What does Senate Bill 1111 do to Virginia's coal tax credit redemption rules?

Plain-English summary

Delegate Pollard asked the AG to explain what Senate Bill 1111 would do to Virginia's coal-related tax credits, specifically whether the bill would still allow pre-2006 credits to be sold and whether unused credits could be carried forward past 2016.

The starting point is the existing statutory structure:

• § 58.1-400 imposes the corporate income tax. § 58.1-400.2 applies that tax to electric suppliers, pipeline distribution companies, gas utilities, and gas suppliers.
• § 58.1-433.1 gives an electricity generator a $3-per-ton credit against those taxes for each ton of Virginia-mined coal the generator purchases and consumes.
• § 58.1-433.1(B) lets the generator allocate the credit to "a person with an economic interest in coal."
• § 58.1-439.2(D) lets the coal-interest holder redeem credits exceeding state tax liability through the Tax Commissioner at 85% to 90% of face value (depending on when the credit was earned), with the remaining percentage going to the Coalfields Economic Development Authority.

Under the version of § 58.1-433.1(B) in effect when the opinion issued, the redemption mechanism applied to credits "earned on or after January 1, 2006, and prior to July 1, 2011." Credits outside that window could still flow to the coal-interest holder but were not redeemable through the Tax Commissioner.

Senate Bill 1111 would change § 58.1-433.1(B) in two ways:

• Delete the phrase "and prior to July 1, 2011" (which extends the redemption window past 2011).
• Add a new sunset: "the ability of persons with an economic interest in coal to redeem with the Tax Commissioner credits received pursuant to an allocation under this section shall expire for credits earned under this section on or after July 1, 2016."

The AG's reading of the practical effect:

• For coal-interest holders. The ability to redeem allocated credits with the Tax Commissioner ends for credits the electricity generator earned on or after July 1, 2016. In effect, after that date there are no fresh redeemable allocations.
• For electricity generators. The credits themselves do not vanish. The AG concluded that generators can continue to claim these credits beyond July 1, 2016 against their own tax liability and can continue to carry them over.

The opinion did not directly address Pollard's question about whether pre-2006 credits could be sold under the bill. The opinion focuses on the redemption mechanism through the Tax Commissioner, which is what the bill amends. The bill leaves the allocation mechanism for credits earned on or after January 1, 2006 in place until the 2016 sunset.

Currency note

This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Virginia's coal-related tax credits have undergone significant legislative changes since 2011, including extensions, modifications, and sunsetting of various provisions. The 2016 sunset that SB 1111 proposed has long since passed. Anyone analyzing a current claim involving coal tax credits should consult the current versions of §§ 58.1-433.1 and 58.1-439.2 and any related Department of Taxation guidance, not this opinion.

Common questions

Why does Virginia have a credit for utilities that burn Virginia coal?

To support Virginia coal mining and the coal-region economy. The structure rewards the electricity generator for using domestic coal and lets the generator transfer some of the value to the coal-interest holder through the allocation mechanism. The 15% or 10% of face value that goes to the Coalfields Economic Development Authority is the legislatively required share for regional development.

Did SB 1111 pass?

The opinion does not say. The bill's reference number identifies it as a 2011 General Assembly proposal. Legislative action on this specific bill is a separate factual question to look up.

Are the credits transferable like other tradeable tax credits?

The statute uses "allocate," not "transfer." The mechanism is more limited than a free-trade market. The generator earns the credit and can allocate it to a coal-interest holder, who then either uses it against state tax liability or redeems the excess through the Tax Commissioner at the discounted rate. There is no general market for arms-length sales.

Why redeem credits at 85-90% instead of selling them for 100%?

Because the Tax Commissioner is acting on behalf of the Commonwealth, and the 10% or 15% discount is captured for the Coalfields Economic Development Authority and the Virginia Economic Development Partnership. That discount is the price of converting a tax credit into cash through the state mechanism.

Background and statutory framework

The corporate income tax base:

• Va. Code Ann. § 58.1-400. General corporate income tax.
• Va. Code Ann. § 58.1-400.2. Tax on electric suppliers, pipeline distribution companies, gas utilities, gas suppliers.

The coal-credit statute:

• Va. Code Ann. § 58.1-433.1. $3-per-ton credit for Virginia-mined coal purchased and consumed by the electricity generator.
• Va. Code Ann. § 58.1-433.1(B). Allocation to a person with an economic interest in coal; redemption mechanism for credits earned on or after January 1, 2006 (current law) and prior to July 1, 2011 (current law, deleted by SB 1111).

The redemption mechanism:

• Va. Code Ann. § 58.1-439.2(D). Tax Commissioner redeems excess credits at 90% (pre-2002) or 85% (2002 forward) of face value, with the difference going to the Coalfields Economic Development Authority.

The proposed amendment (SB 1111):

• Deletes "and prior to July 1, 2011."
• Adds: "the ability of persons with an economic interest in coal to redeem with the Tax Commissioner credits received pursuant to an allocation under this section shall expire for credits earned under this section on or after July 1, 2016."

The AG's structural reading:

• Coal-interest holder redemption ends at the 2016 sunset for newly earned credits.
• Electricity generators retain credits they earned, can carry them forward, and apply them to their own tax liability without time limit imposed by the bill.
• The bill effectively retires the redemption channel after 2016 while preserving the underlying credit for generators.

Citations

• Va. Code § 2.2-505
• Va. Code Ann. § 58.1-400
• Va. Code Ann. § 58.1-400.2
• Va. Code Ann. § 58.1-433.1
• Va. Code Ann. § 58.1-433.1(B)
• Va. Code Ann. § 58.1-439.2(D)
• Senate Bill 1111 (2011 Reg. Sess.)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2011/11-022-Pollard.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

April 1, 2011

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

The Honorable Albert C. Pollard, Jr.
Member, House of Delegates
Post Office Box 508
Lively, Virginia 22507

Dear Delegate Pollard:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask about the impact of Senate Bill 1111 and whether the proposed measure would allow unredeemed tax credits earned before 2006 to be sold, and/or whether the unused tax credits can be carried forward after 2016.

Response

It is my opinion that the effect of Senate Bill 1111 is to establish a sunset date of July 1, 2016 for persons with an economic interest in coal who have received tax credits from an electricity generator to redeem these tax credits. It is further my opinion that if Senate Bill 1111 becomes law, generators of electricity can continue to rely on these tax credits after July 1, 2016.

Applicable Law and Discussion

Section 58.1-400 imposes a tax on corporate income. Section 58.1-400.2 applies this tax to certain electric suppliers, pipeline distribution companies, gas utilities and gas suppliers. Section 58.1-433.1 establishes a "three-dollar-per-ton credit against the tax imposed by § 58.1-400 or § 58.1-400.2 for each ton of coal purchased and consumed by such electricity generator, provided such coal was mined in Virginia as certified by such seller." An electricity generator may allocate this tax credit to a "person with an economic interest in coal." Section 58.1-433.1(B) currently provides as follows:

All credits earned on or after January 1, 2006, which are allocated to persons with an economic interest in coal as provided under this subsection may be used as tax credits by such persons against the tax imposed by § 58.1-400 and any other tax imposed by the Commonwealth. If the credits earned on or after January 1, 2006, and prior to July 1, 2011, exceed the state tax liability for the applicable taxable year of such person with an economic interest in coal, the excess shall be redeemable by the Tax Commissioner as set forth in subsection D of § 58.1-439.2.

The import of this provision is, first, if an electrical supplier allocates the tax credits earned on or after January 1, 2006, to "a person with an interest in coal," the person with an economic interest in coal can use them as tax credits against any Virginia tax. If the credits exceed the state tax liability for the applicable tax year for the person with an economic interest in coal, the excess is redeemable by the Tax Commissioner as set forth in subsection D of § 58.1-439.2. Subsection D of § 58.1-439.2 provides that

If the credit exceeds the person's state tax liability for the tax year, the excess shall be redeemable by the Tax Commissioner on behalf of the Commonwealth for ninety percent of the face value within ninety days after filing the return; however, for credit earned in tax years beginning on and after January 1, 2002, such excess shall be redeemable by the Tax Commissioner on behalf of the Commonwealth for eighty-five percent of the face value within ninety days after filing the return. The remaining ten or fifteen percent of the value of the credit being redeemed, as applicable for such tax year, shall be deposited by the Commissioner in a regional economic development fund administered by the Coalfields Economic Development Authority to be used for the Coalfields Economic Development Authority and the Virginia Economic Development Partnership.

Senate Bill 1111 amends § 58.1-433.1(B) by deleting the phrase "and prior to July 1, 2011," and adding the following:

provided that the ability of persons with an economic interest in coal to redeem with the Tax Commissioner credits received pursuant to an allocation under this section shall expire for credits earned under this section on or after July 1, 2016.

As I read the changes that Senate Bill 1111 makes to the existing statute, a person with an interest in coal who has been allocated a tax credit by a generator of electricity will no longer be able to redeem those tax credits with the Tax Commissioner if the electricity generator earned these credits on or after July 1, 2016. Under the bill, the "ability to redeem" the tax credits "shall expire" for "persons with an economic interest in coal" if the credits are earned "on or after July 1, 2016." The electricity generator will still be able to claim these tax credits beyond July 1, 2016 with respect to their own tax liability and can continue to carry them over.

Conclusion

Accordingly, it is my opinion that the effect of Senate Bill 1111 is to establish a sunset date of July 1, 2016 for persons with an economic interest in coal who have received tax credits from an electricity generator to redeem these tax credits. It is further my opinion that if Senate Bill 1111 becomes law, generators of electricity can continue to rely on these tax credits after July 1, 2016.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General