Could Virginia accept a Qualified Equity and Subordinated Debt Tax Credit application postmarked after the April 1 deadline?

Plain-English summary

Virginia denied a 2017 Qualified Equity and Subordinated Debt Tax Credit application postmarked April 23, 2018. Form EDC and its supporting documents were due by April 1 for investments made in the preceding taxable year.

The Department treated the deadline as firm because the credit was capped at $5 million per calendar year and had to be allocated pro rata when approved requests exceeded that amount. Accepting late applications could cause the cap to be exceeded, so the taxpayer's request could not be granted.

Common questions

How large was the credit under the cited statute? It equaled 50% of a qualifying investment, subject to the program's aggregate cap.

Why did Virginia refuse to waive the deadline? The Department applied hard deadlines to capped credits so allocations would not exceed the annual limit.

Was an application filed 22 days late accepted? No.

Citations and references

• Va. Code § 58.1-339.4
• P.D. 04-201 (Nov. 4, 2004), P.D. 13-189 (Oct. 18, 2013), and P.D. 15-201 (Oct. 19, 2015)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-158

Original ruling text

August 8, 2018

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you contest the denial of the application for the Qualified Equity and Subordinated Debt Tax Credit (the “Credit”) submitted for * (the “Taxpayer”) for the taxable year ended December 31, 2017.

FACTS

The Taxpayer filed an application for the Credit, postmarked April 23, 2018, with respect to an investment made in a qualified business during the 2017 taxable year. The Department did not accept the application because it was not filed by the April 1, 2018 deadline for the 2017 taxable year. The Taxpayer requests that the Department reconsider its denial of the Credit request and allow the investment to be included in the computation of the Credit allowable to qualifying investors.

DETERMINATION

Virginia Code § 58.1-339.4 provides a credit for individual and fiduciary income tax equal to 50% of a qualified equity and subordinated debt investment made during the taxable year in a qualified business venture. Under the statute, when the aggregate amount of requests for the Credit for a calendar year exceeds $5 million, the Department allocates the available Credit pro rata among the approved applicants.

In order to receive the Credit, an eligible taxpayer must submit Form EDC and any supporting documentation to the Department no later than April 1 in order to claim the Credit for the preceding taxable year. This requirement is clearly set forth in the instructions for the application.

Because the Credit is subject to an annual cap, the Department must have a deadline for tax credit applications. Adopting a policy of approving late applications for the Credit could result in the amount of tax credits exceeding the tax credit cap for a particular year. The Department’s policy of establishing a hard deadline for capped tax credits has been applied to all capped tax credits that are administered by the Department. See Public Document (P.D.) 04-201 (11/4/2004), P.D. 13-189 (10/18/2013), and P.D. 15-201 (10/19/2015).

In this case, the Taxpayer submitted its Form EDC to the Department after the April 1, 2018 deadline passed. Because the Taxpayer failed to submit its application in a timely fashion, the Taxpayer’s request cannot be granted.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1717A