If a corporation's only shareholders personally own the building it leases and pay for improvements to it, can either the corporation or the shareholders claim New York's economic development zone investment tax credit for those improvements?

Plain-English summary

Rosco, Inc., a small manufacturer of automobile accessories in Jamaica, New York (a designated Economic Development Zone since July 1987), leases its plant from its only two shareholders, Sol and Gertrude Englander, who personally own the building. After the EDZ designation, the Englanders paid to double the building's square footage and add a freight elevator and loading dock, letting Rosco expand production and hire more workers. Rosco asked whether it could claim New York's 10% EDZ investment tax credit under Tax Law § 210.12-B for those improvements.

The Department denied the credit to everyone involved, for a "falls between two stools" reason. To qualify, property must be (1) acquired by purchase within the meaning of IRC § 179(d) AND (2) used by the same taxpayer in manufacturing — and the statute separately bars the credit for property the taxpayer leases to someone else. Rosco uses the building in manufacturing, but didn't purchase it — the Englanders did, as legally separate people despite owning 100% of Rosco's stock. The Englanders did purchase it, but don't use it in manufacturing themselves — they lease it to Rosco, which is exactly the leased-property exclusion the statute is written to block. Neither the corporation nor its owners satisfies both halves of the test.

What this means for you

Owner-operators who personally hold real estate leased to their own company

Common as this landlord/tenant-via-the-same-people setup is for small businesses, New York's corporate veil cuts both ways here: even 100% common ownership doesn't let you combine the shareholders' "purchase" with the corporation's "manufacturing use" to qualify for this credit. If you want your operating company to claim an EDZ or similar investment credit on facility improvements, the company itself generally needs to be the one that purchases the qualifying property, not just the tenant.

Accountants and tax professionals

This is a clean illustration of IRC § 179(d)'s purchase requirement combined with Tax Law § 210.12-B's anti-leasing clause working together to close a gap, rather than either alone. Structuring around this would require the operating corporation itself to acquire the qualifying property (or a sale-leaseback structured to meet the purchase test), not simply funding improvements through affiliated individual owners.

Common questions

Q: Does 100% common ownership let a corporation and its shareholders combine to meet the credit's purchase-and-use test?
A: No. Even wholly-owned corporations are treated as legally separate from their shareholders for this purpose — the Department explicitly rejected treating Rosco and the Englanders as "one and the same."

Q: Could the shareholders claim the credit themselves as the purchasers?
A: No, because they lease the property to Rosco rather than using it themselves in manufacturing, which is exactly what the statute's leased-property bar excludes.

Q: Is there any way to restructure this to qualify?
A: This opinion doesn't say, and only addresses the facts presented. A different ownership or purchase structure could yield a different result, but that would require its own analysis or a new ruling request.

Citations and references

Statutes:

• Tax Law § 210.12-B (EDZ investment tax credit; purchase and use requirements; leased-property bar)
• Internal Revenue Code § 179(d) (property acquired by purchase)
• General Municipal Law Article 18-B (economic development zone designation)
• TSB-M-86(13)C (Department guidance on the EDZ credit)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a88_17c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (17)C
Corporation Tax
August 24, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C880628A

On June 28, 1988, a Petition for Advisory Opinion was received from Rosco, Inc., 144-31
91st Avenue, Jamaica, New York 11435.
The issue raised is whether a tenant corporation may qualify for an investment tax credit
pursuant to section 210.12-B of the Tax Law on improvements made to the building in which it is
located if that building is owned by the only stockholders of the corporation.
Petitioner is a small business corporation as defined by the Internal Revenue Code, as
amended, under Section 1362(a), and has been incorporated as such since April 1961. Petitioner
manufactures automobile accessories and employs a labor force of forty persons generally drawn
from the local area. The only stockholders in Petitioner are Sol and Gertrude Englander. The
Englanders are also the owners of the building in which Petitioner is located at 144-31 91st Avenue,
Jamaica, New York 11435.
Section 210.12-B of the Tax Law provides that a taxpayer under Article 9-A of the Tax Law
who has been certified pursuant to Article Eighteen-B of the General Municipal Law is allowed a
credit equal to ten percent of its cost or other basis of certain property located within an economic
development zone designated as such pursuant to Article Eighteen-B of such law, but only if the
acquisition, construction, reconstruction or erection of such property occurred or was commenced
on or after the date of such designation and prior to the expiration thereof. To qualify for the credit,
the property in question must be acquired by purchase by the taxpayer within the meaning of Internal
Revenue Code Section 179(d) and must be used by the taxpayer in the production of goods by
manufacturing, processing, assembling, etc.
South Jamaica was designated an economic development zone on July 21, 1987. The
Englanders made improvements on said building after July 21, 1987. Thus, the Englander's
improvements occurred after the date of such designation and prior to the expiration thereof within
the meaning of the statute. See also, Technical Services Bureau Memorandum TSB-M-86(13)C.
The improvements made consisted of an addition to the building which doubled the square
footage from 16,000 square feet to 32,000 square feet. This increase in square footage has allowed
Petitioner to double its capacity for production, as well as, hire and train a larger work force.
Inclusive of the improvements were the installation of a freight elevator and loading dock to
accommodate trucks. The main objective of these improvements was to expand the business and
create more jobs for the residents of the Economic Development Zone.

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TSB-A-88 (17)C
Corporation Tax
August 24, 1988

However, section 210.12-B of the Tax Law also provides that "[a] taxpayer shall not be
allowed the credit under this Subdivision with respect to any tangible personal property and other
tangible property, including buildings and structural components of buildings, which it leases to any
other person or corporation."
Although the Englanders own 100% of the stock of Petitioner, they are not considered one
and the same as Petitioner but rather are separate and distinct legal entities. The Englanders hold title
to the building and lease it to Petitioner. Thus, although Petitioner may use the building in
manufacturing, it has not acquired the property by purchase within the meaning of Internal Revenue
Code Section 179(d). On the other hand, the Englanders may have acquired the building by purchase
within the meaning of IRC Section 179(d) but are not considered to be using it in manufacturing,
because they lease it to Petitioner.
Accordingly, neither the Englanders nor Petitioner qualify for the investment tax credit
pursuant to section 210.12-B of the Tax Law with respect to the building located at 144-31 91st
Avenue, Jamaica, New York.

DATED: August 24, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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