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1994 SESSION

LD1015812
HOUSE BILL NO. 1407
Offered January 28, 1994
A BILL to amend the Code of Virginia by adding in Article 13 of Chapter 3 of Title 58.1 a section numbered 58.1-439, relating to the computation of Virginia income tax liability and a major business facility job tax credit.
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Patron--Bloxom
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Introduced at the request of the Governor
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Referred to Committee on Finance
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Be it enacted by the General Assembly of Virginia:

1. That the Code of Virginia is amended by adding in Article 13 of Chapter 3 of Title 58.1 a section numbered 58.1-439 as follows:

§ 58.1-439. Major business facility job tax credit.

A. For taxable years beginning on and after January 1, 1995, but before January 1, 2005, a taxpayer shall be allowed a credit against the taxes imposed by Article 10 (§ 58.1-400 et seq.) of Chapter 3, Chapter 12 (§ 58.1-1200 et seq.) Article 1 (§ 58.1-2500 et seq.) of Chapter 25, or Article 2 (§ 58.1-2620 et seq.) of Chapter 26 of this title as set forth in this section.

B. For any qualified company, the amount of credit earned pursuant to this section shall be equal to $1,000 per qualified full-time employee employed during the credit year. The credit shall be allowed ratably, with one-third of the credit amount allowed annually for three years beginning with the credit year. The portion of the $1,000 credit earned with respect to any qualified full-time employee who is employed in this Commonwealth for less than twelve full months during the credit year will be determined by applying the ratio of the number of full months that the qualified full-time employee worked for the qualified company in this Commonwealth during the credit year divided by twelve. A separate credit year and a three- year allowance period will exist for each distinct major business facility of a single taxpayer.

C. A "qualified company" is a company that satisfies the following criteria:

1. The Department of Economic Development must certify to the Department of Taxation: (i) that the company has established a major business facility in this Commonwealth; (ii) the date on which such facility commenced operations; and (iii) the nature of the job functions to be performed at the facility which will qualify for the credit;

2. The establishment of the major business facility must result in the creation of at least seventy-five jobs for qualified full-time employees; and

3. The average number of qualified full-time employees at the major business facility for the credit year must be at least seventy-five.

D. For purposes of this section, the "credit year" is the first taxable year following the taxable year in which the major business facility commenced operations.

E. "Major business facility" includes, but is not limited to, a headquarters facility, or portion of a facility, where company staff employees are physically employed, and where the majority of the company's financial, personnel, legal, or planning functions are handled either on a regional or national basis. A major business facility shall also include facilities that perform a central management or administrative function for other establishments of the same enterprise such as general management, accounting, computing, tabulating, data processing, purchasing, transportation or shipping, engineering and systems planning, advertising, legal, financial, and research and development if it otherwise meets the staffing requirements. The Department of Economic Development shall make all determinations as to the classification of a major business facility. Only those major business facilities which have been certified by the Department of Economic Development shall be eligible to receive the credit pursuant to this section.

F. A "qualified full-time employee" means an employee with a new, permanent full-time position performing related functions and services at a major business facility in this Commonwealth.

1. A "new permanent full-time position" is a job of an indefinite duration, created by the company at a major business facility in this Commonwealth, requiring a minimum of thirty-five hours of an employee's time a week for the entire normal year of the company's operations, or a position of indefinite duration which requires a minimum of thirty-five hours of an employee's time a week for the portion of the taxable year in which the employee was initially hired for, or transferred to, the major business facility in this Commonwealth. Seasonal or temporary positions, or a job created when a job function is shifted from an existing location in this Commonwealth to the new major business facility shall not qualify as new, permanent full-time positions.

2. "Related functions and services" are those functions involving financial, personnel, administrative, legal, planning, or similar business functions appropriate to the purpose of the facility. Building and grounds maintenance, retail sales, security, and cafeteria services are not related functions and services.

G. The amount of credit allowed pursuant to this section shall not exceed the tax imposed for such taxable year. Any tax credit earned pursuant to this section is nonrefundable, but any credit not usable for the taxable year the credit was allowed may be, to the extent usable, carried over for the next five succeeding taxable years. No credit shall be carried back to a preceding taxable year. The maximum amount of credit that may be cumulatively earned by a taxpayer pursuant to this section in one or more taxable years, for one or more major business facilities, is one million dollars. In the event that a taxpayer who is subject to the tax limitation imposed pursuant to this subsection is allowed another credit pursuant to any other section of the Code of Virginia, or has a credit carryover from a preceding taxable year, such taxpayer shall be considered to have first utilized any credit allowed which does not have a carryover provision, and then any credit which is carried forward from a preceding taxable year, prior to the utilization of any credit allowed pursuant to this section.

H. No credit shall be earned pursuant to this section for any employee (i) for which a credit under this section was previously earned by a related party as defined by Internal Revenue Code § 267(b) or a trade or business under common control as defined by Internal Revenue Code § 52(b); (ii) who was previously employed in the same job function in Virginia by a related party as defined by Internal Revenue Code § 267(b) or a trade or business under common control as defined by Internal Revenue Code § 52(b); (iii) whose job function was previously performed at a different location in Virginia by an employee of the taxpayer, a related party as defined by Internal Revenue Code §267(b), or a trade or business under common control as defined by Internal Revenue Code § 52(b); or (iv) whose job function previously qualified for a credit under this section at a different major business facility on behalf of the taxpayer, a related party as defined by Internal Revenue Code § 267(b), or a trade or business under common control as defined by Internal Revenue Code § 52(b).

I. Pursuant to regulations which shall be issued by the Department of Taxation, the tax shall be increased in any of the five years succeeding the taxable year in which a credit has been earned pursuant to this section if the number of qualified full-time employees decreases below that of the credit year. Such increase shall be determined by (i) recomputing the credit which would have been earned for the original credit year using the deceased number of qualified full-time employees and (ii) subtracting such recomputed credit from the amount of credit previously earned. In the event that the average number of qualifying full-time employees employed at a major business facility falls below seventy-five in any of the five taxable years succeeding the credit year, all credits earned with respect to such major business facility shall be recaptured. No credit amount will be recaptured more than once pursuant to this subsection. Any recapture pursuant to this section shall reduce credits earned but not yet allowed, and credits allowed but carried forward, prior to causing an increase in the tax.

J. In the event that a major business facility is located in an economically distressed area during a credit year, the minimum number of qualified full-time employees required to qualify for a credit pursuant to this section and to avoid full recapture shall be reduced from seventy-five to fifty. An area shall be designated as economically distressed if the unemployment rate in such area for the preceding year is at least 0.5 percent higher than the average state unemployment rate for such year. The Department of Economic Development shall identify all economically distressed areas at least annually.

K. The Tax Commissioner shall have the authority to issue regulations relating to the computation, carryover, and recapture of the credit provided under this section. The Department of Economic Development shall have the authority to issue regulations defining criteria for a major business facility, appropriate job functions for a facility, and economically distressed areas.

2. That the provisions of this act apply only in instances where an announcement of intent to establish a major business facility is made on or after January 1, 1994.

3. The General Assembly of Virginia finds that modern business infrastructure allows businesses to locate their administrative facilities with minimal regard to the location of markets or the transportation of raw materials and finished goods, and that the economic vitality of this Commonwealth would be enhanced if such facilities were established in Virginia. Accordingly, the provisions of this act targeting the credit to qualified companies and limiting the credit to those companies that establish a major business facility in Virginia are integral to the purpose of the credit earned pursuant to this section and shall not be deemed severable.