Tax Type
Corporation Income Tax
Description
Investment under the Neighborhood Assistance Act; Reorganization of qualifying corporation
Topic
Credits
Date Issued
03-24-1994
March 24, 1994
Re: Ruling request: Neighborhood Assistance Act Credit
Dear**************
This will reply to your letter of May 26, 1993 in which you requested a ruling with respect to the Neighborhood Assistance Act Credit. I apologize for the delay in responding.
FACTS
A Virginia corporation receives a Neighborhood Assistance Act Credit which exceeds its bank franchise tax. If the corporation is bought out before fully utilizing the credit, you inquire whether the acquiring corporation can utilize the remaining credit during the carryover period.
RULING
The Neighborhood Assistance Act authorizes the Department of Social Services (DSS) to grant a credit of up to $175,000 to a business firm. The Commissioner of DSS is authorized under Va. Code §63.1-324 to certify to the Department of Taxation the amount of the credit available to a business firm.
The credit allowed by Va. Code §63.1-323 is available to "Any business firm that engages in the activities of providing neighborhood assistance, job training or education..." (emphasis added). The statute clearly contemplates that the credit would be available to the entity that actually engages in the activities eligible for the credit.
In a situation where a tax free reorganization results in the combination of one or more corporations, the carryover of credits from one corporation to the corporate successor will generally be allowed. In such a situation, the Department of Taxation will consider attributes such as continuity of life, continuity of business ownership, and the availability of federal corporate carryovers in determining the carryover of any Virginia tax credit. The department's policy is generally consistent with the federal carryover rules prescribed by I.R.C. §381.
However, the facts you have described suggest a taxable purchase of the assets of one corporation by another corporation. In such a situation, the original entity ceases to exist, and the acquiring corporation would carry on as a distinct business entity. The acquiring corporation is clearly not the business firm that engaged in the activity which generated the credit. Accordingly, the credit would not be available to the acquiring corporation during the remaining carryover period under the facts described in your letter.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7020M
Rulings of the Tax Commissioner