Tax Exempt Lease Purchase Agreement

Funding for leases by cities and counties was confirmed by the General Assembly in 2000 for vehicles, equipment and real estate, with some new restrictions imposed solely on real estate financing. On July 1, 2000, two restrictions apply: please note that rental treatment varies from state to state. Contact your tax or financial advisor to find out about applicable laws and restrictions in your area. Arbitration restrictions. Financing the purchase of leasing is not tax-exempt if it is considered an “arbitration loan.” While arbitration is a concept generally applied to bonds, it can also apply to the purchase of leasing. It applies when the proceeds of the financing are not spent immediately on the funded property (for example. B construction projects) and for COPs. Arbitration rules are extremely complex, and a small sketch is provided below. Commitments are arbitration obligations when more than $5% or $100,000 of the proceeds are used reasonably or if funds are used directly or indirectly to acquire higher-rate investments. This concept of “investment” is broad, including virtually every contract or real estate that can be attributed a return. Although leasing revenues can be invested in exempt government bonds, they cannot be invested in higher-yielding bonds subject to another minimum tax. Exceptions apply to the investment of leasing products during certain transitional periods, including the temporary investment of funds in a good faith debt service fund and in a leasing fund awaiting use. The three-year period for the investment of the proceeds of unpaid use in the acquisition or construction of real estate is three years.

The amounts of a reasonably necessary reserve or replacement fund are not subject to restrictions on investment performance, provided that the reserve or replacement fund does not, as a general rule, exceed 10% of the financing proceeds, 125% of the average annual debt service or 100% of the annual maximum debt service. This memorandum provides an overview of exempt leasing financing and COPs from a Georgian law and a federal tax perspective. This short treatment can do no more than touch on some of the most important issues.