My recycling equipment couldn't get DEQ certification until it was placed in service years after I bought it — can I claim Virginia's recycling equipment credit for the later year instead?

Plain-English summary

A corporation applied for Virginia's recyclable materials processing equipment tax credit (Form RMC) for its 2023 taxable year. The problem: it had purchased the machinery in 2021 and 2022. It couldn't get the required certification from the Virginia Department of Environmental Quality (DEQ) until the equipment was finally placed in service in 2023 (its DEQ application went in early 2024), so it asked the Department to let the 2023 credit application account for the 2021–2022 costs. The Department denied the application, and the Tax Commissioner upheld the denial on appeal under Va. Code § 58.1-1821.

The post-2015 regime is strict. In 2015 the General Assembly (House Bill 1554, Chapter 49; Senate Bill 1205, Chapter 94) raised the credit amount but imposed a $2 million per fiscal year cap, with all approved credits prorated when the pool is oversubscribed. The Department's implementing Guidelines (P.D. 17-42, April 2017) tie the credit to the taxable year of purchase (Va. Code § 58.1-439.7 A 1) and say exactly what happened here: if the 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 it meets the requirements — nor claim original or carryover credits for later years after missing the application deadlines.

The old flexibility is gone. Before the cap, the Department had allowed a workaround for late DEQ certification: amend the purchase-year return once certification arrived, within the three-year statute of limitations (P.D. 04-190; similarly P.D. 10-136, 10-227). The Guidelines expressly superseded that guidance for purchases in taxable years beginning on or after January 1, 2015 — an annual cap requires firm deadlines so the Department can allocate the pool each year.

Certification mechanics. Before claiming the credit, a taxpayer must obtain DEQ's written certification that the machinery is integral to the recycling process — used predominantly in or on the premises of Virginia facilities that manufacture, process, compound, or produce items for sale from recyclable materials (§ 58.1-439.7 A 2; 9 VAC 15-30-10 et seq.). The DEQ application (Form DEQ50-11S) is due by March 1 of the year following the year of purchase.

The M&T argument went nowhere. The taxpayer cited P.D. 14-55, an advisory opinion about idle equipment under the local Machinery & Tools tax, apparently to argue the "purchase" date should track the placed-in-service date. The credit is governed by its own statute and Guidelines; the local M&T tax has no bearing. The Department said it empathized with the timing bind, but 2021–2022 purchases cannot support a 2023 claim.

What this means for you

Manufacturers and recyclers planning equipment purchases

Under the capped regime, the credit clock starts at purchase, not at placed-in-service or certification. Calendar the March 1 DEQ application deadline for the year after each purchase, and structure acquisitions so the equipment can qualify in the purchase year — equipment that can't be certified in time may lose the credit permanently, as it did here.

Tax advisers

Pre-2015 public documents on this credit (P.D. 04-190, 10-136, 10-227 — the amend-back-with-SOL approach) are superseded for post-2015 purchases; the P.D. 17-42 Guidelines control. Don't build a claim on the old flexibility, and don't reason across tax types — local M&T concepts like idle machinery don't import into an income-tax credit.

Anyone weighing a credit's timing risk

Capped, application-based credits behave like grant programs: deadlines are structural (they let the state allocate a fixed pool), so equitable timing arguments — "certification wasn't possible yet" — generally can't move them, however sympathetic.

Common questions

Q: Why couldn't the taxpayer just claim the credit once DEQ finally certified the equipment?
A: Because the Guidelines tie the credit to the taxable year of purchase and expressly bar claiming it in a later year when the equipment finally qualifies. The pre-2015 practice of amending the purchase-year return after late certification was superseded once the $2 million annual cap made firm allocation deadlines necessary.

Q: What are the key deadlines for this credit?
A: Apply to DEQ for certification (Form DEQ50-11S) by March 1 of the year following the year of purchase, and claim the credit (Form RMC application to the Department) for the purchase year. No credit may be claimed without DEQ's written certification that the equipment is integral to the recycling process.

Q: Does the $2 million cap affect how much I get?
A: Potentially. The cap applies per fiscal year, and if total approved credits exceed it, every approved taxpayer is prorated. (Purchases before the 2015 taxable year were uncapped, which is why proration didn't exist then.)

Q: Why didn't the idle-machinery ruling help?
A: P.D. 14-55 construed the local Machinery & Tools tax, a different tax with its own statute. The recycling credit's rules about purchase-year eligibility are self-contained, so M&T concepts about when idle equipment becomes taxable are irrelevant to it.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 — administrative appeal (application for correction) to the Tax Commissioner
• Va. Code § 58.1-439.7 A 1 — the credit attaches to the taxable year of purchase
• Va. Code § 58.1-439.7 A 2 — DEQ certification requirement (integral to the recycling process)
• 9 VAC 15-30-10 et seq. — DEQ's certification regulations
• 2015 Acts of Assembly, Chapters 49 (House Bill 1554) and 94 (Senate Bill 1205) — the credit increase, annual cap, and amended qualification rules

Authorities the Department relied on (described here, not linked): P.D. 17-42 (4/3/2017) (the Recyclable Materials Processing Equipment Tax Credit Guidelines — purchase-year rule, deadlines, supersession); P.D. 04-190 (10/20/2004), P.D. 10-136 (7/12/2010), and P.D. 10-227 (9/29/2010) (the superseded pre-cap amend-back guidance); P.D. 14-55 (4/24/2014) (local M&T idle-machinery advisory opinion, held irrelevant).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-51

Original ruling text

April 16, 2025

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will respond to your letter in which you contest the denial of an application for the * (the “Credit”) submitted by *** (the “Taxpayer”) for the taxable year ended December 31, 2023.

FACTS

The Taxpayer filed an Application for the Credit (Form RMC) for the 2023 taxable year. The Department denied the application because the Taxpayer had not paid for the equipment in 2023. The Taxpayer appeals the denial of the Credit, contending that the Credit for the 2023 taxable year should account for costs paid in 2021 and 2022.

DETERMINATION

Guidelines

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 the Virginia Department of Environmental Quality (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.

Certification by the DEQ

Prior to claiming the Credit, a taxpayer must receive written certification from the DEQ stating that the machinery or equipment is integral to the recycling process. When determining whether an item of machinery or equipment is integral to the recycling process, the DEQ will determine whether the machinery or equipment is being used predominantly in or on the premises of manufacturing facilities or plant units that manufacture, process, compound, or produce items of tangible personal property from recyclable materials within Virginia for sale. The DEQ will also determine whether the machinery or equipment is being used to manufacturer, process, compound, or produce items of tangible personal property from recyclable materials. See Virginia Code § 58.1-439.7 A 2 and Title 9 of the Virginia Administrative Code (VAC) 15-30-10 et seq.

To apply for certification, a taxpayer is required to submit a completed application (Form DEQ50-11S) to the DEQ by March 1 of the year following the year it purchased the machinery or equipment. This is similar to the process required prior to the 2015 taxable year, except that taxpayers must now apply to the DEQ by the March 1 deadline. No taxpayer may claim the Credit unless it has received written certification from the DEQ stating that the machinery or equipment is integral to the recycling process.

In this case, the Taxpayer explains that it could not obtain the DEQ certification until after the equipment was finally placed into service in 2023. As such, the Taxpayer was not able to obtain DEQ certification until the Taxpayer submitted its DEQ application in early 2024. The Taxpayer, however, purchased the equipment in the 2021 and 2022 taxable years. Although the Department empathizes with the Taxpayer’s circumstances, the Guidelines are clear that a taxpayer may only claim the Credit for the taxable year in which the taxpayer purchased qualified machinery or equipment. See also Virginia Code § 58.1-439.7 A 1. In addition, the Guidelines clearly provide that if such machinery or equipment does not qualify for the Credit in the year of purchase, a taxpayer may not claim the Credit for a later taxable year when the machinery and equipment meet the Credit requirements.

Idle Machinery and Tools

The Taxpayer cites P.D. 14-55 (4/24/2014), apparently in an attempt to support its position that the purchase price date should be tied to the date the equipment was finally placed in service. P.D. 14-55 was an advisory opinion regarding the application of the local Machinery & Tools (M&T) tax to idle equipment purchased by one business from another. The Credit at issue is governed by its own statute and Guidelines separate and distinct from local M&T tax. As such, P.D. 14-55 has no bearing on the outcome of this determination.

CONCLUSION

Taxpayers may claim the Credit for a taxable year only for machinery and equipment purchases made during that year. The Guidelines clearly state, “[I]f 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.” In this case, the Taxpayer claimed the Credit in the 2023 taxable year but did not make purchases during that taxable year. The fact that DEQ certification was not available before the 2023 taxable year does not impact the determination of the year of purchase. Additionally, the treatment of idle machinery and tools for purposes of the local M&T tax is not relevant to determinations related to the Credit. Accordingly, the denial of the Credit is upheld.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents 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 5067.Q

Related Documents

10-136

10-227

14-55

14-190

17-42