W. Va. Code R. § 110-24-6
Example 1. Corporation A was formed in Ohio and has its main offices there. Corporation A owns an apartment complex in West Virginia and leases computers to users located in West Virginia. The nonbusiness net rental income from the rental of the apartment complex is allocated to West Virginia for purposes of the West Virginia Corporation Net Income Tax. Likewise, the nonbusiness net rental income received by Corporation A as a lessor of computers in this state is allocated to this state.
Example 2. Corporation Z was formed in State X and has its commercial domicile in the State of West Virginia. Corporation Z leases tangible personal property to customers in State K and derives nonbusiness income from that activity. State K has no corporation net income tax. The net receipts from leasing tangible personal property in State K are allocated entirely to the State of West Virginia.
Example 3. Corporation Alpha, organized and headquartered in California, leases coal mining equipment in West Virginia. Alpha began leasing equipment in West Virginia on April 1 and is a calendar year taxpayer. The coal mining equipment was not in this state until April 1, the date the lease commenced. The property is leased in this state for 275 of the 365 days in the year. If rental income from the coal mining equipment located in the State of West Virginia is nonbusiness income, and if Alpha Corporation netted $15,000 for leasing this equipment for the entire year, Alpha would include in West Virginia income the following amount: 275/365 x $15,000 = $11,301.37.
If Alpha Corporation has adequate records to show the net rental income from the equipment while the equipment was leased in this state, then it may use the actual net rental income and not "apportion" its allocation of net rental income.
The following is an example of how the apportionment formula works in the context of the corporation net income tax:
A hypothetical corporation has facilities and operations in Pennsylvania, West Virginia, New York, and California.
The corporation has sales in 47 of the 50 states of the USA.
The apportionment formula is as follows:
Federal Taxable Income -- The corporation has $10,000,000 in federal adjusted gross income from all operations in the USA after West Virginia modifications and adjustments. These modifications and adjustments are for certain items that are required to be added to, or subtracted from, federal taxable income before apportionment.
Sales in the USA -- The total sales of the corporation in the entire USA (all of the 47 states in which the corporation has sales) are $435,009,000.
Sales in West Virginia -- The total sales of the corporation in West Virginia are $104,000.
The apportionment formula, using these values, would be as follows:
OR
0.000239 -- This is the apportionment factor.
Assuming that the corporation has no allocable West Virginia income, out of all of the operations in the USA, 0.000239 of the operations of the corporation are attributable to West Virginia operations and activity.
Net federal taxable income from all operations in the USA, after WV modifications and adjustments is $10,000,000.
Applying the apportionment formula, West Virginia taxable income is:
Federal Taxable Income (After Adjustments) | Apportionment Factor | WV Taxable Income | ||
$10,000,000 | x | 0.000239 | = | $2,390.00 |
The final computation of the tax is as follows. The hypothetical corporation has federal taxable income after modifications and adjustments allocated and apportioned to West Virginia in the amount of $2,390.00. The tax rate for the given year is 8.75%.
Tax is .0875 x $2,390.00 = $209.13 (rounded).
Tax is $209.13.
In synopsis, the basic distinction is as follows:
Joyce -- If a unitary group member has nexus with the state, then "in state" gross receipts of that member are included in the sales factor numerator, but not if the member does not have nexus with the state, determined on a "stand alone" basis.
Finnigan -- If one or more unitary group members has nexus with the state, then "in state" gross receipts of all unitary group members are included in the sales factor numerator, including "in state" gross receipts of a unitary group member that, itself, does not have nexus with the state, determined on a "stand alone" basis.
Example 1. Baubles, Inc. is located in Huntington, West Virginia, and makes sales of tangible personal property to an Ohio company. The terms of sale require the Ohio company to pick up the merchandise from the loading dock at Baubles. The sale is to be treated by Baubles as a sale taking place in this state.
Example 2. Alpha Corporation, which manufactures a highly sophisticated device used in mining, purchases certain tangible personal property from a company located in Virginia. Alpha Corporation, located in Bergoo, West Virginia is required by the terms of the sales contract to pick up the merchandise at the Virginia company's loading dock in Virginia. The sale is to be treated as not occurring in West Virginia by the Virginia company, absent other nexus with West Virginia.
Example 3. RPS, Inc., is located in Morgantown, West Virginia and makes sales of tangible personal property. Some of the sales contracts require RPS to ship the goods to companies located outside of this state via common carrier. The sales of the tangible personal property shipped by the carrier are not included as West Virginia sales.
Example 1. When all sales of tangible personal property produce income from unitary group business activity. -- A combined group engaged in unitary business activity consists of Corporations A, B, and C. The combined group makes sales to customers in West Virginia and in State 1 and 2. But not every member of the combined group makes sales to customers in all of those states and, in some of the states, the member is not subject to an income tax because of Public Law 86-272. When computing the numerator of the combined group's apportionment factor for purposes of the West Virginia combined report, the no throw rule will be applied separately to each member of the combined group and the aggregate adjusted numerator will be the sales factor numerator for the combined group engaged in unitary business activity.
Sales Factor Determination under No Throw Rule | ||||||
Total Sales = Denominator | Numerator | |||||
WV | State 1 | State 2 | WV | State 1 | State 2 | |
Corporation A | $5 million | $5 million | $6 million | $5 million | N/A | N/A |
Corporation B | $10 million, but $5 million not taxable | $ 7 million | No Sales | $5 million | N/A | N/A |
Corporation C | $5 million | $ 3 million, but not taxable | $4 million, but $2 million not taxable | $5 million | N/A | N/A |
Sub-total: | $20 million | $15 million | $10 million | $15 million | N/A | N/A |
Total | $45 million in Denominator | $15 million in Numerator | ||||
Example 2. When some but not all sales of tangible personal property produce income from unitary group business activity. -- A combined group engaged in unitary business activity consists of Corporations A, B, C and D. Corporations A and C also have income from business activity that is not unitary business activity. The combined group makes sales to customers in States 1, 2, 3, 4, 5 and 6. But not every member of the combined group makes sales to customers in all of those states and, in some of the states, the member is not subject to an income tax because of Public Law 86-272. Because Corporations A and C have receipts from sales of tangible personal property that produce business income from unitary business activity and receipts from sales of tangible personal property that produces business income from other business activities that are not unity business activities, the apportionment factor numerators and denominators of Corporations A and C shall be further analyzed so that only sales of tangible personal property from unitary business activity are included when apportioning the business income from unitary business activity.
Example 3. -- When a partnership owned in part by a corporation has taxable nexus in one or more states into which the corporation sells tangible personal property, but the corporation does not otherwise have taxable nexus with those states. A combined group engaged in unitary business activity consists of Corporations A, B, C and D. The combined group makes sales to customers in States 1, 2, 3, 4, 5 and 6. However, Corporations A and C do not sell tangible personal property to customers in all of those states or, in some of the states, Corporations A and C are not subject to an income tax because of application of Public Law 86-272. Corporations A and C each own an interest in partnerships engaged in unitary business activity with the combined group. These partnerships have taxable nexus with states into which Corporations A and C sell tangible personal property and in which Corporations A and C do not have taxable nexus if their partnership interests are disregarded. Each corporation's share of sales reflected in the apportionment factors of the partnerships are included in the apportionment factors of Corporation A and C, which are the corporate owners of the partnerships. As a consequence, all members of the combined group have taxable nexus with all of the states into which they sell tangible personal property, and the no throw does not apply to this combined group.
Example 1: Salon Corp has retail locations in West Virginia and in other states where it provides hair cutting services to individual and business customers, the latter of whom are paid for through the means of a company account. The receipts from sales of services provided at Salon Corp's in-state locations are in West Virginia. The receipts from sales of services provided at Salon Corp's locations outside West Virginia, even when provided to residents of West Virginia, are not receipts from in-state sales.
Example 2: Landscape Corp provides landscaping and gardening services in West Virginia and in neighboring states. Landscape Corp provides landscaping services at the in-state vacation home of an individual who is a resident of another state and who is located outside West Virginia at the time the services are performed. The receipts from sale of services provided at the in-state location are in West Virginia.
Example 3: Same facts as Example 2, except that Landscape Corp provides the landscaping services to Retail Corp, a corporation with retail locations in several states, and the services are with respect to those locations of Retail Corp that are in West Virginia and in other states. The receipts from the sale of services provided to Retail Corp are in West Virginia to the extent the services are provided in West Virginia.
Example 4: Camera Corp provides camera repair services at an in-state retail location to walk-in individual and business customers. In some cases, Camera Corp actually repairs a camera that is brought to its in-state location at a facility that is in another state. In these cases, the repaired camera is then returned to the customer at Camera Corp's in-state location. The receipts from sale of these services are in West Virginia.
Example 5: Same facts as Example 4, except that a customer located in West Virginia mails the camera directly to the out-of-state facility owned by Camera Corp to be fixed and receives the repaired camera back in West Virginia by mail. The receipts from sale of the service are in West Virginia.
Example 6: Teaching Corp provides seminars in West Virginia to individual and business customers. The seminars and the materials used in connection with the seminars are prepared outside the state, the teachers who teach the seminars include teachers that are resident outside the state, and the students who attend the seminars include students that are resident outside the state. Because the seminars are taught in West Virginia, the receipts from sales of the services are in West Virginia.
Example 1: Direct Mail Corp, a corporation based outside West Virginia, provides direct mail services to its customer, Business Corp. Business Corp contracts with Direct Mail Corp to deliver printed fliers to a list of customers that is provided to it by Business Corp. Some of Business Corp's customers are in West Virginia and some of those customers are in other states. Direct Mail Corp will use the postal service to deliver the printed fliers to Business Corp's customers. The receipts from the sale of Direct Mail Corp's services to Business Corp are assigned to West Virginia to the extent that the services are delivered on behalf of Business Corp to West Virginia customers (i.e., to the extent that the fliers are delivered on behalf of Business Corp to Business Corp's intended audience in West Virginia).
Example 2: Ad Corp is a corporation based outside West Virginia that provides advertising and advertising-related services in West Virginia and in neighboring states. Ad Corp enters into a contract at a location outside West Virginia with an individual customer who is not a West Virginia resident to design advertisements for billboards to be displayed in West Virginia and to design fliers to be mailed to West Virginia residents. All of the design work is performed outside West Virginia. The receipts from the sale of the design services are in West Virginia because the service is physically delivered on behalf of the customer to the customer's intended audience in West Virginia.
Example 3: Same facts as Example 2, except that the contract is with a business customer that is based outside West Virginia. The receipts from the sale of the design services are in West Virginia because the services are physically delivered on behalf of the customer to the customer's intended audience in West Virginia.
Example 4: Fulfillment Corp, a corporation based outside West Virginia, provides product delivery fulfillment services in West Virginia and in neighboring states to Sales Corp, a corporation located outside West Virginia that sells tangible personal property through a mail order catalog and over the Internet to customers. In some cases when a customer purchases tangible personal property from Sales Corp to be delivered in West Virginia, Fulfillment Corp will, pursuant to its contract with Sales Corp, deliver that property from its fulfillment warehouse located outside West Virginia. The receipts from the sale of the fulfillment services of Fulfillment Corp to Sales Corp are assigned to West Virginia to the extent that Fulfillment Corp's deliveries on behalf of Sales Corp are to recipients in West Virginia.
Example 5: Software Corp, a software development corporation, enters into a contract with a business customer, Buyer Corp, which is physically located in West Virginia, to develop custom software to be used in Buyer Corp's business. Software Corp develops the custom software outside West Virginia, and then physically installs the software on Buyer Corp's computer hardware located in West Virginia. The development and sale of the custom software is properly characterized as a service transaction, and the receipts from the sale are assigned to West Virginia because the software is physically delivered to the customer in West Virginia.
Example 6: Same facts as Example 5, except that Buyer Corp has offices in West Virginia and several other states but is commercially domiciled outside West Virginia and orders the software from a location outside West Virginia. The receipts from the development and sale of the custom software service are assigned to West Virginia because the software is physically delivered to the customer in West Virginia.
Example 1: Support Corp, a corporation that is based outside West Virginia, provides software support and diagnostic services to individual and business customers that have previously purchased certain software from third-party vendors. These individual and business customers are located in West Virginia and other states. Support Corp supplies its services on a case-by-case basis when directly contacted by its customer. Support Corp generally provides these services through the Internet but sometimes provides these services by phone. In all cases, Support Corp verifies the customer's account information before providing any service. Using the information that Support Corp verifies before performing a service, Support Corp can determine where its services are received, and therefore must assign its receipts to these locations. The receipts from sales made to Support Corp's individual and business customers are in West Virginia to the extent that Support Corp's services are received in West Virginia.
Example 2: Online Corp, a corporation based outside West Virginia, provides web-based services through the means of the Internet to individual customers who are resident in West Virginia and in other states. These customers access Online Corp's web services primarily in their states of residence, and sometimes, while traveling, in other states. For a substantial portion of its receipts from the sale of services, Online Corp can either determine the state or states where the services are received, or, where it cannot determine the state or states, it has sufficient information regarding the place of receipt to reasonably approximate the state or states. However, Online Corp cannot determine or reasonably approximate the state or states of receipt for all of the sales of its services. Assuming that Online Corp reasonably believes, based on all available information, that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its services generally tracks those for which it does have this information, Online Corp must assign to West Virginia the receipts from sales for which it does not know the customers' location in the same proportion as those receipts for which it has this information.
Example 3: Same facts as 2, except that Online Corp reasonably believes that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its web-based services do not generally track the sales for which it does have this information. Online Corp must assign the receipts from sales of its services for which it lacks information as provided to its individual customers using the customers' billing addresses.
Example 4: Net Corp, a corporation based outside West Virginia, provides web-based services to a business customer, Business Corp, a company with offices in West Virginia and two neighboring states. Particular employees of Business Corp access the services from computers in each Business Corp office. Assume that Net Corp determines that Business Corp employees in West Virginia were responsible for 75 percent of Business Corp's use of Net Corp's services, and Business Corp employees in other states were responsible for 25 percent of Business Corp's use of Net Corp's services. In this case, 75 percent of the receipts from the sales are received in West Virginia. Assume alternatively that Net Corp lacks sufficient information regarding the location or locations where Business Corp's employees used the services to determine or reasonably approximate the location or locations. Under these circumstances, if Net Corp derives five percent or less of its receipts from sales to Business Corp, Net Corp must assign the receipts under § 110-24-6.5.7.c.2.B.2.c of this rule to the state where Business Corp principally managed the contract, or if that state is not reasonably determinable, to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable, to the state of Business Corp's billing address. If Net Corp derives more than five percent of its receipts from sales of services to Business Corp, Net Corp is required to identify the state in which its contract of sale is principally managed by Business Corp and must assign the receipts to that state.
Example 5: Net Corp, a corporation based outside West Virginia, provides web-based services through the means of the Internet to more than 250 individual and business customers in West Virginia and in other states. Assume that for each customer Net Corp cannot determine the state or states where its web services are actually received and lacks sufficient information regarding the place of receipt to reasonably approximate the state or states. Also assume that Net Corp does not derive more than five percent of its receipts from sales of services to a single customer. Net Corp may apply the safe harbor stated in § 110-24-6.5.7.c.2.B.2.d of this rule and may assign its receipts using each customer's billing address.
Example 1: Cable TV Corp, a corporation that is based outside of West Virginia, has two revenue streams. First, Cable TV Corp sells advertising time to business customers pursuant to which the business customers' advertisements will run as commercials during Cable TV Corp's televised programming. Some of these business customers, though not all of them, have a physical presence in West Virginia. Second, Cable TV Corp sells monthly subscriptions to individual customers in West Virginia and in other states. The receipts from Cable TV Corp's sale of advertising time to its business customers are assigned to West Virginia to the extent that the audience for Cable TV Corp's televised programming during which the advertisements run is in West Virginia. If Cable TV Corp is unable to determine the actual location of its audience for the programming and lacks sufficient information regarding audience location to reasonably approximate the location, Cable TV Corp must approximate its West Virginia audience using the percentage that reflects the ratio of its West Virginia subscribers in the geographic area in which Cable TV Corp's televised programming featuring the advertisements is delivered relative to its total number of subscribers in that area. To the extent that Cable TV Corp's sales of monthly subscriptions represent the sale of a service, the receipts from these sales are properly assigned to West Virginia in any case in which the programming is received by a customer in West Virginia. In any case in which Cable TV Corp cannot determine the actual location where the programming is received and lacks sufficient information regarding the location of receipt to reasonably approximate the location, the receipts from these sales of Cable TV Corp's monthly subscriptions are assigned to West Virginia where its customer's billing address is in West Virginia. Whether and to the extent that the monthly subscription fee represents a fee for a service or for a license of intangible property does not affect the analysis or result as to the state or states to which the receipts are properly assigned.
Example 2: Network Corp, a corporation that is based outside of West Virginia, sells advertising time to business customers pursuant to which the customers' advertisements will run as commercials during Network Corp's televised programming as distributed by unrelated cable television and satellite television transmission companies. The receipts from Network Corp's sale of advertising time to its business customers are assigned to West Virginia to the extent that the audience for Network Corp's televised programming during which the advertisements will run is in West Virginia. If Network Corp cannot determine the actual location of the audience for its programming during which the advertisements will run and lacks sufficient information regarding audience location to reasonably approximate the location, Network Corp must approximate the receipts from sales of advertising that constitute West Virginia sales by multiplying the amount of advertising receipts by a percentage that reflects the ratio of the West Virginia population in the specific geographic area in which the televised programming containing the advertising is run relative to the total population in that area.
Example 3: Web Corp, a corporation that is based outside West Virginia, provides internet content to viewers in West Virginia and other states. Web Corp sells advertising space to business customers pursuant to which the customers' advertisements will appear in connection with Web Corp's internet content. Web Corp receives a fee for running the advertisements that is determined by reference to the number of times the advertisement is viewed or clicked upon by the viewers of its website. The receipts from Web Corp's sale of advertising space to its business customers are assigned to West Virginia to the extent that the viewers of the internet content are in West Virginia, as measured by viewings or clicks. If Web Corp is unable to determine the actual location of its viewers and lacks sufficient information regarding the location of its viewers to reasonably approximate the location, Web Corp must approximate the amount of its West Virginia receipts by multiplying the amount of receipts from sales of advertising by a percentage that reflects the West Virginia population in the specific geographic area in which the content containing the advertising is delivered relative to the total population in that area.
Example 4: Retail Corp, a corporation that is based outside of West Virginia, sells tangible personal property through its retail stores located in West Virginia and other states and through a mail order catalog. Answer Co, a corporation that operates call centers in multiple states, contracts with Retail Corp to answer telephone calls from individuals placing orders for products found in Retail Corp's catalogs. In this case, the phone answering services of Answer Co are being delivered to Retail Corp's customers and prospective customers. Therefore, Answer Co is delivering a service electronically to Retail Corp's customers or prospective customers on behalf of Retail Corp and must assign the proceeds from this service to the state or states from which the phone calls are placed by the customers or prospective customers. If Answer Co cannot determine the actual locations from which phone calls are placed and lacks sufficient information regarding the locations to reasonably approximate the locations, Answer Co must approximate the amount of its West Virginia receipts by multiplying the amount of its fee from Retail Corp by a percentage that reflects the West Virginia population in the specific geographic area from which the calls are placed relative to the total population in that area.
Example 5: Web Corp, a corporation that is based outside of West Virginia, sells tangible personal property to customers via its internet website. Design Co designed and maintains Web Corp's website, including making changes to the site based on customer feedback received through the site. Design Co's services are delivered to Web Corp, the proceeds from which are assigned pursuant to § 110-24-6.5.7.c.2.B of this rule. The fact that Web Corp's customers and prospective customers incidentally benefit from Design Co's services and may even interact with Design Co in the course of providing feedback, does not transform the service into one delivered "on behalf of" Web Corp to Web Corp's customers and prospective customers.
Example 6: Wholesale Corp, a corporation that is based outside West Virginia, develops an internet-based information database outside West Virginia and enters into a contract with Retail Corp whereby Retail Corp will market and sell access to this database to end users. Depending on the facts, the provision of database access may be either the sale of a service or the license of intangible property or may have elements of both, but for purposes of analysis it does not matter. Assume that on the particular facts applicable in this example Wholesale Corp is selling database access in transactions properly characterized as involving the performance of a service. When an end user purchases access to Wholesale Corp's database from Retail Corp, Retail Corp in turn compensates Wholesale Corp in connection with that transaction. In this case, Wholesale Corp's services are being delivered through Retail Corp to the end user. Wholesale Corp must assign its receipts from sales to Retail Corp to the state or states in which the end users receive access to Wholesale Corp's database. If Wholesale Corp cannot determine the state or states where the end users actually receive access to Wholesale Corp's database and lacks sufficient information regarding the location from which the end users access the database to reasonably approximate the location, Wholesale Corp must approximate the extent to which its services are received by end users in West Virginia by using a percentage that reflects the ratio of the West Virginia population in the specific geographic area in which Retail Corp regularly markets and sells Wholesale Corp's database relative to the total population in that area. It does not matter for purposes of the analysis whether Wholesale Corp's sale of database access constitutes a service or a license of intangible property, or some combination of both.
Example 1: Broker Corp provides securities brokerage services to individual customers who are residents in West Virginia and in other states. Broker Corp is not a financial institution required to report under W.Va. Code § 11-24-7b. Assume that Broker Corp knows the state of primary residence for many of its customers, and where it does not know the state of primary residence, it knows the customer's billing address. Also assume that Broker Corp does not derive more than five percent of its receipts from sales of all services from any one individual customer. If Broker Corp knows its customer's state of primary residence, it must assign the receipts to that state. If Broker Corp does not know its customer's state of primary residence, but rather knows the customer's billing address, it must assign the receipts to that state.
Example 2: Same facts as Example 1, except that Broker Corp has several individual customers from whom it derives, in each instance, more than five percent of its receipts from sales of all services. Receipts from sales to customers from whom Broker Corp derives five percent or less of its receipts from sales of all services must be assigned as described in Example 24. For each customer from whom it derives more than five percent of its receipts from sales of all services, Broker Corp is required to determine the customer's state of primary residence and must assign the receipts from the services provided to that customer to that state. In any case in which a five percent customer's state of primary residence is West Virginia, receipts from a sale made to that customer must be assigned to West Virginia; in any case in which a five percent customer's state of primary residence is not West Virginia, receipts from a sale made to that customer are not assigned to West Virginia.
Example 3: Architecture Corp provides building design services as to buildings located, or expected to be located, in West Virginia to individual customers who are resident in West Virginia and other states, and to business customers that are based in West Virginia and other states. The receipts from Architecture Corp's sales are assigned to West Virginia because the locations of the buildings to which its design services relate are in West Virginia or are expected to be in West Virginia. For purposes of assigning these receipts, it is not relevant where, in the case of an individual customer, the customer primarily resides or is billed for the services, and it is not relevant where, in the case of a business customer, the customer principally manages the contract, placed the order for the services, or is billed for the services. Further, these receipts are assigned to West Virginia even if Architecture Corp's designs are either physically delivered to its customer in paper form in a state other than West Virginia or are electronically delivered to its customer in a state other than West Virginia.
Example 4: Law Corp provides legal services to individual clients who are resident in West Virginia and in other states. In some cases, Law Corp may prepare one or more legal documents for its client as a result of these services and/or the legal work may be related to litigation or a legal matter that is ongoing in a state other than where the client is resident. Assume that Law Corp knows the state of primary residence for many of its clients, and where it does not know this state of primary residence, it knows the client's billing address. Also assume that Law Corp does not derive more than five percent of its receipts from sales of all services from any one individual client. If Law Corp knows its client's state of primary residence, it must assign the receipts to that state. If Law Corp does not know its client's state of primary residence, but rather knows the client's billing address, it must assign the receipts to that state. For purposes of the analysis it is irrelevant whether the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or the litigation or other legal matter that is the underlying predicate for the services is in another state.
Example 5: Law Corp provides legal services to several multistate business clients. In each case, Law Corp knows the state in which the agreement for legal services that governs the client relationship is principally managed by the client. In one case, the agreement is principally managed in West Virginia; in the other cases, the agreement is principally managed in a state other than West Virginia. If the agreement for legal services is principally managed by the client in West Virginia, the receipts from sale of the services are assigned to West Virginia; in the other cases, the receipts are not assigned to West Virginia. In the case of receipts that are assigned to West Virginia, the receipts are so assigned even if (1) the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or (2) the litigation or other legal matter that is the underlying predicate for the services is in another state.
Example 6: Consulting Corp, a company that provides consulting services to law firms and other customers, is hired by Law Corp in connection with legal representation that Law Corp provides to Client Co. Specifically, Consulting Corp is hired to provide expert testimony at a trial being conducted by Law Corp on behalf of Client Co. Client Co pays for Consulting Corp's services directly. Assuming that Consulting Corp knows that its agreement with Law Co is principally managed by Law Corp in West Virginia, the receipts from the sale of Consulting Corp's services are assigned to West Virginia. It is not relevant for purposes of the analysis that Client Co is the ultimate beneficiary of Consulting Corp's services, or that Client Co pays for Consulting Corp's services directly.
Example 7: Advisor Corp, a corporation that provides investment advisory services and is not a financial institution required to report under W. Va. Code § 11-24-7b, provides investment advisory services to Investment Co. Investment Co is a multistate business client of Advisor Corp that uses Advisor Corp's services in connection with investment accounts that it manages for individual clients, who are the ultimate beneficiaries of Advisor Corp's services. Assume that Investment Co's individual clients are persons that are resident in numerous states, which may or may not include West Virginia. Assuming that Advisor Corp knows that its agreement with Investment Co is principally managed by Investment Co in West Virginia, receipts from the sale of Advisor Corp's services are assigned to West Virginia. It is not relevant for purposes of the analysis that the ultimate beneficiaries of Advisor Corp's services may be Investment Co's clients, who are residents of numerous states.
Example 8: Advisor Corp, a corporation that provides investment advisory services and is not a financial institution required to report under W. Va. Code § 11-24-7b, provides investment advisory services to Investment Fund LP, a partnership that invests in securities and other assets. Assuming that Advisor Corp knows that its agreement with Investment Fund LP is principally managed by Investment Fund LP in West Virginia, receipts from the sale of Advisor Corp's services are assigned to West Virginia. Note that it is not relevant for purposes of the analysis that the partners in Investment Fund LP are residents of numerous states.
Example 9: Design Corp is a corporation based outside West Virginia that provides graphic design and similar services in West Virginia and in neighboring states. Design Corp enters into a contract at a location outside West Virginia with an individual customer to design fliers for the customer. Assume that Design Corp does not know the individual customer's state of primary residence and does not derive more than five percent of its receipts from sales of services from the individual customer. All of the design work is performed outside West Virginia. Receipts from the sale are in West Virginia if the customer's billing address is in West Virginia.
Example 1: Crayon Corp and Dealer Co enter into a license contract under which Dealer Co as licensee is permitted to use trademarks that are owned by Crayon Corp in connection with Dealer Co's sale of certain products to retail customers. Under the contract, Dealer Co is required to pay Crayon Corp a licensing fee that is a fixed percentage of the total volume of monthly sales made by Dealer Co of products using the Crayon Corp trademarks. Under the contract, Dealer Co is permitted to sell the products at multiple store locations, including store locations that are both within and without West Virginia. Further, the licensing fees that are paid by Dealer Co are broken out on a per store basis. The licensing fees paid to Crayon Corp by Dealer Co represent fees from the license of a marketing intangible. The portion of the fees to be assigned to West Virginia are determined by multiplying the fees by a percentage that reflects the ratio of Dealer Co's receipts that are derived from its West Virginia stores relative to Dealer Co's total receipts.
Example 2: Program Corp, a broadcaster that is based outside West Virginia, licenses programming that it owns to business customers, such as cable networks, that in turn will offer the programming to their customers on television or other media outlets in West Virginia and in all other U.S. states. License fees received by Program Corp are assigned to West Virginia to the extent that the business customer is commercially domiciled in West Virginia. Each of these licensing contracts constitutes the license of a marketing intangible. For each licensee, assuming that Program Corp lacks evidence of the actual number of viewers of the programming in West Virginia, the component of the licensing fee paid to Program Corp by the licensee that constitutes Program Corp's West Virginia receipts is determined by multiplying the amount of the licensing fee by a percentage that reflects the ratio of the West Virginia audience of the licensee for the programming relative to the licensee's total U.S. audience for the programming. Note that the analysis and result as to the state or states to which receipts are properly assigned would be the same to the extent that the substance of Program Corp's licensing transactions may be determined to resemble a sale of goods or services, instead of the license of a marketing intangible.
Example 3: Network Corp, a broadcaster that is based outside of West Virginia, delivers programming that it owns to individual customers in West Virginia and in other U.S. States. Network Corp's receipts from each individual broadcast customer will be assigned to West Virginia if the address of the broadcast customer listed in the broadcaster's records is in West Virginia.
Example 4: Moniker Corp enters into a license contract with Wholesale Co. Pursuant to the contract, Wholesale Co is granted the right to use trademarks owned by Moniker Corp to brand sports equipment that is to be manufactured by Wholesale Co or an unrelated entity, and to sell the manufactured equipment to unrelated companies that will ultimately market the equipment to consumers in a specific geographic region, including a foreign country. The license agreement confers a license of a marketing intangible, even though the trademarks in question will be affixed to property to be manufactured. In addition, the license of the marketing intangible is for the right to use the intangible property in connection with sales to be made at wholesale rather than directly to retail customers. The component of the licensing fee that constitutes the West Virginia receipts of Moniker Corp is determined by multiplying the amount of the fee by a percentage that reflects the ratio of the West Virginia population in the specific geographic region relative to the total population in that region. If Moniker Corp is able to reasonably establish that the marketing intangible was materially used throughout a foreign country, then the population of that country will be included in the population ratio calculation. However, if Moniker Corp is unable to reasonably establish that the marketing intangible was materially used in the foreign country in areas outside a particular major city, then none of the foreign country's population beyond the population of the major city is include in the population ratio calculation.
Example 5: Formula, Inc and Appliance Co enter into a license contract under which Appliance Co is permitted to use a patent owned by Formula, Inc to manufacture appliances. The license contract specifies that Appliance Co is to pay Formula, Inc a royalty that is a fixed percentage of the gross receipts from the products that are later sold. The contract does not specify any other fees. The appliances are both manufactured and sold in West Virginia and several other states. Assume the licensing fees are paid for the license of a production intangible, even though the royalty is to be paid based upon the sales of a manufactured product (i.e., the license is not one that includes a marketing intangible). Because the department can reasonably establish that the actual use of the intangible property takes place in part in West Virginia, the royalty is assigned based to the location of that use rather than to location of the licensee's commercial domicile, in accordance with § 110-24-6.5.8.a of this rule. It is presumed that the entire use is in West Virginia except to the extent that the taxpayer can demonstrate that the actual location of some or all of the use takes place outside West Virginia. Assuming that Formula, Inc can demonstrate the percentage of manufacturing that takes place in West Virginia using the patent relative to the manufacturing in other states, that percentage of the total licensing fee paid to Formula, Inc under the contract will constitute Formula, Inc's West Virginia receipts.
Example 6: Axel Corp enters into a license agreement with Biker Co in which Biker Co is granted the right to produce motor scooters using patented technology owned by Axel Corp, and also to sell the scooters by marketing the fact that the scooters were manufactured using the special technology. The contract is a license of both a marketing and production intangible, i.e., a mixed intangible. The scooters are manufactured outside West Virginia. Assume that Axel Corp lacks actual information regarding the proportion of Biker Co.'s receipts that are derived from West Virginia customers. Also assume that Biker Co is granted the right to sell the scooters in a U.S. geographic region in which the West Virginia population constitutes 25 percent of the total population during the period in question. The licensing contract requires an upfront licensing fee to be paid by Biker Co to Axel Corp and does not specify what percentage of the fee derives from Biker Co's right to use Axel Corp's patented technology. Because the fees for the license of the marketing and production intangible are not separately and reasonably stated in the contract, it is presumed that the licensing fees are paid entirely for the license of a marketing intangible, unless either the taxpayer or the department reasonably establishes otherwise. Assuming that neither party establishes otherwise, 25 percent of the licensing fee constitutes West Virginia receipts.
Example 7: Same facts as Example 5, except that the license contract specifies separate fees to be paid for the right to produce the motor scooters and for the right to sell the scooters by marketing the fact that the scooters were manufactured using the special technology. The licensing contract constitutes both the license of a marketing intangible and the license of a production intangible. Assuming that the separately stated fees are reasonable, the department will:
Example 8: Better Burger Corp, which is based outside West Virginia, enters into franchise contracts with franchisees that agree to operate Better Burger restaurants as franchisees in various states. Several of the Better Burger Corp franchises are in West Virginia. In each case, the franchise contract between the individual and Better Burger provides that the franchisee is to pay Better Burger Corp an upfront fee for the receipt of the franchise and monthly franchise fees, which cover, among other things, the right to use the Better Burger name and service marks, food processes, and cooking know-how, as well as fees for management services. The upfront fees for the receipt of the West Virginia franchises constitute fees paid for the licensing of a marketing intangible. These fees constitute West Virginia receipts because the franchises are for the right to make West Virginia sales. The monthly franchise fees paid by West Virginia franchisees constitute fees paid for (1) the license of marketing intangibles (the Better Burger name and service marks), (2) the license of production intangibles (food processes and know-how), and (3) personal services (management fees). The fees paid for the license of the marketing intangibles and the production intangibles constitute West Virginia receipts because in each case the use of the intangibles is to take place in West Virginia. The fees paid for the personal services are to be assigned pursuant to § 110-24-6.5.7 of this rule.
Example 9: Online Corp, a corporation based outside West Virginia, licenses an information database through the means of the Internet to individual customers that are resident in West Virginia and in other states. These customers access Online Corp's information database primarily in their states of residence and sometimes while traveling in other states. The license is a license of intangible property that resembles a sale of goods or services and are assigned in accordance with § 110-24-6.5.8.e of this rule. If Online Corp can determine or reasonably approximate the state or states where its database is accessed, it must do so. Assuming that Online Corp cannot determine or reasonably approximate the location where its database is accessed, Online Corp must assign the receipts made to the individual customers using the customers' billing addresses to the extent known. Assume for purposes of this example that Online Corp knows the billing address for each of its customers. In this case, Online Corp's receipts from sales made to its individual customers are in West Virginia in any case in which the customer's billing address is in West Virginia.
Example 10: Net Corp, a corporation based outside West Virginia, licenses an information database through the means of the Internet to a business customer, Business Corp, a company with offices in West Virginia and two neighboring states. The license is a license of intangible property that resembles a sale of goods or services and are assigned in accordance with § 110-24-6.5.8.e of this rule. Assume that Net Corp cannot determine where its database is accessed but reasonably approximates that 75 percent of Business Corp's database access took place in West Virginia, and 25 percent of Business Corp's database access took place in other states. In that case, 75 percent of the receipts from database access is in West Virginia. Assume alternatively that Net Corp lacks sufficient information regarding the location where its database is accessed to reasonably approximate the location. Under these circumstances, if Net Corp derives five percent or less of its receipts from database access from Business Corp, Net Corp must assign the receipts under § 110-24-6.5.7.c.2.B.2 of this rule to the state where Business Corp principally managed the contract, or if that state is not reasonably determinable, to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable, to the state of Business Corp's billing address. If Net Corp derives more than five percent of its receipts from database access from Business Corp, Net Corp is required to identify the state in which its contract of sale is principally managed by Business Corp and must assign the receipts to that state.
Example 11: Net Corp, a corporation based outside West Virginia, licenses an information database through the means of the Internet to more than 250 individual and business customers in West Virginia and in other states. The license is a license of intangible property that resembles a sale of goods or services, and receipts from that license are assigned in accordance with § 110-24-6.5.8.e of this rule. Assume that Net Corp cannot determine or reasonably approximate the location where its information database is accessed. Also assume that Net Corp does not derive more than five percent of its receipts from sales of database access from any single customer. Net Corp may apply the safe harbor stated in § 110-24-6.5.7.c.2.B.2.d of this rule and may assign its receipts to a state or states using each customer's billing address.
Example 12: Web Corp, a corporation based outside of West Virginia, licenses an internet-based information database to business customers who then sublicense the database to individual end users that are resident in West Virginia and in other states. These end users access Web Corp's information database primarily in their states of residence and sometimes while traveling in other states. Web Corp's license of the database to its customers includes the right to sublicense the database to end users, while the sublicenses provide that the rights to access and use the database are limited to the end users' own use and prohibit the individual end users from further sublicensing the database. Web Corp receives a fee from each customer based upon the number of sublicenses issued to end users. The license is a license of intangible property that resembles a sale of goods or services and are assigned by applying the rules set forth in § 110-24-6.5.7.c.2.B of this rule. If Web Corp can determine or reasonably approximate the state or states where its database is accessed by end users, it must do so. Assuming that Web Corp lacks sufficient information from which it can determine or reasonably approximate the location where its database is accessed by end users, Web Corp must approximate the extent to which its database is accessed in West Virginia using a percentage that represents the ratio of the West Virginia population in the specific geographic area in which Web Corp's customer sublicenses the database access relative to the total population in that area.
Example 1: Sports League Corp, a corporation that is based outside West Virginia, sells the rights to broadcast the sporting events played by the teams in its league in all 50 U.S. states to Network Corp. Although the games played by Sports League Corp will be broadcast in all 50 states, the games are of greater interest in the northwest region of the country, including West Virginia. Because the intangible property sold is a contract right that authorizes the holder to conduct a business activity in a specified geographic area, Sports League Corp must attempt to reasonably approximate the extent to which the intangible property is used in or may be used in West Virginia. For purposes of making this reasonable approximation, Sports League Corp may rely upon audience measurement information that identifies the percentage of the audience for its sporting events in West Virginia and the other states.
Example 2: Inventor Corp, a corporation that is based outside West Virginia, sells patented technology that it has developed to Buyer Corp, a business customer that is based in West Virginia. Assume that the sale is not one in which the receipts derive from payments that are contingent on the productivity, use, or disposition of the property. Inventor Corp understands that Buyer Corp is likely to use the patented technology in West Virginia, but the patented technology can be used anywhere (i.e., the rights sold are not rights that authorize the holder to conduct a business activity in a specific geographic area). The receipts from the sale of the patented technology are excluded from the numerator and denominator of Inventor Corp's sales factor.
W. Va. Code R. § 110-24-6