Fall 2012 issue of Horizons

Building In general, each building, and its structural components, is a single unit of property. A building is defined as any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. The term includes, for example, structures such as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, and stores. Structural components are defined to include such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, chimneys, stairs, and other components relating to the operation or maintenance of a building. Structural components designated as building systems are exempt. Building systems include heating, ventilation, and air conditioning (“HVAC”) systems, plumbing systems, electrical systems, escalators, elevators, fire-protection and alarm systems, security systems for the protection of the building and its occupants, gas distribution systems and other structural components. interdependent machinery or equipment, other than network assets, used to perform an industrial process, such as manufacturing, generation, warehousing, distribution, automated materials handling in service industries, or other similar activities. The unit of property is further divided into smaller units comprised of each component (or group of components) that performs a discrete and major function or operation within the functionally interdependent machinery or equipment. Plant Property Plant property means functionally

Network Assets Network assets means railroad track, oil and gas pipelines, water and sewage pipelines, power transmission and distribution lines, and telephone and cable lines that are owned or leased by taxpayers in each of those respective industries. The unit of property is determined by the taxpayer’s particular facts and circumstances. Leased Property Other than Buildings Where the taxpayer is the lessee of real or personal property other than buildings, the unit of property is determined from the applicable rules described above. The unit of property may not be larger than the unit of leased property. Other Property The unit of property definition for property other than buildings, plant property, network assets and leased property other than buildings is based upon the functional interdependence standard. Under the functional interdependence standard, all the components that are functionally interdependent comprise a single unit of property. Components of property are functionally interdependent if the placing in service of one component by the taxpayer is dependent on the placing in service of the other component. Has the Unit of Property Been Improved? Once the unit of property determination has been made, one must determine if the unit of property is improved. The aggregate of related amounts paid should be capitalized if these activities performed after the property is placed in service by the taxpayer:

∙ Result in a betterment to the unit of property

∙ Restore the unit of property

∙ Adapt the unit of property to a new or different use

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