Rev. Rul. 79-406

ISSUE

Is the described car wash structure a building for investment tax credit purposes?

FACTS

A taxpayer constructed a car wash structure where users can wash their own cars. The structure was built of cinder blocks on a cement foundation. It contains four stalls that are open on each end. The structure is covered by a roof and the partitions between each stall extend to within about 8 inches of the roof. The floors are constructed with a 3 inch drop from all sides towards a center drain. The water from the car wash operation drains into concrete holding pits beneath the floor of each stall. The pits are approximately 3 feet deep and covered by metal grates approximately 2 feet by 8 feet.

People using the structure drive their cars into stalls and wash and wax them by use of coin-operated, handheld high pressure hoses.

In the center of the car wash structure is an equipment room housing all necessary motors, pumps, and heating apparatus. This room is eight feet wide by 26 feet long. The area surrounding the car wash is paved and curbed.

The car wash structure is depreciable and has a useful life in excess of three years.

LAW AND ANALYSIS

Section 48(a)(1) of the Internal Revenue Code provides that, "section 38 property" means tangible personal property (other than an air conditioning or heating unit), or other tangible property (not including a building and its structural components) but only if such other tangible property is used as an integral part of certain specific activities including manufacturing or production or of furnishing transportation. To qualify as section 38 property, the property must also be subject to depreciation and have a useful life of 3 years or more.

Section 1.48-1(e)(1) of the Income Tax Regulations provides that, buildings and structural components thereof do not qualify as section 38 property. The term "building" generally means any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. The term includes, for example, structures such as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, and stores. Such term does not include (i) a structure that is essentially an item of machinery or equipment, or (ii) a structure that houses property used as an integral part of an activity specified in section 48(a)(1) of the Code if the use of the structure is so closely related to the use of such property that the structure clearly can be expected to be replaced when the property it initially houses is replaced.

Notwithstanding the fact that the structure in the instant case has certain design features necessitated by the car wash business activity of the taxpayer, it is a structure that provides the ordinary functions of a building since it encloses a space within its walls, is covered by a roof, and provides working space. It is not an item of machinery or equipment. In addition, it is not a structure that houses property used as an integral part of an activity specified in section 48(a)(1) of the Code. Further, even if the car wash property housed in the structure were used as an integral part of an activity specified in section 48(a)(1), the car wash structure is not so closely related to such property that it would be expected to be replaced when the initially housed property is replaced.

HOLDING

The described car wash structure is a "building" as the term is defined in section 1.48-1(e)(1) of the regulations and, therefore, it is not "section 38 property" for investment tax credit purposes.