Sec. 5-10.8. Recomputation of economic development zone investment tax credit on property that is disposed of or ceases to qualify

Tax Law, § 210(12-B)(f)

(a) If property on which the economic development zone investment tax credit has been taken is disposed of or ceases to be in qualified use prior to the end of its useful life, the difference between the credit taken and credit allowed for actual use must be added back to the tax otherwise due in the year of disposition or disqualification.

(b) The amount of economic development zone investment tax credit to be added back is computed as follows:

(1) for qualified property which is depreciable pursuant to section 167 of the Internal Revenue Code, but not subject to the provisions of section 168 of such code:

(i) divide the total number of months of qualified use of the property by the total number of months of useful life as used for Federal depreciation purposes;

(ii) multiply the amount computed in subparagraph (i) of this paragraph by the economic development zone investment tax credit claimed on the property to ascertain the economic development zone investment tax credit allowed for actual use;

(iii) subtract the economic development zone investment tax credit allowed for actual use from the economic development zone investment tax credit claimed on the property to determine the economic development zone investment tax credit to be added back; and

(iv) add the amount determined in subparagraph (iii) of this paragraph to the tax due for the year the property was disposed of or ceased to qualify.

(2) Except with respect to qualified property described in paragraph (4) of this subdivision, for qualified property which is 3 year property as defined in section 168(e) of the Internal Revenue Code:

(i) divide the total number of months in qualified use of the property by 36;

(ii) multiply the amount computed in subparagraph (i) of this paragraph by the economic development zone investment tax credit claimed on the property to ascertain the economic development zone investment tax credit allowed for actual use;

(iii) subtract the economic development zone investment tax credit allowed for actual use from the economic development zone investment tax credit claimed on the property to determine the economic development zone investment tax credit to be added back; and

(iv) add the amount determined in subparagraph (iii) of this paragraph to the tax due for the year the property was disposed of or ceased to qualify.

(3) Except with respect to qualified property described in paragraph (4) of this subdivision, for qualified property which is subject to the provisions of section 168 of the Internal Revenue Code other than three-year property as defined in section 168(e) of the Internal Revenue Code:

(i) divide the total number of months in qualified use of the property by 60;

(ii) multiply the amount computed in subparagraph (i) of this paragraph by the economic development zone investment tax credit claimed on the property to ascertain the economic development zone investment tax credit allowed for actual use;

(iii) subtract the economic development zone investment tax credit allowed for actual use from the economic development zone investment tax credit claimed on the property to determine the economic development zone investment tax credit to be added back; and

(iv) add the amount determined in subparagraph (iii) of this paragraph to the tax due for the year the property was disposed of or ceased to qualify.

(4) For qualified property which is a building or a structural component of a building to which section 168 of the Internal Revenue Code applies:

(i) divide the total number of months in qualified use of the property by the total number of months over which the taxpayer chose to deduct the property under the Internal Revenue Code;

(ii) multiply the amount computed in subparagraph (i) of this paragraph by the economic development zone investment tax credit claimed on the property to ascertain the economic development zone investment tax credit allowed for actual use;

(iii) subtract the economic development zone investment tax credit allowed for actual use from the economic development zone investment tax credit claimed on the property to determine the economic development zone investment tax credit to be added back; and

(iv) add the amount determined in subparagraph (iii) of this paragraph to the tax due for the year the property was disposed of or ceased to qualify.

(c) There is no addback of the economic development zone investment tax credit claimed if the property is disposed of or ceases to qualify after:

(1) more than 12 consecutive years or the end of its useful life (as used for Federal depreciation purposes), whichever is less, for property which is depreciable pursuant to section 167 of the Internal Revenue Code but is not subject to the provisions of section 168 of such code;

(2) 36 months for three-year property as defined in section 168(e) of the Internal Revenue Code except property described in paragraph (4) of this subdivision;

(3) 60 months for property subject to the provisions of section 168 of the Internal Revenue Code, other than three-year property as defined in section 168(e) of the Internal Revenue Code except property described in paragraph (4) of this subdivision; or

(4) more than 12 consecutive years or the end of the total number of months over which the taxpayer chose to deduct the property, whichever is less, with respect to a building or a structural component of a building subject to the provisions of section 168 of the Internal Revenue Code, for which a deduction was allowable under such code.

(d) For purposes of this Subpart, a disposition of qualified property includes, but is not limited to:

(1) a sale of the property;

(2) a liquidation other than as part of a statutory merger or consolidation; see subdivision (g) of this section for the exception;

(3) a legal dissolution of the taxpayer;

(4) an exchange of qualified property for other property of a like kind (including a trade-in of qualified property);

(5) a gift of the property;

(6) a transfer upon foreclosure of a security interest in the property;

(7) condemnation of the property;

(8) loss of the property due to fire, theft, storm, or other casualty; and

(9) transfer of the property to a corporation not taxable under article 9-A.

(e) For purposes of this Subpart, property which ceases to be in qualified use includes but is not limited to:

(1) property on which an economic development zone investment tax credit was allowed and which was subsequently leased to others;

(2) property which qualified and no longer meets the requirements of section 5-10.2 of this Subpart, such as:

(i) property which no longer has a situs in an economic development zone designated as such pursuant to article 18-B of the General Municipal Law; or

(ii) property no longer used in the production of goods;

(3) qualified property which was retired prior to:

(i) 12 consecutive years or the end of its useful life (as used for Federal depreciation purposes), whichever is less, for property which is depreciable pursuant to section 167 of the Internal Revenue Code but is not subject to the provisions of section 168 of such code;

(ii) 36 months for three-year property as defined in section 168(e) of the Internal Revenue Code except property described in subparagraph (iv) of this paragraph;

(iii) 60 months for property which is subject to the provisions of section 168 of the Internal Revenue Code, other than three-year property as defined in section 168(e) of the Internal Revenue Code except property described in subparagraph (iv) of this paragraph;

(iv) 12 consecutive years or the end of the total number of months over which the taxpayer chose to deduct the property, whichever is less, with respect to a building or structural component of a building subject to the provisions of section 168 of the Internal Revenue Code, for which a deduction is allowable under such code.

(f) For purposes of subparagraph (e)(2)(i) of this section, where a taxpayer is required to recompute the economic development zone investment tax credit on property which no longer has a situs in an economic development zone, the taxpayer may be allowed to claim an investment tax credit pursuant to Subpart 5-2 of this Part on the investment credit base of qualified property.

(g) For purposes of this Subpart, a disposition generally does not occur where property is transferred from a corporation as part of a transaction to which section 381(a) of the Internal Revenue Code applies; e.g., a complete liquidation of a subsidiary under section 332 of the Internal Revenue Code, or a reorganization under section 361 and section 368(a)(1)(A) (statutory merger or consolidation), section 368(a)(1)(C) (certain acquisitions of property from one corporation by another), section 368(a)(1)(D) (certain transfers of assets), section 368(a)(1)(F) (mere change in identity, form or place of organization, however effected), or section 368(a)(1)(G) (bankruptcy reorganization). As there is no disposition in these cases, an add back is not required and an economic development zone investment tax credit is not required to be computed pursuant to section 5-10.5(c) of this Subpart provided that the property continues in qualified use and is acquired by a corporation that has been certified pursuant to article 18-B of the General Municipal Law and is subject to article 9-A of the Tax Law. Generally, in these cases, the acquiring or surviving corporation cannot claim an economic development zone investment tax credit because it takes over such property at the adjusted basis of the transferor and the transfer therefore does not qualify as a purchase pursuant to section 179(d)(2) of the Internal Revenue Code. An economic development zone investment tax credit carry over attributable to such property may be claimed by the acquiring or surviving corporation. In measuring the period of qualified use of such property, the period during which the property was held by the transferor corporation and the acquiring corporation are to be taken into account.

(h) For purposes of this Subpart, disposal or cessation of qualified use shall be deemed to have occurred:

(1) where an air pollution control facility which is allowed a credit on the basis of a certificate of compliance issued pursuant to the Environmental Conservation Law has such certificate revoked pursuant to section 19-0309(3) of such law, except for the property contained in such facility or comprising such facility, which is described in section 5-10.2(a)(6)(i)(a), (b) or (c) of this Subpart, when such property is not part of or comprising an air pollution control facility;

(2) where the use of an air pollution control facility or an industrial waste treatment facility is for the primary purpose of salvaging materials which are usable in the manufacturing process or are marketable, except with respect to property contained in or comprising such facility which is described in section 5-10.2(a)(6)(i)(a) or (c) of this Subpart; or

(3) where a taxpayer has been decertified pursuant to section 959(a) of the General Municipal Law. Such disposal or cessation of qualified use will be deemed to have occurred on the effective date of such decertification. Where a taxpayer has been decertified pursuant to clause (1), (2) or (5) of section 959(a) of the General Municipal Law, see section 5-10.9 of this Subpart.

(i) Where the provisions of subdivision (h) of this section apply, the amount of the economic development zone investment tax credit allowed shall not be less than the investment tax credit allowed pursuant to section 210.12 of the Tax Law.

(j) For purposes of this Subpart, disposal or cessation of qualified use shall not be deemed to have occurred solely by reason of the termination or expiration of an economic development zone's designation as such.