How could a corporate group aggregate jobs, document partial-year hires, and amend returns for Virginia's MBFJTC?

Subject

Major Business Facility Jobs Tax Credit aggregation and records

Plain-English summary

Virginia allowed some job aggregation but required employee-level proof. Hires across the taxpayer's own facilities could be combined when operations were related or employees were hired within the same continuous 12-month period.

Customer-site employees did not qualify on the facts presented. Affiliated companies could aggregate under the statutory 80% ownership tests.

The taxpayer could not use a net pro-rata headcount formula. Virginia required each qualifying employee's identifying information, months worked, position, and specified job-sharing details. An omitted 2004 credit could be claimed within three years from the valid extended due date.

What this means for you

• Tie aggregated facilities to related operations or the same hiring period.
• Confirm affiliate ownership and customer-site qualification.
• Keep employee-level records for each new permanent full-time job.
• Measure amended-return deadlines from the applicable extended due date.

Citations and references

• Va. Code §§ 58.1-202(7), 58.1-439, and 58.1-1823.
• P.D. 97-390 and P.D. 96-354.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-185

Original ruling text

October 17, 2008

Re: Ruling Request: Income Tax

Dear *:

This will reply to your letter in which you request a ruling concerning the Major Business Facility Jobs Tax Credit ("MBFJTC").

FACTS

A corporation (the "Taxpayer"), headquartered in Virginia, is engaged in the business of safeguarding and securing computer data. The Taxpayer files a consolidated return with its affiliates on a calendar year basis. The Taxpayer and its affiliates maintain facilities throughout Virginia. The Taxpayer and its affiliates have created a significant number of full-time jobs over a number of taxable years. The Taxpayer presents a number of questions concerning the MBFJTC established under Va. Code § 58.1-439. Each question will be addressed separately below.

RULING

Question 1

Can a corporation aggregate all new hires located at its own facilities within the Commonwealth for purposes of the MBFJTC?

The Department has previously addressed this issue in Public Document (P.D.) 97-390 (9/26/97). In that ruling, the Department determined that taxpayers are permitted to aggregate its hires at multiple facilities located within Virginia and earn the MBFJTC provided the activities conducted at each location are part of the same process or operation, or where qualified full-time employees located at separate facilities are hired within the same continuous twelve-month period.

Question 2

Can a corporation aggregate all new hires located at its customer's facilities within the Commonwealth for purposes of the MBFJTC?

Some of Taxpayer's affiliates provide services that require certain employees to be located at the facilities of their customers. Such customers typically provide a permanent office or workspace for the affiliate's employee. The affiliate usually has employees performing the same services to customers from its own facilities.

In order to be eligible for the MBFJTC a taxpayer must establish a "major business facility" in the Commonwealth. A major business facility, as defined in Va. Code § 58.1-439 C, must meet a job creation threshold and establish or expand a facility within Virginia. In order for a job to be included in the determination of the job threshold or the computation of the MBFJTC, it must be filled by a "qualified full-time employee." Under Va. Code § 58.1-439 F, a qualified full-time employee is "an employee filling a new, permanent full-time position in a major business facility in the Commonwealth."

Virginia Code § 58.1-439 C 2 also provides that certain "qualifying industries" are deemed to have established or expanded a major business facility just through job creation. Qualifying industries include those entities engaged in manufacturing, mining, agriculture, forestry, fishing, transportation, communications or as a public utility in Virginia.

Generally, a business engaged solely in providing services to a customer at the customer's facility does not meet the test of establishing or expanding a facility in Virginia. In P.D. 96-354 (11/27/1996), the Department ruled that a management firm providing both management and staff to operate a business would qualify for the MBFJTC if that the firm meets the threshold requirement, and such services are performed for an entity that is primarily engaged in one of the qualifying industries. Under this ruling, a qualified full-time employee can be an employee that fills a job at a facility established or expanded by a taxpayer; or at a facility of its customer that is primarily engaged in a qualifying industry provided that such employee is filling a management or operational role for the customer.

The Taxpayer believes P.D. 96-354 is applicable to its business practices. The Taxpayer's circumstances, however, appear to differ significantly from the management firm in P.D. 96-354. The firm addressed in P.D. 96-354 met the job creation threshold at its customer's facility and was providing staff to both management and operate the customer's facility. Based on the information provided, it does not appear that the Taxpayer and its affiliates provide management and operational services to their customers or provide enough employees at a customer's location to meet the job creation threshold. Further, no information has been provided to indicate that the Taxpayer's customers are engaged in qualifying industries. Accordingly, the Taxpayer's employees assigned to its customer's location do not appear to be qualified full-time employee for purposes of the MBFJTC.

Question 3

May two or more affiliated corporations aggregate all new hires located within the Commonwealth for purposes of the MBFJTC?

Pursuant to Va. Code § 58.1-439 S:

two or more affiliated companies may elect to aggregate the number of jobs created for qualified full-time employees as the result of the establishment or expansion by the individual companies in order to qualify for the credit allowed pursuant to this section. For purposes of this subsection, "affiliated companies" means two or more companies related to each other such that (i) one company owns at least 80 percent of the voting power of the other or others or (ii) at least 80 percent of the voting power of two or more companies is owned by the same interests.

If the Taxpayer and its affiliates meet one of the two tests provided under Va. Code § 58.1-439 S, they may elect to aggregate jobs for purposes of computing the MBFJTC.

Question 4

In calculating the number of "qualifying employees in the credit year" as required by the MBFJTC, may the Taxpayer employ a percentage/pro rata method to account for partial year employees?

For purposes of computing the number of qualifying employees in the credit year, the Major Business Facility Jobs Tax Credit form (Form 304) requires that all qualifying employees be listed. Form 304 also requires that the number of qualifying employees be computed on a pro rata basis based on months worked for each employee.

You represent that, due to the competitive nature of its business, the Taxpayer experiences a high amount of turnover. Additionally, the Taxpayer and its affiliates have found it impossible to fill all their job vacancies. While they may add 400 jobs in a given year, 300 may be replacements for existing positions. Further, an employee that starts during a year may leave and be replaced. Finally, positions may be vacant at the end of the year while other positions that were previously vacant are filled. For these reasons, determining which jobs represent new permanent full time positions and which represent replacements for existing positions would be extremely difficult.

The Taxpayer proposes that it compute its number of employees eligible for the MBFJTC as the total pro rata Virginia employees based on months worked during the year minus the number of employees on the day before the major business facility expansion.

Virginia Code § 58.1-439 F defines a "qualified full time employee" as an "employee filling a new, permanent full-time position in a major business facility in the Commonwealth." For a qualified full-time employee who is employed for less than 12 months during taxable year the MBFJTC is earned (the "credit year"), the credit is reduced based on the amount of time such employee worked during the credit year. See Va. Code § 58.1-439 G. Further, under Va. Code § 58.1-439 J, the MBFJTC is subject to recapture if "the number of qualified full-time employees decreases below the average number of qualified full-time employees employed during the credit year."

The statute, however, does not specify the manner in which the MBFJTC is to be claimed. Pursuant to Va. Code § 58.1-202 7, the Tax Commissioner has the power to "[p]rescribe the forms of books, schedules and blanks to be used in the assessment and collection of state taxes . . . ." This provision allows the Tax Commissioner to prescribe the form for tax returns and instructions in such a way to allow the Department to administer state taxes properly.

In order to properly administer the MBFJTC and insure compliance, the Department has concluded that the following information must be supplied:

1. The name and social security number of each qualified full-time employee employed during the credit year,

2. The number of full month; during the credit year that each qualified full-time employee was employed,

3. A brief description of the position held by each qualified full-time employee, and

4. The number of hours per week that a part-time employee works, when such employee participates in a job sharing arrangement.

The Taxpayer's method would provide insufficient information in order for the

Department to ascertain whether the proper amount of the MBFJTC is being claimed.

The Department has found that the best way to verify the jobs are actually created is to require reporting of the employee filling those jobs. In addition, the Department must be able to verify and the Taxpayer must be able to show that the jobs for which the MBFJTC is earned are not used to claim multiple credits. See Va. Code § 58.1-439 I, P, and R, Va. Code § 58.1-439.1 G, and Va. Code § 58.1-439.11 H.

Question 5

May Taxpayer file amended returns in order to claim the MBFJTC?

In P.D. 97-390, the Department concluded that the filing of an amended return to claim an unclaimed MBFJTC constitutes an amended return claiming a refund pursuant to Va. Code § 58.1-1823. Amended returns claiming a refund due to the failure to claim a tax credit provided by Virginia law must be filed within three years from the date for filing a timely return.

In this case, the Taxpayer's credit year occurred in the 2004 taxable year. The Taxpayer states that it filed its original return under a valid extension. Accordingly, the Taxpayer may file an amended return to claim the MBFJTC, if any, within three years from the extended due date.

This ruling is issued based on the facts presented in your letter as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

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