Senate Bill No. 225
(By Senators Oliverio and Ross)
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[Introduced January 26, 1998; referred to the Committee
on Natural Resources; and then to the Committee on Finance.]
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A BILL to amend and reenact section two, article fifteen, chapter
eleven of the code of West Virginia, one thousand nine
hundred thirty-one, as amended, relating to providing that
the definition of "production of natural resources" for
consumers sales tax purposes includes the ventilation,
dewatering or drilling operations which are an integral part
of the natural resource severing or extracting process; and
to clarify that the term "improvement or development of real
property" does not include those tasks or operations
necessary to establish a ventilation or dewatering system.
Be it enacted by the Legislature of West Virginia:
That section two, article fifteen, chapter eleven of the
code of West Virginia, one thousand nine hundred thirty-one, as
amended, be amended and reenacted to read as follows:
ARTICLE 15. CONSUMERS SALES TAX.
§11-15-2. Definitions.
For the purpose of this article:
(a) "Business" includes all activities engaged in or caused
to be engaged in with the object of gain or economic benefit,
direct or indirect, and all activities of the state and its
political subdivisions which involve sales of tangible personal
property or the rendering of services when those service
activities compete with or may compete with the activities of
other persons.
(b) "Communication" means all telephone, radio, light, light
wave, radio telephone, telegraph and other communication or means
of communication, whether used for voice communication, computer
data transmission or other encoded symbolic information transfers
and shall include commercial broadcast radio, commercial
broadcast television and cable television.
(c) "Contracting":
(1)
In general. -- "Contracting" means and includes the
furnishing of work, or both materials and work, for another (by
a sole contractor, general contractor, prime contractor or
subcontractor) in fulfillment of a contract for the construction,
alteration, repair, decoration or improvement of a new or
existing building or structure, or any part thereof, or for removal or demolition of a building or structure, or any part
thereof, or for the alteration, improvement or development of
real property.
(2)
Form of contract not controlling. -- An activity that
falls within the scope of the definition of contracting shall
constitute contracting regardless of whether such contract
governing the activity is written or verbal and regardless of
whether it is in substance or form a lump sum contract, a cost- plus contract, a time and materials contract, whether or not
open-ended, or any other kind of construction contract.
(3)
Special rules. -- For purposes of this definition:
(A) The term "structure" includes, but is not limited to,
everything built up or composed of parts joined together in some
definite manner and attached or affixed to real property, or
which adds utility to real property or any part thereof, or which
adds utility to a particular parcel of property and is intended
to remain there for an indefinite period of time;
(B) The term "alteration" means, and is limited to,
alterations which are capital improvements to a building or
structure or to real property;
(C) The term "repair" means, and is limited to, repairs
which are capital improvements to a building or structure or to
real property;
(D) The term "decoration" means, and is limited to,
decorations which are capital improvements to a building or
structure or to real property;
(E) The term "improvement" means, and is limited to,
improvements which are capital improvements to a building or
structure or to real property;
(F) The term "capital improvement" means improvements that
are affixed to or attached to and become a part of a building or
structure or the real property or which add utility to real
property or any part thereof and that last, or are intended to be
relatively permanent. As used herein, "relatively permanent"
means lasting at least a year or longer in duration without the
necessity for regularly scheduled recurring service to maintain
such capital improvement. "Regular recurring service" means
regularly scheduled service intervals of less than one year;
(G) Contracting does not include the furnishing of work, or
both materials and work in the nature of hookup, connection,
installation or other services if such service is incidental to
the retail sale of tangible personal property from the service
provider's inventory:
Provided, That such hookup, connection or
installation of the foregoing is incidental to the sale of the
same and performed by the seller thereof or performed in
accordance with arrangements made by the seller thereof. Examples of transactions that are excluded from the definition of
contracting pursuant hereto include, but are not limited to, the
sale of wall-to-wall carpeting and the installation of wall-to- wall carpeting, the sale, hookup and connection of mobile homes,
window air conditioning units, dishwashers, clothing washing
machines or dryers, other household appliances, drapery rods,
window shades, venetian blinds, canvas awnings, free standing
industrial or commercial equipment and other similar items of
tangible personal property. Repairs made to the foregoing are
within the definition of contracting if such repairs involve
permanently affixing to or improving real property or something
attached thereto which extends the life of the real property or
something affixed thereto or allows or is intended to allow such
real property or thing permanently attached thereto to remain in
service for a year or longer.
(d) (1) "Directly used or consumed" in the activities of
manufacturing, transportation, transmission, communication or the
production of natural resources means used or consumed in those
activities or operations which constitute an integral and
essential part of such activities, as contrasted with and
distinguished from those activities or operations which are
simply incidental, convenient or remote to such activities.
(2) Uses of property or consumption of services which constitute direct use or consumption in the activities of
manufacturing, transportation, transmission, communication or the
production of natural resources includes only:
(A) In the case of tangible personal property, physical
incorporation of property into a finished product resulting from
manufacturing production or the production of natural resources;
(B) Causing a direct physical, chemical or other change upon
property undergoing manufacturing production or production of
natural resources;
(C) Transporting or storing property undergoing
transportation, communication, transmission, manufacturing
production or production of natural resources;
(D) Measuring or verifying a change in property directly
used in transportation, communication, transmission,
manufacturing production or production of natural resources;
(E) Physically controlling or directing the physical
movement or operation of property directly used in
transportation, communication, transmission, manufacturing
production or production of natural resources;
(F) Directly and physically recording the flow of property
undergoing transportation, communication, transmission,
manufacturing production or production of natural resources;
(G) Producing energy for property directly used in transportation, communication, transmission, manufacturing
production or production of natural resources;
(H) Facilitating the transmission of gas, water, steam or
electricity from the point of their diversion to property
directly used in transportation, communication, transmission,
manufacturing production or production of natural resources;
(I) Controlling or otherwise regulating atmospheric
conditions required for transportation, communication,
transmission, manufacturing production or production of natural
resources;
(J) Serving as an operating supply for property undergoing
transmission, manufacturing production or production of natural
resources, or for property directly used in transportation,
communication, transmission, manufacturing production or
production of natural resources;
(K) Maintenance or repair of property, including maintenance
equipment, directly used in transportation, communication,
transmission, manufacturing production or production of natural
resources;
(L) Storage, removal or transportation of economic waste
resulting from the activities of manufacturing, transportation,
communication, transmission or the production of natural
resources;
(M) Pollution control or environmental quality or protection
activity directly relating to the activities of manufacturing,
transportation, communication, transmission or the production of
natural resources and personnel, plant, product or community
safety or security activity directly relating to the activities
of manufacturing, transportation, communication, transmission or
the production of natural resources; or
(N) Otherwise be used as an integral and essential part of
transportation, communication, transmission, manufacturing
production or production of natural resources.
(3) Uses of property or services which would not constitute
direct use or consumption in the activities of manufacturing,
transportation, transmission, communication or the production of
natural resources include, but are not limited to:
(A) Heating and illumination of office buildings;
(B) Janitorial or general cleaning activities;
(C) Personal comfort of personnel;
(D) Production planning, scheduling of work or inventory
control;
(E) Marketing, general management, supervision, finance,
training, accounting and administration; or
(F) An activity or function incidental or convenient to
transportation, communication, transmission, manufacturing production or production of natural resources, rather than an
integral and essential part of such activities.
(e) (1) "Directly used or consumed" in the activities of gas
storage, the generation or production or sale of electric power,
the provision of a public utility service or the operation of a
utility business, means used or consumed in those activities or
operations which constitute an integral and essential part of
such activities or operation, as contrasted with and
distinguished from activities or operations which are simply
incidental, convenient or remote to such activities.
(2) Uses of property or consumption of services which
constitute direct use or consumption in the activities of gas
storage, the generation or production or sale of electric power,
the provision of a public utility service, or the operation of a
utility business include only:
(A) Tangible personal property or services, including
equipment, machinery, apparatus, supplies, fuel and power and
appliances, which are used immediately in production or
generation activities and equipment, machinery, supplies, tools
and repair parts used to keep in operation exempt production or
generation devices. For purposes of this subsection, production
or generation activities shall commence from the intake, receipt
or storage of raw materials at the production plant site;
(B) Tangible personal property or services, including
equipment, machinery, apparatus, supplies, fuel and power,
appliances, pipes, wires and mains which are used immediately in
the transmission or distribution of gas, water and electricity to
the public, and equipment, machinery, tools, repair parts and
supplies used to keep in operation exempt transmission or
distribution devices, and such vehicles and their equipment as
are specifically designed and equipped for such purposes are
exempt from the tax when used to keep a transmission or
distribution system in operation or repair. For purposes of this
subsection, transmission or distribution activities shall
commence from the close of production at a production plant or
wellhead when a product is ready for transmission or distribution
to the public and shall conclude at the point where the product
is received by the public;
(C) Tangible personal property or services, including
equipment, machinery, apparatus, supplies, fuel and power,
appliance, pipes, wires and mains, which are used immediately in
the storage of gas or water, and equipment, machinery, tools,
supplies and repair parts used to keep in operation exempt
storage devices;
(D) Tangible personal property or services used immediately
in the storage, removal or transportation of economic waste resulting from the activities of gas storage, the generation or
production or sale of electric power, the provision of a public
utility service, or the operation of a utility business;
(E) Tangible personal property or services used immediately
in pollution control or environmental quality or protection
activity or community safety or security directly relating to the
activities of gas storage, generation or production or sale of
electric power, the provision of a public utility service or the
operation of a utility business.
(3) Uses of property or services which would not constitute
direct use or consumption in the activities of gas storage,
generation or production or sale of electric power, the provision
of a public utility service or the operation of a utility
business include, but are not limited to:
(A) Heating and illumination of office buildings;
(B) Janitorial or general cleaning activities;
(C) Personal comfort of personnel;
(D) Production planning, scheduling of work or inventory
control;
(E) Marketing, general management, supervision, finance,
training, accounting and administration; or
(F) An activity or function incidental or convenient to the
activities of gas storage, generation or production or sale of electric power, the provision of public utility service or the
operation of a utility business.
(f) "Drugs" includes all sales of drugs or appliances to a
purchaser, upon prescription of a physician or dentist and any
other professional person licensed to prescribe.
(g) "Gas storage" means the injection of gas into a storage
reservoir, or the storage of gas for any period of time in a
storage reservoir, or the withdrawal of gas from a storage
reservoir, engaged in by businesses subject to the business and
occupation tax imposed by sections two and two-e, article
thirteen of this chapter.
(h) "Generating or producing or selling of electric power"
means the generation, production or sale of electric power
engaged in by businesses subject to the business and occupation
tax imposed by section two, two-d, two-m or two-n, article
thirteen of this chapter.
(i) "Gross proceeds" means the amount received in money,
credits, property or other consideration from sales and services
within this state, without deduction on account of the cost of
property sold, amounts paid for interest or discounts or other
expenses whatsoever. Losses shall not be deducted, but any
credit or refund made for goods returned may be deducted.
(j) "Management information services" means, and is limited to, data processing, data storage, data recovery and backup,
programming recovery and backup, telecommunications, computation
and computer processing, computer programming, electronic
information and data management activities, or any combination of
such activities, when such activity, or activities, is not
subject to regulation by the West Virginia public service
commission and such activity, or activities, is for the purpose
of managing, planning for, organizing or operating, any
industrial or commercial business, or any enterprise, facility or
facilities of an industrial or commercial business, whether such
industrial or commercial business or enterprise, facility or
facilities of an industrial or commercial business is located
within or without this state and without regard to whether such
industrial or commercial business, or enterprise, facility or
facilities of an industrial or commercial business is owned by
the provider of the management information services or by a
"related person", as defined in Section 267(b) of the Internal
Revenue Code of 1986, as amended.
(k) "Management information services facility" means a
building, or any part thereof, or a complex of buildings, or any
part thereof, including the machinery and equipment located
therein, that is exclusively dedicated to providing management
information services to the owner or operator thereof or to another person.
(l) "Manufacturing" means a systematic operation or
integrated series of systematic operations engaged in as a
business or segment of a business which transforms or converts
tangible personal property by physical, chemical or other means
into a different form, composition or character from that in
which it originally existed.
(m) "Personal service" includes those:
(1) Compensated by the payment of wages in the ordinary
course of employment; and
(2) Rendered to the person of an individual without, at the
same time, selling tangible personal property, such as nursing,
barbering, shoe shining, manicuring and similar services.
(n) "Persons" means any individual, partnership,
association, corporation, state or its political subdivisions or
agency of either, guardian, trustee, committee, executor or
administrator.
(o) "Production of natural resources" means, except for oil
and gas, the performance, by either the owner of the natural
resources,
a contractor, subcontractor or another, of the act or
process of exploring
or developing,
as well as all necessary acts
or processes together with associated equipment and materials to
accomplish ventilation, dewatering or drilling operations which are an integral part of the natural resource severing
or
extracting
process, as well as reducing to possession and loading
for shipment and shipment for sale, profit or commercial use of
any natural resource products and any reclamation, waste disposal
or environmental activities associated therewith. For the
natural resources oil and gas, "production of natural resources"
means the performance, by either the owner of the natural
resources, a contractor, or a subcontractor, of the act or
process of exploring, developing, drilling, well stimulation
activities such as logging, perforating or fracturing, well
completion activities such as the installation of the casing,
tubing and other machinery and equipment, and any reclamation,
waste disposal or environmental activities associated therewith,
including the installation of the gathering system or other
pipeline to transport the oil and gas produced or environmental
activities associated therewith and any service work performed on
the well or well site after production of the well has initially
commenced.
For the natural resources oil, gas and coal, all work
performed to install or maintain facilities up to the point of
sale for severance tax purposes would be included in the
"production of natural resources" and subject to the direct use
concept. "Production of natural resources" does not include the
performance or furnishing of work, or materials or work, in fulfillment of a contract for the construction, alteration,
repair, decoration or improvement of a new or existing building
or structure, or any part thereof, or for the alteration,
improvement or development of real property, by persons other
than those otherwise directly engaged in the activities
specifically set forth in this subsection as "production of
natural resources".
The term "improvement or development of real
property" does not include those tasks or operations necessary to
establish a ventilation or dewatering system.
(p) "Providing a public service or the operating of a
utility business" means the providing of a public service or the
operating of a utility by businesses subject to the business and
occupation tax imposed by sections two and two-d, article
thirteen of this chapter.
(q) "Purchaser" means a person who purchases tangible
personal property or a service taxed by this article.
(r) "Sale", "sales" or "selling" includes any transfer of
the possession or ownership of tangible personal property for a
consideration, including a lease or rental, when the transfer or
delivery is made in the ordinary course of the transferor's
business and is made to the transferee or his agent for
consumption or use or any other purpose.
(s) "Service" or "selected service" includes all nonprofessional activities engaged in for other persons for a
consideration, which involve the rendering of a service as
distinguished from the sale of tangible personal property, but
shall not include contracting, personal services or the services
rendered by an employee to his employer or any service rendered
for resale.
(t) "Tax" includes all taxes, interest and penalties levied
hereunder.
(u) "Tax commissioner" means the state tax commissioner.
(v) "Taxpayer" means any person liable for the tax imposed
by this article.
(w) "Transmission" means the act or process of causing
liquid, natural gas or electricity to pass or be conveyed from
one place or geographical location to another place or
geographical location through a pipeline or other medium for
commercial purposes.
(x) "Transportation" means the act or process of conveying,
as a commercial enterprise, passengers or goods from one place or
geographical location to another place or geographical location.
(y) "Ultimate consumer" or "consumer" means a person who
uses or consumes services or personal property.
(z) "Vendor" means any person engaged in this state in
furnishing services taxed by this article or making sales of tangible personal property.
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(NOTE: The purpose of this bill is to provide that the
definition of "production of natural resources" for consumers
sales tax purposes incudes the ventilation, dewatering or
drilling operations which are an integral part of the natural
resource severing or extracting process.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.)
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NATURAL RESOURCES COMMITTEE AMENDMENTS
On pages__, __ and __, section two, by striking out all of
subdivision (o) and inserting in lieu thereof a new subdivision
(o), to read as follows:
(o) "Production of natural resources" means, except for oil
and gas, the performance, by either the owner of the natural
resources or another, of the act or process of exploring,
developing, severing, extracting, reducing to possession and
loading for shipment and shipment for sale, profit or commercial
use of any natural resource products and any reclamation, waste
disposal or environmental activities associated therewith
and the
construction, installation or fabrication of ventilation
structures, mine shafts, slopes, boreholes, dewatering
structures, including associated facilities and apparatus, by the
producer or others, including contractors and subcontractors, at
a coal mine or coal production facility. For the natural resources oil and gas, "production of natural resources" means
the performance, by either the owner of the natural resources, a
contractor, or a subcontractor, of the act or process of
exploring, developing, drilling, well stimulation activities such
as logging, perforating or fracturing, well completion activities
such as the installation of the casing, tubing and other
machinery and equipment, and any reclamation, waste disposal or
environmental activities associated therewith, including the
installation of the gathering system or other pipeline to
transport the oil and gas produced or environmental activities
associated therewith and any service work performed on the well
or well site after production of the well has initially
commenced. All work performed to install or maintain facilities
up to the point of sale for severance tax purposes would be
included in the "production of natural resources" and subject to
the direct use concept. "Production of natural resources" does
not include the performance or furnishing of work, or materials
or work, in fulfillment of a contract for the construction,
alteration, repair, decoration or improvement of a new or
existing building or structure, or any part thereof, or for the
alteration, improvement or development of real property, by
persons other than those otherwise directly engaged in the
activities specifically set forth in this subsection as "production of natural resources".
And,
On page one, by striking out the title and substituting
therefor a new title, to read as follows:
Eng. Senate Bill No. 225--A Bill to amend and reenact
section two, article fifteen, chapter eleven of the code of West
Virginia, one thousand nine hundred thirty-one, as amended,
relating to consumers sales tax; definitions; production of
natural resources; and including construction of ventilation and
dewatering structures within definition of production of natural
resources.