Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-78

1975-1 C.B. 8

Sec. 48

IRS Headnote

Investment credit; factory air handling and safety equipment. Air handling or safety equipment units that service a building as a whole relate to the operation and maintenance of the building and are structural components that do not qualify as section 38 property for investment credit purposes; but when necessary to, and used directly with, a single machine or a specific process such as paint spraying or welding they are tangible personal property that qualifies.

Full Text

Rev. Rul. 75-78

Advice has been requested whether, under the circumstances described below, certain air handling and safety equipment qualifies as "section 38 property" for investment credit purposes.

The taxpayer, engaged in manufacturing, owns buildings containing air handling equipment units that are mechanical devices such as blowers, blower housings, dust collectors, exhaust equipment, and air-washers used to remove fumes, smoke, dust, and heat. In addition, air make-up units are used to replace air and heat. These facilities are generally part of the factory-wide fresh air system or, to a lesser degree, are associated with the fresh air supply to individual machines or processes such as paint spraying or welding.

The buildings also contain safety equipment consisting of such items as fire curtains, detection equipment, and explosion hatches that are attached to the buildings.

All of the air handling and safety equipment is depreciable property having a useful life of three years or more.

Section 38 of the Internal Revenue Code of 1954 allows a credit against Federal income tax for qualified investment in "section 38 property." The determination of what qualifies as "section 38 property" is made in accordance with the rules provided in section 48.

Section 48(a)(1) of the Code provides, in pertinent part, that the term "section 38 property" means tangible personal property or other tangible property (not including a building and its structural components) but only if such other property is used as an integral part of certain specified activities, including manufacturing.

Section 1.48-1(c) of the Income Tax Regulations provides, in pertinent part, that "tangible personal property" means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of such buildings or structures). Tangible personal property includes all property (other than structural components) that is contained in or attached to a building such as, for example, production machinery.

Section 1.48-1(e)(2) of the regulations, in part, defines the term "structural components" to mean such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent coverings therefor such as panelling or tiling; windows and doors; all components (whether in, on, or adjacent to the building) of a central air conditioning or heating system, including motors, compressors, pipes, and ducts; and other components relating to the operation or maintenance of a building.

The air handling and safety equipment in the instant case can be segregated into two categories: one category that serves the factory as a whole, and the other category that exclusively serves an individual machine or specific process such as paint spraying or welding.

The air handling equipment and the safety equipment that service the building as a whole relate to the operation and maintenance of the building and, therefore, are "structural components" of the building within the meaning of section 1.48-1(e)(2) of the regulations. Accordingly, such equipment does not qualify as "section 38 property" for investment credit purposes.

However, the air handling and safety equipment utilized by the taxpayer that is necessary to and used directly with a single machine or process such as paint spraying or welding or which protects a particular area against a hazard created by a single machine or process is tangible personal property within the meaning of section 1.48-1(c) of the regulations. Such equipment qualifies as "section 38 property" for investment credit purposes.