August 5, 2024
Re: § 58.1-1821 Application: Corporate Income Tax
Dear ***** :
This will reply to your letter submitted on behalf of ***** (the “Taxpayer”), in which you appeal the denial of its application for the Major Research and Development Expenses Tax Credit (the “Credit”) for the 2021 taxable year.
FACTS
The Taxpayer filed a Form MRD, Application for Major Research and Development Expenses Tax Credit, that did not include the names and social security numbers of the employees for which the Taxpayer claimed wage expenses. The Department attempted to contact the Taxpayer by letter, facsimile, and phone. When the information was not provided by the published deadline, November 15, 2022, the application was denied.
The Taxpayer provided the requested information in February 2023. The Department again denied the application because the requested information was not provided within the time permitted. The Taxpayer filed an application for correction, contending that it did not receive notification of the missing information.
DETERMINATION
Pursuant to Virginia Code § 58.1-439.12:11, an individual, corporation, or pass-through entity may apply for the Credit. Applications for the Credit must be received by the Department no later than September 1 of the calendar year following the close of the taxable year in which the expenses were paid or incurred in accordance with published guidelines. The Major Research and Development Expenses Tax Credit Guidelines, as updated and re-issued as Public Document (P.D.) 20-126 (7/14/2020), provide:
An eligible taxpayer must submit an Application for the Major Research and Development Expenses Tax Credit, Form MRD, and any supporting documentation to the Department in the year following the credit year. Effective beginning with applications due in 2020, the application deadline is September 1. The Department will review all applications for completeness and notify taxpayers of any errors by November 1. If any additional information is required, it must be provided to the Department no later than November 15 to be considered for the credit. All eligible taxpayers will then be notified as to the amount of credits that they may claim.
The Form MRD instructions provide further guidance to taxpayers. For taxpayers claiming the Credit on the basis of qualified wages, a completed Schedule RD-WAGE (qualified wages) must be included. The Form MRD enclosure checklist also states what needs to be provided with the Schedule RD-WAGE, specifically employees’ full names, social security numbers, and salaries allocated to Virginia qualified research and development activities. The checklist specifically states that “[t]he Department will be unable to process the application until all of the required enclosures have been submitted.” In addition, both the checklist and the Schedule RD-WAGE instructions clearly state that wages reported without social security numbers may not qualify for the Credit.
The Taxpayer contends that it never received the letter nor the phone calls. It requests that the Credit be issued because the Department failed to provide notification of the errors. Further, it asserts that it was delayed in providing the information because its tax department was busy as a result of year-end filing requirements.
The Department grants two and a half months to perfect a Credit application and will notify taxpayers within that time period if additional information is required. Regardless of whether the Department’s request is received, a taxpayer claiming the Credit is still responsible for completing its application before November 15. The Taxpayer in this case failed to satisfy the requirements of the application process.
Further, because the Credit is subject to an annual cap, the Department must have a deadline for tax credit applications. Adopting a policy of approving incomplete applications for the Credit could result in the amount of tax credit exceeding the tax credit cap for a particular year. The policy of establishing a hard deadline for capped tax credits has been applied to all capped tax credits that are administered by the Department. See P.D. 04-201 (11/4/2004), P.D. 13-189 (10/18/2013), P.D. 15-201 (10/19/2015), and P.D. 20-193 (11/24/2020). Accordingly, the Department cannot accept an application for the Credit when all the required documentation was not provided within the prescribed deadline.
The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4549.B