Tax Type
Corporation Income Tax
Description
Purchases of recycling machinery and equipment; Acquiring corporation's redemption of merged subsidiary's unused credit.
Topic
Credits
Date Issued
11-17-1997
November 17, 1997
Re: Request for Ruling: Corporation Income Tax
Dear******************
This will reply to your letter in which you are requesting a ruling on behalf of your client (the "Taxpayer") concerning an earned, but unapplied, tax credit for the purchase of machinery and equipment for processing recyclable materials under Code of Virginia § 58.1-445.1 (the "Recycling Credit") carried forward by the Taxpayer's subsidiary if that subsidiary is merged with the Taxpayer.
FACTS
The Taxpayer is a multi-state corporation located outside Virginia but is subject to Virginia tax on its income. The subsidiary is also a multi-state corporation whose principal place of business is located within Virginia. The Taxpayer is considering a merger with the subsidiary, in which the Taxpayer will be the successor entity.
During the taxable year ended October 31, 1994, the subsidiary purchased equipment for its Virginia operations that qualified for the Recycling Credit. The subsidiary has used the credit to offset Virginia taxable income for each of the taxable years ended October 31, 1994 through 1996, but is still carrying a substantial portion of the credit forward. You wish to verify that the Taxpayer will be able to use the credit carried into the merged corporation by the subsidiary.
RULING
Under Code of Virginia § 58.1-445.1, a corporation is granted a credit against its income tax equal to ten percent of the cost of machinery and equipment used exclusively at a manufacturing facility that produces items of tangible personal property from recyclable materials for sale. The Code of Virginia and the tax regulations do not expressly address a situation where the corporation earning the credit is merged with another corporation.
Although this issue is not directly addressed in code or regulations, the department has previously published an administrative ruling on the impact of a merger on the use of a Virginia tax credit. In Virginia Tax Bulletin 97-1, (2-18-97), (copy enclosed), concerning the Coalfield Employment Enhancement Tax Credit, the department allows a corporation that acquires another entity to redeem credits earned but not applied by the acquired entity. Accordingly, the department finds that similar treatment is appropriate when a corporation acquires another entity with unused Recycling Credits.
I trust this will answer the questions posed in your letter; however, please contact **** at***** if you have additional questions or if we may be of further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13078O
Rulings of the Tax Commissioner