Tax Type
General Provisions
Description
Is the Coalfield Employment Enhancement Tax Credit transferable to an unrelated third party
Topic
Credits
Taxpayers' Remedies
Date Issued
12-12-2001
December 12, 2001
Re: Request for Ruling: Coalfield Employment Enhancement Tax Credit
Dear *****
This will reply to your letter of August 20, 2001, in which you request a ruling as to whether the Coalfield Employment Enhancement Tax Credit (the "Credit") earned by your client, ***** (the "Taxpayer") is transferable to an unrelated third party.
FACTS
The Taxpayer earned Credits for the 1996 and 1997 taxable years and has received a refund for 50% of the 1996 Credit claimed in 1999. The Taxpayer is now in Chapter 11 bankruptcy and would like to sell the remaining Credits that it has earned to an unrelated third party pursuant to the bankruptcy. You request a ruling permitting the Taxpayer to sell these unused Credits.
RULING
Virginia law does not permit the transfer of income tax credits unless specifically authorized by the General Assembly. As originally enacted in 1995, the department was granted the option to redeem 95% of the Credit that exceeded a taxpayer's tax liability. Any amount of the Credit not redeemed was transferable to third parties. In 1996, the Credit was amended to remove the provision allowing transferability and also made redemption by the state a requirement. Currently, the department is required to redeem 90% of the Credit that exceeded a taxpayer's liability and to deposit the remaining 10% of the Credit with the Coalfields Economic Development Authority.
Without specific statutory authority, the Credit cannot be sold or otherwise transferred to an unrelated third party. However, Credits of a corporation may carryover to an acquiring corporation if certain conditions are met. The department would consider attributes such as continuity of the business as an entity, continuity of ownership of the business property, and the availability of federal carryovers in like situations. This policy is generally consistent with federal carryover rules prescribed in Internal Revenue Code § 381.
I trust the foregoing answers your question. If you have any questions regarding this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/36597B
Rulings of the Tax Commissioner