Mixed service costs
(C) Mixed service costs. Mixed service costs are defined as service costs that are partially allocable to production or resale activities (capitalizable mixed service costs) and partially allocable to non-production or non-resale activities (deductible mixed service costs). For example, a personnel department may incur costs to recruit factory workers, the costs of which are allocable to production activities, and it may incur costs to develop wage, salary, and benefit policies, the costs of which are allocable to non-production activities. (iii) Examples of capitalizable service costs. Costs incurred in the following departments or functions are generally allocated among production or resale activities: (A) The administration and coordination of production or resale activities (wherever performed in the business organization of the taxpayer). (B) Personnel operations, including the cost of recruiting, hiring, relocating, assigning, and maintaining personnel records or employees. (C) Purchasing operations, including purchasing materials and equipment, scheduling and coordinating delivery of materials and equipment to or from factories or job sites, and expediting and follow-up. (D) Materials handling and warehousing and storage operations. (E) Accounting and data services operations, including, for example, cost accounting, accounts payable, disbursements, and payroll functions (but excluding accounts receivable and customer billing functions). (F) Data processing. (G) Security services. (H) Legal services. (iv) Examples of deductible service costs. Costs incurred in the following departments or functions are not generally allocated to production or resale activities: (A) Departments or functions responsible for overall management of the taxpayer or for setting overall policy for all of the taxpayer's activities or trades or businesses, such as the board of directors (including their immediate staff), and the chief executive, financial, accounting, and legal officers (including their immediate staff) of the taxpayer, provided that no substantial part of the cost of such departments or functions benefits a particular production or resale activity. (B) Strategic business planning. (C) General financial accounting. (D) General financial planning (including general budgeting) and financial management (including bank relations and cash management). (E) Personnel policy (such as establishing and managing personnel policy in general; developing wage, salary, and benefit policies; developing employee training programs unrelated to particular production or resale activities; negotiating with labor unions; and maintaining relations with retired workers). (F) Quality control policy. (G) Safety engineering policy. (H) Insurance or risk management policy (but not including bid or performance bonds or insurance related to activities associated with property produced or property acquired for resale). (I) Environmental management policy (except to the extent that the costs of any system or procedure benefits a particular production or resale activity). (J) General economic analysis and forecasting. (K) Internal audit. (L) Shareholder, public, and industrial relations. (M) Tax services. (N) Marketing, selling, or advertising.