HAR § 18-235-110.7-05 — New section 38 property

For calendar year 1988 (and fiscal year taxpayer acquisitions occurring during the period beginning January 1, 1988, to December 31, 1988), and for calendar years beginning after December 31, 1988 (and fiscal year taxpayer acquisitions occurring after December 31, 1988). Property qualifies as new section 38 property if one of the following conditions is met: (1) Section 38 property, the original use of which commences with the taxpayer after December 31, 1987, and commences after the date the taxpayer acquires it. (A) “Original use”, defined. Original use means the first use to which the property is put, whether or not it is the taxpayer’s first use of the property. (B) Examples. Subparagraph (A) is illustrated as follows: Example 1. A taxpayer purchases a reconditioned or rebuilt machine. In this case, the property would not qualify as new section 38 property because the taxpayer would not be treated as the first user of the property; however, the property may qualify as used section 38 property (as discussed in section 18-235-110.7-06). Example 2. A florist purchases antique bread racks to serve as display cases for the plants in the shop. The florist will not be treated as the original user of the racks. The fact that the racks serve a new purpose does not change their used property status. (2) Section 38 property which is: (A) Sold and leased back by the same taxpayer within three months of the date the property was originally placed in service by the taxpayer; or (B) Leased to the same taxpayer within three months of the date the property was originally placed in service by that taxpayer. (C) Example. Subparagraph (B) is illustrated as follows: Taxpayer A (“A”) buys property from a manufacturer, takes delivery of the property, and places it in service before A has its financing in place. Shortly thereafter, A sells it (or assigns the purchase order) to Taxpayer B, who then leases it to A. (3) Section 38 property, the construction, reconstruction, or erection of which is placed in service by the taxpayer after December 31, 1987, but only with respect to that portion of the basis as is discussed in section 18-235-110.7-11(c). (A) It is not necessary that the materials entering into the construction, reconstruction, or erection be new in use. (B) Construction, reconstruction, or erection begins when physical work is started on the construction, reconstruction, or erection. (C) See section 18-235-110.7-11(c) for a discussion of the basis of new section 38 property which has been constructed, reconstructed, or erected.