What Is Qualified Production Property (QPP)?

Qualified Production Property exists to recognize buildings and spaces that directly support production activities. It is not meant to cover every industrial building by default. Instead, QPP focuses on areas where tangible production actually happens.

For manufacturers, this distinction matters. Production spaces are often designed around machinery, workflow, and utilities that don’t exist in typical commercial buildings. QPP is intended to account for that difference by looking at how a space functions in real operations.

How QPP Is Different From General Commercial Property

The difference comes down to use, not appearance. A building can look industrial from the outside and still fail to qualify if large portions of it function like standard office or commercial space.

QPP is about purpose. If a space exists because production requires it, that supports eligibility. If production stopped and the space could continue operating with little change, that space is less likely to qualify.

Core Requirements for QPP Eligibility in Manufacturing

“Integral to production” is the phrase that causes the most uncertainty. In simple terms, it means the space must play a necessary role in producing goods.

Being near production equipment is not enough. The activity in the space must be essential to the manufacturing process itself. If removing that space would disrupt or prevent production, it is more likely to meet this requirement.

Types of Manufacturing Activities That Typically Qualify

Certain activities commonly support QPP eligibility, including:

• Transforming raw materials into finished or semi-finished products
• Fabrication, machining, or assembly
• Processing, mixing, or treating materials
• On-site testing or quality control tied directly to production
  
  

These activities are core to manufacturing. Spaces dedicated to them often qualify because production depends on them.

When Manufacturing Space Does Not Qualify

Some areas inside manufacturing buildings are frequently misunderstood.

Administrative offices, executive suites, HR departments, and sales areas generally do not qualify, even if they are located on the factory floor or within the same structure.

The same applies to break rooms and general employee amenities. Their presence supports the workforce, not the production process itself.

What Areas of a Manufacturing Facility Can Qualify as QPP?

Production Floors and Processing Areas

Production floors are often the most straightforward examples of QPP-qualified space. These areas house equipment, production lines, and workstations where goods are actively produced.

When a space is designed around production equipment, utilities, and workflow, it strongly supports the argument that the space is integral to production.

Specialized Support Areas Tied to Production

Some support spaces qualify because production depends on them. These may include tooling rooms, calibration areas, quality testing labs, clean rooms, or maintenance spaces dedicated to production equipment.

The common thread is purpose. These areas exist because manufacturing requires them, not simply because the business operates.

Warehouses, Storage, and Distribution Areas

Warehouse space is one of the most common sources of confusion. Storage used for convenience or logistics, such as holding finished goods for shipment, usually does not qualify.

However, storage that is closely tied to production can be different. For example, work-in-progress staging or raw material storage needed to keep production running may qualify, depending on how it is used. The more closely storage supports active production, the stronger the case.

Does Your Building’s Ownership or Use Structure Affect QPP?

Owner-Occupied vs. Leased Manufacturing Facilities

Leasing a manufacturing facility does not automatically disqualify it from QPP consideration. What matters is how the space is used and who is performing the production activities.

If a tenant is operating a qualifying manufacturing process, QPP may still apply. Ownership and lease terms influence who benefits, but they do not change the functional analysis.

Single-Tenant vs. Multi-Tenant Manufacturing Buildings

Single-tenant facilities are generally easier to evaluate because use is consistent throughout the building.

Multi-tenant buildings require more detailed analysis. Some areas may qualify while others do not, especially when tenants perform different types of activities or share common spaces.

Does QPP Apply to Renovations or Only New Construction?

Newly Constructed Manufacturing Facilities

New construction often provides the clearest path to QPP eligibility. When a building is designed specifically around production needs, it is easier to demonstrate that the structure supports manufacturing activity.

Renovations, Expansions, and Facility Improvements

QPP is not limited to new builds. Renovations and expansions can qualify when they add production capacity, support new manufacturing processes, or upgrade the infrastructure required for production.

The key is intent. Improvements must serve production, not just appearance or comfort.

Common Renovation Scenarios That Raise Red Flags

Office-heavy renovations, lobby upgrades, and cosmetic improvements typically do not qualify. Changes that improve aesthetics without affecting production capability are often scrutinized.

Common QPP Misconceptions Manufacturers Should Avoid

“If It’s in a Factory, It Must Qualify”

This is one of the most common assumptions, and it often leads to errors. A space does not qualify simply because it sits inside a manufacturing building.

Confusing Storage or Logistics With Production

Shipping, receiving, and finished goods storage are operational necessities, but they are not production activities on their own.

Assuming All Square Footage Is Treated Equally

QPP determinations are rarely all or nothing. Many facilities include a mix of qualifying and non-qualifying areas, each evaluated on its own use.

How Manufacturers Can Assess QPP Eligibility With Confidence

Questions to Ask About Your Facility’s Use

A practical starting point is to look at each area of the facility and ask:

• What activities occur here daily?
• Does this space directly affect production output or quality?
• Would this space exist in the same form if production stopped?

Clear answers to these questions help clarify eligibility.

Why Documentation and Functional Analysis Matter

Floor plans, workflow descriptions, and operational details carry more weight than room names or job titles. Accurate documentation aligns tax treatment with real-world use and helps avoid misclassification.

How QPP Fits Into a Broader Manufacturing Tax Strategy

QPP vs. Other Manufacturing Incentives

QPP often intersects with other manufacturing-related incentives, but it serves a distinct role. Understanding how it fits into the larger picture helps ensure nothing is overlooked or misapplied.

Why Proper Classification Matters Long-Term

Correct classification affects more than one tax year. It influences depreciation, audit risk, and long-term planning. Getting it right upfront protects both opportunity and credibility.

FAQ: Common Questions About QPP for Manufacturing Facilities

What does “integral to production” mean for QPP?

It means the space plays a necessary role in producing goods. If production were disrupted or impossible without it, the space is more likely to qualify.

Does warehouse or support space qualify as QPP?

Sometimes. Storage or support space may qualify if it is closely tied to production, such as work-in-progress staging. General storage typically does not.

Does leasing the building affect QPP eligibility?

Leasing does not automatically affect eligibility. The determining factor is how the space is used and who is performing the production activities.

Does QPP apply to renovations or only new construction?

QPP can apply to renovations and expansions when the improvements directly support or enhance production activities.

Determining Whether Your Manufacturing Facility Qualifies for QPP

QPP eligibility is about function, not labels. Most manufacturing facilities contain a mix of spaces, some tied directly to production and others that support the business in different ways.

Understanding how each area is used, documenting workflows, and asking the right questions can reveal where QPP applies and where it does not. With a clear, functional approach, manufacturers can evaluate eligibility with confidence and avoid costly assumptions.