What annual caps and proration factors applied to Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit for 2011-2013?

Plain-English summary

Virginia reduced the 2011 credit cap to $3 million and prorated claims that exceeded it. Although the permanent statute stated a $5 million annual cap, the 2012 budget legislation applied a $3 million cap to taxable years beginning on or after January 1, 2011.

Taxpayers requested $8,089,740 for 2011. Half of the $3 million cap was reserved for commercialization investments. Virginia approved 52.62% of the amount requested for commercialization investments and 28.63% for noncommercialized investments, exhausting the $3 million cap.

The bulletin stated that the cap would rise to $4 million for taxable years 2012 and 2013 unless the General Assembly changed it. After 2013, it was expected to return to the statutory $5 million cap absent further legislative action.

What this means for you

• These figures describe historical taxable years, not current credit availability.
• A statutory maximum did not guarantee a full award when a budget act imposed a lower cap.
• Oversubscribed categories were prorated, and commercialization investments had a reserved share.

Citations and references

• Va. Code § 58.1-339.4(E).
• 2012 Va. Acts ch. 2 (House Bill 1300).
• 2012 Va. Acts ch. 3 (House Bill 1301).
• Virginia Tax Bulletin 12-5.

Subject

Annual Cap for the Qualified Equity and Subordinated Debt Investments Tax Credit

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-122

Original ruling text

TAX BULLETIN 12-5

Virginia Department of Taxation

July 26, 2012

IMPORTANT INFORMATION REGARDING THE ANNUAL CAP FOR THE QUALIFIED EQUITY AND SUBORDINATED DEBT INVESTMENTS TAX CREDITS

The amended budget bill for the 2011-2012 biennium (House Bill 1300, Chapter 2 of the 2012 Acts of Assembly) and the budget bill for the 2013-2014 biennium (House Bill 1301, Chapter 3 of the 2012 Acts of Assembly) include provisions that limit the annual cap for the Qualified Equity and Subordinated Debt Investments Tax Credit. This notice is intended to provide taxpayers with information on the annual cap for this credit.

Background

Under Va. Code § 58.1-339.4(E), the Qualified Equity and Subordinated Debt Investments Tax Credit is capped at $5 million annually. However, previous budget actions have limited the credit cap to $3 million for taxable years beginning between January 1, 2006 and December 31, 2009 and have increased the credit cap to $5 million for the 2010 taxable year.

Taxable Year 2011

The credit cap for the 2011 taxable year was scheduled to revert back to the $5 million statutory limitation. However, during the 2012 Session, House Bill 1300 limited the credit cap to $3 million for taxable years beginning on or after January 1, 2011. As a result, the credit cap for Taxable Year 2011 was $3 million. As this action took place subsequent to the publication of the Department’s forms and instructions for Taxable Year 2011, the forms and instructions stated that the credit cap is limited to $5 million.

Impact of Taxable Year 2011 Cap

For Taxable Year 2011, the amount of annual requests for the credit equaled $8.09 million and exceeded the $3 million annual cap established by 2012 House Bill 1300. Therefore, the Department prorated the amount of the credit for each taxpayer. Under statute, one-half of the credit cap is allocated exclusively for credits for commercialization investments. Taxpayers with commercialized investments were issued a credit equal to 52.62% of the requested amount and taxpayers with non-commercialized investments were issued a credit equal to 28.63% of the requested amount.

Credits Requested for Taxable Year 2011

Taxable Year
Annual Cap Amount
Proration Factor
Amount Requested
Total Amount Requested
Total Amount Approved

2011 $1.5M – Commercialized

$1.5M – Non-Commercialized 52.62%

28.63% $2,850,377

$5,239,363 $8,089,740 $3,000,000

Subsequent Taxable Years

The budget bill for the 2013-2014 biennium (2012 House Bill 1301) increases the credit limit to $4 million for taxable years beginning on and after January 1, 2012. Therefore, the cap for the 2012 and 2013 taxable years will be $4 million unless the General Assembly later changes it.

For taxable years after 2013, the credit allowed will revert back to the statutory cap of $5 million unless the General Assembly takes action to limit it.

Further Instructions

If you have additional questions, please visit our website at http://www.tax.virginia.gov , or contact us at (804) 786-2992.