Does a for-profit art college's photography, film, and computer equipment qualify for the Article 9-A investment tax credit?

Plain-English summary

The School of Visual Arts, Inc., an independent for-profit college of arts, asked whether its large inventory of photography, film and video, and computer-graphics equipment -- cameras, enlargers, editing systems, computers, printers, kilns, looms, and more -- qualifies for the investment tax credit under Tax Law section 210.12. The school stressed that the equipment is used by faculty, staff, and students to create works of art and is never used for accounting, management, or other general business purposes.

The answer is no. The investment tax credit is allowed only for qualified property that is principally used -- meaning more than 50 percent -- in the production of goods by manufacturing, processing, and similar activities. The school's primary endeavor is the education of its students. The equipment is principally used in teaching and training; if artwork is produced, "it is only a by-product of the course study the student chose." Because the equipment is not principally used to produce goods, it does not meet section 210.12 and no credit may be claimed.

This sits opposite the result for true production. In United Welding Supply, TSB-A-93(20)C, equipment used to convert liquid cryogens into vapor for sale was held to be used in production and could qualify. The dividing line is what the equipment is principally used for -- making goods versus teaching people.

What this means for you

The ITC turns on production, not on owning equipment

Section 210.12 rewards property principally used to produce goods. Sophisticated equipment used principally for instruction does not qualify, no matter how advanced.

"Principally used" means more than half the time

If equipment is used more than 50 percent for something other than production -- here, teaching -- it fails the test.

A by-product is not production

Artwork that results incidentally from a student's coursework does not turn the school's teaching into the production of goods.

Common questions

Q: My business owns a lot of production-type equipment. Does that earn the ITC? A: Only if the equipment is principally used (more than 50 percent) in the production of goods by manufacturing, processing, or similar activity.

Q: My art school's equipment makes real artwork. Why no credit? A: Because the equipment is principally used to teach and train students; any artwork is a by-product of the coursework, not production of goods.

Q: When would similar equipment qualify?
A: When it is principally used to actually make goods for the business -- compare United Welding Supply, TSB-A-93(20)C, where equipment used to produce a product could qualify.

Citations and references

Statutes, regulations, and authorities:

• Tax Law section 210.12 (investment tax credit; qualified property; meaning of manufacturing)
• 20 NYCRR 5-2.1 (year credit is claimed)
• 20 NYCRR 5-2.2 (definition of qualified property)
• 20 NYCRR 5-2.4(c) (principally used means more than 50 percent)
• IRC section 167 (depreciation) and IRC section 179(d) (acquired by purchase)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a93_15c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (15) C
Corporation Tax
July 12, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C930420A

On April 20, 1993, a Petition for Advisory 0pinion was received from School of Visual Arts, Inc., 209 East 23rd Street, New York, New York 10010-3994. The issue raised by Petitioner, School of Visual Arts, Inc., is whether the Petitioner's purchases of various tools and equipment used to produce artwork qualify for the investment tax credit pursuant to section 210.12 of the Tax Law. Petitioner operates an independent college of arts for profit. Petitioner offers graduate and undergraduate degree programs to its students with concentrations in film and video, interior design, fine arts, art education, art therapy, advertising graphic design, illustration, cartooning, computer art, photography, humanities and sciences, and art history. Petitioner prides itself on the quantity and caliber of its equipment, which is used by its students, faculty and staff to create visual, electronic and tactile works of art. The principal items of such equipment used for photography, film and video production, graphic art and other artistic endeavors, are summarized below: Photography Rastar video monitors Dynalite flash kits and accessories Bogen lighting hardware and accessories Speedotron power supply (for strobe lights) Calumet 8x10 camera, adaptors, case Calumet sink, backsplash, sink mat, plumbing fixtures for photo lab Kowa camera lenses Nikon cameras and lenses Nikkor lenses Arkay phonographic film dryer, clips, racks Hasselblad cameras Schneider camera lenses Arkay 6 ft. monostand Photographic print washer Photographic lamp housings, base boards Photographic 20x24 rocker washer Hewlett Packard laser printers, interface adaptors Minolta flash meters Kodak ektagraphic slide projectors, lenses Rodagon camera lenses Omega dichro photo enlarger heads Omega Controller II for photo enlarger Sony color video monitor Leitz camera, lenses TP-9 (9/88)

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TSB-A-93 (15) C
Corporation Tax
July 12, 1993
Cibachrome processor (component of color print enlarger) 10xl0 photo enlarger head 90TR Densitometer (measures density of photo film grain) FV 810 - 200 vertical photo enlarger AVL FX-2 photo projector w/dissolve Novatron photo lighting equipment RA conversion Kit (converts one photographic film stock to another) D5XL photo enlarger, components 2024PW powered photographic print washer Photomix temperature control (for photo lab chemicals) Omnichrom 1000 chromatek unit (used in silk screen-like process) S550 ultrasonic cleaner (maintains photo silver reprocessor) Nuarc exposure unit (burns plates for photo prints) Krematic color photo processor w/water panel package, transport tray 30 gallon H.F. mixer (for photo chemicals) CPS1 photo processor w/cibachrome, washer/dryer modules Toyo 45A cameras Caltar lenses Vacuum easel/pump (flattens large photo prints) Dahle 136 photo proof cutter Photo enlarger work stations Silver recovery system (photo lab equipment) Arkay photo print driers Masterpiece photo seals press Apple macintosh computer system Panasonic video recorder Photo lab sinks, shelves, stands, plumbing, sink mats Chemical baths Photographic developers Capitalized improvements to darkrooms Studio curtains Baffles and backdrops Personal computers, software, laser printers used exclusively for image scanning and page layouts Film and Video Production JVC color video camera w/remote control AVI diopter/close-up (camera accessory) Sony color video cameras, batteries Sony portable U-Matic VCR O'Connor fluid head w/quick release (mount camera on tripod or dolly) Lisand camera tripod JVC video recorders Saltman camera stands Sennheiser microphones, power supplies and accessories Neumann microphones and accessories Sony videotape editing systems Sony video cameras Sony 8mm video recorder player

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TSB-A-93 (15) C
Corporation Tax
July 12, 1993
Steadicam Jr. (camera motion control)
Arriflex movie camera and accessories
Shure audio mixers
Steenbeck film editing machine
Tascam compact disc player
Switar camera lenses
ELMO 16mm film projector
Lyon Lamb VAS III-B color animation system
Neriki imag master genlock (synchronizes images; video-to-video or video-to-computer) Sencore Z meter (measures sound levels on film) Sencore super cricket (measures levels on video) Sencore transformers 16mm SR movie cameras and accessories Kodak 1M200 digital cameras (for still video) SC2 battery charger (for portable video, movie cameras) CNV V09850 interface (between video recorders) For-A Time base corrector w/remote control (synchronizes videodecks) Crystal control unit (interface between movie camera and audio tape recorder) Convergence interface (switch between cameras, Grassvalley editor, videodecks) Video equipment cabinets Zeiss lenses ADC audio patch panel Crown audio amplifier Fresnel spot lights Elemack spyder camera dolly Kenwood audio power supply Leader audio waveform monitors Hitachi video cameras Vinten camera tripods, dollies Calaway video editing system Sony video recorder Echolab video edit control, synchroniser card Tascam audio cassette recorder Nagra audio tape recorder Bolex film camera, mounts RCA camcorders Cables, connectors Oxberry animation stands Movieolas Baffles and backdrops Capitalized improvements to studios and soundstages Computer Arts and Graphics Sony trinitron color television monitors Apple macintosh computers, keyboards, monitors, laser printers, optical scanners, tape back-ups GTCO digipad electronic stylus (electronic drawing) Princeton computer monitors Mitsubishi computer monitors

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TSB-A-93 (15) C
Corporation Tax
July 12, 1993
Aydin computer monitors
Indtech computer and keyboard
Seagate hard drives
Magnavox computer monitors
Intel computer modules
Maxtor computer optical drives and cartridges
Sony 3/4" videotape player
TASCAM audio cassette recorder
Panasonic compact disc player
TASCAM audio line ampifier
TASCAM 6x4 audio mixer
Equipment cabinets and racks
Electrohome computer monitors
Nuvista 4MB computer board (computer circuit board)
Kodak datashow computer projector (display computer graphics) American mitac computer, hard drive Quantum computer hard drive Apple macintosh display cards (computer circuits) Seiko computer monitors Diaquest animation controller circuit card (compute circuits) Apple macintosh computer modems Minolta color photocopiers Sony computer monitors PS translator (adapt macintosh computers to IBM format) Model Mate Plus (computer peripheral for 3-D modelling) Microbuffer in-line (memory buffer between hard drive and computer) Quark express (computer graphics software) Digital darkroom (computer graphics software) Color encoder (signal converter from computer to output format) Rodime hard drives Silicon graphics workstations (computer graphics workstations) Alias/2 graphics software Truevision NuVusta frame buffer (plug-in computer circuit board) Targa 16 color board (plug-in computer circuit board) Diamond flower computer hard drives Microtek frame buffers (computer circuit board) Raster ops 364 video color board (computer circuit board) Syquest hard drives Teac tape back-up unit (downloads hard drives) Truevision tips (graphics software) Sigma color computer monitors Telex 5090 LCD color projection pad (large-scale display of computer graphics) Graphic zoomer - Q (display computer graphics) Datapak computer software Microtek optical scanner Laserdisc player Raster ops 24 bit color graphic system (circuit boards, accessories) Lasergraphics film recorder (photographs computer graphics output) Mobile 42 vista software

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TSB-A-93 (15) C
Corporation Tax
July 12, 1993
Dispensor generator (magnetic card system used to access color photocopiers) Canon single frame video camera Sharp color optical scanner, mirror unit Silicon graphics IRIS turbo graphics computer w/accessories Spectra viewframe video projector (display computer graphics output) Miniscribe hard drives Network cabling Digitizers Fiber optics equipment Pixelmaster printers DAT drive Plotter Specialized photocopiers Other Equipment LPB AM radio transmitter Lincoln arc welder and accessories Goodkin waxer (finishes graphics mechanicals) Pottery wheels Weaving looms Kilns Sandcasting equipment Silkscreen equipment Sculpting and woodworking tools The preceding lists are representative and not all-inclusive. Additional items may be purchased for these purposes as technological advances require the purchase of new and more sophisticated equipment. Petitioner represents that all of the above referenced computer hardware, circuit cards or boards, software, printers, photocopiers, monitors, cabling and any other related peripheral equipment is used exclusively by its staff, faculty and students in the production of works of art. None of this equipment is ever used for accounting, management or other general business purposes. Graphic images are electronically created and processed on the above referenced computers and related equipment. The images may be saved on the Petitioner's network for further manipulation, downloaded onto floppy disks or onto other magnetic media, including videotape. The electronically generated artwork may be printed onto photographic film, paper, or other hard copy. For taxable years beginning after 1990, section 210.12 of the Tax Law allows an investment tax credit against the tax imposed under Article 9-A of the Tax Law equal to five percent with respect to the first $350 million of the investment credit base. The investment credit base is the cost or other basis for Federal income tax purposes of qualified tangible personal property and other tangible property, including buildings and structural components of buildings. Section 5-2.1 of the Business Corporation Franchise Tax Regulations (hereinafter "Corporation Regulations") provides that the taxpayer must claim the investment tax credit for the first taxable year in which the property becomes qualified property.

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TSB-A-93 (15) C
Corporation Tax
July 12, 1993
Under section 5-2.2 of the Corporation Regulations, the term "qualified property" means tangible personal property and other tangible property, including buildings and structural components of buildings, which: (1)

are acquired, constructed, reconstructed or erected after 1990;

(2)

are depreciable pursuant to section 167 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.

Section 210.12(b)(ii)(A) of the Tax Law provides that the term "manufacturing" shall mean "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." Section 5-2.4(c) of the Corporation Regulations provides that the term "principally used" means more than 50 percent. Herein, Petitioner is an independent college of arts offering graduate and undergraduate degree programs. As an educational institution, Petitioner's primary endeavor is the education of its students. Petitioner's staff, faulty and students use the above referenced equipment in the teaching and training of the students, the result of which may produce some artwork. However, if artwork is produced, it is only a by-product of the course study the student chose. Accordingly Petitioner is principally using the above referenced equipment in the teaching and training of its students, not in the production of goods. Therefore, Petitioner does not meet the requirements of section 210.12 of the Tax Law and Petitioner may not claim an investment tax credit under such section.

DATED: July 12, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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