Tax Type
Individual Income Tax
Description
Purchases of Recycling Machinery and Equipment; S Corporations
Topic
Credits
Date Issued
12-30-1991
December 30, 1991
Re: Request For Ruling: Individual Income Tax
Dear******************
This will respond to your letter of October 7, 1991 in which you request a ruling regarding S corporation benefits with respect to the Credit for Purchase of Machinery and Equipment for Processing Recycled Materials.
FACTS
Va. Code §58.1-338 provides an income tax credit equal to 10% of the purchase price for certain machinery and equipment certified by the Department of Waste Management as integral to the recycling process. Enclosed is 8 copy of the recently enacted regulation promulgated by the Department of Waste Management entitled VR 672-60-11: Regulations for the Certification of Recycling Machinery and Equipment for Tax Exemption Purposes.
As set forth in the above referenced Code Section:
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- The total credit allowed under this section shall not exceed forty percent of the Virginia income tax liability of such taxpayer in the taxable year of purchase prior to claiming the credit authorized by this section.
- The total credit allowed under this section shall not exceed forty percent of the Virginia income tax liability of such taxpayer in the taxable year of purchase prior to claiming the credit authorized by this section.
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- For purposes of this section, the amount of any credit attributable to the purchase of recycling machinery and equipment by a partnership or electing small business corporation (S corporation) shall be allocated to the individual partners or shareholders in proportion to their ownership or interest in the partnership or S corporation.
- For purposes of this section, the amount of any credit attributable to the purchase of recycling machinery and equipment by a partnership or electing small business corporation (S corporation) shall be allocated to the individual partners or shareholders in proportion to their ownership or interest in the partnership or S corporation.
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- 1. Whether the forty percent income tax liability annual limitation will apply to an S corporation shareholder's total Virginia income tax liability, or specifically to the tax liability generated from the S corporation generating the credit; and
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- 1. Whether the forty percent income tax liability annual limitation will apply to an S corporation shareholder's total Virginia income tax liability, or specifically to the tax liability generated from the S corporation generating the credit; and
RULING
Because S corporations and partnerships are exempt from paying Virginia income tax, it is necessary to treat them as if they were a C corporation for purposes of determining the 40% limitation imposed by Va. Code §58.1 -338. Therefore, an S corporation or partnership must compute its Virginia taxable income and income tax in accordance with the provisions of Va. Code §58.1-400 et seq.
The credit will be further limited to the amount of the individual taxpayer's actual income tax liability on total Virginia taxable income, computed before applying the Credit for Purchase of Machinery and Equipment for Processing Recycled Materials. If any portion of an otherwise allowable credit is not used solely because it exceeds the income tax liability of the individual taxpayer, k may be carried to the succeeding taxable year and added to any credit allowable for that taxable year.
As required by both Va. Code §58.1-338 and VR 672-50-11, only the purchaser of the equipment may qualify for the certification and the tax credit. Neither the law nor the regulation allows an election to a lessor of the credit-eligible equipment to treat a lessee as purchaser of the equipment. As such, the credit will be granted only to the purchasers of the qualified equipment. This will be the case even though the purchaser may have leased the equipment to another party who will actually use the equipment.
If you need further assistance, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5661M
Rulings of the Tax Commissioner