Tax Type
Corporation Income Tax
Description
Major business facility job tax credit; Qualifications for credit
Topic
Credits
Date Issued
03-11-1996
March 11, 1996
Re: Ruling Request; Major Business Facility Job Tax Credit
Dear****************
This is in reply to your request for guidance with respect to the Major Business Facility Job Tax Credit (the "Credit").
FACTS
The facts are basically the same as those enumerated in Public Document (P.D.) 95-289, copy attached. A taxpayer created new, permanent full-time positions for qualified full-time employees in connection with the establishment of a new manufacturing facility in Virginia. The initial facility was constructed and finished over a period of several years, and employees were hired for the manufacturing process as the facility was completed. There was a period of time between the date upon which the first facility was physically completed, and when product was ready for sale. This period of time was necessary in order to perfect the product and manufacturing process for ultimate sale.
In P. D. 95-289, the department explained how the above fact pattern would be treated for purposes of the Credit. However, you now request guidance where the same taxpayer, some time after the commencement of manufacturing at the first facility, constructs a second manufacturing facility in Virginia. The second facility will be an independent free-standing structure, and will not be considered a physical expansion of an existing facility. Once again, employees will be hired as the second facility is completed, and there will be a delay between the time at which the second facility is completed, and when the product produced at the second facility is ready for sale. You ask when the taxpayer would claim the Credit, and which jobs related to the second facility would be deemed to qualify for the Credit.
RULING
Code of Virginia § 58.1-439 provides, in relevant part:
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- C. A "qualified company" is a company that satisfies the following criteria:
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- 1. [the] company has established or expanded a major business facility in this Commonwealth...;
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- 2. [the] establishment or expansion of the major business facility shall result in the creation of at least 100 jobs for qualified full-time employees..."; and
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- 3. The company is primarily engaged in the Commonwealth in the business of (i) manufacturing or mining; ... In addition, the following activities, whether operated as a separate trade or business, or as a separate support operation of another business, shall satisfy the requirements of this subdivision regardless of what industry the taxpayer is engaged in: (i) central administrative offices and warehouses; (ii) research, development and testing laboratories; (iii) computer-programming, data-processing and other computer-related services facilities; and (iv) financial, insurance, and real estate services.
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- D. For purposes of this section, the "credit year" is the first taxable year following the taxable year in which the major business facility commenced or expanded operations.
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- E. "Major business facility" includes, but is not limited to, a headquarters, or portion of such a facility, where company staff employees are physically employed, and where the majority of the company's financial, personnel, legal, or planning functions are handled either on a regional or national basis. A major business facility shall also include facilities that perform a central management or administrative function for other establishments of the same enterprise such as general management, accounting, computing, tabulating, data processing, purchasing, transportation or shipping, engineering and systems planning, advertising, legal, financial, and research and development if it otherwise meets the staffing requirements. An enterprise engaged in the Commonwealth in the business of (i) manufacturing or mining;... shall be deemed to have established or expanded a major business facility in this Commonwealth if it meets the requirements of subdivision C 2 during a single taxable year. (Emphasis added.)
As provided by the Code of Virginia, any company, regardless of industry, may qualify for the Credit if it adds jobs in connection with the establishment or expansion of a major business facility. In addition, any company primarily engaged in a qualified industry in Virginia may qualify for the Credit if it satisfies the prescribed employment criteria.
Companies primarily engaged in a qualified industry are not required to establish or expand a major business facility; rather, they are deemed to have established a major business facility if they create at least 100 new jobs for qualified full-time employees (engaged in such qualified industry) within a continuous twelve-month period ending within their taxable year.
In order to qualify for the Credit with respect to the second facility, the taxpayer must hire additional qualified full-time employees, who are in fact employed in a qualified industry. Prior to establishing the facility, the taxpayer was engaged in manufacturing. However, the fact that a taxpayer is engaged in a qualified industry (manufacturing) does not mean that every job it creates will qualify for the Credit. Rather, the nature of the new jobs must be determined.
There are several events which could occur between the start of construction of the second manufacturing facility, and the ultimate sale of product, at which time the employees hired with respect to the second facility could fairly be considered to be engaged in the manufacturing process. Such events may include the beginning of operation of a manufacturing line, the production of product (whether or not ready for sale), the employment of a significant percentage of employees for the manufacturing process, or other reasonable indicators that the manufacturing process has begun at the second facility. As in P. D. 95-289, this determination would be made by the taxpayer.
After applying the aforementioned standards for determining when the manufacturing process at the second facility has begun, the next issue is to determine that 100 or more full-time positions are created for qualified full-time employees during a single twelve-month period ending in the Taxpayer's taxable year. Pursuant to regulations being promulgated by the department, taxpayers will be permitted to utilize any consecutive twelve-month period they choose to elect to measure such employment increases.
The answer to your question will therefore depend on the facts and circumstances surrounding the taxpayer's activities. If during a 1 2-month period ending within a taxable year when the taxpayer is deemed to be engaged in manufacturing at the second facility (determined in accordance with the standards described herein), the taxpayer creates 100 or more full-time positions for qualified full-time employees, the taxpayer will be deemed to qualify for the Credit. The Credit will be calculated and claimed beginning in the taxable year following the taxable year in which qualification occurs, defined by the legislation as the "credit year."
As to which jobs shall qualify for the Credit, Code of Virginia § 58.1-439 defines "qualified full-time employee" as:
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- [an] employee filling a new, permanent full-time position in a major business facility in this Commonwealth. A "new permanent full-time position" is a job of an indefinite duration, created by the company as a result of the establishment or expansion of a major business facility in this Commonwealth, ...(Emphasis added.)
Qualifying jobs will therefore include all jobs at the second facility created by the taxpayer as the result of the establishment of the second facility through the "credit year," that otherwise meet the definition of qualified full-time employee.
The fact pattern described herein must, however, be distinguished from a situation where a taxpayer merely expands an existing facility. Such an expansion would include the hiring of additional employees for an existing facility, a physical addition to an existing structure, or an increase in capacity of an existing facility. In such circumstances, the determination of when manufacturing begins would not be necessary, and the Credit would be claimed in the first taxable year following the taxable year in which 100 or more qualified full-time employees have been employed.
If you have any additional questions, please call**** Assistant Commissioner for Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10293M
Rulings of the Tax Commissioner