When the buyer controls the shipment and picks the goods up at the seller's New York factory, are those sales New York receipts, and can factory roof, window, and shipping-dock repairs qualify for the investment tax credit?
Plain-English summary
Flexovit USA, Inc. (a New York manufacturer) asked two questions.
Issue 1 -- receipts factor. Flexovit's customer has its own contract with a common carrier, controls that carrier, arranges pickup at Flexovit's New York factory, sets the place/date/time for the (out-of-state) destination, and pays the freight. Are those sales allocated to New York for the receipts factor?
Yes. Section 210.3(a)(2)(A) allocates receipts from sales of tangible personal property to New York where shipments are made to points in New York, and 20 NYCRR 4-4.2 treats property delivered to a purchaser at a point in New York as a New York receipt regardless of the F.O.B. point. Unlike Krueger and Swanknit (where the seller shipped to New York points), here the customer is doing the shipping and takes delivery at Flexovit's New York factory. That matches Example 1 of the regulation (customer comes to the New York factory in its own truck and picks up). So even though the goods ultimately go out of state, the customer takes delivery in New York, and the receipts are allocable to New York (numerator); the denominator includes all of Flexovit's material sales.
Issue 2 -- investment tax credit. Roof repairs, window replacement, and shipping-dock repairs at a manufacturing facility are buildings and structural components (using the federal definitions in Treasury Reg. 1.48-1(e)). They can be qualified property for the section 210.12 ITC -- but only if they are depreciable under IRC section 167 (i.e., capital expenditures that prolong life, increase value, or adapt to a new use), have a four-year-plus life, are purchased under IRC section 179(d), and meet the other 20 NYCRR 5-2.2 tests. Whether any specific repair qualifies is a factual question beyond the scope of an advisory opinion.
What this means for you
Delivery point, not destination, controls the receipts factor
If your buyer takes delivery at your New York location -- even by sending its own carrier to pick up for shipment out of state -- the sale is a New York receipt. The F.O.B. term and the final destination do not change that.
Who arranges and controls the shipping matters
When the seller ships to a New York point, it is a New York receipt (Krueger/Swanknit). When the buyer controls the carrier and picks up at the New York factory, the buyer is taking delivery in New York -- still a New York receipt here.
Capital repairs can earn the ITC; routine repairs cannot
Roof, window, and dock work qualifies only if it is a depreciable capital improvement (four-year-plus life, purchased). Expenses that do not prolong life, add value, or adapt the asset are not depreciable and do not qualify.
Common questions
Q: My customer sends its own truck and ships my goods out of state. Is that a New York sale?
A: Yes. The customer takes delivery at your New York factory, so it is a New York receipt regardless of the out-of-state destination or F.O.B. point.
Q: Does the F.O.B. point decide where the receipt is sourced?
A: No. The regulation allocates based on delivery to a point in New York, regardless of the F.O.B. point.
Q: Do my factory roof and dock repairs get the investment tax credit?
A: Only if they are depreciable capital improvements with a four-year-plus life that you purchased. Whether a particular repair qualifies is a factual determination.
Citations and references
Statutes, regulations, and authorities:
- Tax Law section 210.3(a)(2)(A) (receipts from sales of tangible personal property allocated to New York where shipments are made to points in the state)
- 20 NYCRR 4-4.2 (property delivered to a purchaser at a point in New York is a New York receipt, regardless of F.O.B. point)
- Tax Law section 210.12 (Article 9-A investment tax credit)
- 20 NYCRR 5-2.2 (qualified property requirements)
- Treasury Regulation section 1.48-1(e) (definition of building and structural components for federal investment credit)
- W.A. Krueger Company, TSB-A-87(13)C; Swanknit Inc., TSB-A-93(18)C (seller-shipped sales to New York points are New York receipts)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1994.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a94_18c.pdf
Original ruling text
New York State Department of Taxation and Finance
Taxpayer Services Division
Technical Services Bureau
TSB-A-94 (18) C
Corporation Tax
December 27, 1994
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C940815A
On August 15, 1994, a Petition for Advisory Opinion was received from Flexovit USA, Inc.,
1305 Eden Evans Center Road, Angola, New York 14006.
The issues raised by Petitioner, Flexovit USA, Inc., are (1) whether receipts from sales where
the buyer controls the shipment of the items are allocable to New York when computing the receipts
factor of the business allocation percentage under section 210.3(a) of the Tax Law and (2) whether
certain repairs in a manufacturing facility would qualify for investment tax credit under section
210.12 of the Tax Law.
With respect to issue "1", Petitioner's customer has a contract with a trucking company
(common carrier) to pick up material at Petitioner's factory located in New York State. The
customer exercises complete control over the trucking company. The customer arranges for pickup,
provides the place, date and time shipment must be at the destination (all outside of New York) and
also makes payment.
Section 210.3(a)(2)(A) of the Tax Law provides that, for purposes of computing the receipts
factor of the business allocation percentage, receipts from sales of tangible personal property are
allocated to New York State where shipments are made to points within New York State.
Further, section 4-4.2 of the Business Corporation Franchise Tax Regulations (Corporation
Regulations) states:
Receipts from sales of tangible personal property are allocable 100 percent to New York
State where shipments are made to points in this State. Tangible personal property is
considered to be shipped to a point in New York State if:
(a) the property is shipped via common carrier or via taxpayer's truck to a
point in New York State designated on the bill of lading or other shipping document,
regardless of the F.O.B. point; or
(b) the property is delivered to a purchaser at a point in New York State.
Example 1:
TP-9 (9/88)
A taxpayer has its factory in New York State.
A customer located in New Jersey comes into
New York State in its own truck or one rented
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by it and picks up its purchase at the
taxpayer's factory. The receipts from such
sale must be allocated to New York State.
In W.A. Krueger Company, Adv Op St Tax Comm, May 29, 1987, TSB-A-87(13)C, it was
held that where books, magazines and catalogs are shipped by the petitioner to it customers located
in New York State or to designees of its customers located in New York State, in bulk, via common
carrier or through the mails, the receipts from such sales are properly allocated to New York State
and must be included in the numerator of the petitioner's receipts factor.
In Swanknit Inc., Adv Op Comm T & F, October 18, 1993, TSB-A-93(18)C, it was held that
where the petitioner manufactured clothing that it shipped via common carrier to its customers or
its customer's designees throughout the United States, the receipts from the sales where such
shipments are to points within New York State must able included in the numerator of the
petitioner's receipts factor.
Unlike Krueger, supra and Swanknit, supra, where the manufacturer is shipping the
merchandise, herein it is the customer who contracts with the common carrier, exercises complete
control over the common carrier, arranges for pickup of the material at Petitioner's factory in New
York State, provides the place, date and time shipment must be at the destination outside New York
and pays for such shipment. In such instances, the customer is shipping the material, not Petitioner.
Where Petitioner's customer is shipping the material from Petitioner's factory in New York
State, Petitioner's customer is taking delivery at Petitioner's factory in New York State. This
situation is the same as Example 1 of section 4-4.2 of the Corporation Regulations where the
customer is taking delivery of the material-sold by the seller at the seller's factory in New York State
and does its own shipping.
Accordingly, pursuant to section 210.3(a)(2)(A) of the Tax Law and section 4-4.2(b) of the
Corporation Regulations, Petitioner's sales of material to customers where the customer takes
delivery of the material at Petitioner's factory in New York State are allocable to New York State and
must be included in the numerator of the receipts factor for purposes of computing the business
allocation percentage. The denominator of the receipts factor must include the receipts from all sales
of Petitioner's material.
With respect to Petitioner's second issue, section 210.12 of the Tax Law allows an investment
tax credit against the tax imposed under Article 9-A of the Tax Law. For taxable years beginning
after 1990, section 210.12 allows an investment tax credit 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.
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Section 5-2.1 of the 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;
(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.
The terms "buildings" and "structural components of buildings" are not defined for purposes
of section 210.12(b) of the Tax Law or section 5-2.2 of the Corporation Regulations.
Section 1-2.1 of the Corporation Regulations provides that, unless a different meaning is
clearly required, any term used in the Corporation Regulations presumably has the same meaning
as when used in a comparable context in the IRC and the Corporation Regulations promulgated
thereunder. Herein, the terms "buildings" and "structural components of buildings" as used in
section 210.12(b) of the Tax Law are parallel to those terms used for determining "section 38
property" for purposes of computing investment credit under section 46 of the IRC. Therefore, when
determining the meaning of buildings and structural components of buildings for purposes of section
210.12(b) of the Tax Law and section 5-2.2 of the Corporation Regulations, it is appropriate to apply
the definitions used for computing investment credit for Federal income tax purposes.
In section 1.48-1(e)(1) of the Treasury Regulations, the term "building" is defined as
generally meaning any structure or edifice enclosing a space within its walls, and usually covered
by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working,
office, paring, display, or sales space. The term includes, for example, structures such as factory
buildings and warehouses.
In section 1.48-1(e)(2) of the Treasury Regulations, the term "structural components"
includes such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent
coverings therefor such as paneling or tiling; windows and doors; all components (whether in, on,
or adjacent to the building) of a central air conditioning or heating system, including motors,
compressors, pipes and ducts; plumbing and plumbing fixtures, such as sinks and bathtubs;
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electric wiring and lighting fixtures; chimneys; stairs, escalators, and elevators, including all
components thereof; sprinkler systems; fire escapes; and other components relating to the operation
or maintenance of a building.
Accordingly, for purposes of section 210.12(b) of the Tax Law, buildings and structural
components of buildings include such items as a roof, windows and a shipping dock. However, the
determination of whether roof repairs, window replacement and shipping dock repairs in a
manufacturing facility would constitute qualified property for purposes of the investment tax credit
under section 210.12 of the Tax Law is a factual matter. To be qualified property, such repairs and
replacements must be depreciable pursuant to section 167 of the IRC, have a useful life of four years
or more, be acquired by the taxpayer by purchase as defined in section 179(d) of the IRC and meet
the other requirements of section 5-2.2 of the Corporation Regulations.
It is not within the scope of an Advisory Opinion to determine questions of fact. An
Advisory Opinion merely sets forth the applicability of pertinent statutory and regulatory provisions
to a "specified set of facts." Tax Law, 171.Twenty-fourth; 20 NYCRR 2376.1(a).
Note, that when determining whether, for purposes of section 210.12 of the Tax Law,
property is depreciable pursuant to section 167 of the IRC, guidance is contained in section 1.167(a)
ll(d)(2) of the Treasury Regulations. Such section 1.167(a)-ll(d)(2) provides that, in general, under
sections 162, 212 and 263 of the IRC, expenditures which substantially prolong the life of an asset
or materially increase its value or adapt it for a substantially different use are capital expenditures.
If an expenditure is treated as a capital expenditure under section 162, 212 or 263 of the IRC, it is
subject to the allowance for depreciation under section 167 of the IRC. Expenditures which do not
substantially prolong the life of an asset or materially increase its value or adapt it for a substantially
different use may be deducted as an expense in the taxable year in which paid or incurred. Such
expenditures are not depreciable.
DATED: December 27, 1994
s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division
NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.