H. B. 2267
(By Mr. Speaker, Mr. Chambers, and Delegates Ashley,
Staton, Kiss, Browning, Wallace and Ryan)
[Introduced January 27, 1995; referred to the
Committee on Finance.]
A BILL to amend and reenact sections two, two-d, two-m and two-n,
article thirteen, chapter eleven of the code of West
Virginia, one thousand nine hundred thirty-one, as amended;
and to further amend said article by adding thereto a new
section, designated section two-o, all relating to changing
the business and occupation tax on the business of
generating or producing electricity on and after the first
day of June, one thousand nine hundred ninety-five, by
replacing the kilowatt hour generating tax with a capacity
utilization tax; providing legislative findings and
definitions of terms; establishing rate of tax imposed upon taxable generating capacity of each generating unit;
providing for the taxation of electricity not generated or
produced in this state but sold in this state; providing
rules relating to retirement of units, transfer of units,
placing units in inactive reserve, new units and peaking
units; requiring rules pertaining to proration and
allocation issues; confirming related provisions in business
and occupation tax and industrial expansion and
revitalization credit; and providing effective date.
Be it enacted by the Legislature of West Virginia:
That sections two, two-d, two-m and two-n, article thirteen,
chapter eleven of the code of West Virginia, one thousand nine
hundred thirty-one, as amended, be amended and reenacted; and
that said article be further amended by adding thereto a new
section, designated section two-o, all to read as follows:
ARTICLE 13. BUSINESS AND OCCUPATION TAX.
§11-13-2. Imposition of privilege tax.
(a)
Periods before July 1, 1987. -- For taxable years or
months thereof ending prior to the first day of July, one
thousand nine hundred eighty-seven, there is hereby levied and
shall be collected annual privilege taxes against the persons, on account of the business and other activities, and in the amounts
to be determined by the application of rates against values or
gross income as set forth in sections two-a to two-m, both
inclusive, of this article and the application of the surtax rate
against gross income as set forth in section two-k:
Provided,
That on the first day of July, one thousand nine hundred
eighty-five, the taxes imposed by this section, at the rates set
forth in sections two-b through two-m, both inclusive, of this
article, and in effect on the first day of January, one thousand
nine hundred eighty-five, exclusive of any surtaxes, shall be
reduced by five percent for taxable months beginning on and after
said first day of July:
Provided, however, That on and after the
first day of July, one thousand nine hundred eighty-five, the
rate of tax under section two-b of this article shall not be less
than eight tenths of one percent:
Provided further, That there
shall be no such reduction of the rates set forth in section
two-a or two-l of this article.
(b)
Periods after June 30, 1987. -- For taxable years or
months beginning after the thirtieth day of June, one thousand
nine hundred eighty-seven, there is hereby levied and shall be collected annual privilege taxes against the persons, on account
of the business and other activities, and in the amount to be
determined by the application of rates against values or gross
income as set forth in sections two-d and two-m of this article:
Provided, That on and after the first day of July, one thousand
nine hundred eighty-seven, the rates applicable to the privileges
exercised in sections two-d and two-m of this article shall be
restored and returned to those which were in effect as to such
privileges on the first day of January, one thousand nine hundred
eighty-five:
Provided, however, That for taxable months or
taxable years beginning after the twenty-eighth day of February,
one thousand nine hundred eighty-nine, there is hereby levied and
shall be collected annual privilege taxes against the persons, on
account of the business and other activities, and in the amount
to be determined by the application of rates against the measure
of the tax as set forth in sections two-d, two-e, two-m and two-n
of this article:
Provided further, That for taxable months or
taxable years beginning after the thirty-first day of May, one
thousand nine hundred ninety-five, there is hereby levied and
shall be collected annual privilege taxes against the persons, on account of the business and other activities, and in the amount
to be determined by the application of rates against the measure
of the tax as set forth in sections two-d, two-e, two-m, two-n
and two-o of this article.
(c) If any person liable for any tax under section two-m
shall ship or transport his products or any part thereof out of
the state without making sale of such products, the value of the
products in the condition or form in which they exist immediately
before transportation out of the state shall be the basis for the
assessment of the tax imposed in such section, except in those
instances in which another measure of the tax is expressly
provided. The tax commissioner shall prescribe equitable and
uniform rules for ascertaining such value.
(d) In determining value, however, as regards sales from one
to another of affiliated companies or persons, or under other
circumstances where the relation between the buyer and seller is
such that the gross proceeds from the sale are not indicative of
the true value of the subject matter of the sale, the tax
commissioner shall prescribe uniform and equitable rules for
determining the value upon which such privilege tax shall be levied, corresponding as nearly as possible to the gross proceeds
from the sale of similar products of like quality or character
where no common interest exists between the buyer and seller but
the circumstances and conditions are otherwise similar.
§11-13-2d. Public service or utility business.
(a) Upon any person engaging or continuing within this state
in any public service or utility business, except railroad,
railroad car, express, pipeline, telephone and telegraph
companies, water carriers by steamboat or steamship and motor
carriers, the tax imposed by section two of this article shall
be equal to the gross income of the business derived from such
activity or activities multiplied by the respective rates as
follows:
(1) Street and interurban and electric railways, one and
four-tenths percent;
(2) Water companies, four and four-tenths percent, except as
to income received by municipally owned water plants;
(3) Electric light and power companies, four percent on
sales and demand charges for domestic purposes and commercial
lighting and four percent on sales and demand charges for all other purposes, and except as to income received by municipally
owned plants producing or purchasing electricity and distributing
same:
Provided, That electric light and power companies which
engage in the supplying of public service but which do not
generate or produce in this state the electric power they supply
shall be taxed on the gross income derived from sales of power
which they do not generate in this state at the rate of three
percent on sales and demand charges for domestic purposes and
commercial lighting and three percent on sales and demand charges
for all other purposes, except as to income received by
municipally owned plants:
Provided, however, That the sale of
electric power under this section shall be taxed at the rate of
two percent on that portion of the gross proceeds derived from
the sale of electric power to a plant location of a customer
engaged in a manufacturing activity, if the contract demand at
such plant location exceeds two hundred thousand kilowatts per
hour per year, or if the usage of such plant location exceeds two
hundred thousand kilowatts per hour in a year:
Provided further,
That the sale of electric power under this section shall be
exempt from the tax imposed by this section and section two of this article if it is separately metered and consumed in an
electrolytic process for the manufacture of chlorine in this
state, or is separately metered and consumed in the manufacture
of ferroalloy in this state, and the rate reduction herein
provided to the taxpayer shall be passed on to the manufacturer
of the chlorine or ferroalloy. As used in this section, the term
"ferroalloy" means any of various alloys of iron and one or more
other elements used as a raw material in the production of steel:
And provided further, That the term does not include the final
production of steel;
(4) Natural gas companies, four and twenty-nine hundredths
percent on the gross income:
Provided, That the sale of natural
gas under this section shall be exempt from the tax imposed by
this section and section two of this article to the extent that
the natural gas is separately metered and is gas from which the
purchaser derives hydrogen and carbon monoxide for use in the
manufacture of chemicals in this state, and the full economic
benefit of the exception herein provided to the taxpayer shall
be passed on to such purchaser of the natural gas:
Provided,
however, That there shall be no exemption for the sale of any natural gas from which the purchaser derives carbon monoxide or
hydrogen for the purpose of resale;
(5) Toll bridge companies, four and twenty-nine hundredths
percent; and
(6) Upon all other public service or utility business, two
and eighty-six hundredths percent.
(b) The measure of this tax shall not include gross income
derived from commerce between this state and other states of the
United States or between this state and foreign countries. The
measure of the tax under this section shall include only gross
income received from the supplying of public service. The gross
income of the taxpayer from any other activity shall be included
in the measure of the tax imposed upon such other activity by the
appropriate section or sections of this article.
(c) Beginning the first day of March, one thousand nine
hundred eighty-nine, electric light and power companies shall
determine their liability for payment of tax under this section
and sections two-m and two-n of this article. If for taxable
months beginning on or after the first day of March, one thousand
nine hundred eighty-nine, liability for tax under section two-n of this article is equal to or greater than the sum of the power
company's liability for payment of tax under
paragraph
subdivision (3), subsection (a) of this section and section two-m
of this article, then the company shall pay the tax due under
section two-n of this article and not the tax due under
paragraph
subdivision (3), subsection (a) of this section and section two-m
of this article. If tax liability under section two-n is less,
then tax shall be paid under
paragraph subdivision (3),
subsection (a) of this section and section two-m of this article
and the tax due under section two-n shall not be paid. The
provisions of
paragraph subdivision (3), subsection (a) of this
section shall expire and become null and void for taxable years
beginning on or after the first day of January, one thousand nine
hundred ninety-eight.
(d) Notwithstanding subsection (c) of this section,
beginning the first day of June, one thousand nine hundred
ninety-five and thereafter, electric light and power companies
shall determine their liability for payment of tax under this
article exclusively under section two-o of this article.
§11-13-2m. Business of generating or producing electric power;
exception; rates.
(a) Upon every person engaging or continuing within this
state in the business of generating or producing electric power
for sale, profit or commercial use, either directly or through
the activity of others, in whole or in part, when the sale
thereof is not subject to tax under section two-d of this
article, the amount of the tax to be equal to the value of the
electric power, as shown by the gross proceeds derived from the
sale thereof by the generator or producer of the same multiplied
by a rate of four percent, except that the rate shall be two
percent on that portion of the gross proceeds derived from the
sale of electric power to a plant location of a customer engaged
in a manufacturing activity, if the contract demand at such plant
location exceeds two hundred thousand kilowatts per hour per
year, or if the usage at such plant location exceeds two hundred
thousand kilowatts per hour in a year.
(b) The measure of this tax shall be the value of all
electric power generated or produced in this state for sale,
profit or commercial use, regardless of the place of sale or the
fact that transmission may be to points outside this state:
Provided, That the gross income received by municipally owned
plants generating or producing electricity shall not be subject
to tax under this article.
(c) Beginning the first day of March, one thousand nine
hundred eighty-nine, every person taxable under this section
shall determine their liability for payment of tax under this
section and under
paragraph subdivision (3), subsection (a),
section two-d of this article and section two-n of this article.
If for taxable months beginning on or after the first day of
March, one thousand nine hundred eighty-nine such person's
liability for payment of tax under this section and
paragraph
subdivision (3), subsection (a), section two-d of this article is
less than the amount of such person's liability for payment of
tax under section two-n of this article, then such person shall
pay the tax due under section two-n and not the sum of the amount
of tax due under this section and under
paragraph subdivision
(3), subsection (a), section two-d of this article. If the tax
due under section two-n of this article is less, then the amount
of tax due under this section and
paragraph subdivision (3),
subsection (a), section two-d of this article shall be paid. The provisions of this section shall expire and become null and void
for taxable years beginning on or after the first day of January,
one thousand nine hundred ninety-eight.
(d) Beginning the first day of June, one thousand nine
hundred ninety-five and thereafter, electric light and power
companies shall determine their tax liability under section two-o
of this article and not this section. Notwithstanding the
preceding sentence or any other provision in this chapter to the
contrary, an electric light and power company that generates and
produces power in this state shall continue to be deemed to be an
"industrial taxpayer" for purposes of subdivision (8), subsection
(b), section two, article thirteen-d of this chapter.
§11-13-2n. Business of generating or producing or selling
electric power; exemptions; rates.
(a)
Rate of tax. -- Upon every person engaging or
continuing within this state in the business of generating or
producing electricity for sale, profit or commercial use, either
directly or indirectly through the activity of others, in whole
or in part, or in the business of selling electricity to
consumers, or in both businesses, the tax imposed by section two of this article shall be equal to:
(1) Twenty-six hundredths of one cent times the kilowatt
hours of net generation available for sale that was generated or
produced in this state by the taxpayer during the taxable year,
except that this rate shall be five hundredths of one cent times
the kilowatt hours of net generation available for sale that was
generated or produced in this state by the taxpayer and sold to
a plant location of a customer engaged in manufacturing activity
if the contract demand at such plant location exceeds two hundred
thousand kilowatts per hour per year or if the usage at such
plant location exceeds two hundred thousand kilowatts per hour in
a year:
Provided, That in order to encourage the development of
industry to improve the environment of this state, the tax
imposed by this section on any person generating or producing
electric power and an alternative form of energy at a facility
located within this state substantially from gob or other mine
refuse shall be equal to five hundredths of one cent times the
kilowatt hours of net generation or production available for
sale. The measure of tax under this paragraph shall be equal to
the total kilowatt hours of net generation available for sale that was generated or produced in this state by the taxpayer
during the taxable year, regardless of the place of sale or use,
or the fact that transmission may be made to points outside this
state.
(2) Nineteen hundredths of one cent times the kilowatt hours
of electricity sold to consumers in this state that were not
generated or produced in this state by the taxpayer, except that
the rate shall be five hundredths of one cent times the kilowatt
hours of electricity not generated or produced in this state by
the taxpayer which is sold to a plant location in this state of
a customer engaged in manufacturing activity if the contract
demand at such plant location exceeds two hundred thousand
kilowatts per hour per year or if the usage at such plant
location exceeds two hundred thousand kilowatts per hour in a
year. The measure of tax under this paragraph shall be equal to
the total kilowatt hours of electricity sold to consumers in this
state during the taxable year, that were not generated or
produced in this state by the taxpayer, to be determined by
subtracting from the total kilowatt hours of electricity sold to
consumers in the state the net kilowatt hours of electricity generated or produced in the state by the taxpayer during the
taxable year.
The West Virginia public service commission shall, upon
application of a public utility, allow an immediate pass-through
to the utility's customers in this state in the form of a rate
surcharge the increase enacted by the Legislature during its
third extraordinary session, one thousand nine hundred ninety,
in the tax imposed by this article upon electricity generated or
produced in this state and sold to consumers in this state and
upon electricity not generated or produced in this state that is
sold to consumers in this state.
(b)
Exemptions. -- The provisions of this section shall
not apply to:
(1) Kilowatt hours of electricity generated and sold, or
purchased and resold, by a municipally owned plant.
(2) Kilowatt hours of electric power that are separately
metered and consumed in an electrolytic process for the
manufacture of chlorine.
(3) Kilowatt hours of electric power that are separately
metered and consumed in the manufacture of ferroalloy. As used in this paragraph, the term "ferroalloy" means any of the various
alloys of iron and one or more other elements used as a raw
material in the production of steel but shall not include
electric power used in the production of steel.
(4) The full economic benefits provided to the taxpayer by
paragraphs subdivisions (2) and (3) of this subsection shall be
passed on to the manufacturer of the chlorine or ferroalloy.
(c)
Credit. -- Any person taxable under
paragraph
subdivision (2), subsection (a) of this section shall be allowed
a credit against the amount of tax due under that paragraph for
any electric power generation taxes paid by the taxpayer with
respect to such electric power to the state in which such power
was generated or produced. The amount of credit allowed shall
not exceed the tax liability arising under
paragraph subdivision
(2), subsection (a) of this section with respect to the sale of
such power.
(d)
Transition rule. -- Beginning the first day of March,
one thousand nine hundred eighty-nine, electric light and power
companies shall determine their liability for payment of tax
under this section and sections two-d and two-m of this article. If for taxable months beginning on or after the first day of
March, one thousand nine hundred eighty-nine, liability for tax
under section two-n of this article is equal to or greater than
the sum of the power company's liability for payment of tax under
paragraph subdivision (3), subsection (a), section two-d and
section two-m of this article, then the company shall pay the tax
due under section two-n of this article and not the tax due under
paragraph subdivision (3), subsection (a) of section two-d and
section two-m of this article. If tax liability under section
two-n is less, then tax shall be paid under paragraph (3),
subsection (a), section two-d and section two-m of this article
and the tax due under section two-n shall not be paid. The
provisions of this subsection (d) shall expire and become null
and void for taxable years beginning on or after the first day of
January, one thousand nine hundred ninety-eight.
(e)
Effective date. -- The amendments to this section made
in the year one thousand nine hundred ninety shall take effect on
the first day of October, one thousand nine hundred ninety:
Provided, That as to calendar months ending before such date, the
tax rates specified in this section, as then in effect shall be fully and completely preserved.
(f) Beginning the first day of June, one thousand nine
hundred ninety-five and thereafter, electric light and power
companies shall determine their tax liability under section two-o
of this article and not this section.
§11-13-2o. Business of generating or producing or selling
electricity on and after the first day of June,
one thousand nine hundred ninety-five;
definitions; rate of tax; exemptions; legislative
findings; effective date.
(a)
Findings. -- The Legislature finds that the generation or
production of electricity is an essential contributor to the
economy of the state and should be encouraged. It further finds
that the structure for taxing the generation or production of
electricity prior to the enactment of this section has adversely
impacted the competitiveness of such generation or production and
such adverse impacts would have been exacerbated by increasingly
competitive electricity markets. The Legislature declares that
the purpose of enacting this section is to enhance stability of
state tax revenues and the competitiveness of the state's
electricity generation or production in the marketplace.
(b)
Definitions. -- As used in this section:
(1) "Average three-year generation" is computed by dividing
by three the sum of a generating unit's net generation, expressed
in kilowatt hours, for calendar years one thousand nine hundred
ninety-one, one thousand nine hundred ninety-two and one thousand
nine hundred ninety-three.
(2) "Capacity factor" means a fraction, the numerator of
which is average three-year generation and the denominator of
which is the maximum possible annual generation.
(3) "Generating unit" means a mechanical apparatus or
structure which through the operation of its component parts is
capable of generating or producing electricity and is regularly
used for this purpose.
(4) "Maximum possible annual generation" means the product,
expressed in kilowatt hours, of official capability times eight
thousand seven hundred sixty hours.
(5) "Official capability" means the nameplate capacity rating
of a generating unit expressed in kilowatts.
(6) "Peaking unit" means a generating unit designed for the
limited purpose of meeting peak demands for electricity or filling emergency electricity requirements.
(7) "Taxable generating capacity" means the product,
expressed in kilowatts, of the capacity factor times the official
capability of a generating unit, subject to the modifications set
forth in subdivisions (2) and (3), subsection (d) of this
section.
(8) "Net generation" for a period means the kilowatt hours of
net generation available for sale generated or produced by the
generating unit in this state during such period less the
following:
(A) Twenty-one twenty-sixths of the kilowatt hours of
electricity generated at the generating unit and sold during such
period to a plant location of a customer engaged in manufacturing
activity if the contract demand at such plant location exceeds
two hundred thousand kilowatts per hour in a year or where the
usage at such plant location exceeds two hundred thousand
kilowatts per hour in a year;
(B) Twenty-one twenty-sixths of the kilowatt hours of
electricity produced or generated at the generating unit during
such period by any person producing electric power and an alternative form of energy at a facility located in this state
substantially from gob or other mine refuse;
(C) The total kilowatt hours of electricity generated at the
generating unit exempted from tax during such period by
subsection (b), section two-n of this article.
(c)
Rate of tax. -- Upon every person engaging or continuing
within this state in the business of generating or producing
electricity for sale, profit or commercial use, either directly
or indirectly through the activity of others, in whole or in
part, or in the business of selling electricity to consumers, or
in both businesses, the tax imposed by section two of this
article shall be equal to:
(1) For taxpayers who generate or produce electricity for
sale, profit or commercial use, the product of twenty-two dollars
and seventy-eight cents multiplied by the taxable generating
capacity of each generating unit in this state owned or leased by
the taxpayer, subject to the modifications set forth in
subsection (d) of this section; and
(2) For taxpayers who sell electricity to consumers in this
state that is not generated or produced in this state by the taxpayer, nineteen hundredths of one cent times the kilowatt
hours of electricity sold to consumers in this state that were
not generated or produced in this state by the taxpayer, except
that the rate shall be five hundredths of one cent times the
kilowatt hours of electricity not generated or produced in this
state by the taxpayer which is sold to a plant location in this
state of a customer engaged in manufacturing activity if the
contract demand at such plant location exceeds two hundred
thousand kilowatts per hour per year or if the usage at such
plant location exceeds two hundred thousand kilowatts per hour in
a year. The measure of tax under this subdivision (2) shall be
equal to the total kilowatt hours of electricity sold to
consumers in the state during the taxable year, that were not
generated or produced in this state by the taxpayer, to be
determined by subtracting from the total kilowatt hours of
electricity sold to consumers in the state the net kilowatt hours
of electricity generated or produced in the state by the taxpayer
during the taxable year. The provisions of this subdivision (2)
shall not apply to those kilowatt hours exempt under subsection
(b), section two-n of this article. Any person taxable under this subdivision (2) shall be allowed a credit against the amount
of tax due under this subdivision (2) for any electric power
generation taxes or a tax similar to the tax imposed by
subdivision (1) of this subsection (c) paid by the taxpayer with
respect to such electric power to the state in which such power
was generated or produced. The amount of credit allowed shall
not exceed the tax liability arising under this subdivision (2)
with respect to the sale of such power.
(d) The following provisions are applicable to taxpayers
subject to tax under subdivision (1), subsection (c) of this
section:
(1)
Retired units; inactive reserve. -- If a generating unit
is retired from service or placed in inactive reserve, a taxpayer
shall not for periods thereafter be liable for tax computed with
respect to the taxable generating capacity of such unit.
(2)
New generating units. -- If a new generating unit, other
than a peaking unit, is placed in initial service on or after the
effective date of this section, the generating unit's taxable
generating capacity shall equal forty percent of the official
capability of the unit.
(3)
Peaking units. -- If a peaking unit is placed in initial
service on or after the effective date of this section, the
generating unit's taxable generating capacity shall equal five
percent of the official capability of the unit.
(4)
Transfers of interests in generating units. -- If a
taxpayer acquires an interest in a generating unit, the taxpayer
shall include the computation of taxable generating capacity of
said unit in the determination of the taxpayer's tax liability as
of the date of the acquisition. Conversely, if a taxpayer
transfers an interest in a generating unit, the taxpayer shall
not for periods thereafter be liable for tax computed with
respect to the taxable generating capacity of such transferred
unit.
(5)
Proration, allocation. -- The tax commissioner shall
promulgate rules in conformity with the provisions of article
three, chapter twenty-nine-a of this code to provide for the
administration of this section and to equitably prorate taxes for
a taxable year in which a generating unit is first placed in
service, retired or placed in inactive reserve, or in which a
taxpayer acquires or transfers an interest in a generating unit, to equitably allocate and reallocate adjustments to net
generation, and to equitably allocate taxes among multiple
taxpayers with interests in a single generating unit, it being
the intent of the Legislature to prohibit multiple taxation of
the same taxable generating capacity.
So as to provide for an orderly transition with respect to
the rate making effect of this section, those electric light and
power companies which, as of the effective date of this section,
are permitted by the West Virginia public service commission to
utilize deferred accounting for purposes of recovery from
ratepayers of any portion of business and occupation tax expense
under this article shall be permitted, until such time that
action pursuant to a rate application or order of the commission
provides for appropriate alternative rate making treatment for
such expense, to recover the tax expense imposed by this section
by means of deferred accounting to the extent that the tax
expense imposed by this section exceeds the level of business and
occupation tax under this article currently allowed in rates.
(e)
Effective date. -- This section shall be applicable for
taxable months or taxable years beginning after the thirty-first day of May, one thousand nine hundred ninety-five.
NOTE: The purpose of this bill is to replace the current
§11-13-2n kilowatt hour tax on the generation of electricity with
a tax on the taxable capacity of each generating unit in the
state. For generating units in operation as of the effective
date (June 1, 1995), taxable capacity is determined by utilizing
the average net generating for 1991, 1992 and 1993. A generally
lower taxable capacity is established for new base load and
peaking units placed in service on or after June 1, 1995, to
encourage the construction of new generating units in West
Virginia. The bill retains current provisions for taxpayers that
do not generate electricity in the state but who sell electricity
in the state. The bill contains provisions dealing with
generating units that are retired or placed in inactive reserve,
transfers of interests in units and directs that legislative
rules be promulgated.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that
would be added.
§11-13-2o is new; therefore, strike-throughs and underscoring
have been omitted.
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