W. Va. Code R. § 110-26-2b

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

Section 110-26-2b - Manufacturing, Compounding Or Preparing Products; Processing Of Food Excepted

2b.1. Manufacturers of products.

2b.1.1. For purposes of these rules and regulations, the word "Manufacturer" shall mean and include, but not limited to, every person engaging within this State in the business of manufacturing, compounding or preparing for sale, profit or commercial use any article, substance or commodity. The term "To Manufacture" embraces all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different or useful substance or article of tangible personal property is produced for sale, profit or commercial or industrial use, and shall include the production or fabrication of special made or custom made articles. To manufacture also means producing articles from raw materials or prepared materials by giving these matters new forms, quantities, properties, or combinations. It includes such activities as making, fabricating, processing, refining, mixing, compounding, etc. The term to manufacture does not include activities which are merely incidental to nonmanufacturing activities. Therefore, the following do not constitute manufacturing, compounding, or preparing for sale: cooking and serving of food by a restaurant, repairing and reconditioning of tangible personal property owned by others, etc.

2b.1.2. The phrase "Manufacturing, Compounding or Preparing for Sale" means a process whereby a person from his own materials or ingredients manufactures for sale, or for commercial or industrial use any article, substance or commodity either directly, or by contracting with others for the necessary labor and mechanical services.

2b.1.3. Persons engaged in manufacturing compounding or preparing products shall report the gross proceeds derived therefrom under the manufacturing classification on the municipal business and occupation tax returns. If it is not possible for the manufacturer to determine gross proceeds of sale, he must determine the value of his products by employing the applicable rule set forth in Section 2.3 of these rules and regulations. The measure of the municipal business and occupation tax shall be the value (said value, whenever possible, shall be determined by gross proceeds of sale) of the entire production within the municipality, regardless of the place of sale or the fact that delivery may be made to points outside the municipality.

2b.1.4. A person who manufactures final completed products and does not make sale of the same but uses or consumes said products in his business shall report the value of such products under the manufacturing classification on the municipal business and occupation tax return. In determining the value of such final completed products, the taxpayer must adhere to Section 2.3 of these rules.

2b.1.5. Where the relationship between the manufacturer of products and the purchaser thereof is such that the gross proceeds of sale are not indicative of the true value of the manufactured articles, the taxpayer shall determine value by application of the proper rule set forth in Section 2.3 of these rules and regulations.

2b.1.6. Persons engaged in the business of manufacturing, compounding or preparing for sale, profit or commercial use, any article, substance or commodity and the same is sold at retail within the municipality shall report the gross proceeds derived from such sale under the retail classification, and the value of the same shall be also reported under the manufacturing classification.

2b.1.7. Where a person manufactures, compounds or prepares for sale, profit or commercial use, products, substances or commodities and makes sale of the same at wholesale within the municipality, such person shall report the gross income derived from the sale at wholesale under the manufacturing classification, and the value of the same shall be also reported under the wholesale sales classification if the sale is made in the municipality and the municipal business and occupation tax ordinance so requires.

2b.2. Manufacturing products for others.

2b.2.1. The term "Manufacturing Products for Others" means the performance of labor and mechanical services upon materials belonging to others so that as a result thereof a new, different or useful article of tangible personal property is produced.

2b.2.2. Persons engaged in the business of manufacturing, compounding or preparing for sale, profit or commercial use, any article, substance or commodity, title to which is vested in another, and the article, substance or commodity is returned, not sold, by the person performing the manufacturing service to the owner, the person performing the service shall report the gross income derived therefrom under the service classification on the business and occupation tax form. In this case, the person performing the manufacturing service is not vested with title to the goods; therefore, he reports his gross income under the service classification. The owner of these goods, for whom the manufacturing service was performed, must report the income from such goods under the manufacturing classification of the municipal business and occupation tax return because he is manufacturing through the activities of others.

2b.2.3. Persons performing manufacturing services for others often add materials to make a desired product for the owner. In those cases where the person rendering a manufacturing service furnishes or sells tangible personal property to complete the article for the owner, the gross income derived from the rendition of the service is taxable under the service classification and the gross income derived from furnishing or selling tangible personal property is taxable under retail or wholesale classification, as the case may be.

2b.3. Manufacturing electric power. -- If any person produces electric power within this State and is not deemed taxable under the public service or public utility section of the municipal business and occupation tax law on such electric power, such person is a manufacturer of electric power and shall report gross income derived therefrom under the manufacturing classification. In other words, the manufacture of electric power which is not taxable under public utilities classification is taxable under the manufacturing classification.

2b.4. Dressing and processing of food.

2b.4.1. Persons who dress and process food shall not be considered as manufacturing or compounding for the purposes of the municipal business and occupation tax law. The sale of these food products on a wholesale or retail basis shall be subject only to the tax imposed under these respective classifications.

2b.4.2. Dressing and Processing of Food for purposes of this Section shall mean those instances where the taxpayer begins with what is usually considered a food substance and ends with a food product. See Ballard's Farm Sausage Inc. v. Dailey, 246 S.E.2d 265 (W. Va. 1978).

2b.5. Partially manufactured within and without the municipality.

2b.5.1. In those instances in which the same person partially manufactures products within the municipality and partially manufactures such products outside the municipality, only a portion of the gross proceeds of sale of such products is taxable under the municipal business and occupation tax.

2b.5.2. To determine that portion of the sale price that is applicable to municipal business and occupation tax, under the manufacturing classification, the taxpayer, at his option, shall elect and apply one of the following methods of apportionment:

2b.5.2.1. That portion of the sale price of the manufactured product that the payroll cost of manufacturing such product within the municipality bears to the entire payroll cost of manufacturing such product; or

2b.5.2.2. That portion of the sale price of the manufactured product that the cost of operation to manufacture such products within the municipality bears to the entire cost to manufacture such products.

2b.5.3. A taxpayer is not permitted to report one partially manufactured product under the payroll cost option and another partially manufactured product under the manufacturing cost option within the same taxable year. Once an option or method is chosen, the option shall apply to all of the taxpayer's manufactured articles or products for the particular taxable year.

2b.5.4. If option 2b.5.2.1 is elected by the taxpayer, only direct payroll costs are to be considered in the formula to compute the percentage of sales price attributable to the municipality. Direct payroll costs do not include the value of or expenses of employee benefits, such as, pension plans, insurance programs, employer contribution of FICA taxes, etc.

2b.5.5. If option 2b.5.2.2 is elected by the taxpayer, only manufacturing costs are to computed. Selling expenses, administrative expenses, advertising expenses, etc., whether incurred within or without the municipality, are not considered a cost of operation to manufacture, nor are research expenses, home office overhead, marketing expenses, etc.

2b.6. Treatment of freight charges incurred by manufacturers.

2b.6.1. In certain instances, persons who manufacture, compound or prepare products within the municipality are permitted to deduct outgoing freight charges from the gross proceeds of sales to arrive at taxable value under the manufacturing classification on the municipal business and occupation tax form.

2b.6.2. To determine the value of manufactured articles within the municipality, there may be deducted from gross proceeds of sale certain outgoing freight charges actually paid by the manufacturer, but no deduction will be allowed for expenses incurred by him through the use of his own equipment in transporting items manufactured.

2b.6.3. In all instances where manufactured products are used or consumed by the manufacturer at a point distant from place of manufacture, outgoing freight charges paid by the manufacturer will not be allowed as deductions unless due consideration was given to them also in the method by which value was determined.

2b.6.4. Generally, freight charges to be deductible from gross proceeds of sale must be paid by the manufacturer to a common carrier to deliver manufactured products to a bona fide purchaser. To illustrate: Glassware, at the place where manufacturing end, has a value of twenty-five dollars ($25.00) per gross. If a purchaser buys the glassware at the glass plant for said price, the manufacturer will report under the manufacturing classification the gross proceeds of sale, twenty-five dollars ($25.00). However, if the purchaser buys the same glassware delivered at twenty-seven dollars ($27.00) per gross, and the manufacturer pays a common carrier to make such delivery, the manufacturer may deduct such freight charges, two dollars ($2.00) from the gross proceeds of sale, twenty-seven dollars ($27.00) reported under the manufacturing classification to arrive at the taxable value of twenty-five dollars ($25.00).

2b.6.5. If the manufacturer sells his articles to a purchaser and agrees to deliver such articles in his own equipment for a fee, the fee may be deducted from gross proceeds of sale in arriving at taxable value under the manufacturing classification. However, the amount of deduction must be reported under the service classification.

2b.6.6. If hauling or transportation charges are incurred by the manufacturer and have been absorbed by the manufacturer, such charges are outgoing freight charges and are deductible from gross proceeds of sale to arrive at a taxable value.

2b.7. Problems and solutions relating to the manufacturing, compounding or preparing of products, articles, substances or commodities. -- Presented below are several examples, problems and solutions thereto regarding the proper taxation of manufacturing activities.

2b.7.1. Example. -- A B manufactures clothing within the municipality and sells the same, at wholesale, for three hundred thousand dollars ($300,000). A B will report this sale at wholesale under the manufacturing classification as well as under the wholesale classification, unless the sale is made outside the municipality or unless the municipal business and occupation tax ordinance excepts such sales, in which case it would be reported only under the manufacturing classification.

A B also sells some of his manufactured product at a retail factory outlet and derives fifteen thousand dollars ($15,000) from such sales. A B will report this amount fifteen thousand dollars ($15,000) under the retail classification and will also report such amount under the manufacturing classification. A B receives no deduction from the gross proceeds of sales at retail to arrive at manufactured value, for the retail sales were made at the factory where production ended.

2b.7.2. Example. -- C D, the owner of materials and fabrics, contracts with A B to have A B manufacture sweaters from the goods. The contract stipulates that A B will manufacture twenty-five thousand (25,000) sweaters from C D's goods for a fee of one hundred thirty-five thousand dollars ($135,000), and that A B will furnish any thread or buttons necessary to complete the garments. A B is to invoice C D separately for any tangible personal property furnished by A B.

A B completes the manufacturing service and delivers the sweaters to C D and invoices C D for four thousand dollars ($4,000) for materials furnished.

A B will report one hundred thirty-five thousand dollars ($135,000) under the service classification and four thousand dollars ($4,000) under the wholesale classification. The one hundred thirty-five thousand dollars ($135,000) is not reported under the manufacturing classification by A B since he was performing services upon materials belonging to another. The sale of the furnished tangible personal property is reported at wholesale rather than at retail for the sale was made to a manufacturer C D).

C D sells a portion of these sweaters at wholesale for four hundred thousand dollars ($400,000). This amount must be reported by C D under the manufacturing classification, regardless of the place of sale, and he may deduct therefrom any outgoing freight charges paid to a common carrier to deliver these goods to the purchaser.

The remainder of the sweaters are sold at retail by C D for one hundred thousand dollars ($100,000). Of such retail sales, eighty thousand dollars ($80,000) worth occurred outside the municipality and twenty thousand dollars worth occurred within the municipality. Therefore, C D must report only twenty thousand dollars ($20,000) under the retail classification for those retail sales within the municipality and must place a sales value on this portion of the goods and report the same under the manufacturing classification. C D will determine such value in accordance with the applicable rules set forth in Section 2.3 of these rules.

The eighty thousand dollars ($80,000) of retail sales which occurred outside the municipality are not reportable under the retail classification, but a sales value must be placed on this portion of the goods and must be reported under the manufacturing classification in accordance with Section 2.3 of these rules. These are sales of manufactured products for delivery outside the municipality and are reportable under manufacturing only. It is assumed that the taxpayer had no outgoing freight charges, in this example, and that the value of his articles was reflected by the gross proceeds of sales; therefore, he will report the one hundred thousand dollars ($100,000) (of retail sales) under the manufacturing classification.

C D's municipal business and occupation tax return will reflect five hundred thousand dollars ($500,000) reported under the manufacturing classification and twenty thousand dollars ($20,000) under the retail classification.

2b.7.3. Example. -- XY, a coal broker, purchases coal from Kentucky and has it transported to his tipple and preparation plant within the municipality. XY purchased one hundred thousand (100,000) tons at five dollars ($5.00) per ton. The coal is tippled, prepared, screened, graded, washed, etc. by XY and sold by him for delivery outside the municipality for eight dollars ($8.00) per ton, or a total of eight hundred thousand dollars ($800,000). In the purchase contract, it is stipulated that XY will pay all outgoing freight charges to deliver such coal. The freight charges in the amount of ten thousand dollars ($10,000) were paid by XY to a railroad, which is, of course, a common carrier.

XY will report the gross proceeds of sale eight hundred thousand dollars ($800,000) of the coal described in the preceding paragraph less the preparers outgoing freight charges ten thousand dollars ($10,000) as taxable income, seven hundred ninety thousand dollars ($790,000) under the manufacturing classification; for the activities of screening, grading, washing, etc., are deemed to be preparing articles for sale, which activities come under the manufacturing classification. Inasmuch as this was a sale made of manufactured products for delivery outside the municipality, the taxpayer has no responsibility to report gross proceeds therefrom under either the retail or wholesale classes.

During the taxable period, XY tippled, prepared, screened, graded, etc., coal, title to which was vested in others, for a fee of two dollars ($2.00) per ton. Gross income from this activity, performing manufacturing services on goods owned by others amounted to three hundred fifty thousand dollars ($350,000). Inasmuch as title to this coal was vested in others, XY is deemed to be performing activities taxable under the service classification and will report accordingly.

The taxpayer purchased West Virginia coal and other natural resource products which he sold for six hundred thousand dollars ($600,000). XY performed no activities on these products and sold the same in the condition in which they were purchased. The sale of such products occurred outside of the municipality. The transaction was negotiated and consummated without the municipality, and it was provided that title passed to the purchaser only upon delivery.

On the transaction described in the preceding paragraph, XY is not subject to municipal business and occupation tax. He did not produce, manufacture or prepare the goods for sale. The goods were purchased by him within West Virginia and sold by him outside the municipality in the form in which he purchased them. Therefore, XY performed no activities within the municipality subject to the municipal business and occupation tax. In this situation the burden of proof is on the taxpayer to show that the sale was consummated without the municipality and therefore not subject to tax. A detailed list of all such transactions must be maintained by the taxpayer and must show the shipping point, the purchaser's name, the delivery point, the mode of delivery and the date of shipment.

Exemption for sales consummated outside the municipality does not apply to persons subject to tax under the production classification (Section 2a of these rules) or under the manufacturing, compounding or preparing for sale classification (Section 2b of these rules). Persons subject to tax under the production classification or the manufacturing, compounding or preparing for sale classification are producing, manufacturing, compounding or preparing for sale products within the municipality for sale without the municipality and are taxable on the privileges engaged in within the municipality. The measure of the tax is the value of the entire production or entire product manufactured within the municipality, regardless of the place of sale or the fact that the delivery may be made to points outside the municipality.

2b.7.4. Example. -- At a site within the municipality, EF manufactures component parts for radios and television sets and ships the parts to its assembly factory outside the municipality where additional manufacturing is performed to make radios and televisions ready for sale. Therefore, the same person (EF) is partially manufacturing a product within the municipality and partially manufacturing such product outside the municipality.

Whereas the municipal business and occupation tax law can reach only those activities or privileges which occurred within the municipality, the taxpayer must elect a method of apportionment to determine his municipal gross income from manufacturing. (See Section 2b.5 of these rules.) The taxpayer elects to use, in this example, the payroll method of apportionment.

The payroll cost of manufacturing the parts within the municipality totaled one hundred thousand dollars ($100,000). The entire payroll cost of manufacturing the radio and television sets was five hundred thousand dollars ($500,000), including the municipal payroll. Therefore, the municipal payroll cost is twenty percent (20%). In computing payroll cost, only direct payroll cost in manufacturing the item in question is included. No other expenses are included.

Assuming that EF sells the radios and television sets for one million, six hundred thousand dollars ($1,600,000), its municipal gross income reported under the manufacturing classification is three hundred twenty thousand dollars ($320,000); (twenty percent (20%) X one million, six hundred thousand dollars ($1,600,000) ' three hundred twenty thousand dollars ($320,000)).

Persons who perform a manufacturing service on goods owned by another must report their entire gross income derived from activity under the service classification and are not permitted to employ an apportionment method. The rule stated in the preceding sentence shall apply even if the owner (manufacturer) of the goods ships the same outside the municipality for additional manufacturing or preparing. Only the owner-manufacturer is entitled to prorate his income under one of the apportionment methods.

If the owner-manufacturer pays another to perform services on his goods within the municipality and ships those goods outside the municipality for additional processing, the owner-manufacturer must elect the cost of operations method of apportionment. He is not eligible to use the payroll method since he has no municipal payroll in these particular goods (the goods were partially manufactured by another).

2b.7.5. Example. -- ST manufactures chemicals and related items within the municipality. In order to manufacture house paint, ST must manufacture certain chemical compounds which become component parts of the paint and which lose their identity therein. These manufactured chemical compounds consumed by the manufacturer within the municipality are not subject to the municipal business and occupation tax in that such compounds become component parts of the product, lose their identity therein and increase the taxable value of the product (house paint) manufactured within the municipality which is reported under this tax act.

ST ships a portion of the chemical compound to its operation outside of the municipality. ST must place a manufactured value on this portion of the compound and report the same under the manufacturing classification on the municipal business and occupation tax return; because this product becomes a final complete product for purposes of this tax once it is shipped outside the municipality, with or without sale thereof. Any manufactured product which is shipped outside the municipality, whether for consumption or use or for sale, becomes a final completed product subject to this tax.

ST consumes a portion of its manufactured paint to paint its factory. A value, in accordance with Section 2.3 of these rules, must be placed on the consumed product and reported under the manufacturing classification of the municipal business and occupation tax return. In this situation, the taxpayer is consuming final completed products. Final completed products manufactured within the municipality are taxable under the manufacturing classification, regardless of where consumed or used by the manufacturer.

2b.7.6. Example -- A business rebuilds engines owned by others and also purchases engines which it rebuilds and later sells.

Where the business rebuilds engines owned by others it would report its gross receipts under the service classification. Where the owner of the rebuilt engine is in the business of rebuilding engines it would report the value of the rebuilt engine under the manufacturing classification. Where the owner of the rebuilt engine is an individual not engaged in a related business activity no business and occupation tax is due from the owner of the rebuilt engine because he is not engaging in business.

Where the business purchased the engines which it rebuilds and later sells, gross receipts from rebuilding the engines shall be taxable under the manufacturing classification in the municipality in which the engine rebuilding activity is conducted, and also under the appropriate sales classification if the sale occurs in the municipality or is otherwise attributable to the municipality.

2b.8. Business of manufacturing timber products.

2b.8.1. General. -- A person engaged in a municipality in the business of manufacturing, compounding or preparing delimbed trees, logs or timber products for sale, profit or commercial use, either direct or by contracting services from others is subject to municipal business and occupation tax under the manufacturing classification and shall determine his municipal business and occupation tax liability in accordance with these regulations. He is also taxable under other classifications of the municipal business and occupation tax when the activity engaged in is not taxable under the manufacturing classification.

2b.8.2. Measure of tax. -- The measure of tax under this classification is the adjusted gross value of all timber products, including by- products, manufactured, compounded or prepared in the municipality for sale, profit or commercial use, regardless of places of sale or the fact that delivery may be made to points outside the municipality.

2b.8.3. Gross value. -- The term "gross value" means gross proceeds of sales in every instance where a bona-fide, arms-length sale of product(s) is made, regardless of whether the sale is at wholesale or retail. This amount shall include all subsidies and bonuses received with respect to the manufacture or sale of the timber products. In the absence of a bona-fide, arms-length sale, gross value is that amount which corresponds as nearly as possible to gross proceeds from the sale of similar products of like quality or character in an arms-length transaction under similar circumstances and conditions. This gross value shall be determined under the rules set forth in Section 2.3 of these regulations.

2b.8.4. Adjusted gross value. -- The term "adjusted gross value" is determined under Subsection 2b.8.3 above, minus the following:

2b.8.4.1. The cost of timber or timber products which are used as ingredients, components or elements in the manufacture of timber products that are taxed under the manufacturing classification.

2b.8.4.1.a. Effective beginning April 1, 1982, taxable value of timber products manufactured in the municipality, which are sold or commercially used, does not include the cost of any timber or timber products purchased and used as an ingredient, component or element of a timber product manufactured in the municipality. Only the cost of timber or timber products that become a recognizable, integral part of the timber product is deductible. The following are examples of tangible personal property which are not deductible.

2b.8.4.1.a.1. A manufacturer of timber products purchases pallets. The pallets do not become an ingredient, component or element of the manufactured timber products. The cost of the pallets is not deductible.

2b.8.4.1.a.2. A manufacturer of timber products purchases paper cups, straws, napkins, plates, towels and toilet tissue. Their cost is not deductible.

2b.8.4.1.a.3. A manufacturer of timber products purchases wooden crates, cardboard boxes, excelsion and wrapping materials for shipping his manufactured timber products. Their cost is not deductible.

2b.8.4.1.b. An integrated producer/manufacturer of timber products may deduct the gross value of the timber at the point where the production privilege ends. When the timber is produced in this State, the amount that may be deducted is the value of the timber reported under the production classification. See, Section 2a.8 of these regulations.

2b.8.4.1.b.1. Example. -- XYZ Lumber Company produces timber which it then manufactures into lumber in the municipality. The gross value of the timber at the point where the production privilege ended was two thousand five hundred dollars ($2,500). The manufactured lumber was sold for ten thousand dollars ($10,000). The adjusted gross value of the manufactured timber products subject to the manufacturing tax is seven thousand five hundred dollars ($7,500).

2b.8.4.1.b.2. Example. -- XYZ Lumber Company also purchases logs from other producers of timber for five thousand dollars ($5,000). The timber products manufactured from the purchased logs is sold for fifteen thousand dollars ($15,000). The adjusted gross value of the timber products subject to the manufacturing tax is ten thousand dollars ($10,000).

2b.8.4.1.b.3. Example. -- L & M Lumber Company produces timber in Kentucky and manufactures it into lumber at its saw mill in the municipality. The lumber is sold for fifty thousand dollars ($50,000). To determine the adjusted gross value of the lumber subject to the manufacturing tax, the taxpayer must first determine the gross value of its timber at the point when production ended. Following regulations Section 2a.8.3, this amount is determined to be thirty thousand dollars ($30,000), and is allowable as a deduction from the fifty thousand dollars ($50,000) selling price of the manufactured lumber to determine the adjusted gross value of twenty thousand dollars ($20,000). Adjusted gross value must then be apportioned since manufacturing began in Kentucky and ended in the municipality.

2b.8.4.2. Transportation charges actually paid by the manufacturer. In determining the adjusted gross value of timber products manufactured in the municipality, the manufacturer may deduct from "gross value" the amount of outgoing freight charges paid by him, from the point at which the shipment originates in the municipality to the point of delivery to the customer, to the extent included in gross value. For freight charges to be deductible, they must actually be paid by the manufacturer. No deduction shall be allowed for expenses incurred by the manufacturer in transporting or delivering items manufactured to the purchaser, through the use of his own equipment, regardless of whether the equipment is owned, borrowed or leased by him.

2b.8.4.3. Bad debts. -- No deduction is allowed for bad debts because the measure of the tax is the value of the entire product manufactured, compounded or prepared for sale in the municipality.

2b.8.4.4. Cash discounts. -- Cash discounts allowed and taken may be deducted.

2b.8.4.5. Returned goods. -- The proceeds of sales which have been refunded, either in cash or by credits, upon return of the manufactured product may be deducted, if previously included in gross income.

2b.8.4.6. Trade-ins. -- The amount allowed as "trade-in value" for any article accepted as part payments for any manufactured product sold is not allowed as a deduction unless the article will be remanufactured in the municipality by the taxpayer for sale, profit or commercial use.

2b.8.4.7. Excise taxes.

2b.8.4.7.a. Excise taxes other than consumers sales and service tax imposed by this State and paid by the taxpayer may be deducted.

2b.8.4.7.b. Excise taxes imposed by the Federal government which the manufacturer is required to collect from the customer and hold in trust may be deducted. (See Section 1a.20.9).

2b.8.5. Manufactured products sold at retail. -- A manufacturer who sells products manufactured in the municipality "at wholesale" reports his adjusted gross proceeds of sale under the manufacturing classification. Gross proceeds of sale would also be reported under the wholesale classification, for sales made in the municipality if the municipal business and occupation tax ordinance so provides. A manufacturer who sells products "at retail" reports his adjusted gross proceeds of sale under the manufacturing classification, W. Va. Code '11-13-2b (1987), and gross proceeds of sale under the retail sales classification, W. Va. Code '11-13-2c (1987). The term "selling at wholesale" is defined in W. Va. Code '11-13-1 (1987) to mean and include:

2b.8.5.1. Sales of any tangible personal property for the purpose of resale in the form of tangible personal property.

2b.8.5.2. Sales of machinery, supplies or materials which are to be directly consumed or used by the purchaser in the conduct of any business or activity subject to municipal business and occupation tax.

2b.8.5.3. Sales of tangible personal property to the United States of America including its agencies and instrumentalities, or to the State of West Virginia, including its agencies, institutions and political subdivisions.

All other sales are "sales at retail."

2b.8.6. Definitions. -- As used in this regulation, the term:

2b.8.6.1. "By-product" means any additional product, other than the principal or intended product, which results from production or manufacturing activities and which has a market value, regardless of whether or not the additional product was an expected or intended result of the production or manufacturing activities.

2b.8.6.2. "Chipboard" is a timber product manufactured from small particles of waste wood.

2b.8.6.3. "Commercial use" means the use or consumption of a produced or manufactured product, including any by-product, in a business activity of the producer or manufacturer. "Commercial use" also means the use or consumption of a product in a business activity of the purchaser.

2b.8.6.4. "Fiberboard" is a timber product manufactured from forest thinings and saw mill waste.

2b.8.6.5. "Manufacturer" means a person engaged in the business of manufacturing, compounding or preparing timber or timber products for sale, profit or commercial use.

2b.8.6.6. "Manufacturer of timber products" means a person who:

2b.8.6.6.a. bucks delimbed trees into log lengths

2b.8.6.6.b. operates a sawmill for the sawing of logs into rough lumber in its various sizes and forms; or

2b.8.6.6.c. operates a cooperage mill, veneer mill, excelsior mill, paper mill, chipmill, plant or other industrial facility for the manufacture of timber or timber products into other timber or products.

2b.8.6.7. "Paper, paper products, printing and publishing industry" is defined as the manufacture of pulp from wood, rags and other fibers; the conversion of such pulp into paper, paperboard and building board; the manufacture of paper, paperboard and building board; the manufacture of paper, paperboard, and pulp into bags, boxes, containers, tags, cards, envelopes, pressed and molded pulp goods, and all other converted paper products; the printing performed on the foregoing and on allied products; the printing or publishing of newspapers, books, periodicals, maps and music; and all manufacturing and service operations performed by typesetters, advertising typographers, electrotypers, stereotypers, photoengravers, steel and copper plate engravers, commercial printers, lithographers, gravure printers, private printing plants of concerns engaged in other businesses, binderies, and news syndicates.

2b.8.6.8. "Pulpwood" is generally manufactured from timber. It can also be manufactured from other products such as cotton, flax, or paper. Only the cost of timber and timber products used to manufacture wood pulp is deductible.

2b.8.6.9. "Seasoning" means to bring the wood into condition for use by exposure in open air or in kilns.

2b.8.6.10. "Timber products" include bark, billets, bolts, chemical wood, cooperate products, crating, cross ties, excelsior, fuelwood, logs, lumber, mine ties and props, piles, poles, ports, pulpwood, shingles, switch ties, timber, wood and related materials, wood chips, wood flour, wooden furniture and fixtures, and all other products usually considered a timber product, but does not include any paper or paper product, newspaper, books, magazines or periodicals.

2b.8.6.11. "Timber products industry" is defined as those industries which manufacture products from lumber, wood and related materials; and logging and wood preserving. It does not include any product or activity in the metal, machinery, transportation equipment and allied products industry; the jewelry and miscellaneous products manufacturing industry; the construction industry; or the paper, paper products, printing or publishing industry.

2b.8.6.12. "Veneer mill" means a mill which manufactures logs into very thin sheets of wood called veneer, veneer is either used for making plywood or, if the wood has good grain and color, it is used for decorative purposes.

2b.8.6.13. "Wall panelling" may be composed of any material or combinations of materials including, but not limited to, solid wood, plywood, wood products, plastics, metals, etc., and may be textured, prefinished, partially finished, or unfinished. For example, a hardboard panel may have an imitation marble finish or a fiberboard panel may have an imitation burlap finish.

2b.8.7. Trees not wanted for their wood, "waste branches," bark and saw dust can be used to extract oils, resins, tanning dyes and different chemicals which are important to other industries. The cost to the manufacturer of the trees, "waste branches", bark and saw dust is not deductible when determining the taxable value of oils, resins, tanning dyes and different chemicals which are extracted or manufactured from them. Similarly, the cost of oils, resins, tanning dyes and different chemicals extracted or manufactured from timber is not deductible when they are used or become an ingredient or component or element of a timber or forest product.

2b.8.8. Contractors. -- A contractor who builds houses, buildings and other structures using timber products may not deduct the cost of the timber products when determining his municipal business and occupation tax liability.

W. Va. Code R. § 110-26-2b