N.Y. Comp. Codes R. & Regs. tit. 20 § 106.1

Current through Register Vol. 46, No. 45, November 2, 2024

Section 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.

(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.

(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.

(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;

(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.

(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.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 106.1