Enterprise Zone Act Credit

Businesses qualified prior to July 1, 1995 may be able to claim a general tax credit against the tax due on taxable income within the zone. The credit is a percentage of the tax due on taxable income from within the zone. In addition, a credit for a percentage of unemployment tax due on zone employees may be claimed.

Businesses qualified between July 1, 1995 and June 30, 2005 may take a credit against the tax due on the zone's taxable income and may be eligible for the real property improvement tax credit or the investment tax credit.

Effective July 1, 2005, the Enterprise Zone Act Credit was replaced with a grant program administered by the Virginia Department of Housing and Community Development (DHCD). Certain businesses that signed agreements with DHCD prior to the expiration of the act's provisions may continue to claim the business tax credit and the real property improvement credit.

For forms and more information about this credit, visit the DHCD website.

All filers must complete Form 301 and attach the certificate of qualification from DHCD to claim this credit. If applicable, attach the Certificate of Unemployment Tax Credit from the Virginia Employment Commission (VEC). Individuals must also complete Schedule CR, Part II, to claim nonrefundable credits, and Part XXVI to claim the Real Property Improvement Credit, which is refundable. Corporate filers must complete Form 500CR, Part III, to claim nonrefundable credits, and Part XXVI to claim the Real Property Improvement Credit.

Complete Form 301 and Schedule 500CR, Part III, to claim this credit. Attach the certificate of qualification from DHCD and a completed Form 301. If applicable, attach the Certificate of Unemployment Tax Credit from the VEC.

Major Business Facility Job Credit

Companies engaged in any business in Virginia, except for retail trade business, may claim a Virginia Jobs Tax Credit if the taxpayer creates new full-time jobs in excess of the threshold amounts established for 1 of the 2 credit tiers. A qualified major business facility may spread the credit allowed per qualified full-time employee over 2 taxable years. The thresholds for the 2 credit tiers are:

  • Tier 1: The qualifying threshold amount is 100 new jobs for the establishment or expansion of a major business facility in Virginia. Note: For taxpayers whose expansion year began on or after Jan. 1, 2010, the threshold has been reduced to 50 new jobs.
  • Tier 2: The qualifying threshold amount is 50 new jobs for the establishment or expansion of a major business facility in a locality identified by the Virginia Economic Development Partnership as an economically distressed area or has been designated as an Enterprise Zone. Note: For taxpayers whose expansion year began on or after Jan. 1, 2010, the threshold has been reduced to 25 new jobs.

Taxpayers can qualify for and claim a credit for only 1 tier per facility. Credits are subject to recapture if employment decreases during the 5 years following the credit year.

The credit year is defined as the first taxable year following the taxable year in which the major business facility was established or expanded. The credit is earned in 1/3 increments over 3 taxable years beginning with the credit year. Note: For taxable years beginning on or after Jan. 1, 2009, the credit can be earned in 1/2 increments over a 2-year period. The allowable credit may not exceed your tax liability. Unused credits may be carried forward for 10 years. Credits will be recaptured proportionately if employment decreases during the 5 years following the initial credit year. Compute on Form 304.

The credit allows a qualifying business to receive both an Enterprise Zone grant and a Major Business Facility Tax Credit. The grant and tax credit can't be earned/claimed for the same job.

The taxpayer can't claim the Major Business Facility Job Tax Credit and the Coalfield Employment Enhancement Tax Credit, the Clean Fuel Vehicle and Advanced Cellulosic Biofuels Job Credit or the Green Job Creation Tax Credit.

Individual filers complete Schedule CR, Part IX, and corporate filers complete Form 500CR, Part X, to claim this credit.

Note this change in procedure:

All major business applications (Form 304) must be submitted 90 days before filing your return. Send your application to Virginia Tax, Tax Credit Unit, PO Box 715, Richmond, VA 23218-0715. Form 304 is no longer part of your income tax return. This credit requires certification from the Tax Credit Unit to be claimed on your tax return. We will send you a letter to certify the credit.

Reference:  Va. Code § 58.1-439. 

Major Research and Development Tax Credit

For taxable years beginning on or after Jan. 1, 2016, but before Jan. 1, 2022, a taxpayer with Virginia qualified research and development expenses for the taxable year in excess of $5 million will be allowed a nonrefundable tax credit against the tax levied as stated in Va. Code § 58.1-320 or 58.1-400 in an amount equal to 10% of the difference between the Virginia qualified research and development expenses paid or incurred by the taxpayer during the taxable year and 50% of the average Virginia qualified research and development expenses paid or incurred by the taxpayer for the 3 taxable years immediately preceding the taxable year for which the credit is being determined. If the taxpayer didn't pay or incur Virginia qualified research and development expenses in any 1 of the 3 taxable years immediately preceding the taxable year for which the credit is being determined, the tax credit will equal 5% of the Virginia qualified research and development expenses paid or incurred by the taxpayer during the relevant taxable year.

No more than $20 million in tax credits can be issued in any fiscal year. If the approved applications for the tax credits allowed under this section exceed $20 million for any taxable year, Virginia Tax will apportion the credits by dividing $20 million by the total amount of tax credits approved, to determine the percentage of allowed tax credits each taxpayer will receive.

The amount of the credit claimed for the taxable year will not exceed 75% of the total amount of tax imposed by this chapter upon the taxpayer for the taxable year. Any credit not usable for the taxable year for which the credit was first allowed may be carried over for credit against the income taxes of the taxpayer in the next 10 succeeding taxable years or until the total amount of the tax credit has been taken, whichever is sooner.

Any taxpayer who claims the tax credit for Virginia qualified research and development expenses in keeping with this section can't use the expenses as the basis for claiming any other credit provided under the Code of Virginia.

We must receive applications for the tax credit no later than July 1 of the calendar year following the close of the taxable year in which the expenses were paid or incurred. Businesses must apply by July 1 using​ Form MRD. Submitting a late application will disqualify you from the credit. Send your application to Virginia Tax, Tax Credit Unit, PO Box 715, Richmond, VA 23218-0715. This credit requires certification from the Tax Credit Unit to be claimed on your tax return. We will send you a letter to certify the credit. 

Credits granted to a partnership, limited liability company, or electing small business corporation (S corporation) will be allocated to the individual partners, members, or shareholders, respectively, in proportion to their ownership interests in these entities or in accordance with a written agreement entered into by the individual partners, members, or shareholders using Form PTE within 30 days after the credit is granted unless the partnership, limited liability company, or electing small business corporation (S corporation) elects for the credits not to be allocated but to be received and claimed at the entity level by the partnership, limited liability company, or electing small business corporation (S corporation).

No tax credit will be allowed for any expenses that are paid for or incurred by a taxpayer for research conducted in Virginia on human cells or tissue derived from induced abortions or from stem cells obtained from human embryos. This provision does not apply to research conducted using stem cells other than embryonic stem cells.

Reference: Va. Code § 58.1-439.12:11.   

Qualified Equity and Subordinated Debt Investments Credit

How to qualify 

This credit is available to individual and fiduciary taxpayers making a qualified investment in the form of equity or subordinated debt in a pre-qualified small business venture. Businesses must file Form QBA by Dec. 31 of the year that they request qualification. The business must reapply each year to maintain qualification. Investors must file Form EDC  by April 1 of the year following the investment to apply for their credit. Submitting a late application will disqualify you for the credit. Send your application to Virginia Tax, Tax Credit Unit, PO Box 715, Richmond, VA 23218 - 0715. We will notify investors of the amount of their authorized credit by June 30.

Qualified investment

Qualified investment means a cash investment in a qualified business in the form of equity or subordinated debt; however, an investment will not be qualified if the taxpayer who holds an investment, or any of the taxpayer's family members, or any entity affiliated with the taxpayer, receives or has received compensation from the qualified business in exchange for services provided to the business as an employee, officer, director, manager, or independent contractor within 1 year before or after the date of the investment. Reimbursement of reasonable expenses incurred will not be deemed as compensation.

Commercialization investment

Commercialization investment means a qualified investment in a qualified business that was created to commercialize research developed at or in partnership with an institution of higher education.

Equity

Equity means common stock or preferred stock, regardless of class or series, of a corporation; a partnership interest in a limited partnership; or a membership interest in a limited liability company, which is not required or subject to an option on the part of the taxpayer to be redeemed by the issuer within 3 years from the date of issuance. No equity investment will qualify for this credit if it is required to be redeemed or subject to an option to be redeemed by the issuer within 5 years of the date of issuance.

Subordinated debt

Subordinated debt means indebtedness of a corporation, general or limited partnership, or limited liability company that by its terms required no repayment of principal for the first 3 years after issuance; is not guaranteed by any other person or secured by any assets of the issuer or any other person; and is subordinated to all indebtedness and obligations of the issuer to national or state-chartered banking or savings and loan institutions.

Qualified business

Effective Jan. 1, 2009, a qualified business means a business which:

  • has annual gross revenues of no more than $3 million in its most recent fiscal year
  • has its principal office or facility in Virginia
  • is engaged in business primarily in or does substantially all of its production in Virginia
  • has not obtained during its existence more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments (not including commercial loans from chartered banking or savings and loan institutions)
  • is primarily engaged, or is primarily organized to engage, in the fields of advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, electronic device technology, energy, environmental technology, information technology, medical device technology, nanotechnology, or any similar technology-related field determined by regulation by Virginia Tax to fall under the purview of this section.
How much is the credit?

The credit is equal to 50% of the qualified business investments made during the taxable year. If total annual requests for the credit exceed $5 million for the tax year, we will prorate the credit for each taxpayer.

The credit a taxpayer may claim per taxable year may not exceed the credit authorized by Virginia Tax, $50,000, or the income tax liability on that year's return, whichever is less. The credit is nonrefundable. Unused credits may be carried forward up to 15 years.

This credit may be allocated among owners in proportion to each owner's percentage of ownership or interest in the pass-through entity, or as the owners mutually agree, or as provided in the partnership agreement or other entity document using Form PTE within 30 days after the credit is granted but at least 90 days before filing an income tax return.

How to claim the credit

Complete Schedule CR, Part XV, to claim this credit. Note: Since we do not complete authorization of these credits until June 30 each year, taxpayers with a May 1 due date will need to file for an extension or file an amended return to claim this credit.

Reference:  Va. Code § 58.1-339.4   

Telework Expenses Tax Credit

This credit is available to employers for eligible expenses incurred for allowing employees to telework under a signed telework agreement for taxable years beginning on or after Jan. 1, 2012, but before Jan. 1, 2017. An employer may be eligible for a credit of up to $1,200 per teleworking employee and/or a maximum of $20,000 for conducting a telework assessment. The amount of credit will not exceed $50,000 per employer for each calendar year. The telework assessment can only be allowed once. The aggregate amount of tax credits that will be issued is capped at $1 million annually. An employer will be ineligible for a tax credit as stated in this section if the employer claims a credit based on the jobs, wages, or other expenses for the same employee under any other provision of this chapter. Employers are not allowed to deduct expenses that are deducted for federal purposes.

The business must apply for reservation of tax credits between Sept. 1 and Oct. 31 of the year preceding the taxable year for which the tax credit is to be earned using Form TEL-1. Send your application to Virginia Tax, Tax Credit Unit, PO Box 715, Richmond, VA 23218-0715. We will send a letter certifying tentative approval of the credit by Dec. 31. The business must also file Form TEL-2 by April 1 of the year following the calendar year that the eligible expenses were incurred. Applications received after the filing deadline will not be eligible for the credit. We will issue the credit by June 30 providing the amount of the credit that can be claimed on the Virginia return is available. Unused tax credit can't be carried forward or carried back against the employer's tax liability.

The amount of the credit attributable to a partnership, electing small business corporation (S corporation), or limited liability company must be allocated to the individual partners, shareholders, or members in proportion to their ownership or interest within the business entity using Form PTE within 30 days after the credit is granted.

The Department of Rail and Public Transportation (DRPT) is available to help guide businesses through the development of a telework program. This includes providing assistance on policy and agreement development, training for teleworkers and managers, and program assessment. For questions about developing a telework program or telework policies, visit the Telework! VA website. You can also get help by calling DRPT at 804.786.4440 or by email at drptpr@drpt.virginia.gov.

Reference: Va. Code § 58.1-439.12:07 

Worker Retraining Tax Credit

How to qualify

This credit allows an employer to claim a tax credit for the training costs of providing eligible worker retraining to qualified employees for taxable years beginning on Jan. 1, 1999.

The credit may be applied against individual income tax, estate and trust tax, corporate income tax, bank franchise tax, and taxes imposed on insurance companies and utility companies.

Eligible worker retraining

Eligible worker retraining includes noncredit courses that are approved by the Virginia Economic Development Partnership. For information on noncredit course approval, call 804.545.5706. It also includes credit or non-credit retraining courses taken through an apprenticeship agreement approved by the Commissioner of Labor and Industry.

How much is the credit?

Generally, the credit is 30% of all classroom training costs but is limited to $200 annual credit per student if the course work is incurred at a private school or $300 per qualified employee with retraining in a STEM or STEAM discipline. We are authorized to issue up to $2,500,000 of retraining credits annually. If total requested credits exceed this amount, we will prorate the authorized credits.

Credits taken may not exceed your tax liability in any 1 taxable year. Unused credits may be carried forward for 3 years.

Employer certification

Employers must apply for certification of the amount of allowable credit using Form WRC. All WRC applications requiring course approval must be sent to Virginia Jobs Investment Program, Virginia Economic Development Partnership, 901 E. Byrd Street. Richmond, VA 23219 by April 1 following the year that the expenditures were paid or incurred. For information, call 804.545.5706.

Applications requesting apprenticeship retraining credit must be sent to Virginia Tax, Tax Credit Unit, PO Box 715, Richmond, VA 23218-0715 by the same April 1 deadline.

We will issue the credit to all eligible applicants by June 30.

Other information

For information on pre-approved apprenticeship programs, contact your Virginia Department of Labor and Industry apprenticeship representative. For information on non-credit course approval, contact the Virginia Economic Development Partnership at 804.545.5706.

The amount of the credit attributable to a partnership, electing small business corporation (S corporation), or limited liability company must be allocated to the individual partners, shareholders, or members in proportion to their ownership or interest within the business entity using Form PTE within 30 days after the credit is granted.

How to claim the credit

Individual filers complete Schedule CR, Part XVI, and corporate filers complete Form 500CR, Part XVII, to claim this credit.

Reference: Va. Code § 58.1-439.6.