Court case · 1974
The Kramertown Co., Inc. v. Commissioner
T.C. Memo. 1972-239, aff'd, 488 F.2d 728 (5th Cir. 1974)
U.S. Tax Court, aff'd 5th Cir.
IRS won
Audio summary
A short audio walkthrough of this case: what happened, what the court decided, and why it matters for your study.
The facts
Kramertown owned a seven-store shopping center. It installed eleven rooftop heating and air conditioning units that served six of the tenant stores and claimed the investment tax credit on them, arguing they were personal property because they could be mechanically detached.
What the court decided
The taxpayer lost. The rooftop heating and A/C units were structural components under Treas. Reg. 1.48-1(e)(2). Removability alone does not make property personal. Weight, location, and capacity all pointed to structural status. The 5th Circuit affirmed.
Why it matters for your study: Kramertown is the leading pre-Whiteco authority that building-serving HVAC is structural even when technically removable. It draws the contrast with pro-taxpayer HVAC cases where equipment served a process, not the building.
Parts the case looked at
- rooftop central heating units (Section 1250)
- rooftop air-conditioning units serving center tenants (Section 1250)
IRS acquiescence: Cited by the IRS as supporting authority in the Action on Decision resisting Piggly Wiggly.
Where this comes from
Kramertown owned a seven-store shopping center in the early 1970s. It installed eleven rooftop HVAC units to serve six of the tenant spaces. The company claimed the investment tax credit on those units, arguing they were personal property. Its main argument was that the units could be mechanically detached and moved off the roof.
The IRS disagreed. The case went to the Tax Court, then to the 5th Circuit Court of Appeals.
What the courts decided
Both courts ruled against Kramertown. The HVAC units were structural components under Treas. Reg. 1.48-1(e)(2). Removability alone does not make property personal.
The courts looked at more than just the ability to detach the units. They considered weight, location, and capacity. These were large, permanent-seeming units sitting on the roof, sized and positioned to condition the building spaces for occupants. Their job was to make the building livable and rentable. That is a structural function.
The IRS later cited this case when resisting the pro-taxpayer result in Piggly Wiggly, where HVAC units had been held personal property because they served refrigerated display cases, not the building itself. Kramertown was the IRS's answer: when HVAC serves the building, it is structural.
How it shows up in a study
Kramertown is cited to mark a limit. When a study does not reclassify general building HVAC, this case is part of the reason. Conditioned space for occupants is a building function. General comfort heating and cooling serves the building, not a process.
The contrast with Piggly Wiggly is important. Piggly Wiggly involved HVAC that served refrigeration equipment, a production-type function. Kramertown involved HVAC that served tenant occupants, a building function. Knowing the difference is how a study stays defensible.
What it does not mean
Kramertown does not say all HVAC is structural. Cases like Deseret Management and Piggly Wiggly show that equipment-serving HVAC, systems whose sole justification is to serve a production process or specific equipment, can qualify as personal property.
The case is also pre-Whiteco. Whiteco (1975) added the six-factor permanence test, which is now the primary framework for evaluating HVAC and other items. Kramertown remains cited for its clear statement about building-serving HVAC, but the Whiteco factors are the modern analytical tool.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Asset classification
- Outcome
- IRS won
- Applies to
- Retail
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.