Can a corporate partner in a partnership claim its allocable share of the partnership's investment tax credit on production equipment the PARTNERSHIP purchased, even though the partnership has no Article 9-A tax liability of its own and a partner's interest is technically just intangible personal property rather than a direct share of partnership assets?

Plain-English summary

"Xco.", a New York corporation, is a partner in a partnership formed in 1985 specifically to acquire production equipment for use in a New York manufacturing operation. Xco. wanted to know whether it could claim its allocable share of the Article 9-A investment tax credit on that equipment, even though the PARTNERSHIP (not Xco. directly) would be the one buying it. There's a real legal wrinkle here: a partnership itself pays no Article 9-A tax, so it has no tax liability against which a credit could ever apply -- and under a 1966 Court of Appeals case (Havemeyer), a partner's interest in a partnership is technically "intangible personalty," not a direct ownership share of the partnership's tangible assets. Taken literally, that reasoning would seem to block any pass-through of the credit to a corporate partner, since the STATUTE requires the credit-claiming corporation to itself have "acquired" and be "using" the qualifying property -- and technically, it's the partnership using the property, not the individual partners.

The Department declined to apply that narrow reading. It first noted that for federal tax purposes, each corporate partner already includes its allocable share of partnership income, gains, losses, and deductions in its own taxable income (IRC § 702), and each partner is separately allowed a federal investment credit for its own allocable share of partnership property. It then invoked a later, more purpose-driven 1983 Court of Appeals decision (Symphony Space), which cautioned against interpreting a tax provision so literally and narrowly that it defeats the statute's underlying purpose, even in the tax-exemption context where narrow construction usually rules. Digging into the 1969 legislative history that created the investment tax credit, the Department found it was designed specifically to REPLACE an older "double depreciation" benefit -- a benefit that corporate partners had already been receiving on their allocable share of partnership property before the credit existed. Since the Legislature intended the credit to simply substitute for that pre-existing benefit, the Department concluded lawmakers must have intended corporate partners to keep getting their allocable share of the NEW credit too, just as they'd gotten their allocable share of the old depreciation benefit. On the mechanics, property purchased by a partnership (as defined in federal law) is deemed purchased by each partner to the extent of that partner's allocable share -- satisfying the statute's "acquired by purchase" requirement for Xco.'s portion.

On the separate refund question, the Department clarified that even though the property is owned at the partnership level, the "new business" refund eligibility test looks at the CORPORATE PARTNER itself, not the partnership -- because it's the corporation, not the partnership, that's actually claiming the credit. So Xco. must independently satisfy the new-business test (not majority-owned by, or substantially similar to, another already-taxed entity, and not itself previously subject to Article 9-A for more than four years) to elect a refund of any credit carryforward, regardless of the partnership's own characteristics.

What this means for you

Corporate partners in partnerships acquiring qualifying production equipment

You can claim your allocable share of the Article 9-A investment tax credit on qualifying property the PARTNERSHIP purchases, even though you don't hold direct legal title to specific partnership assets -- the Department reads the credit's purpose (replacing the old double-depreciation benefit) as extending pass-through treatment to corporate partners, parallel to how individual partners and S corporation shareholders are treated.

Determining new-business refund eligibility for a corporate partner

The new-business test is applied to the CORPORATE PARTNER claiming the credit, not to the partnership that owns the equipment -- so a well-established corporation investing through a brand-new partnership doesn't automatically get new-business refund treatment, and conversely a new corporation investing through an older partnership isn't automatically disqualified either.

Common questions

Q: Does the partnership itself get any benefit from the investment tax credit?
A: No -- a partnership has no Article 9-A liability of its own, so it can't use any credit directly; the credit passes through entirely to the corporate (and other) partners based on their allocable shares.

Q: What if the partnership property doesn't meet all the other statutory requirements (useful life, situs, etc.)?
A: This ruling assumes those other criteria are satisfied and focuses specifically on the "acquired by purchase" and "principally used in production" requirements; all the statute's other conditions still apply independently.

Q: Can another corporate partner rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other taxpayers, even similarly structured corporate partnerships.

Citations and references

Statutes and regulations:

• Tax Law § 210.12(a), (b), (e), (j) (investment tax credit, qualifying property, carryforward/refund, new business)
• Tax Law § 208.9 (entire net income computation)
• IRC § 702 (partner's distributive share); § 179(d) (purchase definition)
• Matter of Havemeyer, 17 NY2d 216 (1966); Symphony Space v. Tishelman, 60 NY2d 33 (1983)
• Laws of 1969, ch. 1072 (investment tax credit legislative history)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (9) C
Corporation Tax
April 29, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C850528A

On May 28, 1985, a Petition for Advisory Opinion was received from John J. Eagan,
Norris, McLaughlin & Marcus, 1081 Rt. 22, P.O. Box 310, Somerville, New Jersey 08876.
The issues raised for purposes of Article 9-A of the Tax Law, are (1) whether a corporate
partner of a partnership will be able to claim its allocable share of the cost or other basis of
tangible personal property for purposes of the investment tax credit pursuant to section 210.12(a)
of the Tax Law where the partnership purchases tangible personal property that qualifies for the
credit and (2) whether the corporation qualifies as a new business pursuant to Section 210.12(j)
of the Tax Law and is therefore eligible to claim a refund of the credit pursuant to section
210.12(e) of the Tax Law.
Issue (1)
"Xco.", a New York corporation, is a partner of a partnership engaged in business in New
York State. The partnership intends to purchase tangible personal property for use in its
production process, in fact, the partnership was formed in 1985 for the purpose of acquiring the
production equipment.
Petitioner contends that based on section 210.12(a) of the Tax Law, a credit should be
permitted for production equipment not only in situations where Xco. directly purchases the
equipment but also in situations where the cost or other basis of such equipment passes through
from a partnership. Petitioner feels that this result is consistent with analogous situations, such as
the treatment of shareholders of S corporations and individual partners of a partnership, and
conforms with the general pattern for taxing a corporate partner on its allocable share of
partnership items.
A partnership itself is not taxable under Article 9-A of the Tax Law. As such, a
partnership would not be allowed an investment tax credit pursuant to section 210.12(a) of
Article 9-A since there is no liability under Article 9-A to which the credit could be applied.
Each corporation subject to tax under Article 9-A of the Tax Law is required to compute
its entire net income pursuant to section 208.9 of the Tax Law. The starting point for such
computation is the corporation's entire taxable income as required to be reported for federal
income tax purposes. Pursuant to the Internal Revenue Code, each corporation must include in
federal entire taxable income its allocable or pro rata share of the partnership income, gains,
losses and deductions. (Internal Revenue Code §702).

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

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

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Corporation Tax
April 29, 1987
It should be noted that for federal income tax purposes each partner would be allowed an
investment tax credit for the partner's allocable or pro rata share of the partnership's qualifying
property.
Tax Law section 210.12(a) provides that a taxpayer is allowed a credit against the tax
imposed by Article 9-A, with respect to 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 December
31, 1968;
(2)
are depreciable pursuant to section 167 of the Internal Revenue Code or recovery
property with respect to which an accelerated cost recovery system 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 the taxpayer 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.
Section 210.12(b) of the Tax Law clearly requires that all of the above criteria be met
before an investment tax credit is allowed. The criteria at issue herein are whether the property
qualifying for the investment tax credit is acquired by the taxpayer by purchase as defined in
section 179(d) of the Internal Revenue Code and whether such property is principally used by the
taxpayer in the production of goods by manufacturing, processing, assembling, etc. It is assumed
for purposes of this advisory opinion that the property purchased by the partnership will satisfy
the requirements of criteria (1), (2), (3) and (5) above.
Tangible property that a partnership purchases, as defined in section 179(d) of the Internal
Revenue Code, is deemed to be purchased by each partner to the extent of the partner's allocable
or pro rata share of the partnership's property. Accordingly, tangible property that is deemed to be
purchased by a corporate partner pursuant to section 179(d) of the Internal Revenue Code will be
deemed to be acquired by purchase for purposes of section 210.12(b) of the Tax Law.
The requirement in section 210.12(b) of the Tax Law that the property must be
principally used by the taxpayer in the production of goods by manufacturing, processing,
assembling, etc. is not as easily determined. In Matter of Havemeyer, 17 NY2d 216 (1966), it
was held that, by reason of New York State's adoption of section 26 of the Uniform Partnership
Act in section 52 of the New York Partnership Law, a partner's interest is intangible personalty

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Corporation Tax
April 29, 1987
rather than a direct tangible share of the underlying partnership assets. Therefore, a strict
interpretation of section 210.12(b) of the Tax Law, based upon Havemeyer, would deny the pass­
through to the corporate partner of the principal use of the qualifying property because the
partnership is using the property, not the partners.
However, in Symphony Space v. Tishelman, 60 NY2d 33 (1983), the Court of Appeals
invoked statutory purpose over the doctrine that tax exemptions are to be strictly construed. It
stated:
While exemption statutes should be construed against the
taxpayer seeking the benefit of the exemption, an interpretation so
literal and narrow that it defeats the exemption's settled purpose is
to be avoided. Id. at 36.
The legislative history of Chapter 1072, of the Laws of 1969, which enacted the
investment tax credit, states the following:
This bill would replace all double depreciation provisions
with a tax credit equal to one percent of qualified capital
investment.... The credit would be available to all taxpayers now
eligible for double depreciation benefits.... (1969 N.Y.S.
Legislative Annual p. 448).
Inasmuch as each corporate partner was entitled to its share of the double depreciation
benefit prior to enactment of the credit, it is concluded that the Legislature intended that such
corporate partner also be allowed its share of the investment tax credit.
Accordingly, Xco. will be allowed an investment tax credit pursuant to section 210.12(a)
of the Tax Law for its allocable share of the cost or other basis of qualifying tangible personal
property where the property qualifying for the credit is purchased by the partnership.
Issue (2)
Section 210.12(e) of the Tax Law provides, in part, that:
[I]f the amount of credit allowable under this subdivision for any taxable
year reduces the tax to the minimum fixed by clause four of paragraph (a) of
subdivision one of this section, any amount of credit not deductible in such
taxable year may be carried over to the following year or years and may be
deducted from the taxpayer's tax for such year or years. In lieu of such carryover,
any such taxpayer which qualifies as a new business under paragraph (j) of this
subdivision may elect to treat the amount of such carryover as an overpayment of
tax to be credited or refunded....

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Corporation Tax
April 29, 1987
Section 210.12(j) of the Tax Law provides that:
For purposes of paragraph (e) of this subdivision, a new business
shall include any corporation, except a corporation which:
(1) over fifty percent of the number of shares of stock entitling the
holders thereof to vote for the election of directors or trustees is owned by
a taxpayer subject to tax under this article; section one hundred eighty­
three, one hundred eighty-four, one hundred eighty-five or one hundred
eighty-six of article nine; article thirty-two or thirty-three of this chapter;
or
(2) is substantially similar in operation and in ownership to a
business entity (or entities) taxable, or previously taxable, under this
article; section one hundred eighty-three, one hundred eighty-four, one
hundred eighty-five or one hundred eight-six of article nine; article thirty­
two or thirty-three of this chapter; article twenty-three of this chapter or
which would have been subject to tax under such article twenty-three (as
such article was in effect on January first, nineteen hundred eighty) or the
income (or losses) of which is (or was) includable under article twenty-two
of this chapter whereby the intent and purpose of this paragraph and
paragraph (e) of this subdivision with respect to refunding of credit to new
business would be evaded; or
(3) has been subject to tax under this article for more than four
taxable years (excluding short taxable years) prior to the taxable year
during which the taxpayer first becomes eligible for the investment tax
credit.
Where a taxpayer is allowed an investment tax credit, such taxpayer may elect to have the
amount of any carryover treated as an overpayment of tax if such taxpayer is a new business
pursuant to section 210.12(j) of the Tax Law. If the taxpayer is a corporate partner in a
partnership, the corporation must qualify as a new business regardless of the status of the
partnership, because it is the corporation, not the partnership, that is claiming the investment tax
credit.

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Corporation Tax
April 29, 1987
Accordingly, if Xco., itself, is a new business pursuant to section 210.12(j) of the Tax
Law, it may elect, pursuant to section 210.12(e) of the Tax Law, to treat as an overpayment of tax
to be credited or refunded the amount of the carryover of its allowable investment tax credit
determined pursuant to section 210.12(a) of the Tax Law.

DATED: April 29, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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