What is a Tax-Exempt Lease?

Today's Emergency Services administrators face a diverse array of budgetary and operating challenges. As budgets and resources are reduced at the local level, funding the immediate and long term needs of your community becomes more difficult.

The need for financing to purchase new equipment and facilities is growing.

Tax-exempt lease financing is one of the most successful methods used to purchase equipment while improving the management of cash flow. The tax-exempt feature of lease-purchase financing is proven to be beneficial to emergency servicess across the country.

A tax-exempt lease is the most common financing method used in the purchasing of fire trucks, stations and loose equipment. This type of financial instrument is also referred to as "government lease-purchase" and/or a "municipal lease". While they are documented as a lease, they have characteristics similar to a loan in that they own it at the end and they can be paid-off early if desired.

The interest earnings under a properly structured and documented lease is exempt from federal income tax under the same tax laws that enable a municipal bond to carry a tax-exempt rate. Because the lessor does not pay federal tax on the interest earned, the tax-exempt lease carries a much lower interest rate than other kinds of leases and installment loans thus significantly lowering the cost of financing for the borrower.

These financing vehicles are structured as a lease to accommodate the fiscal funding restrictions of political subdivisions. In most cases, their obligation terminates if the department fails to appropriate funds to make the renewal year's lease payments. Because of this provision, neither the lease nor the lease payments are considered debt. Non-appropriation is not an event of default but the emergency service may lose the asset.

Tax-exempt leases make the acquisition of large equipment affordable to all emergency services.

Structure and Terms
Lease Terms:
Trucks: Up to 15 years

Stations: Up to 20 years (30 years for some projects)

Payment Structure:
Payment Frequency: Annual, Semi-Annual, Quarterly, or Monthly

First Payment due Date: Up to one year after delivery

Who Qualifies?

Under Section 103 of the Internal Revenue Code, the following types of government agencies are eligible for tax-exempt financing with some exceptions:

Cities and Towns
Counties
States
Volunteer Fire Departments (trucks and stations only)
Fire Districts

What can be Leased?

Personal Property Including: Fire Trucks, Rescue Trucks, Staff Vehicles, and Loose Equipment

Real Property Including: Fire Stations, Training Facilities and Administrative offices (Renovations and Add-on Projects)

Note: Only fire trucks and stations qualify for tax-exempt financing with volunteer fire departments.