioner through research of West Virginia Office of Miner's Health, Safety, and Training records and/or audit-derived information for the three (3) most recent calendar years prior to the July 1st assessment date.

4.1.5.b. If there has been no production in either the second and/or third most recent calendar years, an arithmetic mean of the available years shall be used.

4.1.6. Royalty rate. -- For use in the formula prescribed by this rule, the royalty rates shall be determined for each natural resource and types of mining operations. These royalties shall include specific rates for:

4.1.6.a. limestone/dolomite mines;

4.1.6.b. sandstone (industrial) and/or aggregate mines;

4.1.6.c. clay and/or shale surface mines;

4.1.6.d. clay and/or shale underground mines;

4.1.6.e. sand and gravel surface mines; and

4.1.6.f. salt brine wells.

Royalty rates shall be established annually by the Tax Commissioner after review of both recorded and unrecorded, willing seller-willing buyer natural resource property leases that have occurred in the State of West Virginia during at least the five (5) calendar years prior to the appraisal date, and through inspection of other appropriate information. This review shall place a greater emphasis on information from leases transacted during the most recent years. For those natural resources involved in few or no recorded lease agreements, the Tax Commissioner shall derive a royalty rate through surveys conducted by his or her staff, data provided by the other pertinent State agencies, and other appropriate information as may be made available from the specific natural resource producers. The Tax Commissioner shall maintain this summary report of royalty rates and file the results in the State Register on or before July 1st of each year; shall accept written public comment on the tentative values until August 1st of each year; and, shall file final royalty rates in the State Register on or before September 1st of each year. From this data, the Tax Commissioner shall select the royalty rates that best typify transactions. In order to convert percentage royalty rates into specific value per ton rates, the Tax Commissioner shall, if necessary, conduct a review of the specific natural resource selling prices in West Virginia by requesting the selling prices from private purchasers, the State Department of Highways, and the West Virginia Geological and Economic Survey, as well as other informative sources available, and select specific selling price rates based on prices best typifying activity in each appraisal year. The selected selling prices per ton when multiplied by the percentage royalty rate shall result in a royalty price per ton.

4.1.7. Capitalization rate. -- A single statewide capitalization rate for other mined natural resources shall be determined annually by the Tax Commissioner through the use of generally accepted methods of determining these rates. The rate shall be based on the assumption of a level, non-inflating income series. The capitalization rate used to value other mined natural resources shall be developed considering a discount rate determined by the summation technique.

4.1. 7.1. Discount component -- The summation technique shall be used in developing a discount component of the capitalization rate. The five subcomponents of the discount rate are:

4.1.7.1.a. Safe rate -- The safe rate shall reflect a rate of return that an investor could expect on an investment of minimal risk. It shall be developed through review of interest rates offered on thirteen-week United States Treasury Bills for a period of three (3) calendar years prior to the appraisal date.

4.1.7.1.b. Nonliquidity rate -- The nonliquidity rate shall be developed through an annual study to determine a reasonable estimate of time that natural resource property, when offered for sale, remains on the market. The time determined shall be used to identify United States Treasury Bills with similar time differentials in excess of thirteen-week Treasury Bills. The interest differential between these securities shall be used to represent the nonliquidity rate. For example, if it is determined that other natural resource property remains on the market for an average of nine months (39 weeks) before being sold, the nonliquidity rate shall be derived by taking the rate on one (1) year Treasury Bills minus the rate on thirteen-week Treasury Bills.

4.1.7.1.c. Risk rate -- The relative degree of risk of an investment in other natural resource property is difficult to determine from published interest rates. Interest rates required on loans for acquisition and/or development of other natural resource properties shall be calculated by adding two percent (2%) to the Prime Rate Charged By banks as published in the Economic Indicators Prepared By The Council Of Economic Advisors For The Joint Economic Committee for each of the three calendar years prior to the July 1 assessment date. The three year average shall be compared to interest rates offered on thirteen-week United States Treasury Bills for the same three (3) calendar year period. The difference between the two, combined with bands of investment analysis, shall be used as a basis to estimate the risk rate.

4.1.7.1.d. Management rate -- The management rate represents the cost of managing the investment, not the cost of managing the other natural resource property. Because the management rate has historically been one-half of one percent (0.5%) of the value of investment portfolios, for purposes of determining the discount component the management rate shall be one-half of one percent (0.5%).

4.1.7.1.e. Inflation rate (negative) -- Nominal interest rates, including the "safe rate" mentioned, are higher than real rates by an amount representing expectation of future inflation. However, net annual income from other natural resource property is to be estimated assuming level future royalties (no inflation). The capitalization rate must be a real rate, net of expectation of inflation. The inflation rate shall be estimated through analysis of the most recent three (3) calendar year's urban consumer price index as determined by the United States Department of Labor, Bureau of Labor Statistics.

4.1.7.2. In determining the discount component of the capitalization rate, the Tax Commissioner shall deduct the inflation rate from the sum of the safe rate, nonliquidity rate, risk rate, and management rate.

4.1.7.3. Property tax component -- This component shall be estimated by multiplying the assessment rate by the statewide average of tax rates for Class III property. At the present time, research indicates that royalty rates on other natural resources include a component for property tax, with no additional compensation from the producer. As a result, the property tax component shall be used in the capitalization rate. If this described general practice changes and property taxes are paid as additional compensation, the use of this component shall be deleted.

4.1.7.4. Results of capitalization rate summary -- The data used for development of components referenced in Paragraph 4.1.9.1 of this rule shall be reported and filed annually by the Tax Commissioner in the State Register on or before July 1st of each year. Public comment on the tentative results shall be accepted until the subsequent August 1st, and the final results shall be filed in the State Register on or before September 1st of each year.

4.2. Valuation of reserves. -- Reserve valuation rates for limestone, sandstone, clay and shale, sand and gravel, and salt shall be determined annually by the Tax Commissioner after review of recorded willing seller-willing buyer natural resource, production-specific, property sales that have occurred in the State of West Virginia during at least the five (5) calendar years prior to the July 1st appraisal date, through inspection of other appropriate information, and from quantitative data that might reflect current market values. This review shall place a greater emphasis on the most current data. For those natural resource properties involved in few or no recorded sale agreements, the Tax Commissioner may also derive the valuation through reviews conducted by his or her staff, data provided by other State agencies, and other appropriate information as may be made available by the specific natural resource producers involved. The Tax Commissioner: shall maintain this review of natural resource property sales and file summarized results in the State Register on or before July 1st of each year; shall accept written public comment on the tentative valuations until the subsequent August 1st; and shall file the final valuations for each natural resource in the State Register on or before September 1st of each year.

4.3. Valuation of unmineable other natural resource properties. -- Properties in this category are valued at one dollar ($1.00) per acre.

4.4. Valuation of mined-out other natural resource properties. -- Properties in this category are valued at one dollar ($1.00) per acre.

4.5. Valuation of barren other natural resource properties. -- Properties in this category are valued at one dollar ($1.00) per acre.

4.6. Total other natural resource valuation. -- The total other natural resource valuation for any parcel shall involve the value for all active acres, all reserve acres, all unmineable acres, all mined out and all barren acreage.

4.7. Leasehold interests. -- This rule generally attributes the value of the natural resource to the owner of the natural resource property. In those circumstances where the owner of the property is subject to a lease requiring the owner to permit mining at royalty rates substantially below current market values, the owner may petition the Tax Commissioner, to attribute a portion of the value of the natural resource determined by this formula to the leaseholder.

4.8. Farm properties. -- The natural resource rights that are part of a "fee" estate where the use of the surface has qualified for farm use appraisal shall be valued as described in 110 C.S.R. 1A, Valuation of Farmland and Structures Situated Thereon For Ad Valorem Property Tax Purposes.

4.9. Property reports. -- On or before September 1st of each year the producer shall file an Annual Appraisal Report for Production of Other Mined Minerals with the Tax Commissioner with acknowledgment to the natural resource owners and the county assessors in the counties where the mines is located. On or before September 16th of each year the natural resource owner of any property that is part of a permitted mining operation shall file an Annual Appraisal Return for Reserve Mineral Properties with the Tax Commissioner. Owners of natural resource properties may file an Annual Appraisal Return for Reserve Mineral Properties, on or before September 16th, with the Tax Commissioner; otherwise, the properties shall be valued using the best available information.

4.10. Confidentiality -- All information provided by or on behalf of a natural resources property owner or by or on behalf of an owner of an interest in natural resources property to any state or county representative for use in the valuation or assessment of natural resources property or for use in the development or maintenance of a legislatively funded mineral mapping or geologic information system is confidential. The information is exempt from disclosure under provisions of W. Va. Code '29B-1-4, and shall be kept, held, and maintained confidential except to the extent the information is needed by the State Tax Commissioner to defend an appraisal challenged by the owner or lessee of the natural resources property subject to the appraisal: Provided, That this section may not be construed to prohibit publication or release of information generated as part of the minerals mapping or geologic information system, whether in the form of aggregated statistics, maps, articles, reports, professional talks, or otherwise presented in accordance with generally accepted practices and in a manner so as to preclude the identification or determination of information about particular property owners.

W. Va. Code R. § 110-1K-4