Can a homebuilder or commercial-building contractor claim New York's investment tax credit on the machinery and equipment it uses to construct homes and buildings?

Plain-English summary

An accounting firm asked, on behalf of homebuilders and commercial construction contractors, whether the machinery and equipment they use to build homes and commercial buildings qualifies for New York's investment tax credit -- available to corporations under Tax Law Section 210.12 and to individuals, partners, and sole proprietors under the nearly identical Section 606(a).

The credit requires property that is principally used "in the production of goods by manufacturing, processing, assembling or other specified activities." The Tax Law doesn't define "goods," so the Department applied the term's common meaning: tangible personal property such as chattel, wares, merchandise, and food or agricultural products -- but NOT real property or improvements to real property, like homes and buildings.

The Department drew a contrast: a maker of cement blocks IS producing goods by manufacturing, because the finished block retains its identity as personal property at the moment of sale. A home or commercial building is different -- once built, it has lost its identity as personal property and become real property (or an improvement to real property). Since a builder's machinery and equipment produces buildings rather than personal property "goods," it falls outside the credit's scope under both Section 210.12 (corporations) and Section 606(a) (individuals, whose provisions the Department noted are substantially the same as Section 210.12's).

What this means for you

Homebuilders and commercial construction contractors

Don't count on New York's investment tax credit for the excavators, cranes, mixers, or other equipment you use to build homes or commercial structures. The credit is reserved for property used to produce tangible personal property ("goods") -- and a finished building, once erected, is real property, not goods, regardless of how the construction equipment itself is classified.

Manufacturers evaluating whether their own product counts as "goods"

The key test is whether your finished product retains its identity as personal property at the point of sale (like a cement block, a manufactured chattel, or packaged food) versus becoming affixed to and identified with real property (like a completed building). This ruling is a useful data point for that line-drawing exercise, though it's not binding outside its own facts.

Common questions

Q: Does it matter whether the builder is a corporation, partnership, or sole proprietor?
A: No -- the corporate credit (Section 210.12) and the individual credit (Section 606(a)) have substantially the same "production of goods" requirement, and both exclude builders of real property.

Q: Would a manufacturer of prefabricated building components qualify?
A: This Opinion doesn't decide that question -- it addresses only machinery used directly in on-site construction of homes and commercial buildings, which produces real property. A manufacturer whose product remains personal property at the time of sale (like the cement-block example) would be analyzed differently.

Q: Can another builder rely on this Opinion?
A: No. It binds the Department only as to this petitioner's specific facts and cannot be relied upon by other taxpayers, even builders in an identical line of business.

Citations and references

Statutes:

• Tax Law § 210.12 (Article 9-A investment tax credit)
• Tax Law § 606(a) (Article 22 investment tax credit)
• Internal Revenue Code § 167, § 168, § 179(d) (depreciation/recovery property/purchase definitions incorporated by reference)

Related rulings:

• TSB-A-85(5)C -- Unitel Video Services, the opposite result under the identical "production of goods" statutory language, where video processing DOES qualify

Date note: The document header repeats "October 3, 1985" twice, but the sign-off line reads "DATED: October 1, 1985." This two-day gap is 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/multitax/a85_18c_6i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (18) C
Corporation Tax
TSB-A-85 (6) I
Income Tax
October 3, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. Z840504A

On May 4, 1984 a Petition for Advisory Opinion was received from Richard W. Kaszubinski,
c/o Hongo & Pellizzari, CPA's, 7591 Morgan Road, Liverpool, New York 13088.
The issue raised is whether tangible personal property, such as machinery and equipment,
used in the construction of new homes and commercial buildings by corporations, partnerships or
sole proprietors qualifies for an investment tax credit.
Section 210.12 of Article 9-A and Section 606(a) of Article 22 of the Tax Law provide for
an investment tax credit for corporations and individuals, respectively.
Section 210.12 of the Tax Law provides for a credit against tax imposed by Article 9-A 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 of more;
4. is acquired by the taxpayer by purchase defined in section 179(d) of the Internal Revenue
   Code;
5. has a situs in New York State; and
6. is principally used by the taxpayer in the production of goods by manufacturing,
   processing, assembling or other specified activities.
   The provisions of section 606(a) are substantially the same as the provisions of section
   210.12 as included above.

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

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

-2­
TSB-A-85 (18) C
Corporation Tax
TSB-A-85 (6) I
Income Tax
October 3, 1985
The investment credits allowed under sections 210.12 and 606(a) of the Tax Law are allowed
for property principally used by the taxpayer in the production of goods by manufacturing,
processing, assembling or other specified activities. While the term "goods" is not defined in the Tax
Law, its common meaning includes tangible personal property such as chattel, wares, merchandise,
food products and agricultural products but not real property or improvements to real property such
as homes and other buildings.
As Petitioner points out in his petition, a maker of cement blocks is considered to be
producing goods by manufacturing. This is so because the product sold by a cement block maker
retains its identity as personal property in the form of a manufactured good at the time of sale. In
contrast, a home or commercial building has lost it identity as individual personal property and has
taken on the identity of real property or an addition or improvement to real property.
Accordingly, a builder of homes or commercial property is not entitled to an investment
credit under sections 210.12 or 606(a) of the Tax Law because his machinery and equipment is not
used in the production of goods inasmuch as he produces real property rather than tangible personal
property.

DATED: October 1, 1985

s/ANDREW F. MARCHESE
Chief of Advisory Opinions

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