W. Va. Code R. § 110-24-8

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

Section 110-24-8 - Accounting Periods And Methods Of Accounting

8.1. Period of computation of West Virginia taxable income.

8.1.a. For purposes of the tax imposed by this article, a taxpayer's taxable year shall be the same as the taxpayer's taxable year for federal income tax purposes.

8.2. Change of taxable year.

8.2.a. If a taxpayer's year is changed for federal income tax purposes, the taxpayer's taxable year for purposes of this rule shall be similarly changed.

8.3. Methods of accounting.

8.3.a. Same as federal.

8.3.a.1. A taxpayer's method of accounting under this rule shall be the same as the taxpayer's method of accounting for federal income tax purposes. In the absence of any method of accounting for federal income tax purposes, West Virginia taxable income for purposes of this rule shall be computed under a method that in the opinion of the Tax Commissioner clearly reflects the income.

8.3.b. Change of accounting methods.

8.3.b.1. If a taxpayer's method of accounting is changed for federal income tax purposes, his or her method of accounting for purposes of this rule shall be changed so that it conforms to the method used for federal income tax purposes.

8.4. Adjustments.

8.4.a. In computing a taxpayer's West Virginia taxable income for any taxable year under a method of accounting different from the method under which the taxpayer's West Virginia taxable income for the previous year was computed, there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted.

8.5. Limitation on additional tax.

8.5.a. Change other than to installment method.

8.5.a.1. If a taxpayer's method of accounting is changed, other than from an accrual to an installment method, any additional tax which results from adjustments determined to be necessary solely by reason of the change shall not be greater than if the adjustments were ratably allocated and included for the taxable year of the change and the preceding taxable years, not in excess of two, during which the taxpayer used the method of accounting from which the change is made.

8.5.a.2. The procedures for determining tax liability under the provisions of W. Va. Code § 11-24-8(e) are as follows:

8.5.a.2.A. Compute the tax for the current year using the regular method, including determination of the effective tax rate.

8.5.a.2.B. Multiply the dollar amount of the income adjustment included in the West Virginia taxable income by the current year effective tax rate.

8.5.a.2.C. Prorate the adjustments over the current tax year and over no more than two of the preceding tax years.

8.5.a.2.D. Multiply the dollar amount of the adjustments allocated to each of the years, to the extent the adjustments were included in West Virginia taxable income, by the effective tax rate applicable to each of the years.

8.6. Change from accrual to installment method.

8.6.a. If a taxpayer's method of accounting is changed from an accrual to an installment method, any additional tax for the year of the change of method and for any subsequent year which is attributable to the receipts of installment payments properly accrued in a prior year shall be reduced by the portion of tax for any prior taxable year attributable to the accrual of the installment payments.

8.7. Coordination of reporting year among combined reporting unitary group members having diverse tax years.

8.7.a. Principal member. For purposes of this rule, "Principal member" is the member of the combined reporting group whose accounting period is used as a reference period for all members of the combined reporting group to aggregate and apportion combined report business income of the group. A principal member need not be a taxpayer member.

8.7.a.1. Corporations Described. Once a principal member has been determined under this subsection, that member shall remain the principal member for all succeeding periods that it is a member of the combined reporting group. However, the Tax Commissioner may authorize designation of a different principal member. Except as otherwise provided, the "principal member" is the corporation first described in subparagraphs 8.7.a.1.A, 8.7.a.1.B, 8.7.a.1.C and 8.7.a.1.D of this paragraph:

8.7.a.1.A. The parent corporation to all members of the combined reporting group. For purposes of this determination, a corporation which owns on average during the taxable year more than fifty percent of the stock of all classes of another corporation is defined to be the "parent corporation" of the corporation which is so owned.

8.7.a.1.B. If the group does not have a parent corporation which is a member of the combined reporting group, as so defined, the "principal member" is a corporation which is a lower tier parent to all members of the combined report. A "lower tier parent" is the first corporation, down the chain of corporations, which is a member of the combined reporting group and which would have constituted a "parent corporation" to all members of the combined group if all corporations which own or constructively own that corporation were disregarded.

8.7.a.1.C. If the group does not have a "lower tier parent" corporation which is a member of the combined reporting group, the "principal member" is the taxpayer member of the combined reporting group expected to have, on a recurring basis, the largest amount, by value, of real and tangible personal property in West Virginia. The value of real and tangible personal property shall be determined pursuant to the property factor provisions of W. Va. Code §§ 11-24-1, et seq. and this rule.

8.7.a.1.D. Election to Designate Principal Member. Notwithstanding the provisions of paragraph 8.7.a.1, in the first income year in which a combined report is required, the taxpayer members of the combined reporting group may elect to treat any other member of the combined reporting group as the "principal member," so long as it is consistently treated as such for the year of the election and thereafter. Thereafter, the taxpayer members may change their principal member only with consent of the Tax Commissioner.

8.7.b. Inconsistent Principal Member. In the event that members of a combined reporting group have filed with inconsistent principal members (including cases where two or more groups of corporations erroneously filed as distinct combined reporting groups) the determination of the appropriate principal member shall be made in accordance with the provisions of subdivision 8.7.a. of this section, unless, in the discretion of the Tax Commissioner, selection of another principal member is authorized or mandated by the Tax Commissioner.

8.8. Fiscalization to Principal Member's Year. "Fiscalization" is the process under which a member of a combined reporting group aligns the income and apportionment data from its accounting period to the accounting period of the principal member. If the accounting period of the principal member and one or more of the other members of the combined reporting group do not begin and end on the same dates, adjustments shall be made to fiscalize the other members' combined report business income and apportionment data in order to assign an appropriate amount of those values to the accounting period of the principal member.

8.8.a. Combined report business income of a taxpayer member, determined under W. Va. Code §§ 11-24-1, et seq. and this rule, is proportionately assigned to the applicable portion of that member's income year, based on the number of months falling within the common accounting period of the principal member. The resulting income from those portions is then aggregated (or netted) together for the member's income year to determine that member's business income attributable to the combined reporting group.

8.8.a.1. If the accounting period of a principal member and one of the other members of a combined reporting group do not begin and end on the same dates, adjustments shall be made to the other members' combined report business income and apportionment data to assign an appropriate amount of those values to the accounting period of the principal member in order for total group combined report business income to be apportioned. Each member of the group should generally use combined report business income and apportionment data from its books of account earned during the accounting period of the principal member. This will require an interim closing of the books for members whose normal accounting period differs from the principal member. However, a pro rata method of converting income to the principal member's accounting period will be accepted as long as the method does not produce a material misstatement of income apportioned to this state. Unless otherwise permitted or required by the Tax Commissioner, the treatment of both the income and the apportionment data of any particular member shall use the same method. If one method was used to account for a member's income and apportionment data in the combined report for the principal member's preceding accounting period and another method will be used in the combined report for the principal member's next accounting period, adjustments to income and apportionment data of the member shall be made to prevent income and apportionment data from being omitted or duplicated.

8.8.a.2. Interim closing method.

8.8.a.2.A. The combined report business income and expense of a member of the combined reporting group is determined by reference to the sum (or net) of that income from the actual books and records of that member for each of the partial accounting periods of the member shared with the principal member. For example, if the principal member has an accounting period ending on December 31, 2010, and another member has an accounting period ended March 31, 2011, the other member determines its income from its actual books and records for the partial accounting periods beginning January 1, 2010, and ending March 31, 2010, and from April 1, 2010 and ending December 31, 2010.

8.8.a.2.B. The apportionment data for West Virginia, and everywhere shall also be determined by reference to the member's books and records, W. Va. Code §§ 11-24-1et seq. and this rule, for the appropriate partial accounting year. Under the interim method, if the tax years fall under the apportionment formula set forth in section heading 7, the property factor computation should reflect the actual, not prorated, property owned and rented during the principal member's accounting period. For tax years beginning on or after January 1, 2022, income is apportioned as set forth in section heading 6 of this rule and property is no longer a factor in the apportionment formula.

8.8.a.2.B.1. Example. If the principal member has an accounting period ending on December 31, 2010, and another member has an accounting period ended March 31, 2011, the other member will determine its total property and its West Virginia property from its actual books and records on the basis of the period from January 1, 2010 to December 31, 2010.

8.8.a.2.C. Interim combined report business income and apportionment data from the respective partial periods is then combined with the income and apportionment data of the accounting period of the principal member, along with business income and apportionment data of other members of the combined reporting group for the same period, using, if applicable, the methods prescribed in W. Va. Code §§ 11-24-1, et seq. and this rule.

8.8.b. Pro rata method.

8.8.b.1. At the election of the members of a combined reporting group and with the express authorization of the Tax Commissioner, fiscalization of combined report business income of one or more members of the group to the accounting period of the principal member may be determined by use of a pro rata method. However, the election is not available if that method produces a material misstatement of income. Under the pro rata method, the apportionment data and combined report business income from the member's adjusted separate books of account (i.e., adjusted to reflect the determination of income under W. Va. Code §§ 11-24-1, et seq. and this rule) is assigned to the respective portion of the principal member's accounting period based on the ratio of months in common with that member. For example, if the principal member's accounting period ends on December 31, 2010, a member whose income year ends on March 31 will reflect 3/12ths of its adjusted separate combined report business income and its property, payroll and sales for its income year ended March 31, 2010 in the December 31, 2010 accounting period of the principal member. That member will then reflect 9/12ths of its adjusted separate combined report business income and its apportionment data for its income year ended March 31, 2011 in the December 31, 2010 accounting period of the principal member.

8.8.b.2. The combined report business income and apportionment data from the respective partial periods is then combined with the income and apportionment data of the accounting period of the principal member, along with business income and apportionment data of other members of the combined reporting group for the same period, using, if applicable, the methods prescribed in W. Va. Code §§ 11-24-1, et seq. and this rule. The combined business income is then apportioned to each of the taxpayer members of the group.

8.8.b.3. In the event that the pro rata method requires the determination of income and apportionment data of a corporation whose accounting period has not yet closed, and the information cannot be obtained in time for the other members to file an accurate return, the income and apportionment data for that period shall be estimated based on available information. If the use of actual income and apportionment data results in a material change in the tax liabilities of the taxpayer members of the group, the taxpayer members shall file an amended return to reflect the change.

8.8.c. After the combined reporting group's income is apportioned to West Virginia, West Virginia combined report business income of a taxpayer member is then proportionately assigned to the applicable portion of that member's income year, based on the number of months falling within the common accounting period of the principal member. For example, if the principal member's accounting period year ends on December 31, 2010, a taxpayer member whose income year ends on March 31 will reflect 3/12ths of its share of apportioned income from the principal member's December 31, 2010 accounting period in its income year ended March 31, 2010, and 9/12ths of its share of that income in its income year ended March 31, 2011. The resulting income from the segments is then aggregated (or netted) together for the member's income year to determine that member's West Virginia business income attributable to the combined reporting group.

8.9. Partial Combined Reporting Periods.

8.9.a. If a member of a combined reporting group is not a member of the combined reporting group during the entire accounting period of the principal member (e.g., because of lack of a unitary relationship, or termination of a unitary relationship), modified combined reporting procedures apply as provided in this rule. Business income and apportionment data of a member is included in the combined report of the remaining members only for the period (or partial period) for which all of the members are in the combined reporting group. Thus, if a member of a combined reporting group enters or leaves the group at a time during the middle of the accounting period of the principal member, a separate combined report determination is required to be made only for the partial period of combination. The partial period combination is made using the same combined reporting procedures for a 12-month period, except that income, and apportionment data will reflect only the amounts applicable to the partial period. With express permission of the Tax Commissioner, a pro rata method may be used to determine each member's income and apportionment data for the partial period, unless it results in a material misstatement of income. If so, the interim closing method shall be used. Establishment or termination of a combined reporting relationship will not, by itself, cause a short period filing requirement.

8.9.a.1. Example: Corporations A, B, and C are members of a combined reporting group. Corporation A is the principal member and has a calendar year accounting period. On May 1, Corporation A acquires Corporation D. Because of substantial preexisting business relationships, Corporation D immediately becomes a member of the combined reporting group on that date. Only Corporations B and C are West Virginia taxpayers. As provided in this paragraph, two combined report calculations are required. The first combined report calculation includes the combined report business income and apportionment data of Corporations A, B, and C from January 1 through April 30. The combined report business income for that period is then apportioned to West Virginia taxpayer members B and C, for the period January 1 through April 30. The second combined report calculation includes the combined report business income and apportionment data of Corporations A, B, C, and D from May 1 through December 31. The combined report business income for that period is then apportioned to West Virginia taxpayer members B and C for the period May 1 through December 31.

8.9.b. If a taxpayer member's income year does not begin and end on the same dates as the partial period combination (e.g., a short-period return is not required), the taxpayer member's West Virginia income earned during that portion of the income year before and after the partial period combination is aggregated (or netted) with the taxpayer member's West Virginia combined report income from the partial period combination. On occasion, the West Virginia income described will include income from two or more partial period combinations.

8.9.b.1. Example: Corporation P owns all of the stock of Corporation S for the 12. month period ended December 31, 2011. Corporations P and S are unitary and are obligated to file a combined report for the entire period. Corporation P acquires 51% of the stock possessing voting power of Corporation A on March 7, 2011. The acquisition does not compel the filing of a short period return by Corporation A. All of the Corporations have a calendar year accounting period. Corporation A becomes unitary with Corporations P and S on July 1, 2011 and is obligated to file a combined report with Corporations P and S for the partial period beginning on July 1, 2011. The income and apportionment data of Corporation A for the period prior to July 1, 2011, cannot be included in a combined report with Corporations P and S. Under W. Va. Code §§ 11-24-1, et seq. and this rule, two separate partial period combined report calculations are required. One is for the P-S group for the partial period ended June 30, 2011, and the other is for the P-S-A group for the partial period from July 1, 2011, to December 31, 2011.

If Corporation P's West Virginia combined report income is $ 250,000 for the partial period ended June 30, 2011 and P has a $ 60,000 West Virginia net operating loss for the partial period ended December 31, 2011, Corporation P's West Virginia combined reporting income for its income year ended December 31, 2011, is $ 190,000. If Corporation A has West Virginia income from its unaffiliated and non-unitary partial period (or from another combined reporting group, if applicable) of $ 50,000 and A has a West Virginia net operating loss of $ 30,000 for the combined report partial period after it joined the combined reporting group, Corporation A's West Virginia income for its income year that ended December 31, 2011, is $ 20,000.

8.9.c. In lieu of partial period combination method described by subdivisions 8.9.a and 8.9.b of this rule, the taxpayer members of the commonly controlled group may elect to use the method provided in this subdivision. The election shall be consistently used by all taxpayer members. The election may not be used if the results of that method, compared with the provisions of subdivisions 8.9.a and 8.9.b of this rule, results in a material misstatement of the taxpayer member's West Virginia income. Under the method described in this subdivision, the partial period combined reporting income of a member, which is not in a combined reporting relationship with the principal member for the entire accounting period of the principal member, is considered to be reflected by the relative weighting of the apportionment data of the partial period member to the apportionment data of the rest of the combined reporting group for the accounting period of the principal member. The method applies as follows:

8.9.c.1. The principal member's income and apportionment data are determined for its entire accounting period (usually a 12. month period). All other members which were members of the combined reporting group during the entire period of the principal member shall also include their income and apportionment data for that period, using fiscalization methods, if appropriate.

8.9.c.2. Members who were not members of the combined reporting group for the entire accounting period of the principal member shall include in the combined report only their income for the partial period during which they were a member. Normally this income will be determined by an interim closing of the member's books of account. Similarly, the apportionment data of that member is included only for that same partial period.

8.9.c.3. Property factor data for the partial period member (both West Virginia property and total property) shall be adjusted to reflect the fact that the property was not used in the combined reporting group for the entire period of the principal member. For example, if the partial period member was in the combined reporting group for only 7 months of the 12-month accounting period of the principal member, only 7/12's of the member's average West Virginia and total property for the period shall be reflected in the combined report. For tax years beginning on or after January 1, 2022, income is apportioned as set forth in section heading 6 of this rule and property is no longer a factor in the apportionment formula.

8.9.c.4. Apportionment shall be computed using the amounts included in paragraphs 8.9.c.1 through 8.9.c.3 of this rule, as if the partial period members were members for the entire accounting period of the principal member. The amounts apportioned to the individual taxpayer members then reflects the member's West Virginia combined reporting income for the partial period. That member then shall aggregate (or nets) West Virginia combined reporting income with its West Virginia income from other activity to compute income subject to taxation for the entire income year.

8.9.c.4.A. Example: For tax year 2011, using the same facts as provided in paragraph 8.9.a.1. of this subsection, except that the members of the group elect to report under subdivision 8.9.c. of this rule, Corporation A, B, and C determine their income and apportionment data for the entire 12 months of the calendar year. Corporation D determines its income and apportionment data for the period May 1 - December 31. However, because Corporation D was not a member of the combined reporting group for the entire calendar year, the property factor values for the combined reporting period shall be multiplied by 8/12ths to reflect a weighted average value of that property in the principal member's accounting period. The West Virginia combined report income of Corporations B and C are then determined as if Corporation D's income and apportionment data were entirely earned in the principal member's accounting period.

8.9.c.4.B. Example: For tax year 2022, using the same facts as provided in paragraph 8.9.a.1 of this subsection, except that the members of the group elect to report under subdivision 8.9.c of this rule, Corporation A, B, and C determine their income and apportionment data for the entire 12 months of the calendar year. Corporation D determines its income and apportionment data for the period May 1 - December 31. The West Virginia combined report income of Corporations B and C are then determined as if Corporation D's income and apportionment data were entirely earned in the principal member's accounting period.

8.9.c.4.C. Example: Using the same facts provided in subparagraph 8.9.c.4.A. of this rule, except that Corporation D is a calendar year West Virginia taxpayer, and its addition to the combined reporting group did not cause a short period filing requirement, Corporation D's West Virginia combined report income, determined under this subdivision, would be treated as earned for the period May 1 through December 31. That West Virginia income would be aggregated (or netted) with its other West Virginia income for the entire calendar year, as provided in subdivision 8.9.b of this rule.

W. Va. Code R. § 110-24-8