DES MOINES COLD STORAGE CO. INC. v. Commissioner
| Decision Date | 26 May 1988 |
| Docket Number | Docket No. 26601-83. |
| Parties | Des Moines Cold Storage Co., Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Carlton T. King, 2600 Ruan Center, Des Moines, Iowa, for the petitioner. Mark E. O'Leary, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in petitioner's Federal corporate income taxes:
Year Ended Deficiency
December 31, 1976 ................. $75,7771
December 31, 1979 ................. 92,806
The issue for decision is whether petitioner is entitled to investment tax credits ("ITC") under section 382 with respect to a cold storage and freezing facility placed in service by petitioner in 1979 greater than the amount allowed by respondent.
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioner, an Iowa corporation with its principal place of business in Des Moines, Iowa, filed timely corporate income tax returns on the calendar year basis for 1976 and 1979. During these years, petitioner was in the business of operating cold storage facilities for the receiving, freezing, storing, and shipping of perishable food products. It also performed other services to a smaller degree. During the years in issue, petitioner received various products from its customers and charged a fee based upon the amount of product received and the duration of time the products were in its possession. Products received by petitioner were primarily the excess of what its customers were able to accumulate and process at their own facilities.
Petitioner operated its business at four facilities located at three addresses in the Des Moines, Fort Dodge, and Mason City, Iowa, metropolitan areas. Throughout the years, as petitioner's business grew, it built additional refrigerated warehouses to accommodate the increase in business. On or about April 1, 1979, petitioner placed in service in Des Moines, Iowa, a newly constructed 72,100 square foot cold storage facility ("the East Property"). The East Property consists of the following general areas:
(a) A rectangular freezer area ("the freezer") with approximate dimensions of 280 feet long by 200 feet wide by 25 feet high, or containing approximately 56,762 square feet. Included in the freezer in the southeast corner is a blast freezer area ("the blast freezer") with approximate dimensions of 35 feet by 67 feet, or containing approximately 2,400 square feet, and segregated from the remainder of the freezer by hanging pieces of corrugated steel attached to the ceiling and intertwined to create a separate area. The blast freezer is divided into two halves by a wall. The blast freezer forces extremely cold air having a temperature of minus 15 degrees Fahrenheit over the products at a high velocity. The freezer is normally maintained at a temperature between minus 17 degrees and minus 19 degrees Fahrenheit. Access to the freezer from the truck dock is accomplished by two automatic six feet by ten feet freezer doors. The freezer is constructed of a steel I-beam roof and steel frames. The roof is flat with a one degree vertical to a sixteen-degree horizontal slope. The floor of the freezer is concrete. A vapor barrier on the walls, ceiling, and floor prevents the cold temperatures maintained in the freezer from drawing moisture out of the ground which would eventually destroy the walls or concrete slab.
The walls of the freezer are constructed of steel panels. Each panel consists of a steel shell on the outside which is painted with United States Department of Agriculture ("USDA") approved paint, five inches of polyurathane foamed into the cavity, and, on the inside, another steel shell painted withh USDA approved paint. The panels are 44 inches wide and their length varies from approximately 24 to 27 feet. The panels are sealed together and, where the joints are sealed, are caulked so that moisture or air cannot penetrate. Panels also are placed around the perimeter of the ceiling. The purpose of the panels is to prevent heat and moisture vapor penetration.
Heat is induced under the floor of the freezer to prevent frost penetration of the floor resulting from the extreme temperatures under which the freezer operates. For this purpose, a heat exchanger located in the engine room captures the exhaust heat from the refrigeration equipment. In addition, to prevent the penetration of frost into the ground, the floor contains a glycohol system which circulates glycohol to a heat exchanger which is thermostatically controlled to maintain a warm underfloor temperature. Starting from structural fill, the floor consists of five grids of three-fourth inch PVC pipe on five-foot centers under the entire floor. These grids are buried in two to three inches of grout or concrete to give a warm subslab. On top of this subslab is five inches of noncrushable, high density insulation covered by a six-inch reinforced wearing slab.
Five rows of bins are located in the freezer. Each row contains from 49 to 69 bins capable of storing up to three pallets deep and four pallets high of products within its shelves (i.e., 12 pallets per bin). Three of the principal aisles also are used for storage with pallets placed on the floor.
(b) A 72 feet by 16 feet cooler area ("the cooler"). The cooler has insulated walls and is immediately north of the railroad dock and west of the freezer. A conventional wall separates the cooler from the railroad dock. The cooler can be entered by a refrigerator door from the railroad dock. The cooler also has an eight feet by eight feet overhead door which permits access to the cooler from the railroad spur. The purpose of the cooler is to hold products overnight, if necessary, before they are taken into the freezer.
(c) An enclosed truck dock area ("the truck dock"). The floor of the truck dock is a six-inch slab reinforced with iron and has drains throughout so that it can be washed and scrubbed. The freezer wall forms one wall of the dock and the outside walls are concrete block. The roof is supported by steel bar joists and then steel decking; it has two inches of polystyrene insulation and a loosely laid membrane roof. The truck dock has ten overhead sliding doors, each with approximate dimensions of seven feet by ten feet, on the south side and a conventional door to the outside near the west end. The truck dock is immediately adjacent to the freezer on the south. The truck dock runs nearly the length of the freezer and abuts the inspection room and maintenance shop. On the east end of the truck dock are two conventional doors into the inspection room and a maintenance shop. Also located on the truck dock are a scale and a small office approximately 11 feet by nine feet.
(d) An enclosed railroad dock area ("the railroad dock"). The floor is the same as the truck dock and the walls are concrete block. The ceiling is supported by bar joist steel decking and has two inches of polystyrene insulation; the roof is plastic. The railroad dock is immediately adjacent to the cooler and the railroad spur. The railroad dock and truck dock are open to each other at the southwest corner of the East Property. Both the railroad and truck docks are generally 20 degrees Fahrenheit cooler than outside temperatures in the warmer months and approximately the same temperature as the outside temperature in the cooler months.
(e) A 20 feet by 32 feet inspection room which serves as a place to inspect the products. The inspection room was built to the specifications of a processing room. It has plastic walls that are sealed, drains in the floor, a grid ceiling with washable plastic panels, a stainless steel inspection table, a drop meat wash stand, a stainless steel lavatory for the washing of hands, and a scale. The inspection room is located at the east end of the truck dock and south of the freezer.
(f) A 20 feet by 32 feet maintenance shop which is used mainly to charge the electric fork-lift trucks. It also is used as a tool room for repairing or fixing items at the East Property including the forklift trucks. It has a six-inch concrete floor, concrete block walls, a steel deck ceiling, and a plastic roof. The maintenance shop is located at the east end of the truck dock and south of the freezer.
(g) An engine room housing the equipment and machinery necessary to operate the refrigeration system and all equipment for the facility including the heat exchangers for the underfloor heating system, the electrical service, and the pumping system or monitoring system for the sprinkler controls. The engine room is the area where power enters the building and where backup power in the form of a diesel engine is stored. The engine room has a six-inch reinforced concrete floor and concrete block walls. The ceiling has steel bar joists with steel decking; the roof is plastic. Since maintaining a constant temperature is critical to petitioner's business, an automated control system which continuously monitors the temperature and the various pressures within the refrigeration system is located in the engine room. The engine room is at the southeast corner of the East Property and is adjacent to the maintenance shop.
(h) The main office, restroom, and locker area. This latter area is not in issue in this case.
A railroad spur line (approximately 500 feet long) connects the East Property to a railroad line. The railroad spur is adjacent to the railroad dock and the cooler on the west side of the property and is used for delivery of products that are not brought to the East Property by truck. There also are a paved parking lot on the south side of the property (not at issue in this case) and a paved road which connects to a city street.
Plans for the East Property were prepared for petitioner...
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