Tax Type
Corporation Income Tax
Description
Coalfield Employment Enhancement Tax Credit
Topic
Credits
Date Issued
10-11-2000
October 11, 2000
Re: Request for a Ruling: Coalfield Employment Enhancement Tax Credit
Dear ****
This will reply to your request for a ruling on the application of the Coalfield Employment Enhancement Tax Credit (the "Credit") to a fact scenario that you present.
FACTS
Three corporations are "affiliated" pursuant to the definition of that term in Code of Virginia § 58.1-302. Corporation A has an economic interest in Virginia coal that it mines for purposes of the Credit. It has its own employees and uses some nonemployee contract miners. Corporation B refines coal using its own employees and Corporation C distributes the refined coal and has its own employees.
All three companies are subject to Virginia corporate income tax, and file a consolidated Virginia corporate income tax return. If applicable, each company files and pays unemployment taxes and other applicable Virginia state taxes.
You request a ruling on whether the other state taxes paid by the affiliates in the affiliated group that do not have an economic interest in the coal can be offset by the Credit that is earned by Corporation A. Also, you request that the ruling address which employees from the affiliated corporations must be included in the employment factor.
RULING
As you know, the application and administration of the Credit is fully described in Virginia Tax Bulletin 97-1 (the "Bulletin"). A person with an "economic interest" in Virginia coal is eligible to take the Credit. The Credit is based upon the number of tons of coal sold during the taxable year which were mined in Virginia, multiplied by an employment factor. The amount of the Credit varies according to seam thickness for coal mined by underground methods. The Credit is also available for surface-mined coal.
The Credit is earned during taxable years beginning on or after January 1, 1996, but is applied according to a deferral schedule. The first time the Credit was applied is for tax liabilities for 1999 taxable years. If the applied Credit exceeds a person's liability for all state-imposed taxes which were incurred during the taxable year, then the excess is refundable up to ninety percent of the Credit claimed in that year. The remaining ten percent will be deposited in a fund administered by the Coalfields Economic Development Authority ("CEDA"). For Credits earned for taxable years beginning on and after January 1, 2002, the refundable excess will be reduced to 85% with the remaining 15% going to CEDA.
In instances where a combined or consolidated Virginia corporate income tax is filed which includes corporations which were not eligible to earn the Credit, special rules apply. In such cases, the Credit as calculated above is utilized to offset the combined or consolidated Virginia corporate income tax liability. Any remaining credit, however, can only be used to offset other state taxes incurred by the corporations in the consolidated or combined group which actually earned the Credit, i.e., have an economic interest in the Virginia coal mined.
The employment factor is calculated using each filing entity's aggregate number of Virginia coal mining jobs. Contract coal mining jobs are used when calculating the employment factor. Taxpayers who file consolidated or combined returns must calculate the employment factor and corresponding credit on a separate company basis.
In the instant case, 50% of the Credit earned by Corporation A during taxable year 1996 would be claimed against state taxes for the 1999 taxable year. The employment factor for Corporation A would be calculated separately from any other corporation in the affiliated group. Contract employees would be considered in the calculation. The Credit earned by Corporation A would first be used to offset any corporate income tax liability incurred in taxable year 1999 by the affiliated group that files the consolidated return. Any remaining Credit would offset any other state taxes incurred by Corporation A. Ninety percent of any remaining unused Credit will be refunded. The remaining ten percent would be deposited in the fund administered by CEDA.
You believe that the current policy for applying the Credit, as outlined by the Bulletin, does not address the utilization of the Credit when a group of affiliated coal companies has organized itself on a functional basis. You indicate that many coal companies create separate companies for functions that are integral to the coal mining process. You ask how the Credit applies to companies that are organized in this fashion.
In recognition of the industry practice of functional organization, the department finds it necessary to modify its position in Tax Bulletin 97-1. Groups of companies that file consolidated or combined Virginia corporate income tax returns may claim the Credit earned by members of the group against any state taxes for members of the group which are primarily engaged in the mining, processing, or distribution of coal. An affiliate not otherwise eligible to earn the Credit will be considered "primarily engaged" in the mining, processing, or distribution of coal if 80% or more of its gross receipts are derived from one or more of these functions or 80% or more of their expenses are related to one of these functions. The Credit must still be applied first against the consolidated or combined corporate income tax of the affiliated group. However, employment factors must still be calculated on a separate company basis only for those companies with an economic interest in the coal. Taxpayers who have already filed their 1999 Virginia corporate income tax returns may file amended returns to extend the Credit to other state taxes incurred by members of the affiliated group who meet the provisions of the 80% test.
The following is an example of the application of this modification to the hypothetical you present:
For purposes of applying this modification to the current scenario, presume that 80% of Corporation B's gross receipts are derived from the processing of coal and 80% of Corporation C's gross receipts are derived from the distribution of coal. The employment factor would remain the same for Corporation A. The Credit earned by Corporation A would first be used to offset any corporate income tax liability incurred in 1999 by the affiliated group that files the consolidated return. Any remaining Credit would offset any other state taxes incurred by any qualifying member of the affiliated group. Ninety percent of any remaining Credit will be refunded to Corporation A. The remaining ten percent would be deposited in the fund administered by CEDA.
I hope that the foregoing addresses your concerns. If you have any questions regarding this ruling, you may contact * * * at * * *
Danny M. Payne
Tax Commissioner
Re: Request for a Ruling: Coalfield Employment Enhancement Tax Credit
Dear ****
This will reply to your request for a ruling on the application of the Coalfield Employment Enhancement Tax Credit (the "Credit") to a fact scenario that you present.
FACTS
Three corporations are "affiliated" pursuant to the definition of that term in Code of Virginia § 58.1-302. Corporation A has an economic interest in Virginia coal that it mines for purposes of the Credit. It has its own employees and uses some nonemployee contract miners. Corporation B refines coal using its own employees and Corporation C distributes the refined coal and has its own employees.
All three companies are subject to Virginia corporate income tax, and file a consolidated Virginia corporate income tax return. If applicable, each company files and pays unemployment taxes and other applicable Virginia state taxes.
You request a ruling on whether the other state taxes paid by the affiliates in the affiliated group that do not have an economic interest in the coal can be offset by the Credit that is earned by Corporation A. Also, you request that the ruling address which employees from the affiliated corporations must be included in the employment factor.
RULING
As you know, the application and administration of the Credit is fully described in Virginia Tax Bulletin 97-1 (the "Bulletin"). A person with an "economic interest" in Virginia coal is eligible to take the Credit. The Credit is based upon the number of tons of coal sold during the taxable year which were mined in Virginia, multiplied by an employment factor. The amount of the Credit varies according to seam thickness for coal mined by underground methods. The Credit is also available for surface-mined coal.
The Credit is earned during taxable years beginning on or after January 1, 1996, but is applied according to a deferral schedule. The first time the Credit was applied is for tax liabilities for 1999 taxable years. If the applied Credit exceeds a person's liability for all state-imposed taxes which were incurred during the taxable year, then the excess is refundable up to ninety percent of the Credit claimed in that year. The remaining ten percent will be deposited in a fund administered by the Coalfields Economic Development Authority ("CEDA"). For Credits earned for taxable years beginning on and after January 1, 2002, the refundable excess will be reduced to 85% with the remaining 15% going to CEDA.
In instances where a combined or consolidated Virginia corporate income tax is filed which includes corporations which were not eligible to earn the Credit, special rules apply. In such cases, the Credit as calculated above is utilized to offset the combined or consolidated Virginia corporate income tax liability. Any remaining credit, however, can only be used to offset other state taxes incurred by the corporations in the consolidated or combined group which actually earned the Credit, i.e., have an economic interest in the Virginia coal mined.
The employment factor is calculated using each filing entity's aggregate number of Virginia coal mining jobs. Contract coal mining jobs are used when calculating the employment factor. Taxpayers who file consolidated or combined returns must calculate the employment factor and corresponding credit on a separate company basis.
In the instant case, 50% of the Credit earned by Corporation A during taxable year 1996 would be claimed against state taxes for the 1999 taxable year. The employment factor for Corporation A would be calculated separately from any other corporation in the affiliated group. Contract employees would be considered in the calculation. The Credit earned by Corporation A would first be used to offset any corporate income tax liability incurred in taxable year 1999 by the affiliated group that files the consolidated return. Any remaining Credit would offset any other state taxes incurred by Corporation A. Ninety percent of any remaining unused Credit will be refunded. The remaining ten percent would be deposited in the fund administered by CEDA.
You believe that the current policy for applying the Credit, as outlined by the Bulletin, does not address the utilization of the Credit when a group of affiliated coal companies has organized itself on a functional basis. You indicate that many coal companies create separate companies for functions that are integral to the coal mining process. You ask how the Credit applies to companies that are organized in this fashion.
In recognition of the industry practice of functional organization, the department finds it necessary to modify its position in Tax Bulletin 97-1. Groups of companies that file consolidated or combined Virginia corporate income tax returns may claim the Credit earned by members of the group against any state taxes for members of the group which are primarily engaged in the mining, processing, or distribution of coal. An affiliate not otherwise eligible to earn the Credit will be considered "primarily engaged" in the mining, processing, or distribution of coal if 80% or more of its gross receipts are derived from one or more of these functions or 80% or more of their expenses are related to one of these functions. The Credit must still be applied first against the consolidated or combined corporate income tax of the affiliated group. However, employment factors must still be calculated on a separate company basis only for those companies with an economic interest in the coal. Taxpayers who have already filed their 1999 Virginia corporate income tax returns may file amended returns to extend the Credit to other state taxes incurred by members of the affiliated group who meet the provisions of the 80% test.
The following is an example of the application of this modification to the hypothetical you present:
For purposes of applying this modification to the current scenario, presume that 80% of Corporation B's gross receipts are derived from the processing of coal and 80% of Corporation C's gross receipts are derived from the distribution of coal. The employment factor would remain the same for Corporation A. The Credit earned by Corporation A would first be used to offset any corporate income tax liability incurred in 1999 by the affiliated group that files the consolidated return. Any remaining Credit would offset any other state taxes incurred by any qualifying member of the affiliated group. Ninety percent of any remaining Credit will be refunded to Corporation A. The remaining ten percent would be deposited in the fund administered by CEDA.
I hope that the foregoing addresses your concerns. If you have any questions regarding this ruling, you may contact * * * at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner