United States

RSM approach delivers cost segregation savings across multiple locations

CASE STUDY

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Background

A multimillion dollar operator of 24 data centers in locations across the country made $180 million in capital expenditures over a period of just a few years, and was looking for opportunities to reduce its tax  burden.

Goals

The company turned to RSM to conduct a cost segregation study to appropriately apportion its capital expenditures between 39-, 15- and five-year tax lives in order to accelerate, depreciate and generate tax savings.

Our role

While it was clear that a significant portion of the client’s recent investment was eligible for accelerated depreciation, it was also clear that conducting separate cost segregation studies of all 24 of the client’s data centers would be an overly expensive undertaking. By working with the client to understand the approach and design involved in building out its data centers, RSM’s tax professionals were able to conduct a detailed cost segregation study of one data center and develop a formula to apply those results across the client’s entire 24-property portfolio in a supportable manner that would stand up to regulatory  scrutiny. Additional work at the other properties  was limited to only minor, outlying characteristics that were not addressed by the formula. This approach delivered significant tax savings for the client at a fraction of the cost of conducting separate studies at each property.

Benefits

Because the client had to make substantial changes to each property to make them suitable for use as data centers, a significant portion of the related expenses could appropriately be reclassified as five-year property, thus significantly accelerating depreciation. For example, the data centers needed enhanced HVAC systems in order to handle the heat generated by servers and other equipment and also had very specific electrical system requirements. Defining the details common to the client’s approach and applying that formula across all 24 properties generated $28 million in tax savings.

RSM’s cost segregation work has also led to other benefits for this client. The work with the client to organize and clean up their tax records led them to outsource the maintenance of their fixed asset records to RSM, allowing the client to keep their limited in-house resources focused on their key business issues. In addition, information gathered during the cost segregation work will also help them pursue property tax and state tax savings as well as tax credit and incentive opportunities.

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