Accounting and Tax Benefits of Modular, Portable Data Center Infrastructure

Overview

The core argument: field-built UPS and PDU systems are usually booked as building or leasehold improvements. Building assets may carry a depreciable life upwards of 30+ years, while DCPI such as UPS and PDUs has a much shorter useful life. That inflates taxable real property and forces write-downs when equipment retires early. Example: a legacy UPS depreciated over 30 years and scrapped after 15 years faces a write-down of 50% of its original value.

Factory-built, cord-connected systems can often be treated as business equipment (personal property) with shorter lives, may avoid permit and inspection fees, and can sit on the computer-room floor without a dedicated UPS room. Inspection fees are usually 2%-3% of the value of the field-constructed portion of a contractor's contract. Avoiding a separate UPS room saves construction cost of roughly $18 to $35 per square foot in office buildings and well beyond $75 per square foot in medium and large standalone data centres. Base rents can range between $19 and $50 per square foot plus taxes, utilities and common areas, so a separate UPS room with aisles is disproportionately expensive except in larger installations.

A seven-step asset-management process ends in cost segregation: 5, 7, 10, 15 and 20 year property is separated from 30 or 39 year property to qualify for accelerated depreciation, and assets must pass the function-and-use and inherent-permanency tests. Tax and tax-related savings can exceed 20% of installed cost for a properly sized and booked factory-built UPS and PDU solution.

Key points

1. Building assets may depreciate over 30+ years; DCPI such as UPS and PDUs has a much shorter useful life.
2. A UPS depreciated over 30 years and scrapped at 15 faces a write-down of 50% of original value.
3. Inspection fees are usually 2%-3% of the field-constructed portion of the contract.
4. Avoiding a UPS room saves about $18-35/ft2 in offices and well over $75/ft2 in standalone data centres.
5. Base rents of $19-50/ft2 plus taxes, utilities and common areas.
6. Cost segregation separates 5/7/10/15/20 year property from 30 or 39 year property.
7. Savings can exceed 20% of installed cost for a properly sized and booked factory-built solution.

Using it in design

• Add UPS placement (dedicated_ups_room, white_space) to the TCO module and charge room construction ($/ft2 or $/m2, editable by building type) plus occupancy cost for a dedicated room.
• Add an asset class (building_improvement vs business_equipment) and depreciation life per item so stranded-asset write-down can be estimated when refresh cycles are shorter than depreciation life.
• Apply a permit/inspection fee percentage only to field-built scope.
• Label all tax outputs as indicative and jurisdiction-specific.

Who should read it

Designers, finance and corporate real-estate teams assessing infrastructure investment in TCO and asset-class terms.

Publication details

Authors

Barry Rimler

Publisher

Schneider Electric

Year

2011

Document number

WP 115

Document language

English

Source type

Manufacturer

Access

Free to read

Licence

Copyright retained; citation only — the publisher’s terms apply to the original document

Citation