I paid a deposit on recycling equipment one year but didn't receive and use it until the next year — can I count that deposit toward the credit for the year I actually put the equipment in service?

Plain-English summary

A corporate taxpayer timely filed its Form RMC application for the Recyclable Materials Processing Equipment Tax Credit for the 2022 taxable year. The Department disallowed part of the claimed credit — specifically, the portion attributable to a deposit paid in 2021 on equipment purchases. The taxpayer argued that since the equipment was actually received and put into service in 2022, the deposit should count toward the 2022 credit.

The credit is capped, and capping requires a bright line. Since the 2015 tax year (via 2015 legislation), the credit has been subject to a $2 million annual cap — before that, it was uncapped, so there was no need to draw a hard line about which year a payment belonged to. Once a cap exists, the Department has to allocate a fixed pool of approved credits across all applicants each year, which requires knowing exactly which year's pool each dollar of credit draws from. The Department's 2017 Guidelines (P.D. 17-42) make that rule explicit: a taxpayer may claim the credit only for the taxable year in which it actually PAID for qualifying machinery or equipment — not the year it was delivered, installed, or placed in service.

Older, more flexible guidance no longer applies. Before the cap existed, the Department had allowed some give: under P.D. 04-190 (and similarly P.D. 10-136, P.D. 10-227), a taxpayer whose equipment didn't initially qualify (for instance, because it hadn't yet produced enough recycled material for DEQ to certify it) could later amend its return for the ORIGINAL purchase year to claim the credit, or amend later years to claim carryover credits — as long as it acted within the three-year amendment statute of limitations. But the 2017 Guidelines expressly superseded that flexible approach for machinery or equipment purchased in 2015 or later, precisely because the annual cap makes cross-year shifting unworkable — the Department needs to know, once and for all, which year's capped pool each payment draws against.

Result: the deposit stays in 2021. Because the taxpayer's deposit was paid in 2021, it belonged to the 2021 credit calculation, regardless of when the equipment itself arrived or went into service. The Department found the statute and Guidelines gave it no discretion to blend a payment from one taxable year into another year's credit claim, and upheld the disallowance of the 2022 credit to the extent it was based on the 2021 deposit.

What this means for you

Businesses claiming the Recycling Equipment Credit

Track the credit strictly by the calendar/fiscal year in which you actually PAID for qualifying equipment — deposits, installment payments, and full purchase prices all belong to the year the money left your hands, not the year the equipment shows up or starts running. If you pay a deposit late in one year and the balance early the next, you may need to split your credit claim across both years' applications.

If you paid a deposit near a year-end

Consider the credit-year consequences before timing a deposit right before year-end. A deposit paid in December, even for equipment you won't receive until the following spring, is locked into the earlier year's credit pool.

Accountants and tax professionals

This ruling is a companion to other Virginia rulings on this same credit's post-2015 rules (the cap fixed the credit to the year of purchase and eliminated the older amend-back flexibility for equipment that took time to qualify). When advising on RMC applications, confirm the payment date for every component of an equipment purchase — deposits, progress payments, final payment — and allocate each to its own tax year's credit claim.

Common questions

Q: Can I claim the recycling credit in the year I put equipment into service, even if I paid for it the year before?
A: No — since the 2015 tax year, the credit is capped annually and tied strictly to the year of PAYMENT, not the year equipment is received or placed in service.

Q: Could I have amended my 2021 return instead to claim the credit for the deposit?
A: The ruling doesn't address that directly, but the amount paid in 2021 belongs to the 2021 credit year — a properly timed 2021 application (or a timely amendment, if the equipment qualified) would be the correct route for that portion, not folding it into the 2022 claim.

Q: Why did the rules change in 2017?
A: The 2015 legislation imposed a $2 million annual cap on the credit, replacing the previously uncapped credit; the Department's 2017 Guidelines implemented the year-of-payment rule needed to fairly allocate that capped, prorated pool each year.

Q: Does the old flexible amend-back rule (letting a taxpayer wait for DEQ certification and then amend a prior return) still exist?
A: Not for equipment purchased in 2015 or later — the 2017 Guidelines expressly superseded that older approach.

Citations and references

Statutes and guidelines:

• Va. Code § 58.1-439.7 A — Recyclable Materials Processing Equipment Tax Credit; $2 million annual cap effective for 2015 and later

Prior Department guidance the Department relied on (described here, not linked): the Recyclable Materials Processing Equipment Tax Credit Guidelines, P.D. 17-42 (4/3/2017) (year-of-payment rule under the capped regime); and the superseded pre-cap guidance in P.D. 04-190 (10/20/2004), P.D. 10-136 (7/12/2010), and P.D. 10-227 (9/29/2010) (allowing amend-back claims when equipment later qualified).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-13

Original ruling text

February 12, 2025

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will respond to your letter in which you contest the partial disallowance of the * (the “Credit”) claimed by *** (the “Taxpayer”) for the taxable year ended December 31, 2022.

FACTS

The Taxpayer timely submitted its Form RMC, Application for *, and supporting documentation for the 2022 taxable year. Under review, the Department disallowed that portion of the Credit that was attributable to a deposit paid on equipment purchases in 2021. The Taxpayer appeals, contending that the deposit was for equipment received and put in service in the 2022 taxable year and thus should be considered a part of the dollar amount paid for equipment purchases used to determine the 2022 Credit.

DETERMINATION

During the 2015 Session, the Virginia General Assembly enacted House Bill 1554 (2015 Acts of Assembly , Chapter 49) and Senate Bill 1205 (2015 Acts of Assembly, Chapter 94), which made several changes to the Credit. These changes included increasing the amount of the Credit, imposing an annual cap, and amending certain qualification requirements. In April 2017, the Department issued its Recyclable Materials Processing Equipment Tax Credit Guidelines as Public Document (P.D.) 17-42 (4/3/2017) (the “Guidelines”).

Effective for the 2015 taxable year and thereafter, the Credit is capped at $2 million per fiscal year. If the total amount of all approved credits exceeds the $2 million credit cap for credits, each taxpayer is granted a pro rata amount of credits as determined by the Department. Prior to the 2015 taxable year, the Credit was uncapped and, therefore, the proration of approved credits was unnecessary.

The Guidelines explain that a taxpayer may claim the Credit only for the taxable year in which such taxpayer purchases qualifying machinery or equipment. If such machinery or equipment does not qualify for the Credit in the year of purchase, the taxpayer may not claim the Credit for a later taxable year when the machinery or equipment meets the Credit requirements. A taxpayer that does not qualify for the Credit in the taxable year of purchase or that fails to meet the application deadlines may neither claim the Credit for the year of purchase nor claim original or carryover credits for years following the year of purchase.

In P.D. 04-190 (10/20/2004), the Department addressed a situation where a taxpayer purchased otherwise qualifying equipment in one year, but did not produce a sufficient quantity of recycled materials for DEQ to certify the machinery and equipment as integral to the recycling process for several years. In such case, the Department provided that a taxpayer that did not qualify for the Credit in the year of purchase may later amend its tax return for the taxable year of purchase and claim the Credit, as long as the amended return is filed within the three-year statute of limitations. The Department also provided that a taxpayer that did not claim the Credit on an amended return within the three-year statute of limitations may amend its tax returns for the taxable years following the year of purchase to claim carryover credits that would have been available if the Credit had been claimed for the year of purchase as long as such returns are filed within the three-year statute of limitations. The Department issued similar guidance in P.D. 10-136 (7/12/2010) and P.D. 10-227 (9/29/2010).

This guidance was issued prior to the imposition of an annual credit cap, which requires the establishment of deadlines in order to allocate credits. Accordingly, for machinery or equipment purchased in taxable years beginning on or after January 1, 2015, the Guidelines expressly superseded the rules set forth in P.D. 04-190, P.D. 10-136, and P.D. 10-227, as applied to the Credit.

In this case, the Taxpayer based the Credit it claimed for the 2022 taxable year in part on a deposit paid in 2021. The provisions of Virginia Code § 58.1-439.7 A and the Guidelines are clear and do not provide the Department with any discretion to allow the Credit for a particular taxable year to included amounts paid in other taxable years. Accordingly, the Department properly disallowed the 2022 Credit to the extent it was attributable to the deposit paid in the 2021 taxable year.

The Code of Virginia section cited is available online at law.lis.virginia.gov. The public documents and guidelines cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4723.X

Related Documents

04-190

10-136

10-227

17-42