Tax Type
Corporation Income Tax
Description
Enterprise zone credit; Valuation of leased property
Topic
Credits
Date Issued
09-22-1995
September 22, 1995
Re: Ruling Request: Corporate income taxes
Dear*************:
This will reply to your letter of July 13, 1995, in which you seek clarification of two issues relating to the corporate income tax liability of ******** (the "Taxpayer").
FACTS
The Taxpayer has requested clarification as to the order in which Virginia tax credits may be claimed. The Taxpayer has also requested guidance as to how leased assets should be valued for purposes of the enterprise zone investment tax credits provided by Code of Virginia §§ 59.1 -280.1 B and 59.1-280.1 J.
RULING
Virginia income tax credits: The department's historical policy provided for the utilization of tax credits in the order of their enactment. However, in light of the enactment of many new incentives structured as tax credits, the department finds that a more comprehensive policy with respect to credits is necessary. Accordingly, the department's formal policy with respect to tax credits is hereby revised.
Whenever a taxpayer is eligible to claim more than one Virginia income tax credit, the following ordering rules shall apply:
-
1. Two credits are structural in nature, and are considered by the department to be a reduction in tax liability, rather than a credit against the tax. Accordingly, the credit for taxes paid to other states (Code of Virginia § 58.1-332), and the telecommunications company credit (Code of Virginia § 58.1-434) must be claimed before any other credit. (Because these credits are mutually exclusive no ordering between them is necessary.)
2. After the credit for taxes paid to other states and the telecommunications company credit, taxpayers may claim any credit which does not have a statutory carryforward or refundable feature. (The enterprise zone general tax credit allowed by Code of Virginia § 59.1-280 A is an example of such a credit.) Where there are multiple credits of equal priority (i.e. two or more credits without a carryforward period or refundable feature), taxpayers may claim them in the order in which they receive the maximum benefit.
3. Next, taxpayers may claim credit carryforwards to the taxable year, in the order of those carryforwards which are scheduled to expire first. Where there are multiple credits with carryforwards of equal length (i.e. two or more credit carryforwards that both expire at the same time), taxpayers may claim them in the order in which they receive the maximum benefit.
4. Next, taxpayers may claim current year credits, based on the order of those with the shortest carryforward period first. Where there are multiple credits with carryforwards of equal priority (i.e. two or more credits with equal carryforward periods), taxpayers may claim them in the order in which they receive the maximum benefit.
5. Where a taxpayer has a refundable credit, it shall be claimed after all other credits have been applied, and the net excess of the refundable credit over such remaining tax liability shall be refunded.
6. Where a credit is calculated as, or limited to, a percentage of the tax, (such as the enterprise zone general tax credit allowed by Code of Virginia § 59.1-280 A, or the tax credit for purchase of machinery and equipment for processing recyclable materials allowed by Code of Virginia § 58.1-445.1) the "tax" for this purpose shall be the gross tax, less the structural credits allowed by Code of Virginia §§ 58.1-332 (credit for taxes paid to other states) and 58.1-434 (telecommunications company credit).
-
- 7. In no event shall this policy operate so as to allow double benefit for any credit claimed or to be claimed, in one or more taxable years.
- 7. In no event shall this policy operate so as to allow double benefit for any credit claimed or to be claimed, in one or more taxable years.
Where an asset is subject to a lease, but for federal income tax purposes the lease payments must be capitalized and depreciated (a capital lease), the asset may be eligible for the credits allowed pursuant to Code of Virginia §§ 59.1-280.1 B or 59.1-280.1 J in the hands of the lessee. Assuming the asset otherwise qualifies for the credits, the amount which is capitalized and subject to depreciation for federal tax purposes shall be the amount upon which the credit is based.
I hope the above has answered your questions. If you have any additional questions regarding this ruling, please contact******************at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10086M
Rulings of the Tax Commissioner