SECTION 38D. Deduction of expenditures for industrial waste treatment or air pollution control facilities

(a) In determining the net income subject to tax under this chapter a business corporation, at its election, may deduct the expenditures paid or incurred during the taxable year for the construction, reconstruction, erection or improvement of industrial waste treatment facilities or industrial air pollution control facilities. The term ''industrial waste treatment facilities'' and the term ''industrial air pollution control facilities'' shall mean facilities for the treatment, neutralization or stabilization of industrial waste or industrial air pollution from a point immediately preceding the point of such treatment, neutralization or stabilization to the point of disposal, including the necessary pumping and transmitting facilities, but excluding such facilities installed for the primary purpose of salvaging materials which are usable in the manufacturing process or are marketable. The term ''industrial waste'' and the term ''industrial air pollution'' shall mean any liquid, gaseous, solid or waste substance, or a combination thereof, resulting from any process of industry, manufacture, trade or business or from the development or recovery of any natural resources, which may cause or might reasonably be expected to cause pollution of the waters or the atmosphere of the commonwealth.

(b) Such deduction shall be allowed only—

(1) with respect to tangible property which is depreciable pursuant to section one hundred and sixty-seven of the Federal Internal Revenue Code, having a situs in the commonwealth and used in the corporation's trade or business, the construction, reconstruction, erection or improvement of which with respect to industrial waste treatment facilities was initiated on or after January first, nineteen hundred and sixty-six, and only for expenditures paid or incurred prior to January first, nineteen hundred and eighty, and with respect to industrial air pollution control facilities was initiated on or after January first, nineteen hundred and seventy-two, and only for expenditures paid or incurred prior to January first, nineteen hundred and eighty, and

(2) on condition that such facilities with respect to industrial waste treatment facilities have been certified by the director of the division of water pollution control in the department of environmental protection as complying with applicable provisions of the water pollution control law and regulations, permits or orders issued by him pursuant to law, and with respect to industrial air pollution control facilities have been certified by the director of the air pollution control agency in the commonwealth as complying with applicable provisions of the air pollution control law and regulations, permits or orders issued by him pursuant to law, and

(3) on condition that the net income for the taxable year and all succeeding taxable years be computed without any deduction for such expenditures or for depreciation of the property other than the deductions allowed by this section, except to the extent that the cost or other basis of the property may be attributable to factors other than such expenditures, or in the case a deduction is allowable pursuant to this section for only a part of such expenditures, on condition that any deduction allowed under the Federal Internal Revenue Code for such expenditures or for depreciation of the same property be proportionately reduced in computing net income for the taxable year and all succeeding taxable years.

(c) If expenditures with respect to an industrial waste treatment facility or an industrial air pollution treatment facility have been deducted as provided herein and if within ten years from the end of the taxable year in which such deduction was allowed such property or any part thereof is used for the primary purpose of salvaging materials which are usable in the manufacturing process or are marketable, the corporation shall report such change of use in its return for the first taxable year during which it occurs, and the commissioner may recompute the tax for the year or years for which such deduction was allowed and may assess any additional tax resulting from such recomputation within the period of assessment applicable to such return.

If a deduction is allowed as herein provided for expenditures paid or incurred during any taxable year on the basis of a temporary certificate of compliance and if the corporation fails to obtain a permanent certificate of compliance upon completion of the facilities with respect to which such temporary certificate was issued, the corporation shall report such failure in its return for the taxable year during which such facilities are completed, and the commissioner may recompute the tax for the year or years for which such deduction was allowed and may assess any additional tax resulting from such recomputation within the period of assessment applicable to such return.

(d) In any taxable year when property is sold or otherwise disposed of, with respect to which a deduction has been allowed pursuant to this section, such deduction shall be disregarded in computing gain or loss, and the gain or loss on the sale or other disposition of such property shall be the gain or loss resulting if the deduction provided by this section had not been elected and the cost or other basis of the property had been reduced by straight-line depreciation based on the useful life of the property; provided, however, that if such sale or other disposition of such property occurs within three years of the date such property is placed in service the basis shall be zero.

(e) And industrial waste treatment facility or an industrial air pollution treatment facility which qualifies for the deduction provided for by this section shall not be subject to taxation under the tangible property measure of the excise imposed by subclause (i) of clause (1) of subparagraph (a) of the fourth paragraph of section 39.