State of Rhode Island - Division of Taxation
Ruling Request No. 2004-01
Request for Ruling Regarding Eligibility for the Investment Tax Credit
On behalf of your client, Company X, you request a declaratory ruling relating to Company X’s eligibility to take a ten percent (10%) Rhode Island investment tax credit on certain leased tangible personal property in 2002.
The facts set forth in your request for ruling dated March 3, 2003, and the documents attached thereto, form the basis for this ruling.
Company X is a Delaware C corporation, primarily engaged in the design, construction, repair and overhaul of ocean-going barges and shallow-draft vessels from its shipyard located in Rhode Island . Company X is classified as a manufacturer under the Standard Industrial Classification System (SIC) major group code number 37 and subgroup number 3731 and under the North American Industry Classification System (NAICS) code number 336611. For the year 2002, the Rhode Island Department of Labor and Training has determined that Company X qualifies for the Rhode Island ten percent (10%) investment tax credit because the average annual wage paid to Company X’s full-time equivalent employees classified as production workers exceeded the average annual wage paid to all production workers in the state in the same two-digit SIC code.
At the close of business on December 31, 2001, Company X entered into an operating agreement for various equipment. Payments are due monthly on the last day of the month beginning January 31, 2002 with the last payment due on June 31, 2010. Company X has the right to purchase the equipment at the end of the lease term. The equipment leased is tangible personal property and Company X estimates that the equipment has a useful life of 10 years.
On September 1, 2002, Company X entered into an operating agreement for a drydock. Payments are due monthly on the last day of the month beginning October 1, 2002 with the last payment due on March 1, 2012. Company X has the right to purchase the equipment at the end of the lease term. The leased drydock is tangible personal property and Company X estimates that the drydock has a useful life of 20 years.
The equipment and the drydock are located in Rhode Island
Company X is eligible to take a ten percent (10%) Rhode Island investment tax credit on leased drydock and shipbuilding equipment in 2002.
RIGL §44-31-1 provides for a ten percent (10%) credit for qualifying property that is acquired, constructed, reconstructed or erected after January 1, 1998.
A credit is allowed under this section with respect to tangible personal property and other tangible property, (excluding motor vehicles, furniture, buildings and structural components of buildings, except as provided in this section), which are depreciable pursuant to 26 U.S.C. § 167, have a useful life of four (4) years or more, are acquired by purchase as defined in 26 U.S.C. § 179(d) or acquired by lease as prescribed in subsection (b)(3)(iii), have a situs in this state and to the extent the property is used by a qualified taxpayer, as that term is defined in subsection (b)(3)(iv), in any of the businesses described in major groups 20 through 39, 50 and 51, 60 through 67, 73, 76, 80 through 82, 87 and 89 in the standard industrial classification manual.
The term “qualified taxpayer” as defined in §44-31-1(b)(3)(iv) includes a taxpayer described in major group 20-39 whose medium annual wage paid to full-time equivalent employees is above the annual wage paid by all taxpayers in the state that share the same two-digit SIC code.
R.I.G.L. §44-31-1(b)(4) further provides for eligibility with respect to major groups 20 through 39 only, where the average annual wage paid to this qualified taxpayer’s full‑time equivalent employees, classified as production workers by the Rhode Island Department of Labor and Training, is above the average annual wage paid to the production workers of all these taxpayers in the state which share the same two-digit SIC Code.
The property leased by Company X meets all the eligibility requirements of the law and the Rhode Island Department of Labor and Training has issued the certification form for the ten percent (10%) investment tax credit for year ending December 31, 2002. The taxpayer qualifies for the tax credit.
Company X is eligible to take a ten percent (10%) Rhode Island investment tax credit on leased drydock and ship-building equipment in 2002. Since the property was leased, the credit shall be based upon the fair market value of the property at the inception of the lease times the portion of the depreciable life of the property represented by the term of the lease excluding renewal options.
This ruling may be relied upon by Company X and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying facts described herein change.
R. GARY CLARK
MARCH 18, 2004