New York Advisory Opinion TSB-H-81(1)I: Do 'piggyback trailers' owned through a partnership and leased to others qualify for New York's personal income tax investment credit?

Plain-English summary

Eli R. Vegh owned a 20% interest in a Florida partnership that owned and leased "piggyback trailers" (trailers designed to be carried on rail flatcars for part of a shipment's journey), which had a useful life of seven years. The trailers were constantly in transit around the country, and Vegh asked the Department two things: whether the trailers qualified as investment-credit property under the Personal Income Tax, and, if the credit otherwise applied, whether the trailers' constant travel would still satisfy the statute's requirement that qualifying property have a "situs" in New York.

Tax Law section 606(a) allows an investment credit for depreciable tangible property with a useful life of four years or more that has a New York situs and is "principally used by the taxpayer" in manufacturing, processing, assembling, or similar production activities. But section 606(a)(4) separately disallows the credit for otherwise-qualified property that is leased to any other person or corporation.

Because the partnership's trailers were leased out to others rather than used by the partnership itself in a qualifying production process, they failed the credit's basic requirements on that ground alone - the property wasn't "principally used by the taxpayer" in a qualifying process at all, and the leasing exclusion applied on top of that. Since the credit didn't apply for that reason, the Department didn't need to reach Vegh's separate question about whether trailers that are constantly in transit could still satisfy the New York-situs requirement. The Department also noted, as an aside, that the New York City Personal Income Tax doesn't provide an investment credit at all.

What this means for you

Partners or owners in equipment-leasing partnerships

Equipment your partnership leases out to others - rather than using itself in manufacturing, processing, or similar production - won't qualify for New York's personal income tax investment credit, no matter how long its useful life or how it's used by the lessee.

Anyone with property that constantly travels or has no fixed location

If your equipment is leased to others, the leasing exclusion resolves the case before a harder situs (fixed New York location) question ever needs to be answered - but don't assume the reverse is true: property you use yourself still needs to independently satisfy the situs requirement.

New York City taxpayers

Remember that the New York City Personal Income Tax has no investment credit provision at all, regardless of how the State investment credit analysis comes out.

Common questions

Q: Can I claim New York's investment credit on equipment my partnership leases out to third parties?
A: No - section 606(a)(4) disallows the credit for property leased to another person or corporation, regardless of the property's other characteristics.

Q: Does it matter that the trailers were constantly moving around the country rather than staying in one place?
A: The Department didn't have to decide that question here, because the leasing exclusion alone was enough to deny the credit - a taxpayer using similar property in its own business (not leasing it out) would still need to separately satisfy the New York-situs requirement.

Q: Is there an investment credit available against New York City's Personal Income Tax?
A: No - the ruling notes the New York City Personal Income Tax doesn't provide an investment credit at all.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/h81_1i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81-(1)-I
Income Tax
March 6, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I800902C

On August 9, 1980 a Petition for an Advisory Opinion was received from Eli
R. Vegh, 749 Westwood Avenue, Staten Island, N.Y. 10314.
The issue raised is whether "Piggyback trailers" leased to others
constitute qualified property for purposes of the investment credit available
under the Personal Income Tax imposed under Article 22 of the Tax Law.
Petitioner owns a 20% interest in a Florida partnership involved in the
ownership and leasing of "Piggyback trailers". The trailers are stated to have
a useful life of 7 years. Petitioner also states that the trailers are constantly
in transit throughout the country and inquires whether they would nonetheless
satisfy the situs requirement of the statute.
Section 606(a) of the Tax Law provides for a credit against the Personal
Income Tax, based on the cost or other basis of "...tangible personal property
and other tangible property, including buildings and structural components of
buildings, which are depreciable pursuant to section one hundred sixty-seven of
the internal revenue code, have a useful life of four years or more, are acquired
by purchase as defined in section one hundred seventy-nine (d) of the internal
revenue code, have a situs in this state and 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."
In addition, section 606(a)(4) of the Tax Law disallows such credit with
respect to otherwise qualified tangible personal property and other tangible
property which is leased"...to any other person or corporation."
Accordingly, inasmuch as the trailers at issue are not principally used by
the taxpayer in the production of goods and are leased to others they do not
qualify for the investment credit available under section 606(a) of the Tax Law.
It is therefore not necessary to address the question of situs raised by
Petitioner. In addition, Petitioner is advised that the New York City City
Personal Income Tax does not provide for an investment credit.

DATED: January 19, 1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR