W. Va. Code R. § 110-23-5a

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

Section 110-23-5a - Special Apportionment Rules - Financial Organizations Effective for Taxable Years Beginning on or After January 1, 1991

5a.1. General. -- The West Virginia Legislature has found that the general formula set forth in W. Va. Code '11-23-5 for apportioning the tax base of corporations and partnerships taxable in this state as well as in another state is inappropriate for use by financial organizations due to the particular characteristics of those organizations and the manner in which their business is conducted. Accordingly, the general formula set forth in W. Va. Code '11-23-5 may not be used to apportion the tax base of such financial organizations, and financial organizations are required to use only the apportionment formula and methods set forth in W. Va. Code '11-23-5a.

5a.2. Financial organizations with business activities partially within and partially without this state. - A financial organization not having its commercial domicile in West Virginia shall apportion its tax base to this state as provided in W. Va. Code '11-23-5a and this section 5a of these regulations and the subsections thereof if it regularly engages in business in this state.

5a.2.1. Nexus presumptions and exclusions. -- A financial organization is presumed to be regularly engaging in business in this state if during any year it obtains or solicits business with twenty or more persons within this state, or if the sum of the value of its gross receipts attributable to sources in this state equals or exceeds one hundred thousand dollars. However, gross receipts from the following types of property (as well as those contacts with this state reasonably and exclusively required to evaluate and complete the acquisition or disposition of the property, the servicing of the property or the income from it, the collection of income from the property, or the acquisition or liquidation of collateral relating to the property) shall not be a factor in determining whether the owner is engaging in business in this state:

5a.2.1.1. An interest in a real estate mortgage investment conduit, a real estate investment trust, or a regulated investment company;

5a.2.1.2. An interest in a loan backed security representing ownership or participation in a pool of promissory notes or certificates of interest that provide for payments in relation to payments or reasonable projections of payments on the notes or certificates;

5a.2.1.3. An interest in a loan or other asset from which the interest is attributed to a consumer loan, a commercial loan or a secured commercial loan, and in which the payment obligations were solicited and entered into by a person that is independent, and not acting on behalf, of the owner;

5a.2.1.4. An interest in the right to service or collect income from a loan or other asset from which interest on the loan is attributed as a loan described in Section 5a.2.1.3 of these regulations, and in which the payment obligations were solicited and entered into by a person that is independent, and not acting on behalf of the owner; and

5a.2.1.5. Any amounts held in an escrow or trust account with respect to property described above.

5a.2.2. Definitions. -- For purposes of this section 5a.2 and the subsections thereof of these regulations:

5a.2.2.1. "Deposit" means:

5a.2.2.1.a. The unpaid balance of money or its equivalent received or held by a financial organization in the usual course of business and for which it has given or it is obligated to give credit, either conditionally or unconditionally, to a commercial, checking, savings, time or thrift account whether or not advance notice is required to withdraw the credit funds, or which is evidenced by a certificate of deposit, thrift certificate, investment certificate, or certificate of indebtedness, or other similar name, or a check of draft drawn against a deposit account and certified by the financial organization, or a letter of credit or a traveler's check on which the financial organization is primarily liable: Provided, That without limiting the generality of the term "money or its equivalent", any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange for checks or drafts or for a promissory note upon which the person obtaining any such credit or instrument is primarily or secondarily liable or for a charge against a deposit account or in settlement of checks, drafts or other instruments forwarded to such bank for collection;

5a.2.2.1.b. Trust funds received or held by such financial organization, whether held in the trust department or held or deposited in any other department of such financial organization;

5a.2.2.1.c. Money received or held by a financial organization or the credit given for money or its equivalent received or held by a financial organization in the usual course of business for a special or specific purpose, regardless of the legal relationship thereby established, including, without being limited to, escrow funds, funds held as security for an obligation due the financial organization or other (including funds held as dealers reserves) or for securities loaned by the financial organization, funds deposited by a debtor to meet maturing obligations, funds deposited as advance payment on subscriptions to United States Government securities, funds held for distribution or purchase of securities, funds held to meet its acceptances or letters of credit, and withheld taxes: Provided, That there shall not be included funds which are received by the financial organization for immediate application to the reduction of an indebtedness to the receiving financial organization, or under condition that the receipt thereof immediately reduces or extinguishes such an indebtedness;

5a.2.2.1.d. Outstanding drafts (including advice or authorization to charge a financial organization's balance in another such organization), cashier's checks, money orders, or other officer's checks issued in the usual course of business for any purpose, but not including those issued in payment for services, dividends or purchases or other costs or expenses of the financial organization itself; and

5a.2.2.1.e. Money or its equivalent held as a credit balance by a financial organization on behalf of its customer if such entity is engaged in soliciting and holding such balances in the regular course of its business.

5a.2.2.2. "Sales" means: For purposes of apportionment, the "sales" of a financial organization shall mean the gross receipts described in the gross receipts factor in this section 5a and the subsections thereof of these regulations, regardless of their source.

5a.2.3. Commercial domicile - apportionment or credit. -- Financial organizations which do not have their commercial domicile in West Virginia shall use the apportionment rules set forth in W. Va. Code '11-23-5a and this section 5a of these regulations. Financial organizations with their commercial domicile in West Virginia may not apportion their tax base, but shall allocate all capital to West Virginia without apportionment: Provided, That any financial organizations with their commercial domicile in West Virginia shall be allowed the credit against their business franchise tax liability set forth in W. Va. Code '11-23-27.

5a.2.4. Apportionment rules. --

5a.2.4.1. General Method. -- If a financial organization not having its commercial domicile in this state is engaging in business both within and without this state, the portion of its capital attributable to such business, which is derived from sources within this state, shall be determined by apportionment in accordance with W. Va. Code '11-23-5a(b) and this section 5a.2.4.1 of these regulations. The apportioned capital shall be determined by multiplying capital by the special gross receipts factor as defined in section 5a.2.4.2 and the subsections thereof of these regulations. Neither the numerator nor the denominator of the gross receipts factor shall include receipts from obligations described in W. Va. Code '11-24-6(f)(1)(A),(B),(C) and (D).

5a.2.4.2. Special gross receipts factor. -- The gross receipts factor is a fraction, the numerator of which is the total gross receipts of the taxpayer from sources within this state during the taxable year and the denominator of which is the total gross receipts of the taxpayer wherever earned during the taxable year.

5a.2.4.2.a. Numerator. -- The numerator of the gross receipts factor shall include, in addition to items otherwise includable in the sales factor under W. Va. Code '11-23-5, the following:

5a.2.4.2.a.1. Gross receipts from the lease or rental of real or tangible personal property (whether as the economic equivalent of an extension of credit or otherwise) if the property is located in this state;

5a.2.4.2.a.2. Interest income and other receipts from assets in the nature of loans which are secured primarily by real estate or tangible personal property if such security property is located in this state. In the event that such security property is also located in one or more other states, such receipts shall be presumed to be from sources within this state, subject to rebuttal based upon factors described in rules to be promulgated by the Tax Commissioner, including the factor that the proceeds of any such loans were applied and used by the borrower entirely outside of this state;

5a.2.4.2.a.3. Interest income and other receipts from consumer loans which are unsecured or are secured by intangible property that are made to residents of this state, whether at a place of business, by traveling loan officer, by mail, by telephone or other electronic means or otherwise;

5a.2.4.2.a.4. Interest income and other receipts from commercial loans and installment obligations which are unsecured or are secured by intangible property if and to the extent that the borrower or debtor is a resident of or is domiciled in this state: Provided, That such receipts are presumed to be from sources in this state and such presumption may be overcome by reference to factors described in rules to be promulgated by the Tax Commissioner, including the factor that the proceeds of any such loans were applied and used by the borrower entirely outside of this state;

5a.2.4.2.a.5. Interest income and other receipts from a financial organization's syndication and participation loans, under the rules set forth in sections 5a.2.4.2.a.1 through 5a.2.4.2.a.4 above;

5a.2.4.2.a.6. Interest income and other receipts, including service charges, from financial institution credit card and travel and entertainment credit card receivables and credit card holders' fees if the borrower or debtor is a resident of this state or if the billings for any such receipts are regularly sent to an address in this state;

5a.2.4.2.a.7. Merchant discount income derived from financial institution credit card holder transactions with a merchant located in this state. In the case of merchants located within and without this state, only receipts from merchant discounts attributable to sales made from locations within this state shall be attributed to this state. It shall be presumed, subject to rebuttal, that the location of a merchant is the address shown on the invoice submitted by the merchant to the taxpayer;

5a.2.4.2.a.8. Gross receipts from the performance of services which are attributed to this state if:

5a.2.4.2.a.8.(a) The service receipts are loan-related fees, including loan servicing fees, and the borrower resides in this state; except that, at the taxpayer's election, receipts from loan-related fees which are either:

(a) "Pooled" or aggregated for collective financial accounting treatment; or (b) manually written as non-recurring extraordinary charges to be processed directly to the general ledger may either be attributed to a state based upon the borrower's residences or upon the ratio that total interest sources to that state bears to total interest from all sources;

5a.2.4.2.a.8.(b) The service receipts are deposit-related fees and the depositor resides in this state, except that, at the taxpayer's election, receipts from deposit related fees which are either:

(a) "Pooled" or aggregated for collective financial accounting treatment; or (b) manually written as non-recurring extraordinary charges to be processed directly to the general ledger may either be attributed to a state based upon the depositors' residences or upon the ratio that total deposits sources to that state bear to total deposits from all source;

5a.2.4.2.a.8.(c) The service receipt is a brokerage fee and the account holder is a resident of this state;

5a.2.4.2.a.8.(d) The service receipts are fees related to estate or trust services and the estate's decedent was a resident of this state immediately before death; or the grantor who either funded or established the trust is a resident of this state; or

5a.2.4.2.a.8.(e) The service receipt is associated with the performance of any other service not identified above and the service is performed for an individual resident of, or for a corporation or other business domiciled in, this state and the economic benefit of such service is received in this state;

5a.2.4.2.a.9. Gross receipts from the issuance of travelers checks and money orders if such checks and money orders are purchased in this state; and

5a.2.4.2.a.10. All other receipts not attributed by this rule to a state in which the taxpayer is taxable shall be attributed pursuant to the laws of the state of the taxpayer's commercial domicile.

5a.2.4.2.b. Denominator. -- The denominator of the receipts factor shall include all of the taxpayer's receipts from transactions of the kind included in the numerator, but without regard to their source or situs.

5a.3. Method of filing. -- Financial organizations subject to apportionment under section 5a.2 and the subsections thereof of these regulations shall file only separate tax returns, and may not file on a consolidated or any other basis: Provided, That financial organizations which are members of an affiliated group may file on a consolidated basis if all members of the affiliated group have their commercial domicile in this state.

5a.4. Effective date. -- The provisions of this section 5a and the subsections thereof of these regulations shall apply to all taxable years beginning on or after the first day of January, one thousand nine hundred ninety- one.

W. Va. Code R. § 110-23-5a