Sec. 5-2.5. Computing the investment tax credit

Tax Law. § 210, subd. 12(a), (g) and (h)

(a) The amount of credit which a taxpayer is allowed is computed at the rate set forth for the rate periods described in this subdivision as follows:

(1) One percent of the cost or other basis of qualified property acquired, constructed, reconstructed or erected after December 31, 1968 and before January 1, 1974.

(2) Two percent of the cost or other basis of qualified property acquired, constructed, reconstructed or erected on or after January 1, 1974 and before January 1, 1978.

(3) Three percent of the cost or other basis of qualified property acquired, constructed, reconstructed or erected on or after January 1, 1978 and before January 1, 1979.

(4) Four percent of the cost or other basis of qualified property acquired, constructed, reconstructed or erected on or after January 1, 1979.

(b) When the acquisition, construction, reconstruction or erection started during one rate period and was continued or completed during a different rate period, the investment tax credit shall be the sum of the amounts obtained by multiplying that portion of the cost or other basis of the qualified property attributable to each rate period by the rate in effect for such period. The portion of the cost or other basis of the qualified property attributable to each rate period is the cost or other basis of such property multiplied by a fraction, the numerator of which is expenditures paid or incurred during such period for the acquisition, construction, reconstruction or erection of qualified property, and the denominator of which is the total of all expenditures paid or incurred for such acquisition, construction, reconstruction or erection.

(c) If a taxpayer started the acquisition, construction, reconstruction or erection of qualified property after December 31, 1968 but before January 1, 1974 and completed it after December 31, 1978 and uses the accrual method of accounting and also used “other basis” as the method of valuing the property for Federal income tax purposes, the following method for computing its investment tax credit must be used:

(1) Step 1.

(i) Add together the expenditures and accruals attributable to such qualified property for the rate period ending on December 31, 1973;

(ii) divide the sum computed in (i) by the total expenditures and accruals attributable to such qualified property;

(iii) multiply the result obtained in (ii) by the basis of such property as determined in subdivision (e) of section 5-2.4 of this Subpart; and

(iv) multiply the amount computed in (iii) by one percent.

(2) Step 2.

(i) Subtract from the expenditures made after December 31, 1973 but before January 1, 1978, the accruals attributable to such qualified property for the rate period ending December 31, 1973 and add the accruals attributable to such qualified property for the rate period ending December 31, 1977;

(ii) divide the amount computed in subparagraph (2)(i) by the total expenditures and accruals attributable to such qualified property:

(iii) multiply the amount computed in (ii) by the basis of such property as determined in subdivision (e) of section 5-2.4 of this Subpart; and

(iv) multiply the amount computed in (iii) by two percent.

(3) Step 3.

(i) Subtract from the expenditures made after December 31, 1977, but before January 1, 1979, the accruals attributable to such qualified property for the rate periods ending on or before December 31, 1977, and add the accruals attributable to such qualified property for the period ending December 31, 1978;

(ii) divide the amount computed in (i) by the total expenditures and accruals attributable to such qualified property;

(iii) multiply the amount computed in (ii) by the basis of such property as determined in subdivision (e) of section 5-2.4 of this Subpart; and

(iv) multiply the amount obtained in (iii) by three percent.

(4) Step 4.

(i) Subtract from the expenditures made after December 31, 1978, the accruals attributable to such qualified property for the rate periods ending on or before December 31, 1978;

(ii) divide the amount computed in (i) by the total expenditures and accruals attributable to such qualified property;

(iii) multiply the amount computed in (ii) by the basis of such property as determined in subdivision (e) of section 5-2.4 of this Subpart; and

(iv) multiply the amount obtained in (iii) by four percent.

(5) Step 5.

(i) Add the results of steps 1, 2, 3 and 4. If less than four rate periods are involved, eliminate appropriate steps that do not apply.

Example:

Total expenditures	$4,000,000
Basis for Federal income tax purposes	3,800,000
Expenditures during 1977	1,000,000
1978 accruals attributable to 1977	50,000
Expenditures during 1978	1,600,000
1979 accruals attributable to 1978	100,000
Expenditures after December 31, 1978	1,400,000

1977

_

($1,000,000 + $50,000 ÷ $4,000,000) × $3,800,000 = $997,500 × 2% =

 

$19,950

1978 _ ($1,600,000 − $50,000 ÷ $4,000,000) + $100,000 × $3,800,000 =

 

$1,567,500 × 3% =

 

$47,025

1979

_

($1,400,000 − $100,000 ÷ $4,000,000) × $3,800,000 = $1,235,000 × 4% =

 

$ 49,400

Total investment tax credit

 

$116,375

(ii) In the example, no expenditures were incurred prior to January 1, 1974; therefore, the computation described in step 1 is not necessary.

(d) If property which qualifies for the investment tax credit is disposed of or ceases to be in qualified use prior to the end of the taxable year in which the credit is to be taken, an investment tax credit is allowed for the period the property was in qualified use. The investment tax credit which will be allowed is that part of the credit which would have been allowed multiplied by the ratio of (1) the total number of months in qualified use of the property to (2) the total number of months of useful life. (See section 5-2.8 of this Subpart.)

(e) A taxpayer which had property destroyed or damaged by “Hurricane Agnes” in 1972 may be entitled to an additional one percent investment tax credit. See paragraph (h) of subdivision 12 of section 210 of the Tax Law for the requirements for property to qualify.