Bulletin Number
VTB 88-5
Tax Type
Corporation Income Tax
Individual Income Tax
Partnerships
Description
Enterprise Zone Tax Incentives
Topic
Credits
Date Issued
05-20-1988
Enterprise Zone Tax Incentives
The Enterprise Zone Act provides for the establishment of Enterprise Zones to stimulate business and industrial growth in economically distressed areas of Virginia. Three state tax incentives are available to encourage new or expanded business and industrial operations within an Enterprise Zone:
- General Credit: A credit against State corporate income, individual income, franchise or license tax for each of five consecutive years in decreasing amounts (80%, 60%, 40%, 20% and 20%);
- Unemployment Tax Credit: A credit against State corporate income, individual income, franchise or license tax equal to the State unemployment tax due on employees of zone establishments for five consecutive years in decreasing amounts (80%, 60%, 40%, 20% and 20%); and
- State Sales and Use Tax Exemption: An exemption from State sales and use tax on all items purchased or leased for the conduct of trade or business within a zone for five consecutive years.
Following are several questions and answers relating to the tax incentives under Enterprise Zone program:
GENERAL PROCEDURES:
1. Are there any regulations establishing criteria and procedures for the operation, designation and administration of Enterprise Zones?
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Yes. The Enterprise Zone program is administered by the Virginia Department of Housing and Community Development. Regulations governing the Virginia Enterprise Zone program are required by § 59.1-278 of the Code of Virginia and have been adopted by the Board of Housing and Community Development. The second revision of these regulations was effective July 1, 1987. Procedures for receiving state tax incentives are included in these regulations.
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- A list of the local government with Enterprise Zones is included with this bulletin. (see page 6)
- A list of the local government with Enterprise Zones is included with this bulletin. (see page 6)
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- A business firm must submit a "Request to Qualify for State Tax Incentives', Form EZ-4N or Form EZ-4E, along with a "Statement Requesting State Tax Incentives', Form EZ-4S, to the Department of Housing and Community Development within 30 calendar days prior to the normal or extended deadline for filing a sate tax return. Form EZ-4N and Form EZ-4E must be completed and signed by an independent certified public accountant licensed by the Commonwealth, and shall be prima facie evidence of the eligibility of a business firm for state tax incentives under the Enterprise Zone program. The Department of Housing and Community Development will review and certify to the Department of Taxation whether a firm is qualified to receive state tax incentives. The Department of Housing and Community Development will also notify the business firm whether it is qualified to receive the requested state tax incentives and provide the business firm with copies of the certification of qualification. The business firm must attach a copy of the certification of qualification when filing the applicable state tax return in order to receive appropriate tax credits or refunds.
4. Where can a business firm obtain the necessary forms and statements?
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- Forms and statements may be obtained from the Department of Housing and Community Development, Office of Local Development Programs, 205 North Fourth Street, Richmond, Virginia 23219, (804) 786-4966, or from the Department of Taxation, P. O. Box 6-L, Richmond, Virginia 23282, (804) 367-8207.
- Forms and statements may be obtained from the Department of Housing and Community Development, Office of Local Development Programs, 205 North Fourth Street, Richmond, Virginia 23219, (804) 786-4966, or from the Department of Taxation, P. O. Box 6-L, Richmond, Virginia 23282, (804) 367-8207.
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- Mail or deliver the forms to the Virginia Department of Housing and Community Development, Office of Local Development Programs, 205 North Fourth Street, Richmond, Virginia 23219.
- Mail or deliver the forms to the Virginia Department of Housing and Community Development, Office of Local Development Programs, 205 North Fourth Street, Richmond, Virginia 23219.
6. Can a business claim Enterprise Zone credits and other tax incentives?
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- § 59.1-277 of the Code of Virginia provides that there shall be no duplication of existing state tax incentives to qualified business firms which locate in an Enterprise Zone. Therefore, a business firm may not use the same expense to qualify for state tax incentives under the Enterprise Zone program to qualify for state tax incentives under any other program. This applies to tax credits for investments under the "Neighborhood Assistance Act' or any other state tax incentive program.
- § 59.1-277 of the Code of Virginia provides that there shall be no duplication of existing state tax incentives to qualified business firms which locate in an Enterprise Zone. Therefore, a business firm may not use the same expense to qualify for state tax incentives under the Enterprise Zone program to qualify for state tax incentives under any other program. This applies to tax credits for investments under the "Neighborhood Assistance Act' or any other state tax incentive program.
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- The statute of limitations provides that a taxpayer may amend a return within three years of the due date of the return.
- The statute of limitations provides that a taxpayer may amend a return within three years of the due date of the return.
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Yes, so long as it is a qualified business firm for purposes of the Enterprise Zone program.
9. How would a business firm having taxable income from activities, both within and without the Enterprise Zone be treated?
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- § 59.1-280(C) of the Code of Virginia provides that any qualified business firm having taxable income from business activity, both within and without the Enterprise Zone, shall allocate and apportion its taxable income attributable to the conduct of business in accordance with the procedures contained in Secs. 58.1-302 through 58.1-420 of the Code of Virginia. If the entire business activity of a firm has not been transacted or conducted within the Enterprise Zone, then the income from sources within the Enterprise Zone means that portion of the firm's taxable income resulting from the allocation and apportionment formulas set forth in §§ 58.1-406 through 58.1-420 of the Code of Virginia (also see Virginia Regulations 630-3-406 through 630-3-420). Dividends would be allocated to the location of the principal office from which the business affairs of the firm are normally managed. All other income would be apportioned between activity within the Enterprise Zone and all other activity by the appropriate apportionment formula. Each factor of the formula is a fraction based on activity within the Enterprise Zone divided by similar activity everywhere.
- § 59.1-280(C) of the Code of Virginia provides that any qualified business firm having taxable income from business activity, both within and without the Enterprise Zone, shall allocate and apportion its taxable income attributable to the conduct of business in accordance with the procedures contained in Secs. 58.1-302 through 58.1-420 of the Code of Virginia. If the entire business activity of a firm has not been transacted or conducted within the Enterprise Zone, then the income from sources within the Enterprise Zone means that portion of the firm's taxable income resulting from the allocation and apportionment formulas set forth in §§ 58.1-406 through 58.1-420 of the Code of Virginia (also see Virginia Regulations 630-3-406 through 630-3-420). Dividends would be allocated to the location of the principal office from which the business affairs of the firm are normally managed. All other income would be apportioned between activity within the Enterprise Zone and all other activity by the appropriate apportionment formula. Each factor of the formula is a fraction based on activity within the Enterprise Zone divided by similar activity everywhere.
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- State tax incentives are only available for five consecutive taxable years. Any portion of the general tax credit which exceeds the amount of taxes owed and is thus not usable, may not be applied to future tax years. However, that portion of the unemployment tax credit which is not usable may be applied to future tax years, but only within the five year qualification period.
If a business firm fails to qualify for any taxable year during the five year period, it forfeits the right to request state tax incentives for that year. However, the business firm may qualify to receive state tax incentives for any remaining taxable years of its five year period. In addition, a business firm may not qualify for state tax incentives for more than five consecutive years by reorganizing or changing its form in a manner that does not alter the basis of the firm's assets or result in a taxable event.
- State tax incentives are only available for five consecutive taxable years. Any portion of the general tax credit which exceeds the amount of taxes owed and is thus not usable, may not be applied to future tax years. However, that portion of the unemployment tax credit which is not usable may be applied to future tax years, but only within the five year qualification period.
11. How will EZ credits be allocated by partnerships and S Corporations?
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- In the case of a partnership or small business corporation electing to be taxed under Subchapter S of the Internal Revenue Code, the forms requesting state tax incentives must include the name, address and social security number of each partner or shareholder requesting a credit against state individual income tax. Each partner or shareholder must attach a copy of the certification of qualification received by the firm to its state individual income tax return. The EZ credits will be passed through to the partners or shareholders in the same pro rata share as taxable income.
- In the case of a partnership or small business corporation electing to be taxed under Subchapter S of the Internal Revenue Code, the forms requesting state tax incentives must include the name, address and social security number of each partner or shareholder requesting a credit against state individual income tax. Each partner or shareholder must attach a copy of the certification of qualification received by the firm to its state individual income tax return. The EZ credits will be passed through to the partners or shareholders in the same pro rata share as taxable income.
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- Yes. However, since tax incentives are only available for five consecutive years, it may be more beneficial for business firms to elect to first qualify for incentives for a full twelve month period. The partial taxable year will count as one entire year of the five consecutive tax years for which a business firm is qualified to receive tax credits.
- Yes. However, since tax incentives are only available for five consecutive years, it may be more beneficial for business firms to elect to first qualify for incentives for a full twelve month period. The partial taxable year will count as one entire year of the five consecutive tax years for which a business firm is qualified to receive tax credits.
13. Generally, what is the difference between EZ "credit' and EZ "refund'?
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- The EZ credits, general credit and credit against state unemployment tax, are applied against income tax liability and reduce Virginia income taxes. However, the sales and use tax exemption is a refund of amounts actually paid during the year on purchases of tangible personal property by a qualifying business firm.
- The EZ credits, general credit and credit against state unemployment tax, are applied against income tax liability and reduce Virginia income taxes. However, the sales and use tax exemption is a refund of amounts actually paid during the year on purchases of tangible personal property by a qualifying business firm.
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- Yes. While the sales and use tax dealer's discount is not normally refunded, a qualifying business firm located within an Enterprise Zone will receive a refund of the dealer's discount upon submitting requests for tax refunds to the Department of Housing and Community Development.
- Yes. While the sales and use tax dealer's discount is not normally refunded, a qualifying business firm located within an Enterprise Zone will receive a refund of the dealer's discount upon submitting requests for tax refunds to the Department of Housing and Community Development.
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- Not if the business firm employs a contractor to perform the work. Building materials used by a contractor are considered to be consumed by him, and he is therefore responsible for paying the sales tax on them. This holds true even if the business firm purchases the materials and supplies them to a contractor. In this case, the contractor is still regarded as the ultimate consumer of the building materials and is therefore responsible for paying the sales tax.
However, a qualified business firm which purchases building materials and also performs the construction, installation or repair work may be eligible to receive EZ sales tax credits.
- Not if the business firm employs a contractor to perform the work. Building materials used by a contractor are considered to be consumed by him, and he is therefore responsible for paying the sales tax on them. This holds true even if the business firm purchases the materials and supplies them to a contractor. In this case, the contractor is still regarded as the ultimate consumer of the building materials and is therefore responsible for paying the sales tax.
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- No. This exemption applies only to the State portion of the sales and use tax and not to any portion of the tax levied by localities.
- No. This exemption applies only to the State portion of the sales and use tax and not to any portion of the tax levied by localities.
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- Yes. The sales and use tax exemption applies only to items purchased for use or consumption by a qualifying business for the conduct of a trade or business within a Virginia Enterprise Zone.
- Yes. The sales and use tax exemption applies only to items purchased for use or consumption by a qualifying business for the conduct of a trade or business within a Virginia Enterprise Zone.
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- Yes, a qualifying business must pay the sales and use tax on tangible personal property at the time of purchase. Upon completing the necessary forms and receiving certification from the Department of Housing and Community Development, the business firm will receive a refund of the State portion of sales and use tax actually paid during the taxable year.
WHERE TO OBTAIN ADDITIONAL INFORMATION
If you have any questions or need additional information regarding the Enterprise Zone program or the certification process, please contact:
Mr. Stanley S. Kidwell Jr., Associate Director
Ms. M. Shea Hollifield, Program Manager
Office of Local Development Programs
Department of Housing and Community Development
205 North Forth Street
Richmond, Virginia 23219
(804) 786-4966
If you have any questions or need additional information regarding the state tax incentives available to qualified business firms located within Enterprise Zones, you may either
Call:
(804) 367-8313 Evans Steele-Sales Tax
(804) 367-8207 Claire Dunn-Corporate and Individual Income Taxes and Bank Franchise Tax
or
Write:
Department of Taxation
Taxpayer Assistance Section
P. O. Box 6-L
Richmond, Virginia 23282
VIRGINIA ENTERPRISE ZONE PROGRAM LOCAL ZONE ADMINISTRATORS
CARROLL COUNTY
Clinton Swain*
County Administrator's Office
Post Office Box 515
Hillsville, Virginia 24343
(703) 728-3331
CHESAPEAKE
Gary R. McLarn
Matthew James
Chesapeake Economic Development
860 Greenbrier Circle, Suite 304
Greenbrier Tower One
Chesapeake, Virginia 23320
(804) 523-1100
DANVILLE
Jerry Fischer
Department of Community Development and Engineering
Post Office Box 3300
Danville, Virginia 24543
(804) 799-5260
GALAX
Kim Cox
Troy Clark
City Manager's Office
123 North Main Street
Galax, Virginia 24333
(703) 236-5773
HALIFAX COUNTY
Robert P. Lawler, Jr.
County Administrator's Office
Post Office Box 786
Halifax, Virginia 24558-0786
(804) 476-2141
HAMPTON
Donald L. Maxwell
Herbert Mallette
Department of Development
2 Eaton Street, Suite 600
Hampton, Virginia 23669
(804) 727-6237
HOPEWELL
Milton Martin
Paula Murphy
Planning Department
300 N. Main Street
Hopewell, Virginia 23860
(804) 541-2220
LYNCHBURG
Richard Jacques/(1)
Fred Ickes (2)
Department of Community Planning and Development
Post Office Box 60
Lynchburg, Virginia 24505
(804) 847-1435 (1) or
(804) 847-1508 (2)
NEWPORT NEWS
Ted Figura
Department of Development
2400 Washington Avenue
Newport News, Virginia 23607
(804) 247-8448
NORFOLK
Miriam Jiggetts
Department of Development
Suite 600, City Hall Building
Norfolk, Virginia 23501
(804) 441-2941
PETERSBURG
Beverly Coleman
Commercial Revitalization Office
City Hall
Union and Tabb Streets
Petersburg, Virginia 23803
(804) 733-2383
PRINCE GEORGE
John G. Kines, Jr.
Post Office Box 68
Prince George, Virginia 23875
(804) 733-2600
PORTSMOUTH
Muriel R. Zober
Bonnie Banks
Department of Economic Development
801 Crawford Street
Portsmouth, Virginia 23704
(804) 393-8804
ROANOKE
Brian Wishneff
Doug Chittum
Office of Economic Development and Grants
Room 355, Municipal Building
215 W. Church Avenue, S. W.
Roanoke, Virginia 24011
(703) 981-2715
SALTVILLE
VACANT
Town Manager's Office
P. O. Box 730
Saltville, Virginia 24370
(703) 496-5342
SOUTH BOSTON
Gary Christie
City Manager's Office
Post Office Box 417
South Boston, Virginia 24592
(804) 572-3621
SOUTH HILL
G. Morris Wells, Jr.
Town Manager's Office
117 W. Atlantic Street
South Hill, Virginia 23970
(804) 447-3191
STAUNTON
George W. Edwards
Post Office Box 58
Staunton, Virginia 24401
(703) 885-2839
SUFFOLK
Anna D'Antonio
Department of Economic Development
Post Office Box 1612
Suffolk, Virginia 23434
(804) 934-2303
WAYNESBORO
Stacy Turner
Department of Planning and Economic Development
Post Office Box 1028
Waynesboro, Virginia 22980
(703) 942-6692
WYTHE COUNTY
J. C. Higginbotham
County Administrator's Office
108 County Office Building
275 South Fourth Street
Wytheville, Virginia 24382-2598
(703) 228-5457
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