Tax Type
Corporation Income Tax
Description
Coalfield employment enhancement tax credit; Deferral period
Topic
Credits
Date Issued
01-08-1999
January 8, 1999
Re: Request for a Ruling: Coalfield Employment Enhancement Tax Credit
Dear ****
This will reply to your letter of September 23, 1998 in which you request a ruling on the application of the Coalfield Employment Enhancement Tax Credit. I apologize for the delayed response.
FACTS
Company A qualified for and earned the Coalfield Employment Enhancement Tax Credit in its taxable years 1996, 1997, and 1998. Company A's taxable year is a calendar year. You ask whether the credits earned during Company A's 1996 taxable year must be claimed on its 1998 or 1999 income tax return. You believe that because Company A will file its 1998 income tax return during 1999, it should be able to claim 50% of its credit earned during 1996 on its 1998 income tax return.
RULING
The Coalfield Employment Enhancement Tax Credit (the "credit") provides an income tax credit to producers of Virginia coal and coal methane gas. To the extent the credit exceeds tax liability, the excess is redeemable at 90% of the face value of the excess credit.
The credit was enacted in 1995 as Code of Virginia § 58.1-439.2, but its provisions were substantially amended during the 1996 session of the General Assembly (House Bill 1454, Chapter 1034 of the 1996 Acts of Assembly). The credit is effective for taxable years beginning on or after January 1, 1996. However, as a result of the 1996 amendments to Code of Virginia § 58.1-439.2, credits that are earned currently are deferred and cannot be applied against tax liabilities until future taxable years.
Code of Virginia § 58.1-439.2, provides in pertinent part:
A. For tax years beginning on and after January 1, 1996, but before January 1, 2002, any person who has an economic interest in coal mined in the Commonwealth shall be allowed a credit against the tax imposed by § 58.1-400..
E. ... Persons who qualify for the credit may not apply such credit to their tax returns prior to January 1, 1999, and only one year of credits shall be allowed annually beginning in 1999.
G. The tax credit allowed under this section shall be claimed according to the following schedule: 1. 50% of the credit allowed in tax year 1996 shall be claimed in tax year 1999 and the remainder in tax year 2005.
The second enactment clause of 1996 House Bill 1454 provided;
2. That the provisions of this act shall become effective for all taxable years beginning on or after January 1, 1996, through December, 2001; however, credits earned for such taxable years may continue to be utilized after taxable year 2001 as provided in this act. (Emphasis added.)
Based on subsection G of Code of Virginia § 58.1-439.2, you believe that 50% of the credits earned by persons during 1996 taxable years can first be claimed on income tax returns filed during calendar 1999. The department has previously issue guidance on this matter, and believes it to be consistent with the intent of the General Assembly when it amended the credit in 1996 to include the deferral mechanism in subsection G. See Virginia Tax Bulletin 97-1, (2/18/97), copy attached.
Tax Bulletin 97-1, which implemented the credit, provides on page 1 that "[t]he first time the credit can be applied is for tax liabilities for the 1999 taxable year." While subsection G of the credit statute provides that "50% of the credit allowed in tax year 1996 shall be claimed in tax year 1999," the second enactment clause further provides "[t]hat the provisions of this act shall become effective for all taxable years beginning on or after January 1, 1996." The department finds Virginia Tax Bulletin 97-1 to be consistent with the intent of the General Assembly when it amended the credit in 1996 based upon the language of the second enactment clause of House Bill 1454. The second enactment clause of House Bill 1454 clearly contemplates that the amendments to the credit will be effective with respect to taxable years rather than the year in which a tax return may be filed.
Therefore, the department must uphold its ruling in Tax Bulletin 97-1 that credits earned for 1996 taxable years cannot be claimed until returns filed for 1999 taxable years. Company A must claim 50% of its credits earned during its 1996 taxable year on it return filed for its 1999 taxable year.
I trust this answers your question. If you have any questions about this ruling, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17632B
Related Documents
Rulings of the Tax Commissioner