A New York Administrative Law Judge (ALJ) recently addressed whether a taxpayer engaged in generating electricity at a plant in New York was a “qualified New York manufacturer” whose capital tax base was capped at $350,000 for the tax years at issue (2010-2012). Under New York law for the relevant period, corporate taxpayers paid tax on the highest of four alternative bases. The capital base, which was the highest base for the taxpayer, was capped at $350,000 per year for qualified New York manufacturers. Thus, the issue before the court was whether the taxpayer, an entity engaged in generating electricity, was a “qualified New York manufacturer.” To be considered a “qualified New York manufacturer” entitled to the capital base liability cap, the taxpayer had to establish that (1) it was a manufacturer; (2) it had property in New York that was described in New York Tax Law § 210 (12) (b)(i) (A); and (3) either the adjusted basis of that property for federal income tax purposes was at least equal to $1 million or all of its real and personal property was located in New York. The two open questions before the ALJ were whether generating electricity qualifies as manufacturing, and whether the taxpayer’s New York property was of the type described in the relevant statute.
With respect to the first question, the Division of Taxation argued that the definition of a manufacturer for the capital base cap, which was identical to the language used to define manufacturer for purposes of the Investment Tax Credit, did not include entities that were engaged in generating electricity. Under this definition, a manufacturer is generally a taxpayer that is principally engaged in the production of goods by manufacturing…” Although the statutory language defining a manufacturer was the same, the Investment Tax Credit statute included a specific carve-out stating that goods did not include electricity. In the ALJ’s view, if the Legislature had intended to specifically carve out generating electricity, it would have adopted a similar, specific limitation for purposes of the capital base cap. Thus, the ALJ rejected the Division’s argument that the taxpayer was not a manufacturer, as defined. The ALJ next addressed the Division’s argument that even if the taxpayer met the definition of a “manufacturer” it was not a “qualified New York manufacturer” because it did not have property described in New York Tax Law § 210 (12) (b)(i) (A). This is the statute incorporating the requirements for the Investment Tax Credit and including the limitation that “goods shall not include electricity.” Because the qualifying property (1) had to be used to manufacture goods and (2) goods did not include electricity, the ALJ concluded that the property of a manufacturer principally engaged in the production of electricity did not meet the property requirements for a “Qualified New York manufacturer.” Please contact Russ Levitt at 212-872-6717 with questions.