Qualified Property

See R&TC §§17053.49(d) or 23649(d) and CCR, tit. 18, §§17053.49-5 or 23649-5.

Is the property being used in California?

Note: Qualified property must be placed in service in California.

Did you verify that the property was placed in service in California on or after 1/1/94?

Note: "placed in service" as defined per CCR §§17053.49-2(i) or 23649-2(i).

Is the property in the California numerator of the Schedule R property factor of the apportionment formula? Tie some assets to the California numerator workpapers to test that the asset is also being reported in the California numerator.

Does the qualified taxpayer legally own the property?

Note: With the exception of property acquired through a lease, qualified property must be owned by the taxpayer claiming the credit. 

Note: Generally, real property defined by IRC §1250 (e.g., structures and structural components) does not qualify for the MIC. However, the statute specifically provides that qualified property includes Special Purpose Buildings and Foundations (real property-type assets) used by certain qualified taxpayers engaged in certain manufacturing activities. For a list of qualified taxpayers that may claim costs for Special Purpose Building and Foundations, see questions #41 - #45 below.

Note: For income years beginning on or after 1/1/98, qualified property also includes computer and computer peripheral equipment (as defined by IRC §168(i)(2)(B)) that is used in an operating establishment classified under SIC codes 7371-7373 to primarily develop or manufacture pre-packaged software.

Note: Generally, other tangible personal property defined by IRC §1245(a)(3)(B) does not qualify for the MIC. However, CCR, tit. 18, §§17053.40-5(f) and 23649-5(f) specifically provide that qualified property includes "other tangible property" used in petroleum refining for the production of "reformulated gasoline" or "oxygenated gasoline." (IRC §1245(a)(3)(B) assets used solely for the production of lube oils, aviation or diesel fuels do not qualify.) This applies to only those taxpayers engaged in a line of business described under SIC code 2911, Petroleum Refining.

Is the property an inherently permanent structure? If so, the property is not treated as tangible personal property defined by IRC §1245(a)(3)(A) and does not qualify for the MIC. See the Whiteco Industries, Inc. v. Comr. (65T.C.664 (1975)) decision for questions that should be addressed to determine whether or not the property is inherently permanent.

Is the property a structural component? If so, the property is not treated as tangible personal property defined by IRC §1245(a)(3)(A) and does not qualify for the MIC.