Idaho State Tax Commission, Docket No. 1-854-194-688

Petitioner, an Idaho S corporation manufacturing modular and commercial buildings, claimed an Idaho research credit for tax years 2018 through 2020 based on engineering and testing work performed while customizing building designs to individual customer orders, including wiring layouts, fire suppression systems, and HVAC configurations.

Fitment Testing Was Not Investigative

The Tax Commission, applying the reasoning of Mayrath v. Commissioner, 41 T.C. 582 (1964), found that the 'fitment testing' Petitioner performed after each building's systems were installed — confirming that wiring, fire suppression, and HVAC components fit and functioned correctly within the finished structure — was not investigative in nature. Rather than testing a genuine hypothesis about an uncertain design outcome, the testing served only to confirm that already-known, standard components had been correctly installed according to specification.

Adaptation to Customer Specifications

The Commission further found that Petitioner's building projects, taken as a whole, involved adapting an existing, previously developed modular building design and manufacturing process to the specifications of individual customer orders, which falls within the adaptation exclusion of IRC section 41(d)(4)(D) rather than qualifying as the discovery of new technological information.

The Notice of Deficiency Determination dated December 6, 2022 was affirmed in full. Because Petitioner was a flow-through entity, the additional tax liability passed through to its shareholders rather than being assessed directly against Petitioner.

Significance: This decision became a foundational precedent within the Idaho Tax Commission's own body of research credit decisions, cited as controlling authority in at least three later, closely related protests involving affiliated or successor entities that raised no independent factual or legal arguments of their own.