Tax Type
Individual Income Tax
Description
Major business facility job tax credit; Contract employees
Topic
Credits
Date Issued
11-27-1996
November 27, 1996
Re: Ruling Request: Major Business Facility Jobs Tax Credit
Dear****************
This will reply to your letter of October 7, 1996, in which you ask the department to reconsider its ruling regarding the eligibility of your client, ********* (the "Taxpayer") for the Major Business Facility Job Tax Credit (the "MBFJTC"). The department previously ruled the Taxpayer was not eligible for the credit. See Public Document (P.D.) 95-241, (9122195), copy attached.
FACTS
The Taxpayer has established a facility in Virginia which provides a central administrative function for the Taxpayer's business. The building and equipment are owned by the Taxpayer. However, all or the vast majority of the employees are actually the employees of an unrelated third party (the "Management Firm) which is under contract to manage the facility.
The Management Firm is a personnel supply service. As such, it has entered into a contractual arrangement with the Taxpayer to perform virtually all of the human resource function for the Taxpayer at this facility. The Management Firm is the employer of the personnel (the "contract employees") at the facility, a fact the Taxpayer acknowledges.
In P.D. 95-241, the department ruled that the Taxpayer did not qualify for the MBFJTC because it had not created 100 or more jobs for qualified full-time employees. The department found that the plain language of Code of Virginia § 58.1-439 clearly contemplates employees "of the company," which the department interprets as someone meeting the common law definition of an employee. Consequently, the department ruled that the contract employees of the Taxpayer do not qualify for the credit.
You believe the department's interpretation of the statute is erroneous, and contrary to the intent of the Virginia General Assembly.
DETERMINATION
In your letter, you contend the Taxpayer qualifies for the MBFJTC because the Taxpayer, not the Management Firm, "created" the Virginia jobs. According to your analysis, the statute stresses job creation, not an employment relationship with the company creating the job.
The department, however, cannot agree with your analysis that the statute permits a taxpayer to utilize contract employees and earn the MBFJTC. The department believes its interpretation is correct for the reasons stated in P.D. 95-241. The department believes that in order to adopt your interpretation as correct, the use of the term "employee" in the statute would have to be disregarded.
Furthermore, if it was the intent of the General Assembly to allow contract employees of a taxpayer to qualify for the MBFJTC, the department believes it would have expressly provided for it in the statute. The General Assembly has enacted legislation in which the use of contract employees is a consideration in the computation of a credit.
For example, the Virginia Coalfield Enhancement Employment Tax Credit (codified as Code of Virginia §58.1-439.2), grants a credit for coal mined in Virginia. This credit, like the MBFJTC, is contingent upon jobs. A provision of this credit requires the taxpayer to determine if employment has remained stable from year to year. In making this determination, the provision requires that jobs include both the employees of the person claiming the credit, as well as any contract employees. Code of Virginia §58.1-439.2 (F) provides in pertinent part;
-
- The amount of credit allowed ... shall be the amount of credit earned multiplied by the person's employment factor. The person's employment factor shall be the percentage obtained by dividing the total number of coal mining jobs of the person filing the return, including the jobs of the contract operators of such person, as reflected in the annual tonnage reports filed ... for the year in which the credit was earned by the total number of coal mining jobs of such persons or operators as reflected in the annual tonnage reports for the year immediately prior to the year in which the credit was earned. (Emphasis added).
Moreover, the adoption of your interpretation that the MBFJTC statute permits the use of contract employees would create an additional problem. Combining a reading of the statute with your interpretation would create situations whereby two taxpayers would be entitled to the MBFJTC on the same job. In order to demonstrate this point, a particular aspect of the MBFJTC statute must be analyzed.
A taxpayer must meet the definition of a "qualified company" to be eligible for the MBFJTC. "Qualified company" is defined in subsection (C) of Code of Virginia § 58.1-439. Subdivisions (2) and (3) of subsection (C) provide in pertinent part;
-
- 2.... the establishment or expansion of the major business facility shall result in the creation of at least 100 jobs for qualified full-time employees; the first such 100 jobs shall be referred to as the "threshold amount"; and
3. The company is primarily engaged in the Commonwealth in the business of (i) manufacturing or mining; (ii) agriculture, forestry or fishing; (iii) transportation or communications; or (iv) a public utility subject to the corporation income tax.... The terms used in this subdivision to refer to various types of businesses shall have the same meanings as those terms are commonly defined in the Standard Industrial Classification Manual. (Emphasis added.)
- 2.... the establishment or expansion of the major business facility shall result in the creation of at least 100 jobs for qualified full-time employees; the first such 100 jobs shall be referred to as the "threshold amount"; and
Subsection (E) of the statute contains an exception whereby certain taxpayers need not meet all requirements of subsection (C). Subsection (E) provides in pertinent part;
-
- An enterprise engaged in the Commonwealth in the business of (i) manufacturing or mining; (ii) agriculture, forestry or fishing; (iii) transportation or communications; or (iv) a public utility subject to the corporation income tax shall be deemed to have established or expanded a major business facility in this Commonwealth if it meets the requirements of subdivision C 2 during a single taxable year. (Emphasis added.)
- An enterprise engaged in the Commonwealth in the business of (i) manufacturing or mining; (ii) agriculture, forestry or fishing; (iii) transportation or communications; or (iv) a public utility subject to the corporation income tax shall be deemed to have established or expanded a major business facility in this Commonwealth if it meets the requirements of subdivision C 2 during a single taxable year. (Emphasis added.)
The Standard Industrial Classification (SIC) Manual designates companies that engage in providing contract employees as the Help Supply Services industry. The Help Supply Services industry, designated as SIC 7363, is described in the SIC Manual as follows;
-
- Establishments primarily engaged in supplying temporary or continuing help on a contract or fee basis, The help supplied is always on the payroll of the supplying establishments, but under the direct or general supervision of the business to whom the help is furnished. Establishments which provide both management and staff to operate a business are classified according to the type of activity of the business. Establishments primarily engaged in furnishing personnel to perform a range of services in support of the operation of other establishments are classified in Industry 8744, and those supplying farm labor are classified in Agriculture, Industry 0761. (Emphasis added.)
Therefore, Help Supply Services which provide both management and staff to operate a business would qualify for the MBFJTC provided they are servicing a company that is primarily engaged in one of the qualifying industries enumerated in the MBFJTC statute. Combining this aspect of the statute with your interpretation that a taxpayer can utilize contract employees and qualify for the MBFJTC would allow multiple credits for the same jobs in instances where the taxpayer engages in a qualified industry.
The department cannot conclude it was the intent of the Virginia General Assembly to allow the MBFJTC more than once with respect to any particular job. Without a specific provision in the MBFJTC statute stating otherwise, the department finds that a company will not be eligible for the MBFJTC with respect to contract employees.
Accordingly, the department finds no basis to reverse its prior ruling on this matter; therefore, the department's ruling in P.D. 95-241 is upheld. If you have any questions concerning this ruling, you may contact*******in the Office of Tax Policy at***************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11718L
Rulings of the Tax Commissioner