FOR EACH TAX, AN OPPORTUNITY
The trend in the US and UK against using tax policy to influence capital expenditure decisions will almost inevitably prove detrimental to tax-motivated leasing. Yet eddies running contrary to the main current have created opportunities.
Within the US, tax benefit transfer leases were allowed to continue for certain equipment if the equipment orders had been placed by a certain date. This was also true for the modified tax benefit transfer, called the "finance lease'. Outside the US, the opportunities lie in the exploitation of tax benefits in countries which do not restrict these benefits to domestically-operated equipment.
When Congress put an end to tax benefit transfers, mass transit equipment was exempted until 1988, mainly as a result of pressure from the New York Metropolitan Transit Authority. Chicago and Atlanta have been among the other beneficiaries. Tax benefit transfers on Metropolitan Transfer Authority equipment have been bought by Eastman Kodak, Ralph Lauren and Carvel, among others.
The finance lease is an instrument created by the 1982 Tax Act, later modified, and almost certainly doomed by the current tax proposals. It allows the lessee a fixed price purchase option at expiration, but, as this must be for 10% of equipment cost, the lessor has to invest at the front end of the lease beyond the mere purchase of tax benefits.