W. Va. Code R. § 110-12A-5

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

Section 110-12A-5 - Problems, Examples and Solutions Relating to Carriers

5.1. Set forth below are several examples of problems which arise in regard to the carrier tax. These are presented for further clarification of the effect and substance of the annual tax on incomes of certain carriers and of these rules and regulations. The principles to which these examples relate are contained within subsection 2 and 3 of these rules and regulations.

(a) Example 1. Mountain Transit Company operates a bus line wholly within this State. The company has two (2) operations:

(1) A run from Parkersburg to Vienna and return, and

(2) A run from Parkersburg to Clarksburg and return.

For the taxable year 1972, the bus company has the following items and amounts of income: (See Table 110-12AC found at the end of this regulation)

For the purpose of the annual tax on gross income, the bus company will report on its 1972 carrier tax return those items enumerated above as (1) and (2). Item (1) qualifies as an "urban or suburban bus line" (See Section 1 of these rules) inasmuch as the Parkersburg -Vienna operation is less than forty (40) forty miles measured one way and the majority of such passengers are using this bus service as a commuter type service. Therefore, the gross income received from this operation qualifies for the reduced tax rate and is to be reported under the urban or suburban classification.

The income received from item (2) above does not qualify as urban or suburban and must be taxed as income as any other motor vehicle would be taxed. Inasmuch as such activity began and ended within this State, the entire amount must be reported under the gross income column of the carrier tax return.

Item (3) above is income from restaurant operations and is classified as nontransportation income. Therefore, said income is not subject to carrier tax but must be reported for business and occupation tax purposes.

Items (4) and (6) above qualify for the same treatment as item (3).

Inasmuch as dividends are not considered transportation income, item (5) is not subject to carrier tax; nor are dividends, except as to banking and financial businesses, subject to business and occupation tax.

(b) Example 2. BC, a barge line company, moves coal barges on the Monongahela River from Morgantown, West Virginia, to Pittsburgh, Pennsylvania. It has no other transportation activities within this State but does own docking facilities and maintains several employees within this State. Therefore, BC is subject to the tax on net income but is not subject to the tax on gross income inasmuch as it has no transportation business which begins and ends within West Virginia.

For purposes of this illustration, it is assumed that the barge trip from Morgantown to Pittsburgh is seventy-five (75) miles, fifteen (15) of which are within this State. It is also assumed that for the entire year that BC had activities from everywhere that totaled 7,500 ton-miles and West Virginia ton-miles of 1,500.

BC's total gross income for the year was fifty thousand dollars ($50,000). Its total net income was two thousand dollars ($2,000) and was computed by employing federal rules. In arriving at total net income, to be used as the starting point to determine tax on net income, BC eliminated all nontransportation income and expenses pertaining thereto. Nontransportation income was also eliminated to arrive at total gross income.

(c) Example 3. XY Railroad Co., a railroad carrier, has the following operations in connection with West Virginia:

(1) Daily operation of a passenger train from Cincinnatti, Ohio, to Washington, D.C., and return. This run, for the year 1972, totaled 4,000 passenger-miles of which 1,800 were pass-through miles within West Virginia. Total income from this run was five hundred thousand dollars ($500,000).

(2) Daily operation of a freight train between the same two (2) localities. This run totaled 7,000 ton-miles of which 3,000 were pass-through miles within West Virginia. Total income was one million dollars ($1,000,000).

(3) Operation of a freight train from Charleston, West Virginia, to Richmond, Virginia, and return. This run totaled 5,000 ton-miles of which 3,000 were within this State. Total income was five hundred eighty thousand dollars ($580,000).

(4) Operation of a freight train from Charleston, West Virginia, to Logan, West Virginia, and return. This run totaled 8,000 ton-miles of which all were within this State. Income from this run, for the taxable year, was nine hundred ninety thousand dollars ($990,000).

(5) Income from demurrage in the amount of nine thousand dollars ($9,000) was received and one thousand dollars ($1,000) was attributable to this State.

(6) Income from switching in the amount of twenty-one thousand dollars ($21,000) was received and nine thousand dollars ($9,000) thereof was attributable to this State in that such portion began and ended here.

(d) Solution to Example 3.

(1) Computation of annual tax on gross income. -- In order to determine the tax on gross income, the taxpayer must compute income arising from transportation activities which began and ended within the state.

(A) Item (1) above is not subject to the tax on gross income since such traffic did not begin and end within this State.

(B) Item (2) above also does not meet the essential requirements of two-point business; therefore, such item is not reported for the tax on gross income.

(C) Item (3) above is not taxable on gross income. Same reason as Items (1) and (2) applies.

(D) Item (4) above is subject to the tax on gross income inasmuch as such income arose from two-point activities.

(E) Item (5) above contains some income one thousand dollars ($1,000) which is taxable on the gross income column of the carrier tax return. Demurrage is considered a transportation activity.

(F) Item (6) above contains some income nine thousand dollars ($9,000) which is taxable on the gross income column of the carrier tax return. Switching is a transportation activity.

Therefore, under the gross income column of the carrier tax return, XY Railroad Co. will report taxable income of one million dollars, ($1,000,000). Said amount is the sum of Item (4) in whole, Item (5) in part and Item (6) in part.

(2) Computation of annual tax on net income. -- In order to determine its tax liability on net income, XY Railroad Co. must prepare the formula on the reverse side of the carrier tax return. The explanation which follows of such computation is numbered and set forth as the apportionment formula is on the return.

(A) Total net income. -- It is assumed for this illustration the XY's net income, computed by the federal method, was two hundred thousand dollars ($200,000). Items of income, loss, gain and deduction which pertain to nontransportation activities have been excluded from net income.

(B) Total gross income. -- This is the gross amount of all transportation income from wherever derived. The total of Items (a) through (f) is three million one hundred thousand dollars ($3,100,000). Any nontransportation income received by a carrier is not to be reflected within this amount.

(C) West Virginia Gross Income. -- West Virginia gross income is that income which inures to XY as a result of two-point transportation activities within the state. In other words, this amount should equal that reported under the gross income column one million dollars ($1,000,000) on the carrier return.

(D) Remaining gross income. -- This figure is arrived at by subtracting C. from B. Therefore, three million one hundred thousand dollars ($3,100,000) less one million dollars ($1,000,000) equals two million one hundred thousand dollars ($2,100,000).

(E) Net income to be prorated. -- This amount of net income is found by multiplying (A) by (D) and dividing the result by (B). The result in this situation is $135,484.

(F) Carrier-miles in West Virginia. -- At this point, XY must total all ton-miles traveled in this State. Said amount is derived from all ton-miles traveled in West Virginia, both intrastate and interstate movements. In other words, ton-miles in West Virginia are those ton-miles moved in one-point, two-point and pass-through business.

(i) In computing mileage for this line of the formula, XY will exclude that mileage in Item (a) above. Passenger-miles are not included in the computation of this mileage factor, except for airline companies and motor vehicle carriers. A railroad carrier would, however, report gross income and pay tax thereon from a passenger operation which begins and ends in the state. But passenger-miles, for railroad carriers, are excluded from the formula.

(ii) Total ton-miles in West Virginia are 14,000 composed of 3,000 ton-miles from Item (b), 3,000 ton-miles from Item (c) and 8,000 ton-miles from Item (d).

(G) Miles in all states. -- For railroad carriers ton-miles in all states must be computed. Passenger-miles are again excluded. Therefore, in computing this line item of the formula, XY will ignore Item (A) above. Total ton-miles in all states will be computed from Items (B), (C), and (D). These three total 20,000 ton-miles.

(H) West Virginia Net Income. -- This reduced amount of West Virginia taxable income is determined by multiplying (E) by (F) and dividing the result by (G). This computation results in a figure of $94,839 which is XY's West Virginia taxable net income to be reported under the net income column of the carrier income tax return.

(2) A prepared 1972 carrier income tax return, for this example, follows at the next page.

W. Va. Code R. § 110-12A-5