The tragic events of September 11, 2001, and its debilitating effects on the American economy led the United States Congress to pass an economic stimulus bill known as the Job Creation and Worker Assistance Act of 2002. A critical tax savings element of the bill was a greatly accelerated expensing of assets purchased after September 11. Specifically, a corporation purchasing certain types of assets after September 10, 2001, and before September 11, 2004, will be able to expense 30 percent of those assets’ value immediately. Examples of assets not eligible would include most buildings and property used outside the U.S.

The effect is two-fold: reduced taxes for the purchaser and increased orders for the seller. These provisions caused many corporate taxpayers to consider re-filing tax returns for 2001 to take advantage of the tax savings. It also forced providers of asset depreciation software to develop a solution for correctly calculating depreciation under the new law. SAP Development delivered a means to accommodate the Act to its U.S. customers within weeks of its passage.

Users of the R/3 Asset Accounting functionality in FI can implement OSS note 505069, which provides separate directions for R/3 releases prior to 4.0, releases after 4.0 and prior to 4.6, and release 4.6. However, the configuration elements, described below, are essentially the same. I’ve also provided screenprints to illustrate the process.

Within the release 4.6 Implementation Guide (IMG), configuration must be maintained in the following steps. Note: This assumes that you have not defined the tax depreciation area to post to the General Ledger:

1. Determine the depreciation area to be managed for special depreciation.

2. Calculate special depreciation before ordinary depreciation.

3. Perform the valuation methods:
    a. Define the multi-level method.
    b. Define the depreciation key.

Here’s how you execute these steps.

Step 1

Follow the menu path shown in Figure 1 to the Determine Depreciation Areas screen (Figure 2). In most cases, the Federal Tax ACRS/MACRS depreciation area will be the one that most users will want to configure for special depreciation. I strongly suggest that you work with your tax departments before making any changes in this depreciation area.

You might need to copy this area to a new one for state tax reporting because some states allowed the old federal depreciation for state purposes, but might not have accepted the new Act’s methods.

Figure 1

IMG Menu Paths for the Determine Depreciation Areas and Calculate Ordinary Depreciation Before Special Depreciation Screens

Figure 2

Determine the Depreciation Area in Which You Want to Manage Special Depreciation

Step 2

Follow the menu path in Figure 1 to the Calculate Ordinary Depreciation Before Special Depreciation screen. Here, you indicate the calculation sequence. Special depreciation must be calculated before ordinary depreciation. To configure this, set the indicator for calculating special depreciation. Do not set the indicator to calculate ordinary depreciation before special depreciation (Figure 3).

Figure 3

Do Not Check the "Calculate Ordinary Depreciation Before Special Depreciation" Box

Step 3a

Follow the menu path shown in Figure 4 to the Define Multi-Level Methods screen (Figure 5). Define the multi-level method of depreciation that allows the 30 percent special depreciation amount to be calculated beginning on the relevant validity start date. This means you first create a 30 percent special depreciation description and validity date. Click on the Save button. Next, create the details for this special depreciation on the levels screen. The specific details to enter on the screen shown in Figure 6 are:

• Valid to acquisition year = "2004"

• Valid years = "1"

• Base value = "01" (acquisition value)

• Percent = "30.00"

Define another multi-level method with a base value of "11" (acquisition value reduced by special depreciation). This will be used for phase 1 of the normal depreciation.

Figure 4

IMG Menu Paths to the Define Multi-Level Methods and Maintain Depreciation Key Screens

Figure 5

Set the Special Depreciation Description and Validity Date Here

Figure 6

Create the Details for the Special Depreciation on This Screen

Step 3b

Follow the menu path shown in Figure 4 to the Maintain Depreciation Key screen. Now, maintain the depreciation keys by copying the keys M150, M200, and NA0 to user-defined keys within a customer naming convention (e.g., Z150), and add a new phase for the special tax depreciation (Figure 7). Remember that keys starting with "X," "Y," and "Z" are customer-customizable keys and will be retained as future releases are implemented.

Figure 7

Maintain the Depreciation Keys Here

The characteristics for this phase are:

• Base method: Use the characteristic value of special tax depreciation/explicit percentage.

• Period Control: Acquisition/acquisition following year/retirement/transfer=06 (year start).

• Multi-level method: Assign "base value 01" to the multi-level method defined for the 30 percent step above.

Next, maintain the depreciation keys by copying the keys MSTL, NA1, and NA2 to user-defined keys within a customer naming convention (e.g., Z150), and add a new phase for special tax depreciation. The characteristics for this phase are:

• Base method: special tax depreciation/explicit percentage.

• Period Control: Acquisition/acquisition following year/retirement/transfer=06 (year start).

• Multi-level method: Assign "base value 01" to the multi- level method defined for the 30 percent step above.

• Replace the multi-level method of phase 1 (ordinary depreciation) with the multi-level method with the base value of 11, also defined above.

Finally, do not forget to activate the depreciation keys and assign them to the assets covered by the Act. The mass change tool in combination with substitution could be useful for facilitating this.

If a company has closed its books and wants to re-open them to capture the effects of the depreciation for 2001, reverse the year-end closing on the depreciation area level. Assign the newly created keys to the appropriate assets and recalculate the values for the affected depreciation areas. Repeat year-end closing for those depreciation areas.

The IRS has issued new guidelines that might allow companies affected by this Act to extend the period of time to post the net operating losses that these calculations might generate. Other factors including the company’s fiscal year might affect the calculations.

Let me repeat this warning: Be sure to include your tax department in the discussion of these configurations.

Note that SAP provides pre-defined reports/queries to report the special depreciation (SAPQuery/AM07, report variant SAP&002). For more information and for releases other than R/3 4.6, please read OSS note 505069 and contact SAP.