Instructions For Form Ftb 3535 - Manufacturers' Investment Credit (Page 3 of 6) in pdf

fabricating, or recycling activity has altered

The cost basis of the qualified property for

Do not enter the Principal Business Activity

tangible personal property to its completed

depreciation purposes is not reduced by the

Code Number from your state or federal tax

form, including packaging, if required.

amount of the credit.

return. These are NAICS codes and they are

not the same as SIC codes. See General

Processing — Physical application of

Members of a Unitary or Combined Group.

Information D, Qualified Taxpayer.

materials and labor needed to change the

This credit cannot be allocated or otherwise

characteristics of property.

transferred to another taxpayer, even if the

Specific Line Instructions

other taxpayer is a member of a unitary or

Recycling — Process of modifying, changing

combined group or otherwise affiliated with

or altering the physical properties of

Part I — Credit Computation

the taxpayer that earned the credit. For

manufacturing, processing, refining or

example, a subsidiary corporation that

fabricating secondary or postconsumer waste

Line 1, Column (b) — Primary use code.

generates a manufacturers’ investment credit

which results in the reduction, avoidance or

Enter the letter from those listed that

cannot allocate the credit to the parent

elimination of the generation of waste.

represents the primary activity (used over

corporation.

50% or more of the time) in which the

Refining — Conversion of a natural resource

J Credit Carryover and Limitation

property was used. The codes are listed

to an intermediate or finished product.

under Part I on the form. See General

Research and Development — Those

Any part of the credit exceeding the tax

Information H, Definitions.

activities described in IRC Section 174.

liability in the taxable or income year may

Line 1, Column (c) — Enter the 4-digit

generally be carried over for a maximum of

Small Business — Any taxpayer that as of

SIC code for the primary activity in which the

8 years. However, if the qualified taxpayer

the last day of the taxable or income year in

property was used. The property’s SIC code

meets the definition of a small business as of

which the credit is allowed, has either:

activity is not necessarily the same as the

•

the last day of the taxable or income year in

Gross receipts of less than $50 million;

Qualified Taxpayer’s SIC code activity. See

•

which year the credit is first allowed, then the

Net assets of less than $50 million;

the list of SIC codes on page 5 and page 6.

•

credit may be carried over for 10 years. In no

A total manufacturers’ investment credit of

event can the credit be carried back and

Line 1, Column (d) — Enter ‘‘N’’ if the

less than $1 million; or

•

applied against a prior year’s tax.

property was not leased. If the property was

Engaged in biopharmaceutical activities or

leased enter ‘‘Y’’ and see General Information

other biotechnology activities (SIC Codes

K Credit Recapture

G, Special Rules for Leased Property.

2833 through 2836) and has not received

If within 1 year from the date the property is

regulatory approval for any product from

NOTE: If you are the lessor of the qualified

first placed in service in California, the

the United States Food and Drug

property, you do not qualify for this credit.

qualified property for which the manufacturers’

Administration (for taxable or income years

Line 1, Column (f) — Enter the amount of

investment credit was allowed is:

beginning on or after January 1, 1997).

California sales or use tax paid. In general,

•

Removed from California;

The determination of whether a taxpayer is a

the California sales or use tax must be paid

•

Used primarily for a nonqualifying purpose;

small business shall be made on a separate

(directly or indirectly) on the qualified costs

•

Disposed of to an unrelated party; or

entity basis, and, in the case of any taxpayer

(except for costs paid or incurred on certain

•

Acquired by a lessee (or acquired by a

engaged in multiple lines of business or that

direct capitalized labor). See General

party related to the lessee) that is being

has multiple establishments, shall be made by

Information F, Qualified Costs.

leased by such lessee;

aggregating all of the taxpayer’s business

Line 1, Column (g) — For leased property,

activities.

then the credit must be recaptured. The credit

the lessee must enter the lessor’s original cost

is recaptured by adding the amount of credit

Limitations and Special Rules

less any California sales or use tax paid by

previously claimed to the qualified taxpayer’s

the lessor. Note: ‘‘Pay-as-you-go’’ leases do

The manufacturers’ investment credit is

tax liability for the taxable or income year in

not qualify for the manufacturers’ investment

not refundable.

which the recapture event occurs. Any

credit because the lessor has not paid

manufacturers’ investment credit carryover

The credit will not be allowed for any property

California sales or use tax on the lessor’s

should first be reduced to the full extent

for which a whole or partial sales or use tax

acquisition of the property. See General

before adding any recaptured credit to the

exemption or refund has been claimed.

Information G, Special Rules for Leased

current year tax liability. Any recapture

Property.

S corporations may claim only 1/3 of the

amount remaining after the reduction of the

credit against the 1.5% entity-level tax (3.5%

Line 1, Column (h) — Enter the total amount

carryover should be added to tax.

for financial S corporations). In addition,

of direct capitalized labor costs associated

Example: In May 1998, within one year of

S corporations can pass through 100% of the

with the qualified property. Qualified

placing qualified property in service in

credit to their shareholders.

capitalized labor costs are all direct costs of

California, K disposes of qualified property for

This credit can reduce regular tax below

labor (as defined in IRC Section 263A and

which a $150 manufacturers’ investment credit

tentative minimum tax (TMT). However, it

regulations thereunder) that can be clearly

was previously allowed. K is required to

cannot reduce the alternative minimum tax

identified or associated with the construction,

recapture the entire $150 manufacturers’

(corporations, exempt organizations,

modification or installation of qualified

investment credit. Assume K had $100 in

individuals and fiduciaries).

property. Indirect labor costs (such as training

available manufacturers’ investment credit

costs, officers’ compensation, pension costs

This credit cannot reduce the minimum

carryovers. K would reduce its available

and employee benefit expenses) that cannot

franchise tax (corporations, limited

manufacturers’ investment credit carryovers to

be identified or directly associated with the

partnerships, limited liability partnerships,

zero and would then increase its tax for 1998

construction, modification or installation of

LLCs and S corporations), the built-in gains

by $50 ($150 recapture amount less $100

specific items of qualified property cannot be

tax (S corporations) or the excess net passive

used to reduce available manufacturers’

claimed.

income tax (S corporations).

investment credit carryovers).

Line 1, Column ( j ) — Only costs that are

Taxpayers operating a business establishment

properly chargeable to a taxpayer’s capital

Specific Instructions

in a Local Agency Military Base Recovery

account may be claimed as qualified costs;

Area (LAMBRA) or the Targeted Tax Area

therefore, appropriate adjustments should be

Qualified Taxpayer’s SIC Code Activity —

(TTA), cannot claim the LAMBRA or the TTA

made to the qualified cost of the property for

Enter the SIC code of the establishment that

sales or use tax credit and the manufacturers’

purposes of the manufacturers’ investment

investment credit for the same property. For

qualifies you to take this credit. If your

more information about LAMBRAs, get

enterprise has more than one establishment,

credit. Enter the total of accelerated

FTB 3807, Local Agency Military Base

and if more than one of the establishments

deductions such as the IRC Section 179

Recovery Area Business Booklet. For more

qualifies you to take this credit, enter the SIC

deduction and the business expense

information about the TTA, get FTB 3809,

code that best represents the primary

deduction allowed for enterprise zones, the

Targeted Tax Area Business Booklet.

qualifying establishment.

Los Angeles Revitalization Zone (LARZ),

FTB 3535 Instructions 1998

Page 3

Instructions For Form Ftb 3535 - Manufacturers' Investment Credit Page 3

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