A footwear manufacturer added a new employee rest room to its manufacturing building. Does that expenditure qualify for the investment tax credit as property 'used in manufacturing,' just because it's part of a building where manufacturing is the principal use?

Plain-English summary

The Daniel Green Company, a footwear manufacturer, added a new women's rest room in 1979 to a building constructed before December 31, 1968. It asked whether that expenditure qualified for New York's investment tax credit under Tax Law § 210.12(b), which covers tangible property -- including buildings and structural components -- "principally used by the taxpayer in the production of goods by manufacturing," as well as property used to repair and service other qualifying production property.

The Department said no. Citing its own prior decision in Matter of Empire Freezers of Syracuse, Inc., the Department explained that ancillary facilities (things that support production without directly being part of it) only qualify for the credit if they are "integrally related to the taxpayer's production enterprise." A rest room doesn't meet that bar -- it isn't used directly in production, and it isn't integrally related to the manufacturing process itself, even though employees who work in production obviously use it. The Department was explicit that it's not enough for the addition to be physically connected to, or part of, a pre-existing building that is principally used for manufacturing, or that the whole facility (rest room included) remains principally a manufacturing building after the addition -- the specific expenditure itself has to be integrally related to production, and this one wasn't.

What this means for you

Manufacturers claiming the investment tax credit on building additions

Not every addition to a manufacturing building qualifies for the credit just because the building as a whole is principally used in manufacturing. The test focuses on whether the SPECIFIC property or addition is itself integrally related to the production process -- employee amenities like rest rooms, break rooms, and similar facilities generally will not qualify, even in an otherwise-qualifying building.

The "integrally related" test applies broadly to ancillary facilities

This ruling reinforces the Empire Freezers standard as the general test for whether ancillary, non-production facilities added to a manufacturing building can piggyback on the building's qualifying status -- worth checking against any planned addition (break rooms, offices, storage for non-production purposes, etc.) before assuming it will qualify for the credit.

Common questions

Q: If my factory building overall qualifies for the investment tax credit, does every addition to it automatically qualify too?
A: No. Each addition or piece of property must independently be principally used in production, or otherwise integrally related to the production process -- simply being part of a qualifying building isn't enough.

Q: What kind of ancillary facility WOULD qualify?
A: One that is "integrally related to the taxpayer's production enterprise" -- for example, machinery or facilities used in the repair and service of production equipment. Employee amenities like rest rooms generally will not meet this standard.

Q: Can another manufacturer with a similar rest-room or amenity addition rely on this Opinion?
A: No. It binds the Department only as to Daniel Green's own facts and can't be relied upon by other taxpayers, though the "integrally related" standard it applies (from Empire Freezers) is a general test the Department has used repeatedly.

Citations and references

Statutes and prior rulings:

• Tax Law § 210.12(b)
• Matter of Empire Freezers of Syracuse, Inc., TSB-H-78(1)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a82_8c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(8)C
Corporation Tax
June 9, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C820111B

On January 11, 1982, a Petition for Advisory Opinion was received from the Daniel Green
Company, 1 Main Street, Dolgeville, New York 13329.
During 1979, Petitioner a manufacturer of footwear, added a new women's rest room to a
building that was constructed prior to December 31, 1968. At issue is whether the expenditure for
the rest room, added to a building principally used in manufacturing, qualifies for the investment tax
credit provided for under Article 9-A of the Tax Law. It is concluded herein that it does not.
Section 210.12(b) of the Tax Law describes the type of property which qualifies for the
investment tax credit as including "tangible personal property and other tangible property, including
buildings and structural components of buildings, which are: . . . principally used by the taxpayer in
the production of goods by manufacturing . . . " Such provision goes on to include as property used
in the production of goods, "machinery, equipment or other tangible property which is principally
used in the repair and service of other machinery, equipment or other tangible property used
principally in the production of goods and shall include all facilities used in the production operation
. . . " Thus, qualifying property must be principally used either in the production of goods or in the
repair and service of other qualifying property.
In Matter of Empire Freezers of Syracuse, Inc., TSB-H-78(1)C, the State Tax Commission
held that in order for ancillary facilities to be considered to be used in the production process, they
must be "integrally related to the taxpayer's production enterprise." Since the property in question
is not used directly in production and is not integrally related to the Petitioner's production enterprise,
the same does not qualify under the statute. It is insufficient that it is connected to or part of a pre­
existent building principally used in production, or that the entire facility, after the addition, remains
principally used in production.
Accordingly, the facility in question does not constitute qualified property, and the
expenditure therefor does not qualify for the investment tax credit provided for under Section 210.12
of the Tax Law.

DATED: June 9, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR