Part II. Procedures for Qualifying for General Tax Credit
13VAC5-112-20. Effective dates.
Beginning on July 1, 2005, small qualified and large qualified business firms shall be allowed a credit against taxes imposed by Articles 2 (Individuals; § 58.1-320 et seq.) and 10 (Corporations; § 58.1-400 et seq.) of Chapter 3; Chapter 12 (Bank Franchise; § 58.1-1200 et. seq.); Article 1 (Insurance Companies; § 58.1-2500 et seq.) of Chapter 25 or Article 2 (Telegraph, Telephone, Water, Heat, Light, Power and Pipeline Companies; § 58.1-2620 et seq.) of Chapter 26 of Title 58.1 of the Code of Virginia as provided in this regulation for up to 10 consecutive years in an amount equaling up to 80% of the tax due the first tax year, and up to 60% of the tax due for the second through tenth tax years.
The provisions of this section shall apply only as follows:
1. To those qualified business firms that have initiated use of enterprise zone tax credits pursuant to § 59.1-280 of the Code of Virginia on or before July 1, 2005;
2. To those small qualified business firms and large qualified business firms that have signed agreements with the Commonwealth regarding the use of enterprise zone tax credits in accordance with § 59.1-280 of the Code of Virginia on or before July 1, 2005; provided that in the case of small qualified business firms, the signed agreements must be based on proposals developed by the Commonwealth prior to November 1, 2004.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-30. Computation of credit.
A. The amount of credit allowed shall be subject to the limitations provided by 13VAC5-112-20. An unused tax credit may not be applied to future years. Any credit not useable for the taxable year the credit was allowed shall not be carried back to a preceding taxable year. The credit is not refundable.
B. If, due to adjustments, the amount of actual tax liability as reported on the application changes, the amount of credit that the qualified business firm will be eligible to receive will not exceed the amount of credit authorized by the department. However, if, as a result of adjustments, the tax liability decreases from the amount stated on the application, the qualified business firm will receive a lower credit amount based on the new tax liability in accordance with the percentage amounts specified in 13VAC5-112-20.
C. For large qualified business firms, the percentage amounts of the income tax credits available to such qualified business firms under this section will have been determined by agreement between the department and the qualified business firm. The negotiated percentage amount shall not exceed the percentages specified by 13VAC5-112-30.
D. Tax credits provided for in this section shall only apply to taxable income of a qualified business firm attributable to the conduct of business within the enterprise zone. Any qualified business firm having taxable income from business activity both within and without the enterprise zone, shall allocate and apportion its Virginia taxable income attributable to the conduct of business as follows:
1. The portion of a qualified business firm's Virginia taxable income allocated and apportioned to business activities within an enterprise zone shall be determined by multiplying its Virginia taxable income by a fraction, the numerator of which is the sum of the property factor and the payroll factor, and the denominator of which is two.
a. The property factor is a fraction. The numerator is the average value of real and tangible personal property of the business firm that is used in the enterprise zone. The denominator is the average value of real and tangible personal property of the business firm used everywhere in the Commonwealth.
b. The payroll factor is a fraction. The numerator is the total amount paid or accrued within the enterprise zone during the taxable period by the business firm for compensation. The denominator is the total compensation paid or accrued everywhere in the Commonwealth during the taxable period by the business firm for compensation.
2. The property factor and the payroll factor shall be determined in accordance with the procedures established in §§ 58.1-409 through 58.1-413 of the Code of Virginia for determining the Virginia taxable income of a corporation having income from business activities that is taxable both within and without the Commonwealth, mutatis mutandis.
3. If a qualified business firm believes that the method of allocation and apportionment hereinbefore prescribed as administered has operated or will operate to allocate or apportion to an enterprise zone a lesser portion of its Virginia taxable income that is reasonably attributable to a business conducted within the enterprise zone, it shall be entitled to file with the Department of Taxation a statement of its objections and of such alternative method of allocation or apportionment as it believes to be appropriate under the circumstances with such detail and proof and within such time as the Department of Taxation may reasonable prescribe. If the Department of Taxation concludes that the method of allocation or apportionment employed is in fact inequitable or inapplicable, it shall redetermine the taxable income by such other method of allocation or apportionment as best seems calculated to assign to an enterprise zone the portion of the qualified business firm's Virginia taxable income reasonably attributable to business conducted within the enterprise zone.
E. In the event that taxpayer requests exceed the Commonwealth's annual fiscal limitation, each taxpayer shall be granted a pro rata amount as determined by the department. The amount of such prorated credit shall be determined by applying a fraction, the numerator of which shall be the gross credits requested by the taxpayer for such year, and the denominator of which shall be the total gross credits requested by all taxpayers for such year, to the Commonwealth's annual financial limitation. The credit that may be requested each year shall be subject to the limitations provided by 13VAC5-112-40 and 13VAC5-112-130.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-40. Annual fiscal limitations.
A. The total amount of tax credits awarded to small and large qualified business firms under this section and qualified large zone residents in 13VAC5-112-110 shall not exceed $7.5 million annually until the end of fiscal year 2019 as provided for in §§ 59.1-280 and 59.1-280.1 of the Code of Virginia.
B. Upon receiving applications for tax credits under this section and 13VAC-5-112-110, the department shall determine the amount of the tax credit to be allocated to each eligible business firm. In the event that the amount of tax credits to which all applicants qualifying under this section and 13VAC-5-112-110 are eligible, exceeds $7.5 million annually, the tax credits shall be apportioned among eligible applicants pro rata, based upon the amount of the tax credits to which an applicant is eligible and the amount of tax credits available for allocation.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-50. Qualified business.
Qualification for the credit can occur by satisfying the criteria in subdivisions 1 through 3 of this section. Any business firm may be designated a qualified business for the purpose of this credit if:
1. A business firm establishes within an enterprise zone a trade or business not previously conducted in the Commonwealth of Virginia by such taxpayer, and at least 25% or more (except for businesses qualifying prior to July 1, 1997, when it shall be at least 40% or more) of the permanent full-time employees employed at the business firm's establishment or establishments located within the enterprise zone must either have incomes below 80% of the median income for the jurisdiction prior to employment or be zone residents. Zone residency will be subject to annual verification, while low-income status verification is only required upon initial employment. A new business is also one created by the establishment of a new facility and new permanent full-time employment by an existing business firm in an enterprise zone and does not result in a net loss of permanent full-time employment outside the zone.
2. A business firm is actively engaged in the conduct of a trade or business in the Commonwealth of Virginia, and increases the average number of permanent full-time employees employed at the business firm's establishment or establishments located within the enterprise zone by at least 10% over base taxable years' employment with no less than 25% (except for businesses qualifying prior to July 1, 1997, when it shall be no less than 40%) of such increase being employees who have incomes below 80% of the median income for the jurisdiction prior to employment or are zone residents. In the event that a company has activities both inside and outside the enterprise zone, the business firm may not aggregate activity from outside the zone for calculation of employment increase. Other employment positions that shall not be used in the calculation of the 10% employment increase are referred to in subdivision 3 of this section and 13VAC5-112-90.
3. A business firm is actively engaged in the conduct of a trade or business in the Commonwealth and relocates to begin operation of a trade or business within an enterprise zone and increases the average number of permanent full-time employees by at least 10% over the base taxable years' employment with no less than 25% or more (except for businesses qualifying prior to July 1, 1997, when it shall be at least 40% or more) of such increase being employees who have incomes below 80% of the median income for the jurisdiction prior to employment or are zone residents. Current employees of the business firm that are transferred directly to the enterprise zone facility from another site within the state resulting in a net loss of employment at that site shall not be included in calculating the increase in the average number of permanent full-time employees by the business firm within the enterprise zone.
4. If a business firm is actively engaged in the conduct of a trade or business in the Commonwealth and its operations continue following its assumption or acquisition by another entity, the resulting entity must meet the requirements for qualification described in subdivision 3 of this section and 13VAC5-112-90.
5. A business firm located within a locality's enterprise zone or zones that moves to another location within that locality's enterprise zone or zones must meet the requirements for qualification described in subdivisions 1, 2, or 3 of this section and 13VAC5-112-90.
6. A business firm moving from one locality's enterprise zone to another locality's enterprise zone prior to being qualified shall be subject to the requirements described in subdivision 3 of this section and 13VAC5-112-90.
7. A business firm that has already qualified for enterprise zone incentives and moves from one locality's enterprise zone into another locality's enterprise zone shall no longer be qualified unless the firm increases its permanent full-time employment by an additional 10% over the last year of qualification.
8. Large qualified business firms must meet the terms of their documented negotiation agreement with the Department pursuant to subdivision 2 of 13VAC5-112-20, prior to seeking initial qualification under this section.
9. The business firm must certify annually to the department on prescribed form or forms, and other documentation as required by the department, that the firm has met the criteria for qualification prescribed in subdivisions 1 through 7 of this section. The form or forms referred to in this subdivision must be prepared by an independent certified public accountant licensed by the Commonwealth and shall serve as prima facie evidence that the business firm met the definition of a qualified business but the evidence of eligibility shall be subject to rebuttal. The department or the Department of Taxation or State Corporation Commission, as applicable, may at its discretion require any business firm to provide supplemental information regarding the firm's eligibility (i) as a qualified business firm or (ii) for a tax credit claimed pursuant to 13VAC5-112-20.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-60. Qualification in zones whose designation period is ending.
A. Small qualified business firms located in a zone whose designation period is ending that have qualified under 13VAC5-112-20 by or before the zone expiration date may receive the remainder of their incentive period provided they continue to qualify under 13VAC5-112-20. Tax credits are not authorized beyond the end of fiscal year 2019 as specified in § 59.1-280 I of the Code of Virginia.
B. Large qualified business firms located in a zone whose designation period is ending that have qualified under 13VAC5-112-20 by or before the zone expiration date may receive the remainder of their incentive period provided they continue to qualify under 13VAC5-112-20. The incentive period shall be for 10 consecutive years or until the negotiated credit amount is reached, whichever is sooner. Tax credits are not authorized beyond the end of fiscal year 2019 as specified in § 59.1-280 I of the Code of Virginia.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-70. Application submittal and processing.
A. For tax years that end on or before December 31, or for businesses with tax years in accordance with § 441(f) of the Internal Revenue Code on or before January 7 of the subsequent year, applications requesting a general tax credit shall be submitted to the department by no later than May 1 of the subsequent calendar year. If the May 1 due date falls on a weekend or holiday, applications are due the next business day. These applications must be signed by an independent certified public accountant licensed by the Commonwealth.
B. Beginning with tax years ending in 2005, any business firm that is eligible to qualify for tax credits under this section pursuant to 13VAC5-112-20 may amend past tax returns in order to qualify for and receive general tax credits. Such business firms shall submit an application requesting general tax credits to the department by no later than May 1 of any of three subsequent calendar years immediately following the year the business firm is requesting the credit provided that there is an outstanding credit balance remaining for that particular tax year. These requests will be handled on a first-come, first-serve basis. Business firms may not amend past tax returns in order to become initially eligible for tax credits under this section pursuant to 13VAC5-112-20.
C. The department shall review all applications for completeness and notify business firms of any errors no later than June 1. Business firms must respond to any unresolved issues by no later than June 15. If the department does not meet its June 1 date for notification, then businesses must respond to any unresolved issues within 10 calendar days of the actual notification.
D. The department shall notify all applicants by June 30 as to the amount of applicable general credit it may claim for the taxable year the request was made.
E. Applications must be made on forms prescribed by the department, and either hand-delivered by the date specified in this section or sent by certified mail with a return receipt requested and post marked no later than the date specified in this section.
F. Applicants may only apply for credits that they are otherwise eligible to claim for such taxable year, subject to the limitations provided by 13VAC5-112-40 and 13VAC5-112-130.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-80. Certification to Tax Commissioner in accordance with § 59.1-280 A of the Code of Virginia.
A. The department shall certify to the Commissioner of the Virginia Department of Taxation, or in the case of public service companies to the Director of Public Service Taxation for the State Corporation Commission, the applicability of the tax credits requested by the firm; and forward the certification to the firm. A copy should be retained for the firm's records. The firm shall file the original with the applicable state tax return or returns. If the firm is not eligible for qualification, the department shall notify the firm that it fails to qualify for state tax incentives under this part.
B. Submission of state tax returns. A business firm, upon receipt from the department of the certificate of its qualification to receive state tax incentives, may file the applicable state tax returns. In order for the Virginia Department of Taxation or the State Corporation Commission to grant the incentive or incentives requested, the appropriate copy of the certificate of qualification must be attached to the firm's tax return.
When a partnership or small business corporation electing to be taxed under Subchapter S of the federal Internal Revenue Code requests a credit or credits against state individual income tax on behalf of its partners or shareholders, each partner or shareholder must attach to its state individual income tax return a photocopy of the appropriate certificate of qualification received by the firm.
C. Denial of tax credit. Any certification by the department pursuant to this section shall not impair the authority of the Department of Taxation or State Corporation Commission to deny in whole or in part any claimed tax credit if the Department of Taxation or State Corporation Commission determines that the qualified business firm is not entitled to such tax credit.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-90. Anti-churning.
A. A permanent full-time employee shall not include any employee:
1. For which a credit under this chapter was previously earned by a related party, as defined by the Internal Revenue Code § 267(b) or a trade or business under common control;
2. Who was previously employed in the same job function in Virginia by a related party, or a trade or business under common control;
3. Whose job function was previously performed at a different location in Virginia by an employee of the taxpayer, a related party, or a trade or business under common control;
4. Whose previous job function previously qualified for a credit in connection with a different enterprise zone locality on behalf of the taxpayer, a related party, or a trade or business under common control;
5. Whose job function counted for purposes of determining a 10% increase by an existing business firm and credited in an earlier taxable year on behalf of the taxpayer, a related party, or a trade or business under common control; or
6. Whose job function was filled in the Commonwealth and the trade or business where this job function was located was acquired or assumed by another taxpayer.
B. A new permanent full-time position that otherwise qualifies for the credit will not be disqualified for purposes of the credit where the employer chooses to use more than one individual to fill the position. This exception is limited to those situations where no more than two employees are used to fill a position, such employees are eligible for essentially the same benefits as full-time employees, and each employee works at least 20 hours per week for at least 48 weeks per year.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.
13VAC5-112-100. Pass-through entities.
The amount of any credit attributable to a partnership, S corporation, or limited liability company shall be allocated to the individual partners, shareholders, or members, respectively. The credit will be allocated in the manner in which income is allocated for federal income tax purposes.
Statutory Authority
§ 59.1-541 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 23, Issue 12, eff. March 21, 2007.