04-190 | Virginia Tax

Tax Type

Corporation Income Tax

Description

Purchase of Machinery and Equipment for Processing Recyclable Materials

Topic

Credits

Date Issued

10-20-2004

October 20, 2004

Re: Ruling Request: Corporate Income Tax

Dear *****:

This is in response to your letter of October 8, 2004, in which you requested a ruling on the Tax Credit for the Purchase of Machinery and Equipment for Processing Recyclable Materials (the "Credit") for ***** (the "Taxpayer").

FACTS

The Taxpayer currently operates a manufacturing facility in Virginia. The Taxpayer is proposing an expansion of this facility in order to process recycled materials. This expansion should be completed by the end of 2006. All new machinery and equipment will be purchased and installed by that time. However, a supply of recycled materials will not be available in sufficient quantifies prior to late 2009 at the earliest. This means that the Department of Environmental Quality ("DEQ") will not be able to certify the machinery and equipment as integral to the recycling process until that time.

You are writing to request that, once DEQ certifies that the machinery and equipment at the Virginia facility is integral to the recycling process and eligible for the Credit, the Taxpayer will be entitled to amend its Virginia income tax returns for all open tax years beginning with the year in which the machinery and equipment certified by DEQ was purchased and claim the credit in each of these years to the maximum extent allowed by the statute.

RULING

Under Va. Code § 58.1-439.7(A), a corporation "shall be allowed a credit . . . in an amount equal to 10 percent of the purchase price paid during the taxable year for machinery and equipment used exclusively in or on the premises of manufacturing facilities . . . . . The Department of Environmental Quality shall certify that such machinery and equipment are integral to the recycling process before the corporation shall be entitled to the tax credit under this section." Currently, this credit is set to expire on January 1, 2007.

In order to be "integral to the recycling process" as required, the machinery and equipment that is purchased must be used over 50% of the time to process recyclable material. 9 VAC 20-140-20. The Taxpayer will not initially be able to use its new machinery and equipment to process recyclable material because of the lack of availability of such material. In turn, DEQ will be unable to certify the machinery and equipment when it is purchased and installed in 2006. Thus, the Taxpayer will not qualify for the Credit before it files its original taxable year 2006 income tax return.

The Taxpayer anticipates that a DEQ certification will be issued by 2009 or 2010. At that time, the corporation will be eligible for the Credit. However, the Taxpayer may not, however, claim the Credit on its 2009 or 2010 income tax return because the Credit must initially be claimed in the year in which the machinery and equipment were purchased. See Public Document (P.D.) 92-199 (10/5/92). Once the machinery and equipment are certified by DEQ, the Taxpayer may amend its 2006 income tax return to claim the Credit.

This right to amend a prior return is not unlimited, however. Under Va. Code § 58.1-1823(A), a taxpayer "may file an amended return with the Department [of Taxation] within . . . three years from the last day prescribed by law for the timely filing of the return . . . . "

In the case of the Taxpayer, this means that the last date to file an amended return for 2006 is three years after the due date for the 2006 income tax return. If the machinery and equipment are not certified by DEQ and the amended return is not filed by that time, the credit may not be claimed for 2006.

Notwithstanding these restrictions, even if the Taxpayer cannot claim the credit for 2006, the entire value of the credit may not be lost. Under § 58.1-439.7 C, "[a]ny tax credit not used for the taxable year in which the purchase price on recycling machinery and equipment was paid may be carried over for credit against the corporation's income taxes in the 10 succeeding taxable years until the total credit amount is used." If the Taxpayer fails to meet the deadline for certification and filing of the amended return for 2006, it would be possible for the corporation to amend its 2007 and 2008 income tax returns. Any remaining unused credits after filing amended 2007 and 2008 returns could be carried forward to succeeding taxable years through 2015, or until fully utilized.

The amount of credit that would be available for carryover would be "any credit remaining after reduction by the amount of credit that would have been allowable for [2006]." P.D. 99-48 (4/2/99). The amount of credit that would have been allowable for 2006 would be forty percent of the amount of the Taxpayer's tax liability on its final 2006 corporate income tax return, including any amendments later made to its original 2006 return, for any reason. See Va. Code § 58.1-439.7 B.

I trust that this reply answers your ruling request. Copies of the Code of Virginia sections cited are included for reference purposes. These and other reference documents are also available on-line in the Tax Policy Library section of the Department of Taxation's web site located at www.tax.state.va.us. If you should have any questions regarding this ruling, you may contact ***** in the Office of Policy and Administration, Policy Development, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

Rulings of the Tax Commissioner