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ELA Responds to Proposed Budget Legislation
On Jan. 13, 2004 the Treasury Department announced a series of legislative proposals, included in the president's fiscal year 2005 budget, for the purpose of closing loopholes, halting several abusive tax avoidance transactions, and simplifying the tax code. Of particular interest to the leasing community is the proposal: “Stop Abusive Leasing Transactions with Tax-Indifferent Parties.” According to the Treasury Department's proposal, taxpayers increasingly have used purported leasing transactions to “acquire” significant tax benefits from a tax-indifferent party, such as a municipal transit authority or foreign government, in exchange for a modest fee. These transactions do not involve any useful economic activity, such as the acquisition or financing of business assets, and instead simply move a tax benefit, including depreciation, from a party that cannot use it (the municipality or foreign government) to a party that can (the taxpayer). Congress sought to limit these transactions in 1984, but these rules have proved ineffective over time. The administration's proposal would sharply limit the tax benefits claimed by the taxpayer in these transactions.
The Equipment Leasing Association of America (ELA) issued a response to the Treasury Department's 2005 proposed budget plan to stop leasing transactions with “tax-indifferent parties,” citing clear negative consequences that compromise many organizations' abilities to finance projects and infrastructure. Michael Fleming, president of ELA, stated that the Treasury Department's proposal “will take away the ability for tax-exempt entities, such as hospitals, charities, and schools, already strapped for capital, to lease equipment and severely limit their financing options. Calling the proposal “poorly thought out” Fleming further added that it would “raise the cost of making needed assets and services available to these organizations.”
The ELA's response further contends that the provision will adversely affect the tax deductions available not only to lessors of property leased to tax exempt entities, but also will negatively impact owners that use leased property to provide virtually every type of service to such entities. This provision would adversely affect the federal government, state and local governments, including schools, and universities, hospitals, municipal and regional transportation authorities and other tax-exempt entities. The categories of property affected by this provision include:
- Real estate leased to any federal, state or local government, any tax-exempt organization, including schools and hospitals, military installations, offices, etc.
- Computers, other qualifying technological equipment and medical equipment leased to or used to provide services to tax-exempt entities including schools, hospitals, government and military installations.
- Transportation property leased to or used to provide transportation services to any tax-exempt entity, including school bus companies, or which is used by or to provide services to municipal bus lines, ferry services, and rail lines.
- Cars and trucks leased to federal, state and local governments, including fire trucks leased to municipal and tax-exempt fire companies.
- Communications services provided to any tax-exempt entity, including satellite communication, and PBX systems and 911 systems. The provision could even affect telephone companies.
- Utility services, including the provision and distribution of wastewater, freshwater, gas, electric, steam, etc. provided by state and local government, municipal systems, military bases and similar users. The provision will likely undo some of the energy tax benefits in the energy bill currently pending in Congress.
The “ELA calls for the provision to be removed from the budget proposal,” said Fleming. “The administration, especially the Treasury Department, is asked to continue its support of current law which permits and encourages the providing of lease financing to tax-exempt entities for a wide range of important productive assets.”
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