59 T.C. 122">*122 The Commissioner determined a deficiency of $ 5,591.49 in petitioners' income tax for the calendar year 1966. The sole issue remaining for decision is whether certain structures, commonly known as greenhouses, were "buildings" within the meaning of section 48(a)(1)(B), 59 T.C. 122">*123 I.R.C. 1954, with the consequence that petitioner Arne Thirup's investment in such structures was ineligible for the so-called investment credit provided by section 38 of the Code.

FINDINGS OF FACT

The parties have filed a stipulation of facts which, together with accompanying exhibits, is incorporated herein by this reference.

Petitioners are husband and wife. They timely filed a joint Federal income tax return for 1966 and on September 15, 1967, they filed an amended joint return for 1966, both with the district director of internal revenue at San Francisco, Calif. At the time their petition herein was filed petitioners resided in Watsonville, Calif.

Arne Thirup (petitioner) was engaged in the business of growing and selling cut flowers, primarily roses and carnations. 1972 U.S. Tax Ct. LEXIS 40">*42 During 1966 his flower business was carried on through a sole proprietorship known as Pajaro Valley Greenhouses ("Pajaro Valley" or the "proprietorship"), although the proprietorship has subsequently been incorporated. The flowers grown by Pajaro Valley were sold on the wholesale market throughout the United States; about 95 percent of its flowers were sold outside California. Pajaro Valley sold flowers throughout the year, but its peak market periods came at certain holidays such as Valentine's Day, Easter, Mother's Day, and Christmas.

Petitioner's roses and carnations were grown in structures commonly known as greenhouses. Such structures were situated outside Watsonville, Calif., and constituted an integral part of petitioner's flower growing enterprise. Petitioner's greenhouses might have been used to grow other flowers or varieties of vegetation, but they were not economically adaptable to any other purposes. In 1966 Pajaro Valley constructed one greenhouse (the "principal greenhouse") and made improvements on some smaller but otherwise similar structures. A building inspector told petitioner that no permit was required to erect the principal greenhouse, and therefore 1972 U.S. Tax Ct. LEXIS 40">*43 no such permit was obtained. Petitioner's aggregate investment in greenhouses in 1966 amounted to $ 79,841.39, and the sole issue herein is whether he was entitled to the credit against his income tax provided by section 38, I.R.C. 1954, in respect of such expenditures. The resolution of this issue depends upon whether the greenhouses were "buildings."

The principal greenhouse was a completely enclosed rectangularly based structure, 400 feet long and 200 feet wide. The space within was divided into five parallel bays, each extending the length of the entire greenhouse and 40 feet in width. Over each bay was an A-frame roof, approximately 16 feet high at its peak. The rafters of the roof were approximately 22 feet long and spaced about 52 inches apart.

59 T.C. 122">*124 The walls and roofs of the principal greenhouse were made of corrugated 5-ounce fiber glass. Sheets of this material, approximately 1/8-inch thick, were fastened with specially adapted nails to a wooden frame, which was constructed with 4- by 4-inch vertical members set directly in the ground and 2- by 6-inch or 2- by 8-inch horizontal and inclined beams. The floor of the structure was the bare ground. Panes of flat 1972 U.S. Tax Ct. LEXIS 40">*44 fiber glass set on metal hinges and framed in wood formed rows of windows running along nearly the entire circumference of the greenhouse and also along the peaks of its roof.

Petitioner's total 1966 greenhouse investment of $ 79,841.39 was allocable partly to the cost of the frame of the principal greenhouse ($ 27,317.31) and partly to the cost of fiber glass ($ 52,524.08). Most of the fiber glass expenditures related to the principal greenhouse; a small portion of such expenditures was made to provide more durable roofs and sides for the smaller greenhouses, which had previously been covered with sheeted polyethylene plastic. The fiber glass and frame had useful lives of 8 years or more. ¹

After they were built and put into operation, Pajaro Valley's greenhouses provided a totally artificial environment1972 U.S. Tax Ct. LEXIS 40">*45 that permitted the year-round growing of commercially marketable roses and carnations in a manner which allowed life cycles to be precisely timed to meet peak demand periods. Shielding of the plants from the external environment was essential to this purpose for weeds, wind, rainfall, and extremes in temperature would otherwise have adversely affected the flowers' quality or rendered their times of maturation not susceptible to precise control.

The greenhouses provided the necessary protection from the elements and permitted more sophisticated regulation of growing conditions. The translucent fiber glass walls, windows, and roofs admitted sunlight but, unlike clear glass, diffused it. Diffused light prevented flowers from becoming light-oriented, with the effect that flower stems grew straighter than they would have in direct light. The greenhouses also contained automated temperature control systems. An electrically driven motor in each structure automatically opened the windows in the walls and roof whenever the temperature inside a greenhouse rose above a set level. The flow of air through the open windows also provided ventilation for the flowers. Whenever the internal 1972 U.S. Tax Ct. LEXIS 40">*46 temperature of the greenhouse fell below a determined level, electrically operated valves automatically opened to admit steam heat through a system of elevated and ground-level pipes. The steam for all the greenhouses was generated in a natural gas-powered boiler located 59 T.C. 122">*125 in a separate building. The temperature inside the principal greenhouse was thus kept at about 70 degrees Fahrenheit during the day and 62 degrees at night.

Other pipes in the structures carried water, liquid fertilizer, and carbon dioxide for irrigation and fertilization of the flowers. The carbon dioxide was generated in a tank located in each greenhouse and was released into the atmosphere of each structure continuously during the daylight hours, except while the windows were open. The carbon dioxide so released was retained within the greenhouses and received by the plants in amounts more concentrated than they would have received outdoors, but still far below the level at which it would become harmful to the men who worked inside.

The principal greenhouse was used primarily to nurse roses, while the smaller greenhouses to which petitioner made improvements in 1966 were principally used to grow carnations. 1972 U.S. Tax Ct. LEXIS 40">*47 The production cycle at Pajaro Valley began with the preparation of an area within a structure for the planting of flowers. Because the natural topsoil enclosed by the greenhouses was quite "heavy," it was necessary to amend it with an additive such as sawdust. Petitioner's employees brought sawdust into the structures with either a tractor or wheelbarrow, spread it in a 2-inch layer over the original soil and then "rotor-tilled" the ground to a depth of 8 to 12 inches in order to create a uniform compound. The rotor-tilling was done with either a manually operated tool or a specially designed tractor. Granular fertilizer was also applied prior to planting by means of a hinge spreader pushed along by a worker.

In order to exterminate harmful or otherwise bothersome forms of growth indigenous to the soil, it was also necessary to sterilize it. This was accomplished by spreading a large vinyl cover over a section of earth and releasing steam beneath it. The steam was introduced into the greenhouses through aluminum pipes which were laid especially for this purpose and removed at the completion of the sterilization process. The steam was retained under the vinyl cover by placing1972 U.S. Tax Ct. LEXIS 40">*48 heavy chains along its edges.

After the soil was properly treated, petitioner's employees set the rosebushes and carnation plants directly in the ground. In 1966 Pajaro Valley did not raise any flowers from seed; rather, it purchased young plants for development. Prior to their planting in the greenhouse soil, carnation sprigs were nurtured for a period of time in slightly elevated "propagating areas" located in some of the smaller greenhouses. They were transplanted to the greenhouse floors after developing roots. Once permanently planted, carnation plants lived for 18 to 30 months. Rosebushes, which required no prior propagation, had a life span of 4 to 6 years.

59 T.C. 122">*126 The growing plants required a considerable amount of care. Temperature, ventilation, and the application of water and liquid fertilizer were controlled by self-operating facilities, as described above, while other plant needs were attended to by Pajaro Valley's employees. Pathways between the flowerbeds and along the greenhouse walls provided access to the plants and working space for the employees, and wooden tables, boxes, and benches in these aisles furnished space for tools and means of reaching the 1972 U.S. Tax Ct. LEXIS 40">*49 tops of tall plants. Once or twice per year the men adjusted the height of wire and string grids that supported the plants as they grew. They occasionally sprayed the growing area with chemicals to eliminate insects, fungi, and diseases afflicting the plants, and they removed by hand the few weeds that took root within the greenhouses. The employees also pruned the rosebushes, generally during the summer, and they pinched off the tops of rosebush shoots to induce blooming at desired times. Under controlled conditions pinching would produce a flower in a determinate number of days, and Pajaro Valley was thus able to accommodate its supply of marketable roses to anticipated demand. The pinching process was used on rosebushes, but not on carnation plants.

Pajaro Valley's employees harvested carnations once a day and roses twice a day, beginning at 7 a.m. The cutting of carnations continued for 2 to 5 hours, and roses were harvested until about 11 a.m. and then again from 2 p.m. to 4 p.m. The workers moved along the greenhouse aisles, cut the flowers, and placed them in boxes which had been set in the structure's windows. Men outside then carried the boxes to a truck which transported1972 U.S. Tax Ct. LEXIS 40">*50 them to a refrigeration room, located in a separate building, for further processing. Pajaro Valley shipped flowers for sale on a daily basis.

Pajaro Valley had 20 to 25 employees in 1966. During the years the greenhouses were in use, at least half this number of persons spent most of each workday in the greenhouses, where they harvested or performed such other work as preparing the soil, planting, and caring for the growing plants, as described above. The greenhouse personnel sometimes enjoyed lunches and work breaks inside the structures, and utilized the tables and benches therein for these purposes. The remainder of Pajaro Valley's employees were primarily assigned to other phases of the business' operations. As their relative workloads varied with the time of year, some of the greenhouse workers often found tasks to occupy them outside the greenhouses, and some of the other employees, in turn, frequently worked inside the greenhouses. Thus, approximately half of the aggregate working time of Pajaro Valley's employees was spent in the greenhouses. The record does not disclose how this time was allocated between petitioner's various greenhouses. 59 T.C. 122">*127 However, at least1972 U.S. Tax Ct. LEXIS 40">*51 one supervisor was present in each structure almost the entire workday to oversee the harvesting.

On their original and amended Federal income tax returns for 1966 the Thirups claimed an investment credit of $ 4,755.41 against tax liabilities in excess of such amount. Of the claimed credit, $ 4,363.34 was allocable to petitioner's aggregate 1966 greenhouse investment of $ 79,841.39. In his notice of deficiency to the Thirups the Commissioner disallowed the $ 4,363.34, based upon his determination "that the greenhouses you constructed in 1966 are buildings within the meaning of section 48 of the Internal Revenue Code and are not eligible for the investment credit provided for by section 38 of the Internal Revenue Code."

OPINION

At issue is whether expenditures for greenhouses were eligible for the investment credit under section 38 of the 1954 Code. The answer depends upon whether Pajaro Valley's greenhouses qualified as "section 38 property," a term that is defined by section 48(a)(1). ² The greenhouses qualified under that section only if they were not "buildings" within the meaning of section 48(a)(1)(B). In Sunnyside Nurseries, 59 T.C. 113">59 T.C. 113, 1972 U.S. Tax Ct. LEXIS 40">*52 decided this day, we found certain other greenhouses to be "buildings." We think that Pajaro Valley's greenhouses sufficiently resembled those in Sunnyside to be treated consistently for investment credit purposes, and therefore follow Sunnyside and hold that the structures involved herein were also "buildings."

1972 U.S. Tax Ct. LEXIS 40">*53 Most of our discussion in the Sunnyside case is equally pertinent here, and we will not repeat it. To be sure, Pajaro Valley's greenhouses were less substantial in structure than those in Sunnyside, having wood frames, fiber glass roofs and walls, and floors consisting only of the bare ground enclosed by each structure. The greenhouses in Sunnyside had steel and aluminum frames, roofs and walls of clear glass, and concrete floors and foundations. Moreover, Pajaro Valley's employees planted rosebushes and carnation sprigs directly in the greenhouse floors, whereas Sunnyside generally grew its plants in pots set 59 T.C. 122">*128 upon tables in the greenhouses. Nevertheless, the overall structure of Pajaro Valley's greenhouses was quite similar to that of Sunnyside's facilities, and they looked as much like "buildings," as that term is commonly understood, as the Sunnyside greenhouses. The structures in both cases also served identical purposes -- to construct environments conducive to controlled plant growth and to provide working space for employees and machines. Pajaro Valley's contingent of greenhouse workers was smaller in number than Sunnyside's, and the work performed1972 U.S. Tax Ct. LEXIS 40">*54 by each group of employees differed in some respects, but in both cases a substantial number of persons were constantly occupied inside the greenhouses for at least 5 full workdays each week.

Having held that the greenhouses in Sunnyside were "buildings" within the meaning of section 48(a) (1) (B), we find no reason to regard the structures involved herein any differently. Pajaro Valley's greenhouses consequently did not qualify as "section 38 property," and petitioner Thirup's claimed investment credit in respect of such structures was therefore properly disallowed.

Decision will be entered under Rule 50.