Which pieces of lab and manufacturing equipment used by a biotech diagnostics company qualify for New York's 10% research-and-development credit versus the 6% investment tax credit -- and can the same equipment ever qualify for both, or must the company pick one?

Plain-English summary

Enzo Biochem, Inc. does laboratory research to develop diagnostic products for human disease, genetic analysis, prenatal diagnosis, cancer detection, and plant/animal pathogen identification, and manufactures DNA-based infectious-disease diagnostic probe kits for sale to the health care market. It asked the Department to confirm which of dozens of specific pieces of equipment -- centrifuges, incubators, spectrophotometers, gene sequencers/synthesizers, freezers, safety showers, and more -- qualify for New York's research and development credit (10% under section 210.18), the investment tax credit (6% under section 210.12), and the resulting employment incentive credit (section 210.12-A), given that Enzo listed nearly-identical equipment types separately under "used to conduct research" versus "used in manufacturing."

The Department approved credits item by item, organized by the STATUTORY PURPOSE of each category, not by equipment type: equipment used directly to perform lab research (centrifuges, incubators, spectrophotometers, gel/blot equipment, gene machines, sequencers, etc.) plus equipment used to store research materials qualifies for the R&D credit. Nearly identical equipment used in the diagnostic-kit MANUFACTURING process, plus storage of raw materials and finished products, qualifies instead for the investment tax credit as property "principally used ... in the production of goods by manufacturing." In BOTH categories, safety equipment (eyewashes, safety showers) is excluded -- the Department held it's not itself research or production equipment, "notwithstanding that such equipment is a necessary adjunct" to the process.

Because Enzo qualified for the investment tax credit, it also qualifies for the follow-on employment incentive credit in each of the three years after the credit year in which its average New York headcount is at least 101% of its headcount in the base year -- worth an additional 3% per qualifying year (half of the 6% investment credit), for up to 9% total across three years if it qualifies every year. Finally, the Department flagged an election under section 210.12(f): since Enzo's RESEARCH property also independently qualifies as manufacturing-type property, Enzo could instead choose to treat its research equipment as investment-credit-eligible property (and thus also become eligible for the employment incentive credit on that equipment too) rather than claiming the R&D credit on it -- but a taxpayer must claim whichever credit it wants in the year it first qualifies, or lose the ability to claim it in a later year (subject to filing an amended return within the statute of limitations in section 1087(a)).

What this means for you

Biotech, diagnostics, and lab-based manufacturers with dual-use equipment

Sort your equipment by ACTUAL USE (pure research vs. production of goods for sale), not by type -- centrifuges, incubators, and spectrophotometers can each separately qualify for the R&D credit OR the investment tax credit depending on which side of your operation actually uses them. Safety equipment doesn't qualify for either credit even if it's essential to the lab.

Choosing between the R&D credit and the investment tax credit for research property

If your research equipment also happens to meet the investment tax credit's manufacturing-property test, section 210.12(f) lets you elect the investment credit (plus the employment incentive credit) instead of the R&D credit -- useful if your headcount is growing, since only the investment-credit path unlocks the employment incentive credit. But you must decide and claim your choice in the FIRST year you qualify.

Common questions

Q: Does safety equipment like eyewashes and showers qualify for the R&D or investment tax credit?
A: No -- the Department excluded safety equipment from both credits, even though it called such equipment "a necessary adjunct to the research process."

Q: Can the same type of equipment (e.g., a centrifuge) qualify for different credits?
A: Yes -- the credit depends on which side of the business actually uses that specific unit: research use gets the R&D credit, production use gets the investment tax credit.

Q: What happens if I forget to claim a credit in the year I first qualify?
A: You generally can't claim it in a later year, though you may file an amended return within the section 1087(a) limitations period (three years from filing, or two years from payment, whichever is later) to claim it retroactively.

Q: Can another biotech company rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific equipment list and facts, and can't be relied upon by other companies, even with similar lab/production setups.

Citations and references

Statutes and regulations:

• Tax Law § 210.18 (R&D credit)
• Tax Law § 210.12, § 210.12(f) (investment tax credit and election)
• Tax Law § 210.12-A (employment incentive credit)
• Tax Law § 210.3(e)(3), § 210.11 (mutually exclusive credits/deductions)
• 20 NYCRR 5-3.2(a)
• Tax Law § 1087(a)

Related rulings:

• TSB-A-86(12)C -- the earlier Bausch & Lomb ruling on R&D credit eligibility for an entire dedicated R&D BUILDING, which explicitly excluded movable equipment like the equipment addressed here

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a86_19c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (19) C
Corporation Tax
September 10, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C860620B

On June 20, 1986, a Petition for Advisory Opinion was received from Enzo Biochem, Inc.,
325 Hudson Street, New York, New York 10013.
ISSUES
The issues raised are whether, for purposes of the franchise tax on business corporations
imposed by Article 9-A of the Tax Law, tangible personal property used by Petitioner in its business
qualifies for the research and development credit provided by section 210.18 of the Tax Law or the
investment tax credit provided by section 210.12 of the Tax Law and the employment incentive
credit provided by section 210.12-A of the Tax Law.
FACTS
Petitioner is engaged in laboratory research to develop various products for human disease
diagnosis, genetic analysis and prenatal diagnosis, cancer detection and prognosis, plant pathogen
identification and animal disease diagnosis. Petitioner currently manufactures DNA-based human
infectious disease diagnostic probe kits for sale to the health care market.
All of the equipment listed below under the category of "Equipment Used to Conduct
Research" is used by Petitioner to actually perform such laboratory research. All of the equipment
listed below under the category of "Production Equipment" is principally used by Petitioner in the
manufacture of its diagnostic kits. All of the equipment listed below 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; has a useful life of four years or more;
was acquired by purchase as defined in section 179(d) of the Internal Revenue Code and has a situs
in New York State.
Research and Development Equipment
Petitioner uses the following equipment in its research laboratory:
Equipment Used to Conduct Research
H20 Baths - Maintains materials at specific temperatures
Centrifuges (Ultra, Low Speed, Micro, Rotors, Table Top) - Separate materials
Shakers
(Incubator, Table Top, H2O) - Vibrates liquid materials
Incubators (CO2, Dry Air) - Grows test cells
Sterilizers - Prevents contamination of research materials
Programmable Dispenser - Measures research materials
Ovens (Drying, vacuum) - Drys research materials
Washing Manifolds for Elisa Plates - Monitors materials during testing
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

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Corporation Tax
September 10, 1986
Elisa Plates - Monitors materials during testing
Gamma Counter - Monitors materials during testing
Scintillation Counter - Monitors materials during testing
Fermentors - Grows cells for analysis
Spectrophotometers with Accessories - Measures research materials
Darkroom tanks - Monitors materials during research
Darkroom Processor and Accessories - Monitors materials during research
Gel Equipment (Vertical, Horizontal) - Monitors materials during research
Electro Blot Transfer - Monitors materials during research
Gel Dryer - Monitors materials during research
Gene Machine - Separates different size materials
Gene Machine Power Supply - Separates different size materials
Gene Machine Pump - Separates different size materials
Gene Machine Fraction Column - Separates different size materials
Temperature Calculator - Monitors research materials
pH Meters - Monitors research materials
Lyophilizers - Removes water from research material
Balances (Top Loader, Analytical) Weight research material
Microscopes (Light, Fluorescent, Dual Viewer, Phase) - Inspects result of research
Cameras - Inspects results of research
Vacuum Pumps - Filters research materials
Elisa Readers - Monitors materials during research
Fluorimeter - Monitors materials during research
Pipettemen - Measures materials during research
Klett Colorimetric - Measures materials during research
Spec 20 - Measures materials during research
HPLC - Measures materials during research
Trans Illuminator - Measures materials during research
Distillation Apparatus - Measures materials during research
Gene Synthesizer - Measures materials during research
Sequencing Apparatus - Measures materials during research
Col. Chromotography Equipment - Measures materials during research
Gradient Makers - Measures materials during research
Vortexes - Mixes solutions during tests
Hot Plate Stirrers - Mixes solutions during tests
Liquid Nitrogen Tanks - Maintains low temperatures during tests
Microwave Ovens - Heats testing solutions
Seal-a-Meals - Packages research materials
Glove Boxes - Used in manipulation of research materials
Hoods (Tissue, Fume, Bench Top) - Removes contaminants from air in research laboratory
Equipment Used to Store Research Materials
Crushed Ice Machines
Refrigerators
Freezers

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TSB-A-86 (19) C
Corporation Tax
September 10, 1986
Safety Equipment
Eye Washes
Safety Showers
Manufacturing Equipment
Petitioner uses the following manufacturing equipment in the manufacture of its diagnostic
kits:
Production Equipment
Sonicators - Shatters raw materials
H20 Baths - Maintains materials at specific temperatures
Centrifuges (Ultra, Low Speed, Micro, Rotors, Table Top) - Separates materials
Shakers (Incubator, Table Top, H20) - Vibrates liquid materials
Roller Bottle Apparatus - Vibrates liquid materials
Incubators (CO2, Dry Air) - Grows cells as raw materials
Sterilizers - Prevents contamination of materials
Ovens (Drying, Vacuum) - Drys materials
Washing Manifolds for Elisa Plates - Tests for quality control in production
Elisa Plates - Tests for quality control in production
Scintillation Counter - Monitors production materials
Fermentors - Grows cells for raw materials
Spectrophotometer with Accessories - Measures production materials
Darkroom Tanks - Monitors production materials
Darkroom Processor and Accessories - Monitors production materials
Gel Equipment (Vertical, Horizontal) - Monitors production materials
Electro Blot Transfer - Monitors production materials
Gel Dryer - Monitors production materials
Gene Machines - Separates production materials
Gene Machine Power Supplies - Separates production materials
Gene Machine Pumps - Separates production materials
Gene Machine Fraction Columns - Separates production materials
Temperature Calculators - Monitors production materials
pH Meters - Monitors production materials
Lyophilizers - Removes water from production material
Balances - Weighs production material
Microscopes (Light, Fluorescent) - Checks quality of production material
Camera - Checks quality of production material
Vacuum Pumps - Filters production solutions
Elisa Reader - Monitors materials during production
Fluorimeter - Monitors materials during production
Pipettemen - Measures production material
Seal-a-Meals - Packages raw materials and finished products
Klett Colorimetric - Measures and produces production materials
Spec 20 - Measures and produces production materials
HPLC - Measures and produces production materials

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TSB-A-86 (19) C
Corporation Tax
September 10, 1986
Trans Illuminator - Measures and produces production materials
Distillation Apparatus - Measures and produces production materials
Gene Synthesizer - Measures and produces production materials
Sequencing Apparatus - Measures and produces production materials
Col. Chromotography Equipment - Measures and produces production materials
Gradient Makers - Measures and produces production material
Vortexes - Mixes production solutions
Hot Plate Stirrers - Mixes production solutions
Liquid Nitrogen Tanks - Freezes materials in production process
Microwave Ovens - Heats materials in production process
UV Box - Monitors production process
Glove Box - Used to manipulate materials
Hoods (Tissue, Fume, Bench Top) - Removes contaminants from air in production area
Storage Equipment
Crushed Ice Machine
Refrigerator
Freezers
Safety Equipment
Eyewashes
Safety Showers
LAW
Section 210.18 of the Tax Law allows a research and development credit against the tax
imposed under Article 9-A of the Tax Law equal to ten percent of the cost or other basis of tangible
personal property and other tangible property, including buildings and structural components of
buildings which:
(1)

are acquired, constructed, reconstructed or erected by the taxpayer after June 30, 1982;

(2)

are 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)

have a useful life of four years or more;

(4)

are acquired by purchase as defined in section 179(d) of the Internal Revenue Code;

(5)

have a situs in New York State; and

(6)

are used or are to be used for purposes of research and development in the experimental or
laboratory sense. Such purposes do not include the ordinary testing or inspection of
materials or products for quality control, efficiency surveys, advertising promotions, or
research in connection with literary, historical or similar projects.

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TSB-A-86 (19) C
Corporation Tax
September 10, 1986
Generally, the credit is allowed for all property used directly to perform research to develop
experimental or pilot models, plant processes, formulas, inventions and similar properties and
improvements of already existing properties of the type mentioned. Additionally, the credit is
allowed for property used to store research materials and property used to create environments
necessary to conduct research such as air conditioning or air purifying equipment. Buildings and
structural components of buildings in which qualifying equipment is used may also qualify.
The credit is not allowed for any property for which the research and development deduction
under section 210.3(e)(3) of the Tax Law has been taken; the eligible business facility credit under
section 210.11 of the Tax Law has been taken or the investment tax credit under section 210.12 of
the Tax Law has been taken. Additionally, the credit is not allowed if the property is leased to any
other person or corporation.
Section 210.12 of the Tax Law allows an investment credit against the tax imposed under
Article 9-A of the Tax Law equal to six percent of the cost or other basis of tangible personal
property and other tangible property, including buildings and structural components of buildings
which:
(1)

are acquired, constructed, reconstructed or erected after June 30, 1982;

(2)

are 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)

have a useful life of four years or more;

(4)

are acquired by purchase as defined in section 179(d) of the Internal Revenue Code;

(5)

have a situs in New York State; and

(6)

are principally used by the taxpayer in the production of goods by manufacturing, processing,
assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture,
viticulture or commercial fishing.

"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.
Property used in production includes all facilities used in the production operation, including storage
of material to be used in production and of the products that are produced.
The credit is not allowed for any property which is leased by the taxpayer to any other person
or corporation.
Section 210.12-A of the Tax Law allows an employment incentive credit against the tax
imposed under Article 9-A of the Tax Law in each of the three years succeeding the taxable year for
which an investment credit has been allowed under section 210.12 of the Tax Law. The amount of

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Corporation Tax
September 10, 1986
the credit allowed in each of the three years is fifty percent of the investment credit allowed.
However, the credit is allowed only in taxable years when the average number of employees during
each such year is at least 101% of the average number of employees during the taxable year
immediately preceding the taxable year for which the investment credit is allowed.
Section 5-3.2(a) of the regulations of the State Tax Commission provides:
The average number of employees in a taxable year as used in this Subpart is
computed as follows:
(1) ascertain the number of employees within New York State, except general
executive officers, employed by the taxpayer on March 31st, June 30th, September
30th, and December 31st in the taxable year;
(2) add together the number of employees ascertained on each of such dates; and
(3) divide the sum by the number of such dates occurring within the taxable year.
20 NYCRR 5-3.2
CONCLUSIONS
Issue I - Research and Development Credit
All of the equipment listed above which is used to process, measure and monitor research
materials is used directly to perform research to develop experimental models of its diagnostic
products. Accordingly, such equipment is used for purposes of research and development in the
experimental or laboratory sense. Similarly, the equipment used in conjunction with the above
equipment to store research materials and to maintain the necessary research environment listed
above are all deemed to be used for purposes of research and development in the experimental or
laboratory sense. However, the safety equipment listed above is not deemed to be used in research
and development notwithstanding that such equipment is a necessary adjunct to the research process.
Accordingly, since all of the equipment listed as "Equipment Used to Conduct Research" and
as "Equipment Used to Store Research Materials" meets each of the requirements of section 210.18
of the Tax Law, the research and development credit is allowed for all such equipment. The research
and development credit is not allowed for the equipment listed as "Safety Equipment".
Issue II - Investment Tax Credit
All of the equipment listed above which is used to process, measure and monitor materials
which become part of the diagnostic kits sold by Petitioner is equipment principally used in
manufacturing. Accordingly, such equipment is principally used by the taxpayer in the production
of goods by manufacturing within the meaning of the statute. Similarly, the equipment used to store
raw materials and finished products is deemed to be principally used by the taxpayer in the
production of goods by manufacturing within the meaning of the statute. However, safety equipment
listed above is not deemed to be used in the production of goods by manufacturing.

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Corporation Tax
September 10, 1986
Accordingly, since all of the equipment listed as "Production Equipment" and "Storage
Equipment" meets each of the requirements of section 210.12 of the Tax Law, the investment tax
credit is allowed for all such equipment. The investment tax credit is not allowed for the equipment
listed as "Safety Equipment".
Issue III - Employment Incentive Credit
Where a taxpayer qualifies for an investment tax credit with respect to eligible property, the
taxpayer may also qualify for an employment incentive credit for each of the three years next
succeeding the taxable year for which the taxpayer qualified for the investment tax credit. The
taxpayer will qualify for the credit in each of the years in which the average number of taxpayer's
employees is at least 101 percent of the average number of employees during the taxable year
immediately preceding the taxable year for which the investment was allowable (the base year).
Each year's qualification is determined separately. If a taxpayer fails to have a sufficient number of
employees in one or two of the three years, it will nevertheless qualify for the credit in the year or
years in which it has a sufficient number of employees.
Accordingly, since the Petitioner qualifies for the investment tax credit, it will also qualify
for the employment incentive credit in each of the next succeeding three years if the number of its
employees is at least 101% of the number of its employees in the base year. The amount of
Petitioner's credit in each of the three years will equal one-half of Petitioner's investment tax credit
(i.e. one-half of six percent) for a total of nine percent if Petitioner qualifies in all three years. This
amount is in addition to the six percent credit allowed for the investment tax credit.
It should be noted that section 210.12(f) of the Tax Law provides that:
(f) At the option of the taxpayer . . . research and development facilities which qualify for
elective deduction under subparagraphs two and three of paragraph (e) of subdivision three
of this section may be treated as property principally used by the taxpayer in the production
of goods by manufacturing, processing, assembling, refining, mining, extracting, farming,
agriculture, horticulture, floriculture, viticulture or commercial fishing, provided the property
otherwise qualifies under paragraph (b) of this subdivision, in which event, a deduction shall
not be allowed under such paragraph (g), a credit shall not be allowed under such subdivision
eleven and a deduction shall not be allowed under such subparagraph three of paragraph (e).
Pursuant to this section, all of Petitioner's property which qualifies as property used in
research and development in the experimental or laboratory sense may be treated as property
principally used by Petitioner in the production of goods by manufacturing. Since Petitioner's
research and development property otherwise qualifies under section 210.12(b) of the Tax Law,
Petitioner may elect, pursuant to section 210.12(f) of the Tax Law, to claim the investment tax credit
in lieu of the research and development credit allowable pursuant to section 210.18 of the Tax law.
If Petitioner elects to claim the investment tax credit and in succeeding taxable years qualifies
pursuant to section 210.12-A of the Tax Law for the employment incentive tax credit, such credit
may also be claimed for the appropriate taxable years.

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TSB-A-86 (19) C
Corporation Tax
September 10, 1986
A taxpayer must claim the research and development credit, the investment tax credit and the
employment incentive credit for the taxable year in which the taxpayer first qualifies for the credit.
If a taxpayer fails to claim a credit for the taxable year in which it first qualifies for the credit, it may
not claim the credit in a subsequent year. However, in such a case, the taxpayer may file amended
returns for the taxable years in which the credits should have been claimed (as long as the period for
filing such amended returns has not expired) and thereby claim the credit.
Section 1087(a) of the Tax Law provides that a claim for credit or refund of an overpayment of tax
must be filed by a taxpayer within three years from the date the return was filed or two years from
the date the tax was paid, whichever of such periods expires later. If a taxpayer files such an
amended return, it may claim a refund to taxes previously paid (subject to the limitations set forth
in sections 210.12(e), 210.12-A(c) and 210.18(e)) or it may carry over the credits to the following
year or years and apply the credits against taxes for such year or years.

DATED: September 10, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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