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PMM 1.4 Capitalization of Equipment

Last Revised Date:
July 1, 2026
Responsible Unit(s):
Property Management
Responsible Unit Email(s):
FNSV-PropertyManagement@arizona.edu
Manual:
Property Management Manual
Status:
Active

Purpose and Summary

To provide direction to University departments on movable asset capitalization policies of the University.

Scope

This policy applies to all University locations and units, including all University extensions, satellite locations, and off-site campus units, both domestic and international.

Policy

  1. Acquired and donated capital assets are classified into physical plant acquisitions, equipment acquisitions, library acquisitions, and special collections.
  2. All Capital assets acquired with University, government or other sponsor funds shall comply with the University's procurement procedures.
  3. The threshold for capitalization of acquired, constructed, or gifted fixed capital assets is $5,000. Regardless of cost, some sponsored assets below the threshold may have a record in the property system as required by the sponsored award. Further details on sponsored tags can be found in PMM 3.1.1.
  4. Equipment otherwise capital in nature with an aggregate acquisition cost of less than $5,000 is to be classified as an expense item and charged to an operating object code.
  5. EQUIPMENT ACQUISITIONS:
    1. Capital equipment means an item of non-expendable, tangible, personal property. It is free standing, movable, is complete in itself, does not lose its identity when affixed to or installed in other property and has a useful life greater than one year.
    2. Capital equipment acquired with University, government and other sponsor funds shall comply with the University's procurement procedures. 
    3. METHODS OF ACQUISITION: Capitalized equipment can be acquired through purchase order, interdepartmental billing form, assembly of standard components, fabrication of unique property, purchase by construction contract, lease purchase, gift or bequest, government furnished property, secured from State surplus property, found, excess to the government, abandoned by the government, and government donations through the Stevenson-Wydler Act, President Executive Order 12999, or other statutory authority. Further details on acquisition of surplus property can be found in PMM 2.1.
    4. CAPITALIZED COSTS: The initial capitalized costs included in the value of capital equipment are the acquisition cost of the item or, if donated, its fair market value, freight, sales tax, use tax, installation charge, fair market value of university assets given in exchange, present value of liabilities incurred or assumed, and other expended resources to bring the item up to its intended and useful condition.
    5. FABRICATION: In-depth information on fabrication of equipment can be found in PMM 2.3.
    6. BETTERMENTS AND UPGRADES: A betterment must be a capital expense and can only be added to an existing asset if that asset's depreciated value exceeds the value of the planned betterment. If the value of the betterment exceeds the value of the depreciated value of the asset, contact Property Management to discuss generation of a new asset that will include the remaining value of the prior asset.
    7. GOVERNMENT FURNISHED EQUIPMENT: The unit price of government furnished equipment is determined by the government and normally provided to the university in the government shipping documents. The transportation and installation costs are considered additions to the unit price. In the event that price information is not included in the government’s shipping document, it must be obtained from the government sponsor or contractor by the principal investigator.
    8. Government furnished equipment is titled to a federal sponsor. Upon receipt of government furnished property by a department and/or Principal Investigator, a copy of the governments shipping document is to be provided to Property Management with a tag request, and a second copy to SPS Property Administrator for inclusion in account’s property and report files.
    9. EXCESS GOVERNMENT PROPERTY: Property which is no longer required by the holding Federal agency and is transferred to the University. Excess government property furnished to the university is recorded at the value indicated by the Federal agency. The transportation and installation costs are considered additions to the unit price. Excess government property is titled to the University.
    10. SURPLUS PROPERTY: Equipment acquired from the State Agency for Surplus Property is recorded at the purchase price. The transportation and installation costs are considered additions to the unit price.
    11. LEASE-PURCHASE EQUIPMENT: This is equipment being acquired through installment payments with the intent of university ownership. Its capitalized value is the purchase price of the item. The interest cost is recorded as an operating expense.
    12. FOUND EQUIPMENT: The value of found equipment is recorded at the value estimated by the using or custodial department.
    13. CONSTRUCTION PROVIDED EQUIPMENT: When federally funded personal property equipment is provided through a facilities construction contract, this equipment shall be separately identified, entered into the University property records system and tagged. Equipment provided through construction contracts is recorded at the values provided by the contractor and approved by the office administering the contract.
  6. SPECIAL CONSIDERATIONS:
    1. Components and Accessory Purchases: When equipment is being built from purchased components (also see FABRICATION SECTION 5.10), the total value of the purchases is considered in determining the value of the asset in the Property Record System.  If the anticipated cost of the whole asset is $5,000 or more, obtain an A or D tag from the Property Management Office.  This tag number must be included on a text line of all purchase documents.
      1. When ordering components, add a text line to the purchase requisitions, stores requisitions, interdepartmental billing forms, etc. that reads "These items are components or part of tag # (the pre-assigned A or D-Tag number). "
    2. Computer Software: Capitalize operating systems software routinely installed by the manufacturer with a computer as part of the computer. Capitalize major systems applications as determined by Financial Services. Charge all personal computer application software (for example Word, Excel, PowerPoint, etc.) to operations object code 4620, Software Licenses/Royalties.
    3. Electronic Images and Data Purchases:  The purchase of satellite or other electronic media generated pictures, images, or data in any format including direct feed/link, disk, tape, or print, and regardless of its cost, is a non-capital expense.  Use an operating object code.
    4. Sales Tax Exemption: As provided in Arizona statute ARS 42-5061(B) (14) and ARS 42-5159 (b)(14), equipment that is purchased for BASIC AND APPLIED RESEARCH IN THE SCIENCES AND ENGINEERING is, to the extent permitted by law, exempt from sales tax. Also exempt are designing, developing, or testing prototypes, processes, or new products. This exemption includes research and development of computer software that is embedded in or that is an integral part of the prototype or new product or that is required for exempt machinery or equipment to function effectively.
      1. For purposes of this exemption, research and development does not include manufacturing quality control, routine consumer product testing, market research, sales promotions, sales service, research in social sciences or psychology, computer research that is not included in basic and applied research in the sciences and engineering, or other non-technical activities or technical services.
      2. The exemption of sales tax does not apply to items including (1) expendable materials; (2) janitorial equipment and hand tools; (3) office equipment, furniture, and supplies; (4) tangible personal used in selling and distributing activities; (5) licensed motor vehicles, without regard to use; (6) shops, buildings, docks, depots; and (7) motors and pumps used in drip irrigation systems.

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