04-91 | Virginia Tax

Tax Type

Individual Income Tax

Description

Coalfield Employment Enhancement Tax Credit disallowed

Topic

Credits

Date Issued

08-31-2004

August 31, 2004

Re: § 58.1-1821 Application: Individual Income Tax

Dear *****:

This will reply to your letter in which you contest the Department's disallowance of the Coalfield Employment Enhancement Tax Credit (the "Credit") claimed by your clients named above (collectively, the "Taxpayers"). The Taxpayers claimed the Credit on their Virginia individual income tax returns filed for the taxable year ended December 31, 2000. I apologize for the delay in this response.

FACTS

You state that the Taxpayers earned the Credit through a pass-through entity during the calendar year 1997. The 1997 Virginia individual income tax returns for the Taxpayers were filed without the Form 306 attached. According to your letter, the accountant inadvertently failed to attach the Form 306 to each of the Taxpayers' returns because of a computer software problem.

Pursuant to Va. Code § 58.1-439.2, which establishes the Credit, the first 50% of the Credit earned in 1997 would be claimed in tax year 2000. Because the Form 306 (Coalfield Employment Enhancement Tax Credit) was not attached to the Taxpayers' Virginia individual income tax returns for tax year 2000, the Credit claimed on those returns was disallowed. You request that the Taxpayers be allowed to claim the Credit because the failure to file the proper form was caused by the computer software problem.

DETERMINATION

Pursuant to Va. Code § 58.1-439.2, a taxpayer with an "economic interest" in Virginia coal is eligible to take the Credit. The Credit is based upon the number of tons of coal sold during the taxable year that were mined in Virginia, multiplied by an employment factor. The amount of the Credit varies according to seam thickness for coal mined by underground methods. The Credit is also available for surface-mined coal.

The Credit is earned during taxable years beginning on or after January 1, 1996, but is deferred according to a statutorily established schedule. If the amount claimed exceeds a person's liability for all state-imposed taxes that were incurred during the taxable year, then the excess is refundable up to 90% of the Credit claimed. The remaining 10% is deposited in a fund administered by the Coalfields Economic Development Authority ("CEDA"). For Credits earned for taxable years beginning on and after January 1, 2002, the refundable excess will be reduced to 85% with the remaining 15% going to CEDA.

In this case, the Taxpayers assert that they earned the Credit in 1997. According to the deferral schedule, 50% of the Credit earned in the 1997 taxable year would be claimed in the 2000 taxable year and the remainder in the 2006 taxable year.

The statute does not specify the manner in which the Credit is to be claimed. Under Va. Code § 58.1-202(7), the Tax Commissioner has the power to "[p]rescribe the forms of books, schedules and blanks to be used in the assessment and collection of state taxes ...." This provision allows the Tax Commissioner to prescribe the form for tax returns and instructions in such a way to allow the Department to administer state taxes properly.

To that end, the Commissioner promulgated Tax Bulletin 97-1, issued on February 18, 1997. The Tax Bulletin was developed with the cooperation of representatives of the coal industry for the efficient and equitable administration of the Credit. According to Tax Bulletin 97-1, "[i]ndividuals who earn the credit either as sole proprietors or distributees of pass-through entities are also required to file Form 306 with their corresponding Forms 760, 760PY, or 763." [Emphasis added.] This requirement is reiterated in the instructions for Form 306. As such, the Department has given taxpayers and tax preparers adequate notice of the requirement that Form 306 must be attached to returns in order to claim the Credit.

In Public Document ("P.D.") 85-76 (4/4/85), the Department held that failure to timely file a return is not excused by a taxpayer's reliance on a tax preparer. The Department distinguished the failure to file a return properly from the reliance of a taxpayer on an accountant's or attorney's advice on tax law. The Department held that a taxpayer is capable of meeting filing deadlines whereas most taxpayers are not competent to discern an error in substantive tax advice. As such, taxpayers are not entitled to relief when tax preparers fail to properly file a return.

The failure to properly attach a Form 306, even though tax preparation software failed to produce a Form 306, constitutes the failure to follow the procedures properly for claiming the Credit. Regrettably, no relief may be given in this case. The Credit claimed by the Taxpayers was properly disallowed.

This determination does not affect the Taxpayers' ability to claim the 50% balance of the Credit in the 2006 taxable year.

The Code of Virginia sections, the Tax Bulletin, and the public document cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/45826B

Rulings of the Tax Commissioner