Tax Type
General Provisions
Description
Tax bulletin
Topic
COALFIELD EMPLOYMENT ENHANCEMENT TAX CREDIT
Date Issued
02-18-1997
VVirginia Department of Taxation
February 18, 1997 COALFIELD EMPLOYMENT ENHANCEMENT TAX CREDIT
Generally
The Coalfield Employment Enhancement Tax Credit was enacted by the 1995 General Assembly for taxable years beginning on or after January 1, 1996, but before January 1, 2001. The credit was amended by the 1996 General Assembly to extend the sunset provision by one year, substantially increase the amount of the credit for both surface and underground mining, modify seam thickness requirements, eliminate the General Fund surplus contingency requirement, link the credit to employment levels, and make the redemption of excess credits mandatory. The credit is applicable to all taxes imposed by the Commonwealth of Virginia. Any person with an economic interest in coal mined in Virginia is eligible.
The credit is based upon the number of tons of coal sold during the taxable year which were mined in Virginia, multiplied by an employment factor. The amount of the credit varies according to seam thickness for coal mined by underground methods. The credit is also available for surface mined coal, as well as coalbed methane gas.
The credit is earned during taxable years beginning on or after January 1, 1996, but is applied according to a deferral schedule. The first time the credit can be applied is for tax liabilities for the 1999 taxable year. If the applied credit exceeds a person’s liability for all state imposed taxes which were incurred during the taxable year, then the excess is refundable up to ninety percent of the credit claimed in that year. The remaining ten percent will be deposited in a regional fund administered by the Coalfields Economic Development Authority.
Definitions
Economic interest: An economic interest for purposes of this credit will be the same as the economic ownership interest required by § 611 of the Internal Revenue Code as of December 31, 1977, in order to claim the depletion deduction. A person who receives only an arm’s length royalty will not be considered as having an economic interest in coal mined in Virginia.
Coal mined in Virginia: Coal mined by underground methods will be considered “mined in Virginia” if the portal through which the coal is brought to the surface is located in Virginia. Coal mined by surface mining methods will be considered “mined in Virginia” if mined from within the boundaries of the permit area as defined in Code of Virginia § 45.1-229.
Ton: The credit is based in part on the number of tons sold. Therefore, the definition of ton for credit purposes will be the same as customarily used in transactions between a knowledgeable buyer and seller.
Number of Virginia coal mining jobs: A Virginia coal mining job will be considered to be any job required to be reported on the Mine Safety and Health Administration (MSHA) Form 7000-2 pursuant to 30 CFR Part 50 as of January 1, 1995, and for which wages are properly reported on Form VEC-FC-20 pursuant to the Virginia Unemployment Compensation Act (Code of Virginia § 60.1-1 et seq.) The total hours worked at these jobs during each quarter, calculated in accordance with 30 CFR Part 50 and reported on the Virginia Department of Mines, Minerals & Energy (DMME) tonnage report (Form DM-CM2), will be aggregated for the calendar year. (A Form DM-CM2 is attached). The total hours from all tonnage reports filed by the entity will be divided by 1,920 equivalent hours per job to derive the number of coal mining jobs for the employment factor computation.
A taxpayer with facilities that do not have an assigned Mine Index Number from the DMME such as stand alone preparation plants, coal handling facilities, shops, or administrative or engineering facilities, and who wishes to file employment data from these facilities for the purpose of calculating the employment factor, may;
1. File a separate annual tonnage report (Form DM-CM-2) with the Division of Mines. Insert “none” in the space where the Mine Index Number is located and leave the tonnage spaces blank.
2. Allocate coal mining jobs among various contractors. (Attach an explanation to Form DM-CM-2.)
3. Allocate coal mining jobs to one contractor. (Attach an explanation to Form DM-CM-2.)
Coalbed Methane Producer: The person issued a permit by DMME to operate a coalbed methane well.
Computing the Credit
The credit is equal to the number of tons of coal sold during the taxable year which were mined in Virginia, multiplied by the following rates:
$2 per ton for coal mined from a seam thickness of 36" or less;
$1 per ton for coal mined from a seam thickness of greater than 36";
$0.40 per ton for coal mined using surface mining methods.
This amount is then multiplied by an employment factor, which is a ratio that cannot exceed 1.0. The credit for coalbed methane gas, which is $0.01 per million BTUs of Virginia coalbed methane sold during the taxable year, is then added to this result. The total is the maximum credit allowable for the taxable year.
Each ton of Virginia-mined coal sold will be eligible for only one of the Virginia coal credits (Coalfield Employment Enhancement, Qualifying Steam Producers, Coal Employment and Production Incentive, Qualifying Cogenerators and Small Power Producers). Under no circumstances will a buyer and seller be permitted to claim credits for the same ton of coal.
Example 1
Company A is a calendar year filer. In the 1997 taxable year, Company A sold 250,000 tons of coal mined in Virginia. All coal was mined from seam thicknesses greater than 36". Of the 250,000 total tons sold, Company A sold 35,000 tons to Company Z, a corporation subject to the annual license tax on companies furnishing water, heat, light or power. Company A provides certification to Company Z that the coal sold was mined in Virginia, in accordance with Code of Virginia § 58.1-2626.1, and is therefore aware that Company Z intends on claiming the Virginia Coal Employment and Production Incentive Tax Credit. Assuming no change in the number of Virginia coal mining jobs for the years ended December 31, 1997 and 1996, Company A’s credit is calculated as follows:
(250,000 tons - 35,000 tons) x $1/ton x 1.0 employment factor = $215,000
Employment Factor
The employment factor is the ratio of the number of Virginia coal mining jobs for the calendar year ending during the taxable year in which the credit is earned to the number of Virginia coal mining jobs for the prior calendar year.
The employment factor is calculated using each filing entity’s aggregate number of Virginia coal mining jobs and not on a per mine basis. When determining the number of coal mining jobs, always round up.
The jobs of Virginia coal mining contract operators of the person claiming the credit must be included in the entity’s employment factor. The person claiming the credit is responsible for obtaining the contractor’s annual tonnage reports filed with DMME.
Taxpayers who file consolidated or combined returns will calculate the employment factor and corresponding credit on a separate company basis.
Example 2
Assume that Company A is a fiscal year filer with a taxable year beginning August 1, 1996. Company A will compute its employment factor based on the ratio of the number of coal mining jobs for the year ended December 31, 1996, to the number of Virginia coal mining jobs for the year ended December 31, 1995.
Example 3
Assume that Company B files the following tonnage reports:
Mine | Total hours (12/31/96) | Total hours (12/31/95) |
A | 133,250 | 131,900 |
B | 78,390 | 86,525 |
C | 212,500 | 225,650 |
D | 0 | 53,250 |
Totals | 424,140 | 497,325 |
Number of coal mining jobs, 12/31/96: 424,140 hours/1,920 hours per coal mining job = 220.9, rounding up we get the result of 221 coal mining jobs
Number of coal mining jobs, 12/31/95: 497,325 hours/1,920 hours per coal mining job = 259.02, rounding up, results in 260 coal mining jobs
Employment factor = 221/260 = 0.85
Example 4
Assume four affiliated coal companies with the following facts:
Company | Seam Thickness | Tons Sold (Net of tons used for other credits) | VA Coal Mining Jobs (Current Year) | VA Coal Mining Jobs (Prior Year) |
1 | 25" | 100,000 | 1,500 | 1,000 |
2 | 40" | 500,000 | 750 | 1,000 |
3 | 45" | 200,000 | 2,000 | 1,000 |
4 | 20" | 400,000 | 500 | 1,000 |
Totals |  | 1,200,000 | 4,750 | 4,000 |
The credit is calculated as follows:
Co.1 ($2/ton x 100,000 tons) x (1,000/1,000) = $ 200,000
Co.2 ($1/ton x 500,000 tons) x (750/1,000) = 375,000
Co.3 ($1/ton x 200,000 tons) x (1,000/1,000) = 200,000
Co.4 ($2/ton x 400,000 tons) x (500/1,000) = 400,000
Total credit $ 1,175,000
Note that the employment factors for Co. 1 and Co. 3 are capped at 1.0
Isopach Mapping
Operators must submit a coal thickness isopach map when they are claiming any tax credit for coal mined that is 36 inches and under. Operators who are not claiming any tax credit for coal 36" and under do not have to submit a map (all coal mined is greater than 36").
Coal isopach maps shall be submitted to the Department of Mines, Minerals and Energy, Division of Mines, P.O. Box 900, Big Stone Gap, VA 24219. The certification of the weighted average isopach mapping of actual coal thickness and volume ratio of 36" and under coal to above 36" coal shall be attached.
Maps shall be submitted by April 1 of the year immediately following the year in which the tax credit is earned or within three months after the end of the operator’s fiscal year.
Coal thickness isopach maps shall meet the following requirements:
a) must be of a scale 1" = 100' to 1" = 400'.
b) must contain the 36" contour line and contour lines on 3 inch intervals unless all coal is less than 36". If all coal is less than 36", no contours are required. Contour lines will be used by the Division of Mines to evaluate the ratio of 36 inches and under coal to above 36 inch coal reported by the operator.
c) coal sections must be located on the map at intervals of 200' or less. The 200' spacing is to be measured longitudinally with the advancing section development. Other supporting evidence such as borehole data may be included. Coal isopach maps submitted for the 1996 taxable year may have a coal section interval spacing of greater than 200' if they have not been measured at this frequent of an interval.
d) maps must be submitted on paper or on computer disk in autocad DWG format.
e) must be certified by a professional engineer.
The Division of Mines must evaluate the coal thickness maps and acknowledge to the operator that the maps were received and that no discrepancies were found. This acknowledgment will be sent to the operator by July 1 of the year the maps were submitted or within six months of the end of the operator’s fiscal year unless the Division of Mines is granted an extension by the Department of Taxation. The operator shall submit a copy of this acknowledgment to the Department of Taxation with its tax return.
If the operator needs acknowledgment at an earlier date, the operator may contact the Division of Mines and arrange an earlier review. Otherwise, the taxpayer would need to file the appropriate tax return extension with the Department of Taxation.
Should a conflict arise between an operator and the Division of Mines regarding the coal thickness isopach map, an independent third-party shall be selected that is agreeable to both parties to evaluate the isopach maps. The operator will be responsible for all charges associated with third- party evaluation of isopach maps.
Reporting and Claiming the Credit
Filing Requirements
Corporations: Form 306 must be filed with the Form 500 or 500S for the year the credit is earned. Consequently, the deadlines and statute of limitations for filing the Form 500 and 500S are applicable to Form 306. Form 306 is required to be resubmitted when the credit is actually claimed. If a corporation acquires another entity with earned, but unapplied credits, then the acquiring entity is required to attach the acquired entity’s Form 306 to the returns in which those credits are redeemed.
Individuals: Individuals who earn the credit either as sole proprietors or distributees of pass-through entities are also required to file Form 306 with their corresponding Forms 760, 760PY, or 763. If the individuals earn the credit via a pass-through entity, the pass-through entity should furnish the individual with a copy of the DMME acknowledgment, if applicable, as well as a copy of the pass-through entity’s Form 306.
Pass-through entities must allocate the credit among distributees according to ownership interest.
Any person which grants certificates to purchasers certifying that the coal purchased is Virginia-mined coal for purposes of claiming one of the other coal related credits, and also claims the Coalfield Employment Enhancement Tax Credit, must attach a schedule of the certificates granted to Form 306. This schedule should, at a minimum, list the purchaser, the number of tons certified, certificate date, and invoice number for each transaction for which a certificate was issued.
Claiming the Credit
The credit is claimed according to a deferral schedule. This schedule is printed on Form 306. Since this a redeemable credit, there is no carryforward feature. The credit will be first applied against corporate income taxes and then against all other taxes imposed by the Commonwealth which were incurred by the taxpayer during the taxable year. The credit will be administered and redeemed only by the Department of Taxation.
Refunds for previously paid taxes imposed by the Commonwealth which were incurred during the taxable year will be refunded at 100% of face value up to the amount of the credit. If any credit remains, it will be refunded at 90% of face value.
The credit cannot be utilized to offset unpaid Virginia-imposed tax liabilities from prior years, nor can it be used to offset any addition to tax, penalty, or interest incurred for current year tax liabilities. However, any refund or overpayment will be subject to the provisions of the Virginia Setoff Debt Collection Act (Code of Virginia § 58.1-520 et seq.).
In the event a taxpayer claims other state income tax credits in addition to the Coalfield Employment Enhancement Credit, the credit ordering scheme as listed in Public Document 95-240, copy enclosed, will be applicable.
In instances where a combined or consolidated Virginia corporate income tax is filed which includes corporations which were not eligible to claim the credit, special rules apply. In such cases, the credit as calculated above is utilized to offset the combined or consolidated Virginia corporate income tax liability. Any remaining credit, however, can only be used to offset other state taxes incurred by the corporations in the consolidated or combined group which actually earned the credit.
Administrative Appeals
Any application for correction of an erroneous assessment pursuant to Code of Virginia § 58.1-1821 that is contingent upon the determination of the weighted average isopach mapping of actual coal thickness will be held without action until a final determination is made in accordance with the DMME isopach mapping section of this bulletin.
Any § 58.1-1821 application not contingent upon weighted average isopach mapping of actual coal thickness will be acted on by the Department of Taxation.
Record Retention Responsibilities
All information upon which the isopach mapping is based is available for audit by DMME within three years from the last day prescribed by law for the timely filing of the corresponding income tax return. The tonnage and employment factor will be subject to audit by the Department of Taxation within the same time period.
The correction of a mathematical error in the computation or application of the credit may be made by the Department of Taxation within three years of the date a credit is claimed.
Example 5
Company A is a coal mining company which operates four mines in Virginia. Company B is also a coal mining company, and operates two Virginia mines. Both A and B are wholly-owned subsidiaries of Company C. Company C is a holding company which owns several other companies, none of which earned the credit. The affiliated group files a consolidated return for both federal and Virginia purposes on a calendar year basis.
Assume the following facts:
In 1996, Company A sold 100,000 tons of coal which were mined in Virginia from seam thicknesses of 36" or less, and 250,000 tons from seam thicknesses more than 36".
In 1996, Company B sold 210,000 tons of surface mined coal.
Number of coal mining jobs for year ended 12/31/96: Company A = 1,500; Company B = 750
Number of coal mining jobs for year ended 12/31/95: Company A = 1,000; Company B = 1,000
In 1999, the following tax liabilities are incurred:
Virginia consolidated corporate income tax liability $ 93,000
Company A’s other Virginia imposed taxes 37,000
(Includes $2,000 in various penalties)
Company B’s other Virginia imposed taxes 57,500
Company C’s other Virginia imposed taxes 29,000
Company C Virginia sales tax 6,250
Company A BPOL tax 2,950
Company B Wise County severance tax 7,211
The consolidated group also has an outstanding corporate income tax assessment from 1998 of $17,500 in tax, penalty, and interest.
The consolidated group made no Virginia estimated tax payments, since it was determined that the consolidated Virginia corporate income tax liability would not exceed the credit available. All other taxes were paid.
Computation of the credit earned in the 1996 tax year:
Company A [(100,000 x $2)+(250,000 x $1)] x (1,500/1,000) = $ 450,000
Company B [(210,000 x $0.40)] x (750/1,000) = 63,000
Total credit = $ 450,000 + 63,000 = $ 513,000
Applying the credit in 1999:
1996 Credit earned $513,000
% per redemption schedule 50%
Credit available in 1999 256,500
Less: corporate income tax 93,000
Co. A’s other Virginia imposed taxes 35,000
Co. B’s other Virginia imposed taxes 57,500
Credit unapplied 71,000
Disposition of Unapplied Credit:
90% of unapplied credit redeemed to Taxpayer 63,900
Deposit to Coalfields Authority 7,100 71,000
Refunds of previously paid other Virginia imposed taxes:
Co. A’s other Virginia imposed taxes 35,000
Co. B’s other Virginia imposed taxes 57,500
92,500
Total Refund to Taxpayer:
Redemption of Unapplied Credit 63,900
Refunds of Other Virginia imposed taxes 92,500
156,400
Less refund match (outstanding assessment) 17,500
$138,900
Rulings of the Tax Commissioner