Capital equipment is generally regarded as nonexpendable, tangible personal property having a useful life of more than one year. Equipment Loans approved for RFS financing by the Board of Regents are funded through the ILP. The institution will be charged the Short-Term Rate and principal on all outstanding balances at each quarterly repayment date. The amortization schedule of each loan should generally match the life of the equipment and is limited from three to ten years. Prior to funding, the final schedule and a Promissory Note will be sent by the Office of Finance to memorialize the terms of the loan and will need to be executed by the Chief Business Officer of the borrowing institution.
Since equipment loans are typically funded with proceeds from tax-exempt bond issuances, the equipment will continue to be subject to file retention requirements as dictated by UTS Policy 181 (available at the BOR Policy Library HERE) as well as private use restrictions as dictated by IRS regulations (available HERE). A taxable Short-Term Rate (as determined by the cost of taxable commercial paper plus the Short-Term Premium) can be charged in lieu of the tax-exempt Short-Term Rate if the institution would prefer to not have the equipment subject to these requirements.
Approval Process
Around June 1 of a given year, the Office of Finance solicits each institution's anticipated equipment funding needs for the coming fiscal year. Institutions requesting equipment financing provide a brief description of the equipment to be financed, including expected purchase dates, projected useful life, and the payment source. The Regents vote on approval of the equipment financing requests submitted by the institutions during each August meeting of the Board of Regents. The Equipment Financing Guidelines set the minimum equipment debt issuance $100,000 per institution, though several smaller equipment purchases can be bundled to meet this threshold.
Forms
Request for Reimbursement Form (Adobe PDF)
Promissory Note Template (Adobe PDF)
IRS Rules on Equipment Financing
Proceeds can be used to reimburse the original expenditure within 18 months after the later of:
1) the date the original expenditure was paid
OR
2) the date the project was placed in service or abandoned, but in no event more than three years after the original expenditure was paid.
Items Approved as Equipment:
Acquisition of Capital Equipment
Capital equipment is generally regarded as nonexpendable, tangible personal property having a useful life of more than one year. The acquisition cost for equipment includes the net invoice price, including any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for the purpose for which it is acquired. In addition, taxes, duty, in-transit insurance, freight, and installation charges are also included as part of the acquisition cost. Capital equipment, including software, that will be used systemwide, or between and among U. T. institutions and System Administration, is eligible for RFS Equipment Financing.
Warranties and Similar Service Features
The cost of warranties and similar service features related to a purchase of capital equipment (such as maintenance agreements and loaner programs) are not eligible for RFS Equipment Financing as these are considered operating expenses. This ineligibility also applies to warranty and similar service feature costs separately identified during original purchase. For example, a warranty agreement charge that is separately identified on a Laptop purchase is not allowed.
Software
Any capitalized costs associated with the development or implementation of software, including personnel costs (salaries), are eligible for RFS Equipment Financing if they are incurred in the Application Development Stage. This principle applies whether the salaries are paid to employees of the institution or to outside parties. See Governmental Accounting Standards Board Statement No. 51, Accounting and Financial Reporting for Intangible Assets for additional information on capitalization of software and the Application Development Stage. Training costs related to software usage are discussed below.
The purchase of bundled software included as part of the initial acquisition of computer hardware is capitalizable regardless of threshold and therefore eligible for RFS Equipment Financing.
Software maintenance costs are considered operating expenses and therefore are not eligible for RFS Equipment Financing as these are considered operating expense.
Costs for software licenses with a useful life extending beyond one year that will be owned are eligible for RFS Equipment Financing. Leased or licensed software that requires the payment of an annual fee (i.e., does not have a useful life extending beyond one year) and that will not be owned when the license expires is not eligible for RFS Equipment Financing.
Employee Training and Travel Costs
Employee training and travel costs are not eligible for RFS Equipment Financing as these are considered operating expenses.
Operating Expenses
Consumables, which generally include those items that have an expected useful life of less than one year, are not eligible for RFS Equipment Financing as these are considered operating expenses. Some examples include, but are not limited to: chemicals, gases, paper, staplers and other office supplies, toner cartridges, medical supplies, disposal services, and laboratory supplies.
Examples of other operating expenses that are not eligible for RFS Equipment Financing include, but are not limited to: monthly telephone services, animals, software maintenance cost, and routine maintenance.
