Tax Type
Corporation Income Tax
Description
Recyclable Materials Processing Equipment Credit
Topic
Credits
Taxpayers' Remedies
Date Issued
11-29-2001
November 29, 2001
Re: Request for Ruling: Corporation Income Tax
Recyclable Materials Processing Equipment Credit
Dear *****
This will respond to your letter requesting a ruling with respect to the Recyclable Materials Processing Credit on behalf of an anonymous client (the "Taxpayer"). I apologize for the delay in the department's response.
FACTS
The Taxpayer is a C corporation that qualified and received Recyclable Materials Processing Equipment Credits for the purchase of eligible machinery and equipment for processing recyclable materials. Because of certain subtractions available on the Taxpayer's C corporation return for prior years, the Taxpayer has not been able to utilize the credits and is in a carryover situation. The Taxpayer is contemplating making an election to be taxed as a S corporation and requests a ruling as to whether the credits earned as a C corporation will be available to the Taxpayer if S corporation status is elected.
RULING
Recyclable Materials Processing Equipment Credits are allowed pursuant to Code of Virginia § 58.1-338. These credits are equal to ten percent of the purchase price paid during the taxable year for machinery and equipment and are limited to forty percent of the Virginia income tax liability of such taxpayer in any one year. The Department of Environmental Quality certifies the authorized amount of credit to the Department of Taxation.
The credit is computed on machinery and equipment used exclusively in or on the premises of manufacturing facilities or plant units that manufacture, process, compound, or produce items of tangible personal property from recyclable materials, within the Commonwealth, for sale. Based on this criteria, the credit would be available to the entity that actually purchases the machinery and equipment upon which the credit is computed.
In the instant case, the Taxpayer earned the credits while taxed as a C corporation and will have carryover credits. In the subsequent year, the Taxpayer plans to elect S corporation status and, therefore, will have unused credits effective with the date of the S election.
In a typical case, credits of a distributor or transferor corporation to an acquiring corporation would be allowable for Virginia tax purposes if certain conditions are met. The department would consider attributes such as continuity of life, continuity of business ownership, and the availability of federal carryovers in like situations. This policy is generally consistent with federal carryover rules prescribed in Internal Revenue Code (IRC) § 381.
In the Taxpayer's case, there is no acquisition of another corporation. The Taxpayer is merely electing to change from C to S corporation filing status. As such, there is no cessation of the original business and the business firm remains basically the same entity. Consequently, the credit carryovers would be available to the Taxpayer after the S election because there is no change in ownership or business purpose.
If you have any questions regarding this ruling, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/17091P
Rulings of the Tax Commissioner