Franchise Tax Board

General Questions

Note: This Guide contains questions to address when determining whether the taxpayer can claim the Manufacturers' Investment Credit (MIC) and to help determine the correct amount of the credit. Because it is not possible to provide a guide that addresses every MIC question, it is the responsibility of the auditor to consider the facts and circumstances of each case and to determine the audit objectives and proper procedures to apply.

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GENERAL QUESTIONS
  
1.

See R&TC §§17053.49 and 23649, and CCR, tit. 18, §§17053.49-1 through 17053.49-11 or §§23649-1 through 23649-11.

 
2.

IIs the MIC being claimed on a return for an income year beginning on or after 1/1/95?

Note: For example, a taxpayer with a June 30 fiscal year-end, the period 7/1/95 - 6/30/96 would be its first tax year to claim the MIC and qualified costs paid or incurred during 1/1/94 - 6/30/96 could qualify.

  
3. Did the taxpayer attach the form FTB 3535 to the tax return? If yes, did the taxpayer provide all the information requested on the form?

Note: The taxpayer is required to provide all the information requested on the form FTB 3535 at the time of filing.

 
4.

Do the detailed costs foot to the total qualified property claimed for the MIC on the form FTB 3535, Line 10, and the front of the tax return?

 
5.

How do total costs claimed compare to the change in fixed assets reported on the Schedule L-Balance Sheet? Did the taxpayer claim 100% of the assets purchased for the year?

 
6.

Did you scan the list of claimed MIC assets, reviewing for assets that appear to be nonqualified property?

 
7.

Is any reported item material?

Note: This should be considered when determining which items to test. 

 
8. Did the taxpayer obtain a Manufacturers' Partial Exemption Certificate from the California Board of Equalization (BOE)?

Note: Only a new business (as defined by the BOE) can qualify for the sales or use tax exemption. The certificate can only be used for three years.

 
9. Did the taxpayer claim the Manufacturers' Partial Exemption on the same item of property claimed for the MIC? If yes, the taxpayer cannot claim the MIC on that item of property.

Note: The election whether to claim the partial sales or use tax exemption is made on each item of property. (To obtain information from the BOE database, you may contact any FTB designee.)