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.