Tax Type
Individual Income Tax
Description
Denial of the Empowerment Zone Employment Credit
Topic
Credits
Date Issued
02-07-2005
February 7, 2005
Re: § 58.1-1821: Individual Income Tax
Dear *****:
This will reply to your letter submitted on behalf of your client, ***** (the "Taxpayer"), in which you seek correction of the Department's denial of a subtraction on the Virginia individual income tax return related to the federal Empowerment Zone Employment Credit. I apologize for the delay in the Department's response.
FACTS
The Taxpayer is a shareholder of an S corporation that claimed an Empowerment Zone Employment Credit on its federal income tax return. Internal Revenue Code ("IRC") § 280 C (a) disallows salary and wage expenses to the extent utilized in computing the Empowerment Zone Employment Credit under IRC § 1396. The Taxpayer claimed a subtraction of the distributive share of the disallowed salary and wage expenses under Va. Code § 58.1-322 C 6, which relates specifically to the federal Targeted Jobs Credit. The Department denied the subtraction on the Taxpayer's individual income tax return, which reduced the amount of overpayment.
The Taxpayer contends that the subtraction was properly claimed and that disallowance of the subtraction is both inconsistent and discriminatory. The Taxpayer requests that the subtraction be restored on its 2002 individual income tax return.
DETERMINATION
Virginia Code §§ 58.1-322 C 6 and 58.1-402 C 6 allow individuals and corporations to subtract "wages or salaries eligible for the federal Targeted Jobs Credit which was not deducted for federal purposes on account of the provisions of § 280 C(a) of the Internal Revenue Code." Legislation enacted by Congress in 1996 renamed the Targeted Jobs Credit, the "Work Opportunity Credit." The Department recognized the renamed credit and its relationship to the aforementioned sections of the Code of Virginia.
In Public Documents 00-166 (09/06/00) and 04-95 (09/08/04), the Department determined that, while Virginia law specifically allows the subtraction with respect to the Work Opportunity Tax Credit, Virginia law contains no similar provision for the Empowerment Zone Employment Credit. Based on Virginia law and the Department's prior rulings, the Taxpayer is not allowed to take a Virginia income tax subtraction for salary and wage expense eligible for the federal Empowerment Zone Employment Credit. Therefore, the subtraction claimed by the Taxpayer for wages and salaries that utilized the federal Empowerment Zone Credit is disallowed and the assessment is upheld.
The Code of Virginia sections and public documents cited, along with other reference documents, are available online in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions regarding this determination or desire additional information, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/50135E
Rulings of the Tax Commissioner