May a new business get a refund of its unused Article 9-A investment tax credit under section 210.12(j), and for which year must the refund claim be filed?
Plain-English summary
Paul M. Healey, CPA asked whether the unused investment tax credit (ITC) that a company (called NEWCO) computed under section 210.12(e) is refundable because NEWCO is a new business under section 210.12(j).
NEWCO was incorporated in 1984 and has been engaged in manufacturing since inception. It made qualifying capital expenditures in its taxable years ended 7/31/85, 7/31/86, and 7/31/87 that met all six requirements of section 210.12(b) (acquired by purchase, depreciable, four-year-plus life, New York situs, principally used in production by manufacturing, etc.), and it met the new-business tests in section 210.12(j)(1) and (2). It filed Form CT-46.1 on 10/1/91 claiming a refund of the unused ITC for the year ended 7/31/87.
The answer: Assuming NEWCO has unused ITC under section 210.12(e) for the year ended 7/31/87, NEWCO -- as a new business for the years at issue -- may request a refund of that unused credit for 7/31/87 under section 210.12(j). No interest is paid on the refund.
Two important limits:
- File for a year you were a new business. A refund claim must be filed for a taxable year that the taxpayer was a new business. If NEWCO had filed the claim for year 7/31/91, the refund would be denied -- even though the unused credit was carried over from 1985, 1986, and 1987.
- Section 210.12-A additional ITC is never refundable.
And a threshold disqualifier: if NEWCO had been a subsidiary of an Article 9-A taxpayer during the years at issue, it would not qualify as a new business at all, and the unused ITC would not be refundable.
What this means for you
A new business can convert unused ITC into a cash refund
Ordinarily unused ITC only carries forward. The new-business rule in section 210.12(j) lets a qualifying new corporation instead claim a refund of the unused credit -- though no interest is paid on it.
The refund claim must be filed for a year you actually were a new business
You cannot wait and claim the refund in a later year (when you are no longer a new business) for credit that carried over -- the claim has to be filed for a qualifying new-business year.
Being a subsidiary of an Article 9-A corporation disqualifies you
A corporation that is a subsidiary of an existing Article 9-A taxpayer is not a "new business," so its unused ITC is not refundable.
The "additional" ITC is never refundable
The section 210.12-A additional investment tax credit can only be used against tax -- it is never paid out as a refund.
Common questions
Q: Can a new manufacturing corporation get its unused ITC back in cash?
A: Yes, if it meets the section 210.12(j) new-business tests; the refund carries no interest.
Q: Can it claim the refund in any later year for carried-over credit?
A: No. The claim must be filed for a taxable year in which it actually qualified as a new business.
Q: Does being owned by another Article 9-A corporation matter?
A: Yes -- a subsidiary of an Article 9-A taxpayer is not a new business, so the unused ITC is not refundable.
Citations and references
Statutes, regulations, and authorities:
- Tax Law section 210.12(b) (investment tax credit qualifying property)
- Tax Law section 210.12(e) (ITC carryover)
- Tax Law section 210.12(j) (refund of unused ITC for a new business)
- Tax Law section 210.12-A (additional investment tax credit)
- 20 NYCRR 5-2.1 (ITC claimed for first year property qualifies)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1992.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a92_12c.pdf
Original ruling text
New York State Department of Taxation and Finance
Taxpayer Services Division
Technical Services Bureau
TSB-A-92 (12) C
Corporation Tax
September 30, 1992
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C920714B
On July 14, 1992, a Petition for Advisory Opinion was received from Paul M. Healey, CPA,
523 Covington Place, Slingerlands, New York 12159.
The issue raised by Petitioner, Paul M. Healey, is whether for purposes of Article 9-A of the
Tax Law the unused investment tax credit computed pursuant to section 210.12(e) of the Tax Law
by NEWCO is refundable for a new business pursuant to section 210.12(j) of the Tax Law.
NEWCO was incorporated during 1984 and is taxable under Article 9-A. The company's
first short taxable year is the period ending July 31, 1985.
NEWCO has been engaged in manufacturing from its inception. Capital expenditures were
incurred by NEWC0 during taxable years 7/31/85, 7/31/86 and 7/31/87 and the expenditures met all
the requirements, pursuant to section 210.12(b) of the Tax Law, for qualifying for the investment tax
credit. NEWCO also met the requirements for status as a new business pursuant to section
210.12(j)(1) and section 210.12(j)(2) of the Tax Law.
The filing dates for NEWCO's CT-3 returns are as follows:
7/31/85
7/31/86
7/31/87
October 1, 1985
October 1, 1991
October 1, 1991
FORM CT 46
FILING PERIOD
DATE FORM
CT 46 FILED
7/31/85
7/31/86
7/31/87
October 1, 1985
October 1, 1991
October 1, 1991
NEWCO requested a refund of the unused investment tax credit for taxable years ended
7/31/85, 7/31/86 and 7/31/87, by filing form CT-46.1 on October 1, 1991 for taxable year 7/31/87.
Section 210.12(a) and (b) of the Tax Law provide 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;
TP-9 (9/88)
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September 30, 1992
(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 requires that all of the above criteria be met before an
investment tax credit is allowed.
Section 5-2.1 of the Business Corporation Franchise Tax Regulations provides that the
investment tax credit must be claimed for the first taxable year in which the property becomes a
qualified property pursuant to section 210.12(b) of the Tax Law.
For the taxable years at issue herein, section 210.12(e) of the Tax Law provides, in part, that:
However, if 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 ....
For the taxable years at issue herein, 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
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September 30, 1992
(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
eighty-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.
Herein, Petitioner states that NEWC0's capital expenditures incurred during taxable years
7/31/85, 7/31/86 and 7/31/87 qualify for the investment tax credit and, that NEWCO qualifies as a
new business pursuant to section 210.12(j) of the Tax Law. Petitioner also states that the investment
tax credit was claimed on Form CT46 for each taxable year at issue, and that for taxable year 7/31/85
the CT46 was filed with the CT3 Report on 10/1/85 and for taxable years 7/31/86 and 7/31/87 the
CT46s were filed with the CT3 Reports on 10/1/91.
Assuming NEWCO has an unused investment tax credit computed pursuant to section
210.12(e) of the Tax Law for taxable year ended 7/31/87, NEWCO, as a new business for the taxable
years at issue, may request a refund of such unused investment credit for taxable year ended 7/31/87
pursuant to section 210.12(j) of the Tax Law. Petitioner states that NEWCO filed such a claim for
refund of the unused investment tax credit by filing Form CT46.1 on 10/1/91 for taxable year
7/31/87. Pursuant to section 210.12(e) of the Tax Law, no interest shall be paid on such refund.
It should be noted that a claim for refund of unused investment tax credit by a new business
must be filed for a taxable year that the taxpayer was a new business. For example, if Newco, herein,
had filed the claim for refund of unused investment tax credit for taxable year ended 7/31/91, such
refund would be denied even if the unused investment credit was carried over from taxable years
7/31/85, 7/31/86, and 7/31/87.
It should also be noted that any additional investment tax credit computed pursuant to section
210.12-A of the Tax Law is never refundable.
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Further, in the event that Newco was a subsidiary of an Article 9-A taxpayer for the taxable
years at issue, Newco would not qualify as a new business pursuant to section 210.12(j) of the Tax
Law for any taxable year and the unused investment tax credit computed pursuant to section
210.12(e) of the Tax Law would not be refundable.
DATED: September 30, 1992
s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division
NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.