Tax Type
Corporation Income Tax
Description
Recapture Provision: Major Business Facility Job Tax Credit
Topic
Basis of Tax
Credits
Date Issued
10-12-2001
October 12, 2001
Re: Request for Ruling: Corporation Income Tax
Dear *****
This will respond to your letter in which you request a ruling regarding the Major Business Facility Job Tax Credit (MBFJTC).
FACTS
A taxpayer expanded its operations and qualified for the MBFJTC. In the credit year, the taxpayer claimed one-third of the earned credit during the first year and carried over the remaining amount of the credit as required by statute. After the credit year, the taxpayer initiated an internal restructuring of its operations. Included in this restructuring was the creation of a wholly owned subsidiary. The subsidiary was created through a transaction that received the treatment of Internal Revenue Code ("I.R.C.") § 351. All of the taxpayer's assets, operations, and employees that had originally qualified the taxpayer for the MBFJTC were transferred to the subsidiary in exchange for the subsidiary's stock.
You are requesting a ruling as to whether the taxpayer's restructuring would trigger the MBFJTC recapture provisions under two different scenarios. In the first scenario, the taxpayer would relinquish all assets, employees, or operations in Virginia as a result of the restructuring and would no longer have nexus with Virginia. In the second scenario, the taxpayer would continue to have activities in Virginia, unrelated to the operations that earned the MBFJTC. The taxpayer and the subsidiary would file a consolidated return.
RULING
Code of Virginia § 58.1-439 provides that the MBFJTC is allowed to a business that expands or establishes a major business facility within Virginia. A major business facility can be established by a business or a group of affiliated businesses that creates at least 100 jobs (50 in enterprise zones or economically distressed areas) for qualified full-time employees within a qualifying year. However, business facilities primarily engaged in the retail trade, para-mutual betting establishments, or companies claiming the Virginia Coalfield Employment Enhancement Tax Credit cannot qualify for the MBFJTC.
The MBFJTC is equal to $1,000 for each qualified full-time employee employed during the credit year (the first taxable year following the taxable year in which job threshold is achieved). Any full-time employee who is employed for less than 12 full months during the credit year qualifies for a partial credit. Companies claim the credit ratably over three taxable years, with the first one-third of the credit being claimed in the credit year. Any amount of credit not used in the year it is claimed may be carried over for the next ten succeeding taxable years.
The MBFJTC includes a recapture provision. If in any one of the five taxable years succeeding the credit year, the average number of qualified full-time employees decreases below the number of qualified full-time employees used to claim the credit, all or a portion of the MBFJTC must be recaptured. The average number of qualified full-time employees is determined from quarterly employment tax reports made to the Virginia Employment Commission.
The purpose of the MBFJTC is to create an incentive for businesses to increase employment at facilities located within Virginia. The recapture provision was established to insure that jobs created as a result of the MBFJTC remain in Virginia. Although the MBFJTC does not specifically address a situation in which the employer of qualified full-time employees changes before all of the credit is claimed or the recapture period expires, a provision is included by which an affiliated group of businesses may aggregate jobs in order to qualify for the credit.
In keeping with the intent of the MBFJTC and the statutory provisions concerning affiliated businesses, the department will allow a successor business to retain a predecessor's benefits and obligations of the MBFJTC. However, the standards under which the credit was granted must be maintained. As such, the department will allow a successor business to carryover unclaimed and unused MBFJTC under the following conditions:
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- (1) All of the jobs must be retained in the same trade or business for which the credit was originally earned.
(3) The total employment in Virginia by the taxpayer before the restructuring must be at least equal to the total employment in Virginia by both entities after restructuring.
If all of the requirements are satisfied, then the recapture provisions will not be triggered and the new entity will be allowed to claim the remaining credits, including the carried-over credits. Based on the information provided, the taxpayer would meet the credit succession requirements under both of the scenarios described above.
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. If you have any additional questions regarding this ruling, please feel free to call ***** in Policy Development at ***** .
Sincerely,
Danny M. Payne
Tax Commissioner
PDO/33134 & 33135G
Rulings of the Tax Commissioner