Tax Type
Corporation Income Tax
Description
Coalfield employment enhancement tax credit; Effect of merger
Topic
Credits
Date Issued
09-29-1999
September 29, 1999
Re: Corporation Income Tax
Dear ****
This will reply to your letter in which you request a ruling on the application of the Coalfield Employment Enhancement Tax Credit (the "Coal Credit').
FACTS
Company A wholly owns Company B, Company C, and Company D (the "Subsidiaries'). The Subsidiaries each earned the Coal Credit in 1996 through 1999. Company A files a consolidated return with the Subsidiaries and intends to use the Coal Credits to offset consolidated corporate income tax liability.
Company A is considering merging the Subsidiaries into itself. Upon the completion of the merger, the Subsidiaries will cease to exist. In the alternative, Company A is considering merging the Subsidiaries and itself into a Limited Liability Company ("LLC').
You request a ruling on a number of different issues as they apply to the two scenarios above. Each issue will be addressed separately below.
1. Would Company A receive the credits which were currently earned by the Subsidiaries?
An entity must have an economic interest in the coal mined in Virginia to earn the Coal Credit. However, 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 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. If any credit remains, 90% of it will be refunded. See Virginia Tax Bulletin 97-1, page 1, copy attached.
In Public Document (P.D.) 99-91 (4/19/99), copy attached, the department held that a company which ceases operations and dissolves its assets and labilities may still claim the coal credit provided it files a Virginia income tax return. The instant case differs because the Subsidiaries would not survive the merger. They would either be absorbed by Company A or would merge into LLC.
It is the General Assembly's intent that Coal Credits which are earned be utilized. Therefore, the Coal Credit will pass to the surviving corporation of a merger in which the subsidiary companies which earned the credit are dissolved into, or are merged with the parent corporation into a new entity. If the surviving corporation is a pass-through entity, the credit will be allocated among distributees according to ownership interest in the year of the merger. Therefore, in either scenario, the Coal Credits which were earned by the Subsidiaries will be claimed.
2. What would Company A have to do in order to receive the credits in the future when they are payable?
Company A or the LLC owners would resubmit the Subsidiaries' Form 306 to the department upon filing their yearly corporate income tax return. Further requirements for filing and claiming the Coal Credit is addressed in the attached Virginia Tax Bulletin 97-1, pages 5-6.
3. Is there a limit on the amount that Company A could claim in the future?
In the instant case, the Coal Credit may be used to offset the combined or consolidated Virginia corporate income tax liability. If any credit remains, 90% of the remainder will be refunded.
I hope that the foregoing answered your questions. If you have any further questions, you may contact ***** at *****.
Re: Corporation Income Tax
Dear ****
This will reply to your letter in which you request a ruling on the application of the Coalfield Employment Enhancement Tax Credit (the "Coal Credit').
FACTS
Company A wholly owns Company B, Company C, and Company D (the "Subsidiaries'). The Subsidiaries each earned the Coal Credit in 1996 through 1999. Company A files a consolidated return with the Subsidiaries and intends to use the Coal Credits to offset consolidated corporate income tax liability.
Company A is considering merging the Subsidiaries into itself. Upon the completion of the merger, the Subsidiaries will cease to exist. In the alternative, Company A is considering merging the Subsidiaries and itself into a Limited Liability Company ("LLC').
You request a ruling on a number of different issues as they apply to the two scenarios above. Each issue will be addressed separately below.
1. Would Company A receive the credits which were currently earned by the Subsidiaries?
An entity must have an economic interest in the coal mined in Virginia to earn the Coal Credit. However, 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 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. If any credit remains, 90% of it will be refunded. See Virginia Tax Bulletin 97-1, page 1, copy attached.
In Public Document (P.D.) 99-91 (4/19/99), copy attached, the department held that a company which ceases operations and dissolves its assets and labilities may still claim the coal credit provided it files a Virginia income tax return. The instant case differs because the Subsidiaries would not survive the merger. They would either be absorbed by Company A or would merge into LLC.
It is the General Assembly's intent that Coal Credits which are earned be utilized. Therefore, the Coal Credit will pass to the surviving corporation of a merger in which the subsidiary companies which earned the credit are dissolved into, or are merged with the parent corporation into a new entity. If the surviving corporation is a pass-through entity, the credit will be allocated among distributees according to ownership interest in the year of the merger. Therefore, in either scenario, the Coal Credits which were earned by the Subsidiaries will be claimed.
2. What would Company A have to do in order to receive the credits in the future when they are payable?
Company A or the LLC owners would resubmit the Subsidiaries' Form 306 to the department upon filing their yearly corporate income tax return. Further requirements for filing and claiming the Coal Credit is addressed in the attached Virginia Tax Bulletin 97-1, pages 5-6.
3. Is there a limit on the amount that Company A could claim in the future?
In the instant case, the Coal Credit may be used to offset the combined or consolidated Virginia corporate income tax liability. If any credit remains, 90% of the remainder will be refunded.
I hope that the foregoing answered your questions. If you have any further questions, you may contact ***** at *****.
Rulings of the Tax Commissioner