NY TSB-A-93(5)C Corporation Tax 1993-01-29

Does machinery used to cut, tie, and close meat casings for meat companies qualify for the Article 9-A investment tax credit?

Short answer: Yes, if the use tests are met. A company that takes reel stock of cellulose or fibrous casings, cuts it to length, drills holes, and clips, ties, and closes the casings for meat companies is engaged in the production of goods by manufacturing or processing. So the cutting, drilling, capping, stringing, and clipping machines can qualify for the Article 9-A investment tax credit under Tax Law section 210.12 if they are principally used (more than 50 percent) in that process and meet the other requirements. The opinion also notes that the credit (under the parallel Article 22 provision, section 606(a)) is allowed for equipment used to provide a production service to another business if the other business's own purchase of such equipment would have qualified.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Niagara Tying Service, Inc. prepares artificial meat casings for the meat industry. It takes large reels of cellulose or fibrous casing stock, cuts it to the lengths needed for stuffing, drills holes, and clips, ties, strings, and closes the casings; the finished casings go back to the meat companies to complete their products. It asked whether its machines qualify for the investment tax credit under Tax Law section 210.12.

This is manufacturing or processing, so the equipment can qualify. Converting reel stock into cut, drilled, and closed casings gives the material new shape and new quality -- the statutory definition of manufacturing. If the cutting, capping, stringing, and clipping machines are principally used (more than 50 percent) in that process and meet section 210.12's other tests (acquired after 1990, depreciable, four-year-plus life, purchased, New York situs), they qualify for the credit.

The opinion adds an important principle drawn from the parallel Article 22 credit (section 606(a)): the investment tax credit is allowed for equipment used by one business to provide a production service to another business if the other business's own purchase of such equipment would have qualified. In other words, doing the casing preparation as a service for the meat companies does not defeat the credit -- because if a meat company did the same cutting and closing itself in making its products, that equipment would qualify (John Boadle; D'Argenio; TSB-M-80(1)I).

What this means for you

Preparing material to specification is production

Cutting, drilling, and closing casing stock to usable lengths gives the material new shape and quality, which is manufacturing or processing for the credit.

Doing production work as a service still qualifies

Equipment used to provide a production step for another business can earn the credit if that business's own purchase of the equipment would have qualified.

The usual use and property tests apply

The machines must be principally used (more than 50 percent) in production and meet the other section 210.12 requirements.

Common questions

Q: Is cutting and tying meat casings manufacturing?
A: Yes. Turning reel stock into cut, drilled, and closed casings gives the material new shape and quality -- production by manufacturing or processing.

Q: We do this as a service for meat companies. Does that disqualify the equipment?
A: No. The credit is allowed for equipment providing a production service to another business if that business's own purchase of the equipment would have qualified.

Q: What else must the equipment meet?
A: It must be principally used (more than 50 percent) in production and satisfy section 210.12's other requirements.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 210.12 (investment tax credit; meaning of manufacturing)
- Tax Law section 606(a) (Article 22 investment tax credit; service to another business)
- 20 NYCRR 5-2.2 (definition of qualified property)
- 20 NYCRR 5-2.4(c) (principally used means more than 50 percent)

Source

Original ruling text

New York State Department of Taxation and Finance
TSB-A-93 (5) C
Corporation Tax
January 29, 1993

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C921103A

On November 3, 1992, a Petition for Advisory Opinion was received from Niagara Tying
Service, Inc., 176 Dingens Street, Buffalo, New York 14206.
The issue raised by Petitioner, Niagara Tying Service, Inc., which is engaged in the business
of manufacturing artificial meat casings for the meat industry, is whether it is eligible to claim the
investment tax credit under section 210.12 of the Tax Law.
Petitioner ties and cuts meat casings. Casings are shipped from the meat companies to
Petitioner to clip, tie and/or string. The casings may have to be altered prior to tying. Petitioner
receives large reels of cellulose casings or fibrous casings to cut in needed lengths for stuffing
purposes. Petitioner can convert reel stock to desired lengths while drilling holes, so that reel stock
can be used for meat products.
Petitioner has Beck Cutter machines which cut casings from reel stock and machines which
drill the holes in the stock. Petitioner's capping machines produce a closed casing along with its
string machines and clipping machines. The machines are designed only for the purpose of making
a closed casing.
Once the casings are tied, they are shipped back to the meat companies to complete the
production process.
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, 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)

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TSB-A-93 (5) C
Corporation Tax
January 29, 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.
Section 606(a) of Article 22 of the Tax Law is substantially similar to section 210.12 of the
Tax Law. With respect to section 606(a), the investment tax credit is allowed for equipment
purchased and principally utilized by a business in providing a service to another business if the
purchase of the equipment by the other business would have qualified for the credit. See Technical
Services Bureau Memorandum TSB-M-80(1)I, citing In the Matter of John Boadle, Dec St Tax
Comm, February 13, 1980, TSB-H-80(48)I; also see Emilio A. D'Argenio, CPA, Adv Op St Tax
Comm, January 7, 1986, TSB-A-86(2)I.
Herein, if a meat company cuts and clips, ties and/or string closes the meat casing itself in
the process of making its meat products, the machinery and equipment principally used for such
manufacturing or processing purpose would 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
section 5-2 of the Corporation Regulations.

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TSB-A-93 (5) C
Corporation Tax
January 29, 1993

Accordingly, if Petitioner is principally engaged in the business of cutting and clip, tie and/or
string closing meat casings for the meat companies, Petitioner's machinery and equipment used for
such manufacturing or processing purpose will qualify for the investment tax credit if the property
also meets all of the other requirements contained in section 210.12 of the Tax Law and section 5-2
of the Corporation Regulations.

DATED: January 29, 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.