Idaho State Tax Commission, Docket No. 2-134-845-440

Petitioner, an Idaho custom cabinetry manufacturer, claimed an Idaho research credit for tax years 2015 through 2018 based on design and engineering work performed for individual cabinetry orders. The Audit Division's Bureau sampled 25 of Petitioner's claimed projects for detailed review.

Adaptation of an Existing Model to Customer Specifications

Across the sampled projects, the Tax Commission found a consistent pattern: Petitioner applied its existing, previously developed cabinetry model and manufacturing process to the dimensions, materials, and finish preferences of each customer's order. The Commission held this fell within the adaptation exclusion under IRC section 41(d)(4)(D), since no sampled project required developing a new cabinetry design approach or resolving a genuine technological uncertainty.

The Commission further found no documentation across the sampled projects of any hypothesis being formed and tested, or of alternative designs being evaluated through a systematic process — the design work instead reflected the routine application of established cabinetry-making techniques and business judgment to customer specifications.

Because Petitioner was a flow-through entity, the Commission's denial of the credit resulted in no additional tax assessed directly against Petitioner; the adjustment instead passed through to its shareholders.

Significance: Among the oldest of the Idaho decisions reviewed, spanning tax years 2015–2018, the case reflects the same adaptation-exclusion analysis applied consistently in later Idaho decisions, confirming this has been the Tax Commission's settled approach to custom-order manufacturing claims across multiple years.