11880 DORSETT RD., ST. LOUIS, MO 63043 | (866) 808-0854 | WWW.ARIZONSTRUCTURES.COM

PRODUCT DATA SHEET | TAX ADVANTAGES

Tax Benefits of Air StructuresArizon’s air structures offer many cost savings as compared to structures constructed using traditional building materials.

Real Estate Taxes & Property TaxesAccording to state and local taxing authorities, all property of its taxpayers is divided into two classes: real estate property and personal property. Real estate property includes all land, building structures and other property that is a fixture to land or a building structure. Personal property, on the other hand, includes all thing that are not real estate property. All real estate property is taxed by state, county and local governments, whereas personal property is not taxed at all or is taxed at a low rate.

One of the benefits of Arizon air structures is that they can qualify as personal property by the Internal Revenue Service (IRS). See IRS service code section 1245. Personal property is not subject to real estate taxes (see case study 1).

Personal Property vs. Real PropertyIRS regulations 1.81-1 and 1.1245-3 determine if a building structure is considered to be either real estate property or personal property. Personal property is defined by the IRS as any tangible property other than land and imporvements to

land. Buildings and structural components of buildings are treated by the IRS as real property (IRC sec. 1250). A structure is considered a building if it is determined that the structure is “inherently permanent” (Reg. 1.48-1). If a structure is not inherently permanent, the property will be considered tangible personal property, and not be subject to real estate taxes.

Air Structures as Personal PropertySeveral factors contribute to an Arizon air structure’s classification as personal property for real estate taxation purposes. Air structures are manufactured off-site and assembled at the job location. Disassembly costs are less than 20% of replacement costs. In addition, Arizon’s air supported structures are affixed to the foundation in a manner that allows for easy disassembly. When these factors are applied to the IRS’s permanency test, federal tax courts established in Whiteco Industries Inc. v Commissioner, 65 TC 664 Dec 33, 594 that air structures can avoid classification as real estate property.

Case Study 1: Arizon Manufacturing Plant

Arizon recently constructed an Illinois distribution and manufacturing facility consisting of 80,000 sq. ft. The cost of the entire project consisted of $200,000 for land, $1,200,000 for the Arizon air structure, and $600,000 for the real property improvements which consisted of a concrete floor, grade beam, and parking lot. The total cost for the structure was $2,000,000 or $25 per square foot. The tax in Illinois County is 3.1% of the greater of cost or fair market value of the real estate property, which is $800,000 x 3.1% or $24,800. The real estate property tax for a glass/steel, brick/mortar or metal/steel structure of the same cost would be 3.1% of $2,000,000 or $62,000. An Arizon air structure saved the company more than $37,200 in real estate property taxes per year in this Illinois county, where there is no personal property tax.

Case Study

I f a s t ruc tu re i s no t inherent ly permenent , the proper ty w i l l be cons idered tang ib le persona l p roper ty and not be subject to rea l estate taxes .

This information is provided for informational purposes only, and is not intended to substitute for obtaining accounting, tax or financial advice from a professional accountant. Please consult your professional tax advisor regarding all local, state and federal taxes that may apply.

11880 DORSETT RD., ST. LOUIS, MO 63043 | (866) 808-0854 | WWW.ARIZONSTRUCTURES.COM

Air Structure Tax Savings (Accelerated Depreciation)

Conventional Building Tax Savings (Fixed Depreciation)

PRODUCT DATA SHEET | TAX ADVANTAGES

Federal & State Income TaxesBuilding structures of all kinds-glass/steel, brick/mortar, metal/steel or air supported- benefit from the IRS’s allowance for depreciation. Many conventional glass/steel, brick/mortar or other conventional buildings are required to depreciate their cost over periods of up to 39 years compared to much shorter periods, from 5 to 7 years, for air supported structures. The end result of IRS depreciation rules is that air structures can save our customers tax dollars today as opposed to 39 years from now. An explanation of how Arizon air structures can save both federal and state income taxes is set forth in case study 2 and in the chart on the following page.

Accelerated vs. Straight Line DepreciationThe depreciation life of any asset is important because companies may not claim the entire cost as an expense immediately. Rather, the asset must amortize its cost over time in order to accurately reflect its reduction in value due to time and usage. Using straight-line depreciation, a fixed value is depreciated from the asset each year for its life. Accelerated depreciation, on the other hand,

accounts for higher deprecation amounts each year as the asset ages. Accelerated depreciation provides owners witht he ability to defer income taxes by reducing taxxable income in current years in exchange for increased taxable income in the future. Becuase the future value of a dollar is always worth less than the dollar today, it is advantageous for taxpayers to use accelerated depreciation methods when allowed.

Depreciation of Arizon Air StructureAnother benefit of Arizon air structures’ classification as personal property is the difference in allowable depreciation methods. For tax purposes, personal property may be depcreciated over 5 to 7 years using accelerated methods while real estate property is typically depreciated over 39 years using straight line depreciation (note that land is not depreciated at all for IRS purposes). Becuase of its classification as personal property, Arizon air structures not only be depreciated over 5 to 7 years, but this depreciation may be accelerated, offering two distinct tax advantages over real estate property such as brick/mortar, glass/steel or metal/steel buildings.

Case Study 2: Arizon Manufacturing Plant

Arizon’s recently constructed Illinois manufacturing center, with a total cost of $2,000,000, would defer federal and state income taxes over $84,000 per year or $420,000 during the first five years of operation. Straight-line depreciation of $255,000 per year for an Arizon structure would compare to depreciation of $45,000 per year for a conventional glass/steel, concrete/brick, or metal/steel building. Assuming a combined federal and state income tax rate of 40% is applied to the first five years of operation. Naturally, the use of accelerated depreciation could further increase the federal and state tax savings of an Arizon air structure. This example assumes five year depreciable life for personal property and 40 year depreciable life for real estate property.

Case Study

This information is provided for informational purposes only, and is not intended to substitute for obtaining accounting, tax or financial advice from a professional accountant. Please consult your professional tax advisor regarding all local, state and federal taxes that may apply.

Depreciable Tax Savings of Air Structures vs. Conventional BuildingsFigures are based on an assumed cost of $1 million per structure at a tax rate of 40%. The allowable depreciation of an air structure in its second year of life is $244,900, resulting in tax savings of $97,960. In contrast, a similarly valued building only depreciates $25,641 in its second year, for a tax savings of only $10,256.

2 4 6 8Years

$100,000

$60,000

$20,000