W. Va. Code R. § 110-13Q-5

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

Section 110-13Q-5 - Net Profit Attributable to a Patent

5.1.Net profit attributable to a patent when integrated into an ongoing manufacturing process. -- The net profit of a taxpayer that is attributable to a patent when integrated into a current manufacturing process is that amount of West Virginia taxable income that is in excess of the base net profit accrued through the manufacturing process that has an integrated patent eligible for the credit under Subsection 3.1 of this rule.

5.1.a. "Base net profit accrued through the manufacturing process" is equal to that portion of West Virginia taxable income attributable to an ongoing manufacturing process in the year immediately preceding introduction of the patent to the manufacturing process.

5.1.b. "Ongoing manufacturing process" when used in this rule means an integrated series of systematic operations engaged in as a business or segment of a business which transforms or converts tangible personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed at least 50% of which were in operation in this State in the taxable year immediately preceding the introduction of the patent to the manufacturing process.

5.2.Net profit attributable to a patent when used in a current product. -- The net profit of a taxpayer that is attributable to a patent when used in a current product is that amount of West Virginia taxable income that is in excess of base net profit accrued through the sale or lease of a product that has an integrated patent eligible for the credit under Subsection 3.1 of this rule.

5.2.a. "Base net profit accrued through the sale or lease of a product" is equal to that portion of West Virginia taxable income attributable to the sale or lease of a product in the year immediately preceding introduction of the patent to the product.

5.3.Net profit attributable to a patent when used in a new manufacturing process. -- The net profit of a taxpayer that is attributable to a patent that is used in a new manufacturing process is equal to the total net profit accrued through the manufacturing process using the patent multiplied by a fraction, the numerator of which is the total cost of using the patent, the denominator of which is the total cost of the manufacturing process.

5.3.a. "Net profit accrued through the manufacturing process" is equal to that portion of West Virginia taxable income directly attributable to the manufacturing process using the patent.

5.3.b. "Total cost of using the patent" is equal to:

5.3.b.1. The total amount of royalties, license fees or other consideration paid for the right to use the patent;

5.3.b.2. In the case of the developer of the patent, total cost associated with the development of the patent divided by the 20 year life of the patent; or

5.3.b.3. In the case of any other patent holder, total cost of acquiring the patent divided by the remaining years of 20 year life of the patent.

5.4.Net profit attributable to a patent when used in a new product. -- The net profit of a taxpayer that is attributable to a patent that is used in a new product is equal to the total net profit accrued through the sale or lease of a product using the patent multiplied by a fraction, the numerator of which is the total cost of using the patent, the denominator of which is the total cost of producing the product.

5.4.a. "Total cost of using the patent" is equal to:

5.4.a.1. The total amount of royalties, license fees or other consideration paid for the right to use the patent;

5.4.a.2. In the case of the developer of the patent, total cost associated with the development of the patent divided by the 20 year life of the patent; or

5.4.a.3. In the case of any other patent holder, total cost of acquiring the patent divided by the remaining years of 20 year life of the patent.

5.5. Amounts received from, by or between related persons, as defined in subsection (b), Section 267 of the Internal Revenue Code of 1986, as amended, are disallowed when calculating net profit attributable to a patent in subsections 5.1, 5.2, 5.3, and 5.4 of this rule.

W. Va. Code R. § 110-13Q-5