Depreciation Schedule

August 20, 2010

Q: We are installing a pretty complex digital signage system and our customer is asking us how other corporate clients treat that type of system for tax and depreciation purposes. Is it a sign with a long deprecation schedule, or more like a computer system with a shorter schedule?

A: Many customer purchases are tied to capital improvements or operating budgets. Your method of selling and who you sell to may be different as could the transaction methods. The traditional sign business almost always sells the product as a capital improvement and, in most states, the owner would depreciate that over a 15-20 year lifecycle, whereas a computer and/or the network can be accelerated to depreciate in as low as three years as the lifecycle is shortened by product obsolescence. The test that the auditors would look for is the useful and expected lifecycle of the devices and displays and the argument would need to be made for which category that most closely fits. Charging and collecting sales or usage taxes could also vary depending on the nature of this transaction and the customer type. The customer may request a breakout of materials, labor and programming to allow for an exemption on the non-materials portion. It can be a complicated transaction, especially if multiple entities within a facility benefit from the information distributed via the signage system. — CW

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