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- Title
Tax Exempt Leasing: A Framework for Analysis.
- Authors
Granof, Michael H.
- Abstract
This article informs that a tax exempt lease is an arrangement similar in economic substance to an installment purchase. The lessor extends credit to a municipality in exchange for the right to use an asset for a period of time, during or at the end of which the lessee has the option to purchase the property less than its market value. Each payment of rent is allocated between principal and interest. The interest is tax exempt to the lessor, as if it were interest on a conventional instrument of debt. For tax purposes the lessee is regarded as the owner of the property. As a consequence, the lessor is not eligible for the tax benefits, such as accelerated depreciation and the investment tax credit, which are currently under attack in Congress. The objective of this paper is to provide a framework for analyzing tax exempt leases. It evaluates, and attempts to put into perspective, each of the main advantages that have been ascribed to leasing. Leasing enables a municipality to obtain funds at low interest rates by tying finance costs to the purchase of property, to offset interest costs with arbitrage earnings, to circumvent debt limitations, to avoid bond referenda, and to reduce debt issue costs.
- Subjects
UNITED States; LEASES; CORPORATE debt; TAX exemption; CAPITAL budget; TAX credits; LOCAL finance; MARKET value; TAX planning; CAPITAL losses
- Publication
Public Administration Review, 1984, Vol 44, Issue 3, p232
- ISSN
0033-3352
- Publication type
Article
- DOI
10.2307/975486