Rev. Rul. 68-345

Advice has been requested whether a taxpayer's canopies installed over the pump islands of his gasoline stations are `section 38 property' for investment credit purposes.

The taxpayer owns and operates several gasoline stations in its business of selling gasoline and related products at retail. Modular free standing canopies are installed over the pump islands at many of these gasoline stations. These cannopies, fastened together at matching edges of adjacent canopies, were installed and placed in service at the taxpayer's gasoline stations after December 31, 1961. The installed canopies had a useful life of four years or more when placed in service by the taxpayer. None of the canopies were attached to buildings. A single modular canopy measures 24 feet by 24 feet and consists of substantial supporting beams and trusses, covered with aluminum panels. For erection, the base plate, attached to the bottom of a 10-inch diameter supporting pipe column, is bolted to a concrete footing the top of which is 2 feet below the top of the pump island. The concrete for the pump island and driveway are then poured. If it is necessary to remove the canopy from a gasoline station site, the canopy can be removed by cutting the 10-inch diameter pipe column at the top of the pump island.

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 property qualifies as `section 38 property' is made in accordance with the rules provided in section 48 of the Code.

Section 48(a)(1) of the Code provides, in 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 the other tangible property is used as an integral part of manufacturing, production, or extraction, or furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, or constitutes a research or storage facility used in connection with any of the foregoing activities. To qualify as `section 38 property,' the property must also be property with respect to which depreciation is allowable and must have a useful life of four years or more.

Section 1.48-1(c) of the Income Tax Regulations provides, in part, that the term `tangible personal property' means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures including their structural components. It further provides that local law shall not be controlling for purposes of determining whether property is `tangible' or `personal.'

Section 1.48-1(d)(1) of the regulations provides, in general, that in addition to tangible personal property, any other tangible property (but not including a building and its structural components) used as an integral part of manufacturing, production, or extraction, or as an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services by a person engaged in the trade or business of furnishing any such services, or that constitutes a research or storage facility used in connection with any of the foregoing activities, may qualify as `section 38 property.'

Section 1.48-1(d)(4) of the regulations, in part, defines property used as an `integral part' of one of the specified activities as property used directly in the activity and essential to the completeness of the activity.

The fact that the assembled canopy may be detached from the ground and removed by cutting its single support from its anchorage without disassembling the canopy does not affect its function while erected. These canopies are `inherently permanent structures' within the meaning of section 1.48-1(c) of the regulations but are `other tangible property' that may qualify as `section 38 property' if used by the taxpayer as an integral part of its business in one of the qualifying activities specified in section 1.48-1(d)(1) of the regulations. However, the retail selling of gasoline and related products is not one of the specified qualifying activities.

Accordingly, the installed canopies of the taxpayer do not qualify as `section 38 property' for investment credit purposes.