February 12, 2025
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This will respond to your letter in which you contest the partial disallowance of the ***** (the “Credit”) claimed by ***** (the “Taxpayer”) for the taxable year ended December 31, 2022.
FACTS
The Taxpayer timely submitted its Form RMC, Application for *****, and supporting documentation for the 2022 taxable year. Under review, the Department disallowed that portion of the Credit that was attributable to a deposit paid on equipment purchases in 2021. The Taxpayer appeals, contending that the deposit was for equipment received and put in service in the 2022 taxable year and thus should be considered a part of the dollar amount paid for equipment purchases used to determine the 2022 Credit.
DETERMINATION
During the 2015 Session, the Virginia General Assembly enacted House Bill 1554 (2015 Acts of Assembly, Chapter 49) and Senate Bill 1205 (2015 Acts of Assembly, Chapter 94), which made several changes to the Credit. These changes included increasing the amount of the Credit, imposing an annual cap, and amending certain qualification requirements. In April 2017, the Department issued its Recyclable Materials Processing Equipment Tax Credit Guidelines as Public Document (P.D.) 17-42 (4/3/2017) (the “Guidelines”).
Effective for the 2015 taxable year and thereafter, the Credit is capped at $2 million per fiscal year. If the total amount of all approved credits exceeds the $2 million credit cap for credits, each taxpayer is granted a pro rata amount of credits as determined by the Department. Prior to the 2015 taxable year, the Credit was uncapped and, therefore, the proration of approved credits was unnecessary.
The Guidelines explain that a taxpayer may claim the Credit only for the taxable year in which such taxpayer purchases qualifying machinery or equipment. If such machinery or equipment does not qualify for the Credit in the year of purchase, the taxpayer may not claim the Credit for a later taxable year when the machinery or equipment meets the Credit requirements. A taxpayer that does not qualify for the Credit in the taxable year of purchase or that fails to meet the application deadlines may neither claim the Credit for the year of purchase nor claim original or carryover credits for years following the year of purchase.
In P.D. 04-190 (10/20/2004), the Department addressed a situation where a taxpayer purchased otherwise qualifying equipment in one year, but did not produce a sufficient quantity of recycled materials for DEQ to certify the machinery and equipment as integral to the recycling process for several years. In such case, the Department provided that a taxpayer that did not qualify for the Credit in the year of purchase may later amend its tax return for the taxable year of purchase and claim the Credit, as long as the amended return is filed within the three-year statute of limitations. The Department also provided that a taxpayer that did not claim the Credit on an amended return within the three-year statute of limitations may amend its tax returns for the taxable years following the year of purchase to claim carryover credits that would have been available if the Credit had been claimed for the year of purchase as long as such returns are filed within the three-year statute of limitations. The Department issued similar guidance in P.D. 10-136 (7/12/2010) and P.D. 10-227 (9/29/2010).
This guidance was issued prior to the imposition of an annual credit cap, which requires the establishment of deadlines in order to allocate credits. Accordingly, for machinery or equipment purchased in taxable years beginning on or after January 1, 2015, the Guidelines expressly superseded the rules set forth in P.D. 04-190, P.D. 10-136, and P.D. 10-227, as applied to the Credit.
In this case, the Taxpayer based the Credit it claimed for the 2022 taxable year in part on a deposit paid in 2021. The provisions of Virginia Code § 58.1-439.7 A and the Guidelines are clear and do not provide the Department with any discretion to allow the Credit for a particular taxable year to included amounts paid in other taxable years. Accordingly, the Department properly disallowed the 2022 Credit to the extent it was attributable to the deposit paid in the 2021 taxable year.
The Code of Virginia section cited is available online at law.lis.virginia.gov. The public documents and guidelines 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 and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4723.X