N.Y. Comp. Codes R. & Regs. Tit. 20 § 106.1 - Investment credit and retail enterprise credit
Tax Law, § 606(a)
(a)
General.
(1) Investment credit. A taxpayer is allowed
an investment credit against the ordinary tax (see section
101.1
of this Article), after allowance of any of the other credits permitted under
this Part and any credits permitted under Parts 120, 121 and 140 of this Title,
with respect to qualified tangible personal property and other qualified
tangible property, including buildings and structural components of buildings
which were acquired, constructed, reconstructed or erected after December 31,
1968. A taxpayer entitled to claim an investment credit must claim such credit
for the first taxable year in which the property becomes qualified property
pursuant to paragraph (c)(1) of this section.
(2) Retail enterprise credit. A taxpayer who
operates a retail enterprise (see paragraph [c][4] of this section) and who is
not eligible to claim the investment credit allowed under paragraph (1) of this
subdivision, but who is eligible to claim the Federal investment credit
allowable pursuant to the provisions of section 48(a)(1)(E) of the Internal
Revenue Code, is allowed a retail enterprise credit against the ordinary tax
(see section
101.1
of this Article), after allowance of any of the other credits permitted under
this Part and any credits permitted under Parts 120, 121 and 140 of this Title.
The retail enterprise credit is allowed with respect to qualified
rehabilitation expenditures paid or incurred on or after June 1, 1981 with
respect to a qualified rehabilitated building located in New York State. A
taxpayer entitled to claim a retail enterprise credit must claim such credit
for the first taxable year in which the qualified rehabilitation expenditures
are paid or incurred.
(3) Where
credit is claimed under either paragraph (1) or (2) of this subdivision, a New
York State Investment Credit Schedule (form IT-212) must be submitted with the
taxpayer's New York State income tax return.
(b)
Amount of investment credit and
retail enterprise credit.
(1) Amount
of investment credit.
(i) The amount of
investment credit which a taxpayer is allowed is a percentage of the cost or
other basis, for Federal income tax purposes, of qualified property acquired,
constructed, reconstructed or erected. Such percentage is determined in
accordance with the following table and the provisions of subparagraph (ii) of
this paragraph:
| For qualified property acquired, constructed, reconstructed or erected during the period: | The percentage is: |
| After December 31, 1968 and prior to January 1, 1974 | 1 percent |
| After December 31, 1973 and prior to January 1, 1978 | 2 percent |
| After December 31, 1977 and prior to January 1, 1979 | 3 percent |
| After December 31, 1978 and prior to June 1, 1981 | 4 percent |
| After May 31, 1981 and prior to July 1, 1982 | 5 percent |
| After June 30, 1982 | 6 percent |
(ii) When the acquisition, construction,
reconstruction or erection of qualified property is commenced in any one period
set forth in subparagraph (i) of this paragraph and continued or completed in
any subsequent period set forth in such subparagraph, the allowable investment
credit is the sum of the credits allowable for each such period. The allowable
investment credit for each period is determined by the following formula:
| Cost or other | Expenditures during | Investment | ||
| basis for Federal | the period | credit | ||
| income tax | × × | Allowable | = | applicable to |
| purposes | Total | Percentage | such period | |
| expenditures |
(iii)
(a)
With respect to qualified property which is depreciable pursuant to section 167
of the Internal Revenue Code and which is disposed of or ceases to be in
qualified use prior to the end of the taxable year in which the investment
credit is to be taken, an investment credit will be allowed for the period the
property was in qualified use. The amount of the investment credit which will
be allowed is that portion of the investment credit attributable to such
property which would have been allowed, multiplied by a fraction, the numerator
of which is the total number of months the property was in qualified use and
the denominator of which is the total number of months of useful life of the
property.
(b) Except with respect
to that qualified property referred to in clause (d) of this
subparagraph (a building or a structural component of a building), with respect
to qualified property which is three-year property (as defined in section
168[c][2] of the Internal Revenue Code) and which is disposed of or ceases to
be in qualified use prior to the end of the taxable year in which the
investment credit is to be taken, an investment credit will be allowed for the
period the property was in qualified use. The amount of the investment credit
which will be allowed is that portion of the investment credit attributable to
such property which would have been allowed, multiplied by a fraction, the
numerator of which is the total number of months the property was in qualified
use and the denominator of which is 36.
(c) Except with respect to that qualified
property referred to in clause (d) of this subparagraph (a
building or a structural component of a building), with respect to qualified
property which is 5-year property, 10-year property and 15-year real property
(as defined in section 168[c][2] of the Internal Revenue Code) and which is
disposed of or ceases to be in qualified use prior to the end of the taxable
year in which the investment credit is to be taken, an investment credit will
be allowed for the period the property was in qualified use. The amount of the
investment credit which will be allowed is that portion of the investment
credit attributable to such property which would have been allowed, multiplied
by a fraction, the numerator of which is the total number of months the
property was in qualified use and the denominator of which is 60.
(d) With respect to any recovery property to
which section 168 of the Internal Revenue Code applies, which is a building or
a structural component of a building and which is disposed of or ceases to be
in qualified use prior to the end of the taxable year in which the investment
credit is to be taken, an investment credit will be allowed for the period the
property was in qualified use. The amount of the investment credit which will
be allowed is that portion of the investment credit attributable to such
property which would have been allowed, multiplied by a fraction, the numerator
of which is the total number of months the property was in qualified use and
the denominator of which is the total number of months over which the taxpayer
chooses to deduct the property under section 168 of the Internal Revenue
Code.
(e) For recomputation of
investment credit on property that is disposed of or that ceases to qualify
after the end of the taxable year in which such credit was taken, see paragraph
(i)(1) of this section.
(2) Amount of retail enterprise credit.
(i) The amount of retail enterprise credit
which a taxpayer is allowed is a percentage of qualified rehabilitation
expenditures attributable to that part of a qualified rehabilitated building
employed by the taxpayer in the retail sales activity of the retail enterprise.
Such percentage is determined in accordance with the following table:
| For qualified rehabilitation expenditures paid or incurred during the period: | The percentage is: |
| After May 31, 1981 and prior to July 1, 1982 | 5 percent |
| After June 30, 1982 | 6 percent |
(ii) The amount of qualified rehabilitation
expenditures to be used in computing the retail enterprise credit is determined
by adding:
(a) the portion of such
expenditures directly attributable to that part of a qualified rehabilitated
building employed by the taxpayer in the retail sales activity of the retail
enterprise; and
(b) the portion of
such expenditures indirectly attributable to that part of a qualified
rehabilitated building employed by the taxpayer in the retail sales activity of
the retail enterprise determined by multiplying:
(1) the qualified rehabilitation expenditures
such as a new roof, heating system or aluminum siding, equally attributable to
all areas of the qualified rehabilitated building; by
(2) a fraction, the numerator of which is the
total square feet of area of that part of the qualified rehabilitated building
employed by the taxpayer in the retail sales activity and the denominator of
which is the total square feet of area of the entire qualified rehabilitated
building.
(iii)
(a)
With respect to a qualified rehabilitated building which is depreciable
pursuant to section 167 of the Internal Revenue Code, and which is disposed of
or otherwise ceases to qualify for the retail enterprise credit prior to the
end of the taxable year in which such credit is to be taken, a retail
enterprise credit will be allowed for the period the property qualified for
such credit. The amount of the retail enterprise credit which will be allowed
is that portion of the retail enterprise credit attributable to such property
which would have been allowed, multiplied by a fraction, the numerator of which
is the total number of months the property qualified for such credit and the
denominator of which is the total number of months of useful life of the
property.
(b) With respect to any
recovery property to which section 168 of the Internal Revenue Code applies
which is a qualified rehabilitated building, and which is disposed of or
otherwise ceases to qualify for the retail enterprise credit prior to the end
of the taxable year in which such credit is to be taken, a retail enterprise
credit will be allowed for the period the property qualified for such credit.
The amount of the retail enterprise credit which will be allowed is that
portion of the retail enterprise credit attributable to such property which
would have been allowed, multiplied by a fraction, the numerator of which is
the total number of months the property qualified for such credit and the
denominator of which is the total number of months over which the taxpayer
chooses to deduct the property under section 168 of the Internal Revenue
Code.
(c) For recomputation of the
retail enterprise credit on property that is disposed of or that otherwise
ceases to qualify after the end of the taxable year in which such credit was
taken, see paragraph (i)(2) of this section.
(c) Meaning of the terms
qualified property, qualified rehabilitated building, qualified
rehabilitation expenditures and retail enterprise.
(1) Qualified property. For purposes of the
investment credit allowed under this section, the term qualified
property means tangible personal property and other tangible property,
including buildings and structural components of buildings, which:
(i) is acquired, constructed, reconstructed
or erected by the taxpayer after December 31, 1968;
(ii) is depreciable pursuant to section 167
of the Internal Revenue Code or is recovery property with respect to which a
deduction is allowable under section 168 of the Internal Revenue
Code;
(iii) has a useful life of
four years or more;
(iv) is
acquired by the taxpayer by purchase as defined in subsection (d) of section
179 of the Internal Revenue Code;
(v) has a situs in New York State;
and
(vi) is 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.
(2) Qualified rehabilitated building. For
purposes of the retail enterprise credit allowed under this section, the term
qualified rehabilitated building means any qualified
rehabilitated building as defined in section 48(g)(1) of the Internal Revenue
Code which is located in New York State and employed by the taxpayer in the
retail sales activity of a retail enterprise.
(3) For purposes of the retail enterprise
credit allowed under this section, the term qualified rehabilitation
expenditures means those expenditures defined in section 48(g)(2) of
the Internal Revenue Code which are paid or incurred on or after June 1, 1981
with respect to a qualified rehabilitated building (see paragraph [2] of this
subdivision).
(4) For purposes of
the retail enterprise credit allowed under this section, the term
retail enterprise means a taxpayer which is:
(i) a registered vendor under article 28 of
the Tax Law (New York State Sales and Compensating Use Taxes);
(ii) primarily engaged in the retail sale, as
such term is defined in section
526.6 of
this Title, of tangible personal property; and
(iii) otherwise eligible for the Federal
investment credit.
(d)
Meaning of other terms.
For the purposes of this section, the following terms have these meanings:
(1) The term manufacturing
means 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.
(2) The term property used in the
production of goods includes 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 includes all facilities used in the production
operation, including storage of material to be used in production and of the
products that are produced. Since property and equipment used to store raw
materials and finished goods are included in the meaning of
manufacturing, property and equipment at the raw materials
warehouse and at the finished goods warehouse of a manufacturer qualify,
provided that the property and equipment are principally used in storing the
raw materials or finished goods. Property used to transport raw materials to
the raw materials warehouse or finished goods to customers does not qualify.
Property used for transportation of goods during the manufacturing process
qualifies. However, transportation equipment used on public roads does not
qualify. A public warehouse used to store the taxpayer's goods does not
qualify.
(3) 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
floor space used in production. Dual purpose machinery is principally used in
production when it is used in production more than 50 percent of its operating
time.
(4) The term
cost means the basis of property as defined in section 1012 of
the Internal Revenue Code.
(5) The
term other basis means:
(i)
in the case of property depreciable pursuant to section 167 of the Internal
Revenue Code, the adjusted basis for determining gain or loss used as the basis
for depreciation pursuant to subsection (g) of section 167 of the Internal
Revenue Code; and
(ii) in the case
of recovery property with respect to which a deduction is allowable under
section 168 of the Internal Revenue Code, the unadjusted basis, as such term is
defined in subsection (d) of section 168 of the Internal Revenue Code, used in
determining the recovery deduction allowable under such section 168 of the
Internal Revenue Code.
(e)
Leased property. Neither
the investment credit nor the retail enterprise credit is allowed with respect
to tangible personal property and other tangible property, including buildings
and structural components of buildings, which a taxpayer leases to any other
person or corporation. For purposes of the preceding sentence, any contract or
agreement to lease or rent or for a license to use such property will be
considered a lease. However, in cases where production property or a qualified
rehabilitated building is leased in form and the lessee is in fact the
beneficial owner and entitled to take Federal depreciation pursuant to section
167 of the Internal Revenue Code, or the Federal accelerated cost recovery
system deduction pursuant to section 168 of the Internal Revenue Code, on the
property, and the property is qualified property for purposes of the investment
credit (see paragraph [c][1] of this section) or is a qualified rehabilitated
building (see paragraph [c][2] of this section), the lessee may be entitled to
take the investment credit or the retail enterprise credit. Any election made
with respect to such property pursuant to the provisions of section 168(f)(8)
of the Internal Revenue Code, as such section was in effect for safe harbor
lease agreements entered into prior to January 1, 1984, must be disregarded in
determining whether a taxpayer shall be allowed a credit under this
section.
(f)
Exception. A taxpayer is not allowed an investment credit with
respect to qualified property described in paragraph (c)(1) of this section if
such property qualifies for the optional depreciation modification allowed
under either paragraph (3) or (4) of subsection (g) of section
612 of the Tax Law whether or not such
amount was subtracted. However, where qualified property (see paragraph [c][1]
of this section) was ordered on or before December 31, 1968, and no expenditure
was paid or incurred up to and including that date, the taxpayer may elect to
claim either the optional depreciation modification (see section
116.7 of this
Title) or the investment credit on the property if it qualifies for the
optional depreciation modification under either clause (A), (B) or (C) of
paragraph (4) of subsection (g) of section
612 of the Tax Law.
(g)
Elective treatment of certain
property which qualifies for investment credit.
(1) A taxpayer may elect to claim the
investment credit on qualified property (see paragraph [c][1] of this section)
in lieu of the elective modifications with respect to:
(i) air or water pollution control facilities
in accordance with subsection (h) of section
612 of the Tax Law; or
(ii) research and development facilities in
accordance with subsection (g) of section
612 of the Tax Law.
(2) Where a taxpayer elects to claim the
modifications with respect to air or water pollution control facilities or
research and development facilities, he may not claim the investment credit on
such facilities.
(h)
Carryover or refund of unused investment credit or retail enterprise
credit.
(1) General. Except as
provided for in paragraph (2) of this subdivision, any part of the investment
credit or the retail enterprise credit which is not used, because such
investment credit or retail enterprise credit exceeds the ordinary tax against
which such investment credit or retail enterprise credit may be applied, may be
carried over to the following year or years and may be subtracted from the
taxpayer's ordinary tax for such year or years.
(2)
(i) A
taxpayer who qualifies as an owner of a new business (see subparagraph [ii] of
this paragraph) may, in lieu of carrying over the unused investment credit or
the retail enterprise credit as provided for in paragraph (1) of this
subdivision, receive the investment credit or the retail enterprise credit not
used as a refund. Any refund of unused investment credit or retail enterprise
credit pursuant to this paragraph shall be deemed to be a refund of an
overpayment of New York State personal income tax as provided in section
686 of the
Tax Law; however, no interest may be paid on such refund of unused investment
credit or retail enterprise credit.
(ii) For purposes of this paragraph, an
individual who is either a sole proprietor or a member of a partnership will
qualify as an owner of a new business unless:
(a) such individual has previously received a
refund of an investment credit or a retail enterprise credit pursuant to this
paragraph;
(b) the business of
which such individual is an owner is substantially similar in operation and in
ownership to a business entity taxable, or previously taxable, under section
183 of the Tax Law (New York State Franchise
Tax on transportation and transmission corporations and associations), section
184 of the Tax Law (New York State
Additional Franchise Tax on transportation and transmission corporations and
associations), section
185 of the
Tax Law (New York State Franchise Tax on farmers', fruit growers', and other
like agricultural corporations organized and operated on a cooperative basis),
section 186 of the Tax Law (New York State Franchise Tax on water-works
companies, gas companies, electric or steam heating, lighting and power
companies), article 9-A of the Tax Law (New York State Franchise Tax on
business corporations), article 32 of the Tax Law (New York State Franchise Tax
on banking corporations), article 33 of the Tax Law (New York State Franchise
Tax on insurance corporations), article 23 of the Tax Law (New York State
Unincorporated Business Income Tax) or which would have been subject to tax
under such article 23 as such article was in effect on January 1, 1980, or the
income (or loss) of which (or was) includible under article 22 of the Tax Law
(New York State Personal Income Tax) whereby the intent and purpose of this
paragraph with respect to the refunding of the investment credit or the retail
enterprise credit to a new business would be evaded; or
(c) such individual has operated such new
business entity for more than four years prior to the first day of the taxable
year during which such individual first becomes eligible for the investment
credit or the retail enterprise credit for which the refund of the unused
investment credit or retail enterprise credit is claimed with respect to such
new business entity.
(i)
Recomputation of investment
credit or retail enterprise credit on property that is disposed of or on
property that ceases to qualify.
(1)
Investment credit.
(i)
(a) With respect to qualified property which
is depreciable pursuant to section 167 of the Internal Revenue Code and which
is disposed of or ceases to be in qualified use prior to the end of its useful
life, the difference between the investment credit taken and the investment
credit allowed for actual use must be added back to the ordinary tax otherwise
due in the year of disposition or disqualification.
(b) The amount of investment credit to be
added back pursuant to clause ( a) of this subparagraph is
computed as follows:
(1) divide the total
number of months of qualified use of the property by the total number of months
of useful life;
(2) multiply the
amount computed in subclause (1) of this clause by the amount
of the investment credit claimed on the property to ascertain the investment
credit allowed for actual use;
(3)
subtract the investment credit allowed for actual use from the investment
credit claimed on the property to determine the amount of investment credit to
be added back; and
(4) add the
amount of investment credit to be added back to the ordinary tax due for the
year the property was disposed of or ceased to qualify.
(c) An add-back, pursuant to clause
(a) of this subparagraph of the investment credit taken will
not be required if the property is disposed of or ceases to be in qualified use
after such property has been in qualified use for more than 12 consecutive
years or after the end of such property's useful life.
(d) As used in this subparagraph, the useful
life of property is the same number of years as the taxpayer uses for Federal
depreciation purposes pursuant to section 167 of the Internal Revenue Code.
(ii)
(a) Except with respect to that qualified
property referred to in subparagraph (iv) of this paragraph (a building or a
structural component of a building), with respect to qualified property which
is three-year property (as defined in section 168[c][2] of the Internal Revenue
Code) and which is disposed of or ceases to be in qualified use prior to the
end of 36 months, the difference between the investment credit taken and the
investment credit allowed for actual use must be added back to the ordinary tax
otherwise due in the year of disposition or disqualification.
(b) The amount of investment credit to be
added back pursuant to clause ( a) of this subparagraph is
computed as follows:
(1) divide the total
number of months of qualified use of the property by 36;
(2) multiply the amount computed in subclause
(1) of this clause by the amount of the investment credit
claimed on the property to ascertain the investment credit allowed for actual
use;
(3) subtract the investment
credit allowed for actual use from the investment credit claimed on the
property to determine the amount of investment credit to be added back;
and
(4) add the amount of
investment credit to be added back to the ordinary tax due for the year the
property was disposed of or ceased to qualify.
(c) An add-back, pursuant to clause
(a) of this subparagraph, of the investment credit taken will
not be required if the property is disposed of or ceases to be in qualified use
after such property has been in qualified use for more than 36
months.
(iii)
(a) Except with respect to that qualified
property referred to in subparagraph (iv) of this paragraph (a building or a
structural component of a building), with respect to qualified property which
is 5-year property, 10-year property and 15-year real property (as defined in
section 168[c][2] of the Internal Revenue Code), and which is disposed of or
ceases to be in qualified use prior to the end of 60 months, the difference
between the investment credit taken and the investment credit allowed for
actual use must be added back to the ordinary tax otherwise due in the year of
disposition or disqualification.
(b) The amount of investment credit to be
added back pursuant to clause ( a) of this subparagraph is
computed as follows:
(1) divide the total
number of months of qualified use of the property by 60;
(2) multiply the amount computed in subclause
(1) of this clause by the amount of the investment credit
claimed on the property to ascertain the investment credit allowed for actual
use;
(3) subtract the investment
credit allowed for actual use from the investment credit claimed on the
property to determine the amount of investment credit to be added back;
and
(4) add the amount of
investment credit to be added back to the ordinary tax due for the year the
property was disposed of or ceased to qualify.
(c) An add-back, pursuant to clause
(a) of this subparagraph, of the investment credit taken will
not be required if the property is disposed of or ceases to be in qualified use
after such property has been in qualified use for more than 60
months.
(iv)
(a) With respect to any recovery property to
which section 168 of the Internal Revenue Code applies, which is a building or
a structural component of a building and which is disposed of or ceases to be
in qualified use prior to the end of the period over which the taxpayer chooses
to deduct the property under section 168 of the Internal Revenue Code, the
difference between the investment credit taken and the investment credit
allowed for actual use must be added back to the ordinary tax otherwise due in
the year of disposition or disqualification.
(b) The amount of investment credit to be
added back pursuant to clause ( a) of this subparagraph is
computed as follows:
(1) divide the total
number of months of qualified use of the property by the total number of months
over which the taxpayer chose to deduct the property under section 168 of the
Internal Revenue Code;
(2) multiply
the amount computed in subclause (1) of this clause by the
amount of the investment credit claimed on the property to ascertain the
investment credit allowed for actual use;
(3) subtract the investment credit allowed
for actual use from the investment credit claimed on the property to determine
the amount of investment credit to be added back; and
(4) add the amount of investment credit to be
added back to the ordinary tax due for the year the property was disposed of or
ceased to qualify.
(c)
An add-back, pursuant to clause (a) of this subparagraph, of
the investment credit taken will not be required if the property is disposed of
or ceases to be in qualified use for more than 12 consecutive years or after
the end of the total number of months over which the taxpayer chose to deduct
the property under section 168 of the Internal Revenue Code.
(v) For purposes of this
paragraph, a disposition of qualified property includes, but is not limited to:
(a) a sale of the property;
(b) the sale by a partner of his interest in
a partnership;
(c) an exchange of
qualified property for other property of like kind (including a trade-in of
qualified property);
(d)
condemnation of the property;
(e) a
gift of the property;
(f) the
contribution of property to a partnership or corporation, unless a substantial
interest in the ownership of the trade or business is retained by the
transferor;
(g) loss of the
property due to fire, theft, storm or other casualty;
(h) a legal dissolution of the taxpayer;
and
(i) transfer upon foreclosure
of a security interest in the property.
(vi) For purposes of this paragraph, property
which ceases to be in qualified use includes, but is not limited to:
(a) property which no longer has a situs in
New York State;
(b) property which
is no longer used in the production of goods or as an air pollution control
facility, a water pollution control facility or a research or development
facility;
(c) qualified property
which has been converted to personal use;
(d) qualified property which was retired
prior to:
(1) the expiration of its useful
life in the case of property depreciable pursuant to section 167 of the
Internal Revenue Code;
(2) 36
months in the case of three-year property (as defined in section 168[c][2] of
the Internal Revenue Code) for which a recovery deduction is allowable under
section 168 of the Internal Revenue Code;
(3) 60 months in the case of 5-year property,
10-year property and 15-year real property (as defined in section 168[c][2] of
the Internal Revenue Code) for which a recovery deduction is allowable under
section 168 of the Internal Revenue Code; or
(4) the end of the total number of months
over which the taxpayer chose to deduct the property under section 168 of the
Internal Revenue Code in the case of any recovery property to which section 168
of the Internal Revenue Code applies which is a building or a structural
component of a building; and
(e) property on which an investment credit
was allowed and subsequently leased to others.
(vii) See subparagraph (b)(1)(iii) of this
section for determining the amount of investment credit on property that is
disposed of or that ceases to qualify for such credit prior to the end of the
taxable year in which the investment credit is to be taken.
(2) Retail enterprise
credit.
(i)
(a) With respect to a qualified rehabilitated
building which is depreciable, pursuant to section 167 of the Internal Revenue
Code, and which is disposed of or otherwise ceases to qualify for the retail
enterprise credit prior to the end of its useful life, the difference between
the retail enterprise credit taken and the retail enterprise credit allowed for
the period the property qualified for such credit must be added back to the
ordinary tax otherwise due in the year of disposition or
disqualification.
(b) The amount of
retail enterprise credit to be added back pursuant to clause
(a) of this subparagraph is computed as follows:
(1) divide the total number of months the
property qualified for the retail enterprise credit by the total number of
months of useful life;
(2) multiply
the amount computed in subclause (1) of this clause by the
amount of the retail enterprise credit claimed on the property to ascertain the
retail enterprise credit allowed for the period the property qualified for the
retail enterprise credit;
(3)
subtract the retail enterprise credit allowed for the period the property
qualified for such credit from the retail enterprise credit claimed on the
property to determine the amount of retail enterprise credit to be added back;
and
(4) add the amount of retail
enterprise credit to be added back to the ordinary tax due for the year the
property was disposed of or otherwise ceased to qualify.
(c) An add-back, pursuant to clause
(a) of this subparagraph, of the retail enterprise credit
taken will not be required if the property is disposed of or otherwise ceases
to qualify for such credit after such property has qualified for the retail
enterprise credit for more than 12 consecutive years or after the end of such
property's useful life.
(d) As used
in this subparagraph, the useful life of property is the same number of years
as the taxpayer uses for Federal depreciation purposes pursuant to section 167
of the Internal Revenue Code.
(ii)
(a)
With respect to any recovery property, to which section 168 of the Internal
Revenue Code applies, which is a qualified rehabilitated building and which is
disposed of or otherwise ceases to qualify for the retail enterprise credit
prior to the end of the period over which the taxpayer chooses to deduct the
property under section 168 of the Internal Revenue Code, the difference between
the retail enterprise credit taken and the retail enterprise credit allowed for
the period the property qualified for such credit must be added back to the
ordinary tax otherwise due in the year of disposition or
disqualification.
(b) The amount of
retail enterprise credit to be added back pursuant to clause
(a) of this subparagraph is computed as follows:
(1) divide the total number of months the
property qualified for the retail enterprise credit by the total number of
months over which the taxpayer chose to deduct the property under section 168
of the Internal Revenue Code;
(2)
multiply the amount computed in subclause (1) of this clause
by the amount of the retail enterprise credit claimed on the property to
ascertain the retail enterprise credit allowed for the period the property
qualified for the retail enterprise credit;
(3) subtract the retail enterprise credit
allowed for the period the property qualified for such credit from the retail
enterprise credit claimed on the property to determine the amount of retail
enterprise credit to be added back; and
(4) add the amount of retail enterprise
credit to be added back to the ordinary tax due for the year the property was
disposed of or otherwise ceased to qualify.
(c) An add-back, pursuant to clause
(a) of this subparagraph, of the retail enterprise credit
taken will not be required if the property is disposed of or otherwise ceases
to qualify for such credit after such property has qualified for the retail
enterprise credit for more than 12 consecutive years or after the end of the
total number of months over which the taxpayer chose to deduct the property
under section 168 of the Internal Revenue Code.
(iii) For purposes of this paragraph,
disposition of a qualified rehabilitated building includes, but is not limited
to:
(a) a sale of the property;
(b) the sale by a partner of his interest in
a partnership;
(c) an exchange of
the qualified rehabilitated building for other property;
(d) condemnation of the property;
(e) a gift of the property;
(f) the contribution of the property to a
partnership or corporation, unless a substantial interest in the ownership of
the retail enterprise is retained by the transferor;
(g) loss of the property due to a fire, storm
or other casualty;
(h) a legal
dissolution of the taxpayer; and
(i) transfer upon foreclosure of a security
interest in the property.
(iv) For purposes of this paragraph, property
which ceases to qualify for the retail enterprise credit includes, but is not
limited to:
(a) property which is no longer
used in the retail sales activity of a retail enterprise;
(b) property which has been converted to
personal use;
(c) property which
was retired prior to:
(1) the expiration of
its useful life, in the case of property depreciable pursuant to section 167 of
the Internal Revenue Code; or
(2)
the end of the total number of months over which the taxpayer chose to deduct
the property under section 168 of the Internal Revenue Code, in the case of
recovery property to which section 168 of the Internal Revenue Code applies;
and
(d) property on
which a retail enterprise credit was allowed and subsequently leased to
others.
(v) See
subparagraph (b)(2)(iii) of this section for determining the amount of retail
enterprise credit on property that is disposed of or that otherwise ceases to
qualify for such credit prior to the end of the taxable year in which the
retail enterprise credit is to be taken.
(j)
Allowance of investment credit to
shareholders of electing small business corporations.
(1) In the case of shareholders of a
corporation which is an electing small business corporation for Federal income
tax purposes (a Subchapter S corporation), where the election provided for in
section
660 of the Tax Law has been made, the
investment credit with respect to qualified property described in paragraph
(c)(1) of this section which was acquired by the electing small business
corporation will be allowed to such shareholders of such electing small
business corporation.
(2) In
computing the amount of the investment credit, the cost or other basis of such
qualified property for Federal income tax purposes must be apportioned
pro rata, based on each shareholder's proportionate stock
interest in such small business corporation, among those shareholders who are
shareholders of the small business corporation on the last day of such small
business corporation's taxable year during which the qualified property was
acquired. For purposes of this section, a shareholder to whom such cost or
other basis has been apportioned will be treated as the taxpayer with respect
to the qualified property. The investment credit allowed to such shareholder
will be allowed in such shareholder's taxable year in which or with which the
taxable year of the small business corporation ends.
(3) Any available carryover of unused
investment credit based on investment credit allowed to the small business
corporation may not be proportionately distributed among the shareholders.
Likewise, any available carryover of unused investment credit based on
investment credit allowed to the shareholders may not be distributed to the
small business corporation.
(4) If
qualified property on which investment credit has been claimed by the
shareholders is disposed of by the small business corporation, or if the
property ceases to be qualified property in the hands of the small business
corporation, the shareholders who claimed the investment credit must add back
the difference between the investment credit taken and the investment credit
allowed for actual use. The add-back of investment credit must be made in the
taxable year of the shareholder in which the disposition or disqualification
occurs. The total amount of investment credit to be added back is determined in
accordance with the provisions of section
5-2.8
of this Title. Each shareholder's share in the amount of investment credit to
be added back is based on his proportionate share in the investment credit
claimed.
(5) Where a shareholder's
proportionate stock interest in the small business corporation is reduced, such
shareholder is deemed to have disposed of some or all of the qualified property
for purposes of recapture of all or a portion of the investment credit claimed
pursuant to paragraph (i)(1) of this section. The amount of investment credit
to be added back pursuant to paragraph (i)(1) of this section is the difference
between the investment credit taken by the shareholder, less any previous
add-backs of investment credit previously required to be added back pursuant to
this paragraph, and the investment credit which would have been allowed to such
shareholder based on such shareholder's recomputed stock interest in the small
business corporation. In no event may the aggregate add-backs required by this
paragraph exceed the investment credit claimed by the shareholder. There is no
add-back of investment credit required under this paragraph if the reduction in
the shareholder's stock interest occurs after the qualified property for which
the investment credit was claimed is disposed of or ceases to be in qualified
use:
(i) in the case of qualified property
which is depreciable pursuant to section 167 of the Internal Revenue Code,
after such property has been in qualified use for more than 12 consecutive
years or after the end of such property's useful life;
(ii) in the case of three-year property (as
defined in section 168[c][2] of the Internal Revenue Code) for which a recovery
deduction is allowable under section 168 of the Internal Revenue Code, after 36
months;
(iii) in the case of 5-year
property, 10-year property and 15-year real property (as defined in section
168[c][2] of the Internal Revenue Code), other than a building or a structural
component of a building, for which a recovery deduction is allowable under
section 168 of the Internal Revenue Code, after 60 months; and
(iv) in the case of recovery property which
is a building or a structural component of a building, for which a recovery
deduction is allowable under section 168 of the Internal Revenue Code, after
such property has been in qualified use for more than 12 consecutive years, or
after the end of the total number of months over which the taxpayer chose to
deduct the property under section 168 of the Internal Revenue Code.
Notes
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