1988 U.S. Tax Ct. LEXIS 23">*23
Petitioner constructed and placed in service a freezer facility and claimed an investment credit with respect thereto under
90 T.C. 297">*298 OPINION
By notice of deficiency dated December 18, 1985, respondent determined deficiencies in petitioner's Federal income taxes for the calendar years 1976 and 1977 in the amounts of $ 33,074 and $ 65,944, respectively. The deficiencies result from respondent's disallowance of an investment credit that petitioner claimed in 1979 and carried back to 1976 and 1977. Due to concessions by petitioner, 1988 U.S. Tax Ct. LEXIS 23">*24 the only issue presented in this case is whether petitioner is entitled to an investment credit under
The parties submitted this case fully stipulated pursuant to Rule 122. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioner Hub City Foods, Inc., is a corporation organized under the laws of the State of Wisconsin. At the time the petition was filed in this case, petitioner's principal office was located in Marshfield, Wisconsin. Petitioner filed its Federal income tax returns for the years in issue with the Office of the Internal Revenue Service in Kansas City, Missouri.
Petitioner is a wholesale distributor of 1988 U.S. Tax Ct. LEXIS 23">*25 grocery items to both full service and convenience grocery stores. Petitioner purchases grocery items from a variety of vendors, stores and inventories the items at its Marshfield distribution center, and then sells the items to retail outlets. In 1979, petitioner's total sales of grocery items amounted to $ 34,214,107.
Petitioner maintains a fleet of trucks for use in its business operations. Petitioner uses these trucks primarily to deliver the grocery items it sells to retailers. Virtually all 90 T.C. 297">*299 of the grocery items sold by petitioner are delivered to retailers in petitioner's trucks, and petitioner bears the risk of loss of the grocery items until they are actually delivered to the retailers. At all times relevant to this proceeding, petitioner's trucking operations were subject to regulation by the U.S. Department of Transportation, the Interstate Commerce Commission, and the Wisconsin Department of Transportation.
In addition to using its trucks to deliver the grocery items it sells to retailers, petitioner also uses them to transport goods owned by third parties between locations designated by those parties. In 1979, petitioner transported an average of one to 1988 U.S. Tax Ct. LEXIS 23">*26 two loads of goods each day for third parties to locations designated by those parties, receiving a total of $ 68,429 for providing such service.
In 1979, petitioner constructed and placed in service a new structure consisting of a freezer facility, a loading dock and corridor, an employees' warmup room, and an electrical controls and storage room. This structure was built alongside and attached to the existing facilities at petitioner's Marshfield distribution center, covers approximately 25,028 square feet, has the appearance of a building, appears to be an inherently permanent structure, and does not have the appearance of equipment.
The freezer facility, which covers 18,860 square feet and cost $ 841,666, was designed to store frozen food products and is capable of maintaining a temperature of minus 18 degrees Fahrenheit. Petitioner's employees work in the freezer facility only to deposit, inventory, and pick up frozen food items, and to perform repairs and maintenance. While in the freezer facility, petitioner's employees wear clothing which provides cold weather protection, including insulated coveralls with hoods, insulated boots, and gloves.
At all times relevant to this1988 U.S. Tax Ct. LEXIS 23">*27 proceeding, none of the goods owned by third parties and transported by petitioner between locations designated by those parties were stored or inventoried in the freezer facility.
On its 1979 Federal income tax return, petitioner claimed an investment credit with respect to the freezer facility, the loading dock and corridor, the employees' warmup room, and the electrical controls and storage room in the aggregate 90 T.C. 297">*300 amount of $ 99,018. Petitioner subsequently carried $ 33,074 of this credit back to 1976 and $ 65,944 of the credit back to 1977. In his notice of deficiency, respondent disallowed the credit, asserting that the property for which the credit was claimed does not constitute "
We must decide whether petitioner is entitled to an investment credit with respect to the freezer facility under
(a) (1) In general. -- * * * the term " (A) tangible personal property * * *, or (B) other tangible property (not including a building and its structural components) but only if such property -- (i) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, or (ii) constitutes a research facility used in connection with any of the activities referred to in clause (i), or (iii) constitutes a facility used in connection with any of the activities referred to in clause (i) for the bulk storage of fungible commodities * * * Such term includes only property with respect to which depreciation (or amortization in lieu of depreciation) is allowable and having a useful life (determined as of the time such property1988 U.S. Tax Ct. LEXIS 23">*29 is placed in service) of 3 years or more.
Petitioner concedes that the freezer facility does not qualify as
Respondent counters by arguing that the freezer facility was not used as an integral part of furnishing transportation within the meaning of
Property is used as an integral part of furnishing transportation within the meaning of
Petitioner contends that it is in the transportation business, arguing that the activity of transporting its own goods to retailers constitutes the trade or business of 90 T.C. 297">*302 furnishing transportation. Petitioner further contends that the freezer facility is used as an integral part of furnishing transportation because, but for the freezer facility, petitioner's frozen food items would spoil and, as a result, petitioner would not be able to engage in the activity of transporting these items to retailers. We reject both of these contentions for the following reasons.
Petitioner's activity of transporting its own goods to retailers is purely incidental to its primary business of providing grocery items to retailers, and a service that is incidental to and only a part of a taxpayer's primary business does not constitute a separate trade or business for purposes of
1988 U.S. Tax Ct. LEXIS 23">*33 We recognize that a very minor portion of petitioner's business consists of transporting goods owned by third parties between locations designated by those parties, and that this activity may constitute a separate trade or business of furnishing transportation within the meaning of
Finally, even if petitioner's activity of transporting its own goods to retailers could be characterized as a transportation business for purposes of
1988 U.S. Tax Ct. LEXIS 23">*35 In our opinion, petitioner's activity of transporting its own goods to retailers does not constitute a transportation business for purposes of
*. By order of the Chief Judge, this case was reassigned to the Chief Judge for opinion and decision.↩
1. Unless otherwise indicated, all sections referred to are sections of the Internal Revenue Code of 1954 as amended and in effect during the years in issue, and all Rules referred to are Rules of the Tax Court Rules of Practice and Procedure.↩
2. Petitioner argues that it must be considered to be in the transportation business because of the Supreme Court's decision in
3. If property is not used in connection with any of the activities specified in
