Does a plant and equipment used to convert liquid cryogens into compressed gas qualify for the Article 9-A investment tax credit?

Plain-English summary

United Welding Supply Co., Inc. acquired a new plant (about $363,000) and new equipment (about $284,000) in 1992, used exclusively in its gas operation. It buys liquid cryogens, pumps them into low-pressure tanks, converts them into vapor with pumps, vaporizers, compressors, and fill racks, and bottles the gas in high-pressure cylinders for shipment to customers. It asked whether the plant and equipment qualify for the investment tax credit under Tax Law section 210.12.

They can qualify. The credit (5 percent of the investment credit base on the first $350 million) is allowed for qualified property -- tangible property, including buildings, that is acquired after 1990, depreciable under IRC section 167, has a four-year-or-more useful life, is acquired by purchase (IRC section 179(d)), has a situs in New York, and is principally used (more than 50 percent) in the production of goods by manufacturing, processing, and similar activities.

Converting liquid cryogens into compressed gas for sale is production by manufacturing or processing -- it gives new shape, quality, or combination to matter. The opinion relies on Plattekill Mountain Ski Center (TSB-H-85(28)C), where snowmaking equipment qualified even though the taxpayer was not a "manufacturer," because section 210.12 focuses on the use of the equipment, not the taxpayer's general line of business. So if the equipment is principally used in this process and meets the other tests, it qualifies; and if the building is principally used in the process (the floor-space test of 20 NYCRR 5-2.4(c)), it qualifies too.

Compare School of Visual Arts, TSB-A-93(15)C, decided the same year, where equipment principally used to teach -- not produce goods -- did not qualify. The difference is what the property is principally used to do.

What this means for you

Gas conversion is production for ITC purposes

Turning liquid cryogens into compressed, bottled gas gives matter a new form -- manufacturing or processing -- so the equipment can earn the credit.

The credit looks at how equipment is used, not your industry label

Under the Plattekill precedent, you need not be a "manufacturer"; what matters is that the property is principally used in producing goods.

Buildings qualify under a floor-space test

A plant building principally used in the process -- more than 50 percent of usable business floor space devoted to production or storage -- can also qualify (office, sales, and distribution space does not count).

Common questions

Q: We aren't a classic manufacturer. Can our equipment still get the ITC?
A: Yes, if the equipment is principally used in producing goods. Section 210.12 focuses on the equipment's use, not your overall business (Plattekill Mountain).

Q: Does the plant building qualify too?
A: Yes, if it is principally used in the process -- more than 50 percent of usable business floor space in production or storage -- and meets the other requirements.

Q: What are the other requirements?
A: The property must be acquired after 1990, depreciable, have a four-year-or-more life, be acquired by purchase, and be situated in New York.

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; building floor-space test)
- 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_20c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (20) C
Corporation Tax
November 9, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C930823C

On August 23, 1993, a Petition for Advisory Opinion was received from United Welding
Supply Co., Inc., 24 River Street, Amsterdam, New York 12010.
The issue raised by Petitioner, United Welding Supply Co., Inc., is whether the purchase of
a new plant and equipment qualifies for the investment tax credit under Article 9-A of the Tax Law.
During 1992, Petitioner acquired a new plant in Scotia, New York at a cost of $362,729, and
new plant equipment at a cost of $284,086. The plant has a 31 1/2 year MACRS life and the
equipment has a 7 year MACRS life. The equipment is used exclusively in the process. The plant
is also used exclusively in this process.
The following is a description of the process involved in Petitioner's operation. Petitioner
purchases liquid cryogens from its supplier. The supplier pumps these liquid cryogens into
Petitioner's low pressure tanks. Petitioner then converts the liquid cryogens into vapor form by
means of pumps, vaporizers, compressors, fill racks. The gas is then put into high pressure cylinders
for shipment to Petitioner's customers.
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.
Under section 5-2.2 of the Corporation Regulations for taxable years beginning after 1990,
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;

TP-9 (9/88)

-2­
TSB-A-93 (20) C
Corporation Tax
November 9, 1993

(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." Additionally, section
210.12(b)(ii)(A) provides that "[p]roperty used in the production of goods shall include machinery,
equipment or other tangible property which is principally used in the repair and service of other
machinery, equipment or other tangible property used principally in the production of goods and
shall include all facilities used in the production operation, including storage of material to be used
in production and of the products that are produced."
Section 5-2.4(c) of the Corporation Regulations provides that the term "principally used"
means more than 50 percent. A building or addition to a building is principally used in production
where more than 50 percent of its usable business floor space is used in storage and production.
Floor space used for bathrooms, cafeterias and lounges is not usable business floor space. Space
used for offices, accounting, sales and distribution is not used in production.
In the Matter of Plattekill Mountain Ski Center, Inc., Dec St Tax Comm, March 9, 1984,
TSB-H-85(28)C, it was held that the production of snow by the use of snowmaking equipment
constitutes manufacturing so as to qualify such equipment for the investment tax credit. It was of
no consequence that the petitioner was not a manufacturing concern because section 210.12 focuses
on the use of the equipment and the equipment at issue was employed by the petitioner solely in the
manufacturing process.
Herein, when Petitioner converts the liquid cryogens held in low pressure tanks into vapor
form that is put into high pressure cylinders for use by Petitioner's customers, such process
constitutes the production of goods by manufacturing or processing. If Petitioner's machinery and
equipment is principally used for such manufacturing or processing purpose, such machinery and
equipment will qualify for the investment tax credit if the machinery and equipment meets all of the
other requirements contained in section 210.12 of the Tax Law and Subpart 5-2 of the Corporation
Regulations. In addition, if pursuant to section 5.2-4(c) of the Corporation Regulations, Petitioner's
building is principally used for such manufacturing or processing purpose, such building will

-3­
TSB-A-93 (20) C
Corporation Tax
November 9, 1993

qualify for the investment tax credit if the building meets all of the other requirements contained in
section 210.12 of the Tax Law and Subpart 5-2 of the Corporation Regulations.

DATED: November 9, 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.