An income tax credit is available to manufacturers for the purchase of certified machinery and equipment used for processing recyclable materials in taxable years beginning before January 1, 2020. The credit is equal to 20% of the purchase price paid during the taxable year for the machinery or equipment.

Contacts

Tax Credit Unit
Virginia Department of Taxation

Eligibility

  • Machinery and equipment must manufacture, process, compound, or produce items of tangible personal property from recyclable materials.
  • The DEQ must certify that all machinery and equipment are integral to the recycling process before the taxpayer may apply the tax credit.

Process

  • The company submits DEQ Form 50-11S with supporting documents to the DEQ before March 1 for equipment purchased in the previous calendar year. Taxpayers will also submit purchase receipts and invoices to confirm the taxpayer’s statement of purchase price paid for the recycling machinery and equipment.
  • DEQ certifies the equipment.
  • The company submits the DEQ certification with the Virginia state tax return. If the application is submitted and approved after May 1, then the taxpayer will be required to submit an amended tax return claiming the credit along with the credit certification.
  • All business taxpayers should be registered with the Department of Taxation before completing Form R-1. If not registered, they must complete Form R-1. If the tax return upon which this credit will be claimed is due on or before June 1, they may need to either submit an extension payment for any tax due or file an amended return once they have received the credit certification.
  • The company completes Form RMC by the June 1 deadline. The credit must be approved before being claimed on the return.
  • The Department of Taxation reviews all applications for completeness and notifies taxpayers of any errors by August 1. If any additional information is required, it must be provided to the Department of Taxation no later than August 15 to be considered for the credit.
  • All eligible taxpayers will be notified as to the amount of credits that they may claim by September 1.
  • To claim the tax credit, a corporation must file Form 500CR; an individual must file Schedule CR; and a pass-through entity must file Form 502ADJ. Applications must include copies of certification of the machinery and equipment from DEQ, proof of purchase of certified machinery and equipment (such as an invoice or receipt), and a summary of all other capitalized costs to make the machinery and equipment operational. The summary should include a date of service, description, and cost.

FAQ

When can a taxpayer claim the Recyclable Materials Processing Equipment Tax Credit?

A taxpayer may claim the Recyclable Materials Processing Equipment Tax 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.

How is the credit calculated?

Tax credits are equal to 20% of the purchase price paid during the taxable year for machinery and equipment 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 the Commonwealth, for sale.

Total tax credits must not exceed 40% of the Virginia income tax liability of one taxpayer.

What is the maximum amount of credits that may be claimed in a year?

The total amount of tax credits available to all taxpayers for a calendar year cannot exceed $2 million. If applications for this credit exceed $2 million, the Department of Taxation will allocate the credits on a pro rata basis. Any credit amounts that exceed a taxpayer’s liability can be carried forward for 10 years.

What if the application deadlines are not met?

A taxpayer who does not qualify for the credit in the taxable year of purchase or who 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.

Does leased machinery and equipment qualify for the Recyclable Materials Processing Equipment Tax Credit?

Leased machinery and equipment does not generally qualify. However, if a taxpayer is required to capitalize the value of leased machinery or equipment for federal income tax purposes in the first year the relevant lease is effective (a “capitalized lease”), the amount actually capitalized and any capitalized costs incurred in such year to acquire or produce such asset are considered “original total capitalized costs” for purposes of the credit.

What are “original total capitalized costs”?

For purposes of the Recyclable Materials Processing Equipment Tax Credit, “original total capitalized costs” include both the purchase price of machinery or equipment that is capitalized for federal income tax purposes, and any capitalized costs incurred in the year of purchase to acquire or produce such machinery or equipment.

“Original total capitalized costs” do not include costs incurred in a year other than the year of purchase or costs that are not capitalized. When determining the purchase price paid for machinery or equipment, subtract any capitalized interest related to the purchase from the original total capitalized cost of such machinery or equipment.