Opinion Letter

Letter Number:O-2001-022
Tax Type:Corporate Income Tax
Brief Description:Calculation of HPIP investment tax credit.
Keywords:
Approval Date:10/03/2001



Body:
Office of Policy & Research


October 3, 2001



XXXXXX
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Dear XXXXX:

This letter is in regards to our conversation regarding the calculation of the high performance incentive program (HPIP) investment tax credit.

K.S.A. 2000 Supp. 79-32,160a(e) provides, In reading the authorizing statute for the HPIP investment tax credit, the calculation of the credit is tied directly to the definition of qualified business facility investment.

K.S.A. 2000 Supp. 79-32,154(e) provides the definition of qualified business facility investment as,
When computing the investment tax credit for HPIP purposes many factors must be considered:
What is the certification period of the qualified firm?
What is the taxpayer’s tax year?
When is the investment available for use or used by the taxpayer in the operation of the qualified business facility?
CERTIFICATION PERIOD
The certification period is important because only those expenditures made during the certification period will qualify for the credit and then only if those expenditures are capable of being used by the taxpayer or are in use by the taxpayer in the operation of the qualified business facility.

For a qualified business facility in operation for less than an entire taxable year, the computation of the qualified business facility investment shall begin with the first full month in which the investment is first available for use or is being used by the taxpayer, but only if this is during the certification period. If that investment is not available for use during the certification period, there will be no HPIP investment tax credit. In other words, the real and tangible property will not be in the computation of the investment tax credit until it is capable of being used by the taxpayer or is in use by the taxpayer in the operation of the qualified business facility. This property will also be present in the property factor for apportionment purposes.

In the case of an investment in a qualified business facility, which facility existed and was operated by the taxpayer prior to the investment, a taxpayer shall begin the computation of the qualified business facility investment with the first month in the taxpayer’s tax year in which the investment is first available for use or is being used by the taxpayer, but will only include in that computation of qualified business facility investment, the amount of investment as of the last business day of each calendar month during the certification (recertification) period for the taxable year. This investment is then reduced by the average amount of the investment of the taxpayer in the facility for the taxable year preceding the taxable year in which the qualified business facility investment was made at the facility.

TAX YEAR
The time period for computing qualified business facility investment is based on the taxpayer’s taxable year. If the taxpayer is on a calendar tax year then qualified business facility investment shall be computed on a calendar tax year. If the taxpayer is on a fiscal tax year then qualified business facility investment shall be computed on that fiscal tax year.

INVESTMENT AVAILABLE FOR USE
The real and tangible property will not be in the computation of the investment tax credit until it is capable of being used by the taxpayer or is in use by the taxpayer in the operation of the qualified business facility. This property will also be present in the property factor for apportionment purposes. K.A.R. 92-12-85 does not allow construction in progress (CIP) to be included in the property factor.

For purposes of the HPIP investment tax credit, qualified business facility investment shall include investment made during the HPIP certification (recertification) period. Therefore to maximize the benefit of the credit, a business making a large investment should try to establish its certification period to coincide with the timeframe during which expenditures are made and in which the investment is first available for use or is being used by the taxpayer.

In a multi-phase project spanning more than one twelve month period, where a facility is brought on line section by section, the Department does allow expenditures into the calculation of the investment tax credit for each separate section of a facility as that portion of the facility is brought on line or becomes usable by the taxpayer. Kansas does not require the entire project to be complete before claiming the HPIP investment credit as long as the investment consists of property used by the taxpayer in the operation of the business. However, if more than one HPIP investment tax credit is claimed by the taxpayer, the taxpayer must reduce each credit claimed, by the minimum amount of investment of $50,000.

If you should have any questions regarding the calculation of the HPIP investment tax credit, please do not hesitate to contact me at your earliest convenience.

Sincerely,



Kathleen M. Smith
Tax Specialist, Office of Policy and Research


Date Composed: 10/04/2001 Date Modified: 10/10/2001