Rulings of the Tax Commissioner
Document Number: 12-205
Tax Type:General Provisions
Brief Description:Updated International Trade Facility Tax Credit Guidelines
Topics:Credits; Guidelines
Date Issued:12/07/2012
Updated International Trade Facility Tax Credit Guidelines*


Introduction

During the 2011 session, the Virginia General Assembly enacted Senate Bill 1136 (2011 Acts of Assembly, Chapter 49), which established the International Trade Facility Tax Credit. This is an individual and corporate income tax credit for either capital investment in an “international trade facility” (as defined by Va. Code 58.1-439.12:06(A)) or increasing jobs related to such facility. The amount of the credit is equal to either $3,000 per qualified full-time employee that results from increased qualified trade activities by the taxpayer or two percent of the capital investment made by the taxpayer to facilitate the increased qualified trade activities.

During the 2012 session, the General Assembly enacted House Bill 1183 and Senate Bill 578 (2012 Acts of Assembly, Chapters 846 and 849), which increase the jobs portion of the International Trade Facility Tax Credit from $3,000 to $3,500 per qualified full-time employee that results from increased qualified trade activities by the taxpayer. As this legislation is effective July 1, 2012, the increased credit amount may be claimed beginning in Taxable Year 2012.

Two additional port tax credits were enacted during the 2011 General Assembly Session: the Barge and Rail Usage Tax Credit (Va. Code 58.1-439.12:09) and the Port Volume Increase Tax Credit (Va. Code 58.1-439.12:10). These credits provide separate tax incentives for certain companies that use Virginia port facilities. Although all three credits offer incentives related to port activities, each credit is mutually exclusive, and separate definitions and requirements apply to each credit. A taxpayer may qualify for more than one credit in the same taxable year, but cannot claim more than one credit for the same activity or activities.

These guidelines are issued by the Department of Taxation (“the Department”) to provide guidance to taxpayers regarding the International Trade Facility Tax Credit. These guidelines are exempt from the provisions of the Administrative Process Act (Va. Code 2.2-4000 et seq.) according to the provisions outlined in Va. Code 58.1-439.12:06. These Guidelines supersede the International Trade Facility Tax Credit Guidelines issued by the Department on April 17, 2012 (Public Document 12-45). As necessary, additional guidelines will be published and posted on the Department’s website, www.tax.virginia.gov.


These guidelines represent the Department of Taxation’s interpretation of the relevant laws. They do not constitute formal rulemaking and hence do not have the force and effect of law or regulation. In the event that the final determination of any court holds that any provision of these guidelines are contrary to law, taxpayers who follow these guidelines will be treated as relying on erroneous written advice for purposes of waiving penalty and interest under Va. Code 58.1-105, 58.1-1835 and 58.1-1845. To the extent there is a question regarding the application of these guidelines, taxpayers are encouraged to write to the Department and seek a written response to their question.

Requirements for an International Trade Facility

For purposes of the International Trade Facility Tax Credit, an “international trade facility” is defined as a company that:

For purposes of this credit, the term “international trade facility” refers to the company itself, rather than the facility where port-related activities are being conducted by the company. Each company that qualifies as an international trade facility will calculate one base year amount and one credit amount each year, regardless of the number of facilities owned or the number of projects undertaken by that company. Accordingly, if the number of 20-foot equivalent marine containers transported through one particular maritime port facility in Virginia does not increase by at least 10 percent, this may affect whether the company meets the 10 percent volume increase requirement, even if the company increases the number of qualifying containers transported through other facilities.

Example 1: Computing Maritime Port Cargo Volume Increases The definition of an “international trade facility” for purposes of this credit is different than the definition of an “international trade facility” for purposes of the Barge and Rail Usage Tax Credit. Each definition should be applied separately for each credit.

“Port-related activities” include, but are not limited to, warehousing, distribution, freight forwarding and handling, and goods processing.

For purposes of determining the amount of cargo transported through Virginia Port Authority-operated maritime port facilities in Virginia, one 20-foot equivalent marine container is equivalent to 16 net tons of noncontainerized cargo. One net ton is equivalent to one short ton, or 2,200 pounds.

For purposes of determining the number of 20-foot equivalent marine containers transported through Virginia maritime facilities, only a full container load qualifies. A full container load (FCL) is a standard 20-foot, 40-foot, or 45-foot container that is loaded and discharged under the account of one shipper and is intended for one consignee. For cargo shipped in 40-foot or 45-foot marine containers, one loaded container is equivalent to two 20-foot equivalent marine containers.

A less than container load (LCL) is cargo that is insufficient in either weight or volume to qualify for the freight rates that apply to a standard shipping container and is therefore combined with cargo owned by other shippers or with cargo intended for at least one other consignee. An LCL does not qualify as a 20-foot equivalent marine container for purposes of this credit.

Criteria for Qualified Full-Time Employees

For Taxable Year 2012 and thereafter, the jobs portion of the International Trade Facility Tax Credit is equal to $3,500 per qualified full-time employee that results from increased qualified trade activities by the taxpayer. A “qualified full-time employee” is an employee filling a new, permanent full-time position in an international trade facility in Virginia. To qualify as a “new, permanent full-time position,” the position filled by the employee must be either:

Only employees filling permanent full-time positions qualify for this credit. Accordingly, employees filling seasonal or temporary positions do not qualify for this credit.

Additionally, positions that are ancillary to the principal activities performed by the employees at the international trade facility do not qualify for this credit. Such positions include jobs in building and grounds maintenance and security positions.

Jobs created when a job function is shifted from an existing location in Virginia to the international trade facility do not qualify for this credit. However, otherwise qualifying jobs that are created when a job function is shifted from an existing location in another state to an international trade facility located in Virginia are eligible for the credit.

Related Party Rules

An international trade facility may not claim a credit for certain employees who were previously employed by a related party or a business under common control. Examples of employees that do not qualify for purposes of this credit include the following:

For purposes of these limitations, “related party” means a related party as defined in IRC 267(b). A “trade or business under common control” means a trade or business under common control as defined for purposes of the federal Work Opportunity Tax Credit in IRC 52(b).

Criteria for Capital Investments

The capital investment portion of the International Trade Facility Tax Credit is equal to two percent of the amount of capital investment made by the taxpayer to facilitate increased qualified trade activities. “Qualified trade activities” is defined as the completed exportation or importation of at least one International Organization for Standardization ocean container, with a minimum 20-foot length, through a Virginia Port Authority-operated cargo facility. An export container must be loaded on a barge or ocean-going vessel at such facility and an import must be discharged from a barge or ocean-going vessel at such facility.

For purposes of this credit, “capital investment” is defined as the amount properly chargeable to a capital account for improvements to rehabilitate or expand depreciable real property placed in service during the taxable year and the cost of machinery, tools, and equipment used in an international trade facility directly related with the movement of cargo. Capital investment includes the following:

For purposes of this credit, “machinery, tools, and equipment” does not include the following:

The following are not considered capital investments for purposes of this credit:

Computation and Carryover of Credits

For Taxable Year 2011, taxpayers may claim a credit equal to either $3,000 per qualified full-time employee that results from increased qualified trade activities by the taxpayer or two percent of the capital investment made by the taxpayer to facilitate the increased qualified trade activities. For Taxable Year 2012 and thereafter, the jobs portion of the credit is equal to $3,500 per qualified full-time employee that results from increased qualified trade activities by the taxpayer. In cases where a qualified full-time employee works in Virginia for less than 12 months during the credit year, the credit for this employee is computed by multiplying the credit amount by a fraction, the numerator of which is the number of full months the employee works for the international trade facility in Virginia during the credit year and the denominator of which is 12.

The amount of credit claimed by a taxpayer cannot exceed 50 percent of the tax imposed on that taxpayer for the taxable year. Any remaining credit amount may be carried forward for the next ten taxable years. If a taxpayer is also allowed another tax credit or has a credit carryforward from a preceding taxable year, the taxpayer is considered to have first utilized any credit that does not have a carryforward provision, and then any credit carried forward from a preceding year, before using any of the International Trade Facility Tax Credit for that year.

Because an international trade facility is a company, rather than a physical location, the provisions of this credit apply at the company level, rather than on a per-project basis. Accordingly, each company may only claim either the jobs tax credit or the investment tax credit each year, regardless of the number of facilities owned by the company or the number of projects undertaken each year.

Example 2: Computation of International Trade Facility Tax Credits
(20 jobs created) x ($3,500 per job) = $70,000

($2,000,000 capital investment) x (2%) = $40,000

Example 3: Credit Computation and Carryover
Example 4: Credit Computation for Fractional Employees
($3,500 credit) x (4 months/12) = $1,166.67

The total jobs tax credit amount is then computed as follows:

(10 jobs created) x ($3,500 per job) = $35,000
(10 jobs created) x ($1,166.67 per job) = $11,667

Total jobs tax credit = $46,667

Example 5: Application of the Credit Election Rules
Recapture of Certain Credits

Part or all of the jobs tax credit may be recaptured if employment levels fall below certain threshold amounts in any of the five years following the year for which the credit was earned. There are two situations in which recapture may occur. In both situations, any recapture will first reduce credit carryforward amounts before increasing a taxpayer’s tax liability.

The first situation occurs when the number of qualified full-time employees in any of the five years succeeding the credit year decreases below the average number of qualified full-time employees employed during the credit year. In this situation, all or part of the credit will be recaptured by recomputing the credit which would have been earned for the original credit year using the decreased number of qualified full-time employees and subtracting the recomputed credit amount from the amount of credit previously earned.

The second recapture situation occurs when the average number of qualifying full-time employees employed at an international trade facility in any of the five taxable years succeeding the credit year falls below the amount employed by the taxpayer prior to claiming any credits. If this occurs, all credits earned with respect to the international trade facility must be recaptured.

Example 6: Partial Recapture of Credits – Applied Against Carryover
Example 7: Partial Recapture of Credits – Additional Tax Assessed
Example 8: Recapture of the Entire Credit Amount
Treatment of Affiliated Companies

Two or more affiliated companies may elect to aggregate the number of jobs created for qualified full-time employees or the amount of capital investments as the result of establishment or expansion by the individual companies in order to qualify for the credit allowed herein. For purposes of the International Trade Facility Tax Credit, “affiliated companies” means two or more companies related to each other so that (i) one company owns at least 80 percent of the voting power of the other or others or (ii) the same interest owns at least 80 percent of the voting power of two or more companies.

If two or more affiliated companies elect to aggregate the number of jobs or amount of capital investments, the taxpayers must compute the original credit amount based on the companies’ combined number of jobs and amount of capital investment. In order to aggregate the number of jobs or capital investments, corporate taxpayers must file a combined or consolidated Virginia income tax return.

Once an election has been made to aggregate the companies’ employment figures, the companies must then continue to aggregate their figures for purposes of determining any applicable recapture amount.

Example 9: Computation and Redemption of Credits by Affiliated Companies
Example 11: Recapture of Credit Amounts by Affiliated Companies
Example 12: Recapture of Credit Amounts by Affiliated Companies
Recomputed credit amount: (40 jobs created) x ($3,500 per job) = $140,000

Difference: ($175,000 credit claimed) – ($140,000 recomputed credit) = $35,000

Treatment of International Trade Facilities in Tobacco-Dependent Localities

An international trade facility that creates jobs or makes capital investments in a “tobacco-dependent locality” is entitled to a credit equal to $7,000 per job created or four percent of qualified capital investment expenses, to the extent that money is available in the Technology Initiative in Tobacco-Dependent Localities Fund (“the Fund”). If the amount of credits allowable for companies in tobacco-dependent localities exceeds the amount deposited in the Fund, the portion of each credit attributable to a taxpayer in a tobacco-dependent locality will be allocated separately on a pro rata basis. If the Fund is unfunded, the taxpayer will only be granted a credit of up to $3,500 per job or two percent of qualified capital investment expenses.

Example 13:
(20 jobs) x ($7,000 per job) = $140,000

Administration of the Credit

To receive the International Trade Facility, taxpayers must apply to the Department by completing Form ITF. Every taxpayer that applies for the International Trade Facility Tax Credit must verify containers or cargo shipped through Virginia Port Authority-operated port facilities on the Virginia Port Authority’s website (www.portofvirginia.com). A validation summary must then be attached to Form ITF. Taxpayers claiming the jobs portion of the International Trade Facility Tax Credit must also complete the International Trade Facility Port Job Creation Schedule. Form ITF and all required validation summaries, schedules, and supporting documentation must be completed and mailed no later than April 1 of the year following the taxable year during which credits were earned.

The total amount of International Trade Facility Tax Credits granted cannot exceed $250,000 in any calendar year. If the amount of credits applied for exceeds $250,000, the Department will allocate the credits proportionately among all qualified taxpayers. The Department will review all applications for completeness and notify taxpayers of any errors by June 1 of the calendar year in which Form ITF was submitted. If any additional information is needed, it must be provided no later than June 15 of that year to be considered for the tax credit. The Department will notify all eligible taxpayers of the amount of allocated credits by June 30 of the calendar year in which Form ITF was submitted.

Upon receiving notification of the allowable credit amount, taxpayers may claim this amount on the applicable Virginia income tax return.

Example 14: Applying for the International Trade Facility Tax Credit
Taxpayers claiming the credit must keep all supporting documentation, including Virginia Port Authority verification summaries and any additional supporting documentation demonstrating base year port cargo volume and the amount of cargo transported through maritime port facilities in Virginia during the taxable year. Taxpayers claiming the jobs portion of the International Trade Facility Tax Credit must retain employment records for at least five years for recapture purposes. Taxpayers claiming the capital investment portion of the credit must retain documentation of capital expenditures, including receipts, invoices, and project plans. Any supporting documentation must be provided by the taxpayer upon request.

Additional Information

These guidelines are available online in the Tax Policy Library section of the Department’s website, located at www.policylibrary.tax.virginia.gov. For additional information, please contact the Department at (804) 367-8037 or the Virginia Port Authority at (800) 446-8098. For assistance with the container and cargo verification process, contact the Virginia Port Authority at (757) 391-6235 or Helpdeskvit.org.
*These Guidelines supersede the International Trade Facility Tax Credit Guidelines issued by the Department on April 17, 2012 (Public Document 12-45). As necessary, additional guidelines will be published and posted on the Department’s website, www.tax.virginia.gov.

1. See Va. Code 58.1-439.12:06(A)).




Related Policy Documents:

PD 12-45