Tax Type
Corporation Income Tax
Description
Recycling Equipment; Manufacturing Incentives
Topic
Credits
Date Issued
12-15-1992
December 15, 1992
Re: Request for Ruling: Corporate Income Tax
Dear*************
This will reply to your letter of March 11, 1992 in which you request a ruling on behalf of*************** (the "Company") regarding the definition of purchase price for the purpose of determining the amount upon which the recycling tax credit is based. You had originally sent your request to the Virginia Department of Waste Management which forwarded it to the Department of Taxation for our response.
FACTS
The Company is principally engaged in the business of manufacturing equipment that is used in recycling operations. Due to the ever increasing demand for recycling processors, the Company has decided to enter into the recycling processing business. The Company's recycling division will purchase 80% of its equipment from outside vendors. The division will obtain the other 20% of the equipment from the Company's manufacturing division.
The Company has requested a ruling to determine the basis upon which the recycling credit is calculated for the equipment the Company manufactures for its own use in its recycling operations.
RULING
Va. Code §58.1-445.1 provides "a credit against the tax imposed pursuant to §58.1-400 in an amount equal to ten percent of the purchase price paid during the taxable year for machinery and equipment used in manufacturing facilities or plant units which manufacture, process, compound, or produce recycled items... (Emphasis added.) Virginia Regulation (VR) 672-50-11 defines purchase price as the amount for which the machinery and equipment is purchased. The definition of purchase price does not take into account the situation where a recycling processor manufactures its own equipment for use in its recycling operations.
The intent of Va. Code §58.1-445.1 is to provide the incentive to manufacturing concerns to commence recycling activities. The credit is based upon the cost of the acquiring the tangible equipment and does not include the installation costs and other costs incurred after the equipment is purchased. See VR 672-50-11.
In the situation where a recycling processor manufactures its own equipment, its cost of obtaining the recycling equipment for purposes of determining the amount upon which the recycling credit is based, includes the cost of the materials, labor and overhead charged to work in progress. Freight inward to the plant on the materials is treated as an element of the cost of the materials.
The purchase price does not include any markup the manufacturer would place upon the equipment when it sells such equipment to third party purchasers, any costs incurred after the equipment is removed from the production line including, but not limited to, storage and transportation costs, and any cost associated with placing the equipment into service.
If you have any further questions, please do not hesitate to contact the Department of Taxation.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6047O
Rulings of the Tax Commissioner