Does a video post-production company's studio equipment and building qualify for New York's investment tax credit as property used in the production of goods by 'processing'?

Plain-English summary

Unitel Video Services, Inc. provides a full range of video post-production services in New York City to the video communications industry: producing, editing, and duplicating television commercials and programs on videotape; recording corporate and industrial communications; transferring 16mm/35mm motion picture film and slides to videotape; and creating test commercials from artwork. It owns its own studio buildings and equipment -- color television cameras, videotape recorders, sound monitoring, mixing and lighting equipment, and the optical/audio equipment needed to produce and duplicate a broadcast-ready master videotape.

Tax Law Section 210.12 grants an investment tax credit for property (including buildings) that is, among other requirements, "principally used by the taxpayer in the production of goods by manufacturing, processing or other specified activities." The statute defines "manufacturing" as working raw materials into new wares or giving new shapes, qualities, or combinations to matter through machinery -- but Petitioner's activities fell under the separate "processing" category instead. The Department found that ALL of Unitel's described activities are properly characterized as "processing" within the meaning of Section 210.12, so its video equipment qualifies for the credit, assuming the other statutory requirements are met (acquired after 1968, depreciable with a four-year-plus useful life, acquired by actual purchase rather than reorganization, situated in New York).

For the BUILDING itself, a separate test applies: Business Corporation Franchise Tax Regulations § 5-2.4(c) requires that more than 50% of a building's "usable business floor space" be used in storage and production for the building to be "principally used" in production. Floor space for bathrooms, cafeterias, and lounges doesn't count as usable business floor space at all, and floor space used for offices, accounting, sales, or distribution counts as usable but does NOT count toward production use. So Unitel's building would qualify for the credit only if its studio/production areas exceed 50% of its usable business floor space -- its accounting, administrative, and executive office space doesn't help meet that threshold.

This is a useful contrast to TSB-A-85(18)C, (6)I (homebuilders), issued the same year and applying the identical "production of goods by manufacturing, processing...or other specified activities" statutory language. There, a builder's construction equipment was DENIED the credit because building homes produces real property, not "goods." Here, Unitel's processing of raw video/film into a finished videotape product IS treated as producing goods, because the finished videotape retains its identity as tangible personal property at the point of sale/distribution -- unlike a completed building.

What this means for you

Video, film, and media post-production companies

Editing, duplication, format-transfer, and master-creation equipment used to produce a finished videotape or media product for clients qualifies as "processing" under Section 210.12, supporting an investment tax credit claim -- assuming the other statutory requirements (purchase, useful life, New York situs) are satisfied.

Companies claiming the credit on a building they own

Track your building's floor space carefully: only space used for storage and production counts toward the 50%-or-more "principally used" threshold. Executive offices, accounting departments, sales space, bathrooms, cafeterias, and lounges either don't count as usable business floor space or don't count toward production use, and can tip a building below the qualifying threshold.

Businesses unsure whether their finished product is "goods"

Compare this ruling to the companion TSB-A-85(18)C, (6)I homebuilder denial: the dividing line is whether your finished product remains tangible personal property at the point of sale/distribution (a videotape, like a cement block) versus becoming real property or an improvement to real property (a completed building).

Common questions

Q: Does video editing and post-production count as "manufacturing" or "processing" under New York's investment tax credit statute?
A: "Processing" -- the Department found all of Unitel's post-production activities (editing, duplication, format transfer, master creation) fall under that category.

Q: Does a production company's office space count toward the building's "principally used" test?
A: No -- accounting, administrative, sales, and executive office space doesn't count toward the 50%-plus production-use threshold required for a building to qualify for the credit.

Q: How does this compare to a homebuilder's claim for construction equipment?
A: They come out oppositely under the same statutory language -- see TSB-A-85(18)C, (6)I, where a homebuilder's equipment was DENIED the credit because it produces real property, not personal property "goods."

Q: Can another media production company rely on this Opinion?
A: No. It binds the Department only as to Unitel Video Services' own facts and cannot be relied upon by other taxpayers, even in a similar production business.

Citations and references

Statutes and regulations:

• Tax Law § 210.12
• Business Corporation Franchise Tax Regulations § 5-2.4(c)
• Internal Revenue Code § 167, § 168, § 179(d)

Related rulings:

• TSB-A-85(18)C, (6)I -- homebuilders, the opposite result under the identical "production of goods" statutory language

Date note: The document header reads "April 30, 1985," while the sign-off line reads "DATED: April 26, 1985" -- a four-day gap consistent with internal signing before the header/publication date; issued_date uses the header date without correction.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (5) C
Corporation Tax
April 30, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C830726D

On July 26, 1983 a Petitioner for Advisory Opinion was received from Unitel Video
Services, Inc., 510 West 57th Street, New York, New York 10019.
At issue is whether Petitioner is entitled to the investment tax credit provided under
section 210(12)(b) of the Tax Law with respect to real and tangible personal property used in
processing.
Petitioner provides a full range of processing services to the video communications
industry for the production, editing and duplication of television commercials and programs on
videotape in New York City. Other processing services include videotape recording of corporate
and industrial communications and transferring film to videotape and creating test commercials
from artwork. Petitioner also provides processing services for transferring 16 mm and 35 mm
motion picture film and slides to videotape.
Petitioner provides, in its own buildings located in New York City, the studios, equipment and
personnel needed to record and process television commercials and other videotaped
communications. The equipment includes color television cameras, videotape recorders, sound
monitoring, mixing and lighting equipment. Petitioner also has the equipment to perform the
special optical and audio effects to produce a master videotape suitable for telecast and to
duplicate the master for distribution.
Section 210.12 of the Tax Law provides for a credit against the tax imposed by Article 9A based upon a percentage of the cost or other basis for federal income tax purposes of tangible
personal property and other tangible property, including buildings and structural components of
buildings, which:

1. is acquired, constructed, reconstructed or erected by the taxpayer after December 31,
   1968;
2. is depreciable pursuant to section 167 of the Internal Revenue Code or recovery
   property with respect to which a deduction is allowable under section 168 of the Internal
   Revenue Code;
3. has a useful life of four years or more;
4. is acquired by the taxpayer by purchase as defined in section 179(d) of the Internal
   Revenue Code;

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85 (5) C
Corporation Tax
April 30, 1985

5. has a situs in New York State; and
6. is principally used by the taxpayer in the production of goods by manufacturing,
   processing or other specified activities.
   Such section also provides that the term "manufacturing" means the process of working raw
   materials into wares suitable for use or which gives new shapes, new quality or new
   combinations to matter which already has gone through some artificial process by the use of
   machinery, tools, appliances and other similar equipment.
   Section 5-2.4 of the Business Corporation Franchise Tax regulations states, in part:
   "(c) The term "principally used" means more than 50 percent. A building or
   addition to a building is principally used in production where more than 50
   percent of its usable business floor space is used in storage and production. Floor
   space used for bathrooms, cafeterias and lounges is not usable business floor
   space. Space used for offices, accounting, sales and distribution is not used in
   production. Dual purpose machinery is principally used in production when it is
   used in production more than 50 percent of its operating time."

All of the Petitioner's aforementioned activities are associated with "processing" as such word is
referred to in section 210.12 of the Tax Law. Accordingly, as Petitioner is engaged in
"processing", the Petitioner's video equipment would qualify for the investment tax credit,
provided it meets the other criteria of the Statute which are not at issue here. A building, includ­
ing improvements, which the Petitioner owns would qualify for the credit if it meets the criteria
of the Statute including the principal use test defined in section 5-2.4 of the Business Corporation
Franchise Tax regulations. Space used for the Petitioner's accounting, administrative and
executive offices is not used in production.

DATED: April 26, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.