Tax Type
Corporation Income Tax
Description
Coalfield Employment Enhancement Tax Credit; Computation of employment factor
Topic
Credits
Date Issued
12-12-1997
December 12, 1997
Re: Ruling Request: Corporation Income Tax
Dear**********
This will reply to your letter in which******** (the "Taxpayer") requests a ruling concerning the employment factor used to calculate the Coalfield Employment Enhancement Tax Credit.
FACTS
The Coalfield Employment Enhancement Tax Credit is computed by multiplying a specified dollar value for the tons of coal sold during the taxable year that was mined in Virginia by an 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 Taxpayer requests a ruling as to how many decimal places the employment factor should be computed and what rounding rules should be used.
RULING
The department does not have single policy on how many decimal places should be carried in a ratio relating to the calculation of various components of Virginia tax computations. Instead, the number of decimal places is determined based on the impact of the ratio on the tax computation and the degree of accuracy required to accurately reflect the tax computation.
For example, the standard apportionment factor for the corporation income tax is calculated to six decimal places. In this computation, the department has demanded a high degree of accuracy so as to impose the income tax on no more and no less than the income that can be reasonably attributed to Virginia sources. An apportionment factor with fewer decimal places could significantly increase or decrease the amount of income reported by a taxpayer.
In another example, the department allows part-year individual taxpayers to use a ratio carried to three decimal places to estimate their personal exemptions. Because personal exemptions have less impact on the computation on taxable income than the apportionment factor, the department determined that this percentage does not require the same degree of accuracy as the apportionment factor for multi-state corporations.
In this case, the employment factor is multiplied by a dollar value associated with the tons of Virginia mined coal sold during the taxable year. Because the value of the coal credit could be in the millions of dollars, the department believes an employment factor must be of a significant level of accuracy to prevent a result unfavorable to either a taxpayer or the Commonwealth. For example, if you assume that the value of the coal credit prior to applying the employment factor is $1,000,000, each one-tenth of a percent rounded up or down in computing the employment factor would result in an increase or decrease of the credit by $10,000. This does not reflect the degree of accuracy desired by the department in setting the number decimal places to be included in a ratio. Based on our review of the credit computation, the department believes that a ratio carried to four decimal places (one-hundredth of a percent) would display the desired degree of accuracy.
Under the general rule of rounding, a fractional part of a whole number is rounded down if it amounts to less than one-half, and rounded up if it amounts to one-half or more. The department will normally follow the general rule unless a particular component of the Virginia tax computation warrants a different treatment. Because the employment factor is already a ratio or a fractional part of a whole, the department has concluded that this component should be rounded off using general rounding rules.
Thus the employment factor used in the computation of the Coalfield Employment Enhancement Tax Credit will be a ratio computed to four decimal places and rounded to the nearest one-hundredth of a percent. For example, a computed employment factor equaling .993249 would be rounded to 99.32%.
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/12978O
Rulings of the Tax Commissioner