Municipal Financing Frequently Asked Questions
What type of entities qualify for a municipal or tax-exempt lease?
For the lease to qualify for the interest exclusion, a lessee under a tax-exempt lease must be a state or possession of the U.S., the District of Columbia, or a political subdivision thereof. This may include state entities such as school districts, special purpose districts (fire, parks, utility, water, etc.), hospitals, agencies, authorities, boards and commissions. To be qualified, a governmental entity must possess one of three characteristics of a government, the power of eminent domain, police power, or the power to levy taxes.
The fact that an agency is financially supported by government funds or is "tax-exempt" does not always ensure qualification. Additionally, some provisions within the tax code allow organizations that provide essential services on behalf of political subdivisions, such as Volunteer Fire Departments, rescue squads, EMS, etc., to issue tax-exempt debt with limitations.
Nonprofit organizations created under Section 501(c)(3) of the Internal Revenue Code do not qualify directly as issuers of tax-exempt obligations but may be eligible with a sponsoring governmental unit. Nonprofit organizations that may benefit include:
- Health Care (Hospitals, Clinics, Nursing Homes, Life Care Centers)
- Education (Colleges and Universities, Preparatory Schools)
- Museums
- Research Centers
Questions List
- What is a municipal or tax exempt lease?
- What types of entities qualify for a municipal or tax-exempt lease?
- Does a Volunteer Fire Department qualify for the same rate as a City, County or District?
- Why lease the equipment?
- What is the difference between a municipal lease purchase and a commercial/rental lease?
- Who owns the equipment under a tax-exempt lease and who is responsible for maintenance, insurance and taxes?
- What is a non-appropriation or funding out clause?
- What can be financed on a tax-exempt basis?
- Am I limited to certain types of equipment?
- Can used equipment be financed?
- Is there a minimum amount that can be financed with Municipal Financing LLC?
- Can I include my service or maintenance contract in the financing?
- Can I include money for future equipment purchases in today’s lease?
- Can I make payments via ‘auto draft’ or ACH?
- What are the terms available to municipal entities for financing?
- How does lease-purchase financing differ from bond financing?
- We’ve already paid for the equipment, can we still finance it?
- We are planning to order a truck that will take a year to build, when should we consider financing?
- We have other debt such as bank notes, mortgages or leases, can they be refinanced at the lower tax-exempt rates?
- When the city issued bonds, there were fees involved for underwriting, legal, printing, rating and insurance. Are there fees involved with a lease purchase?
- Can I finance equipment purchased from a variety of manufacturers/distributors?
- When reviewing proposals, what should I do to make sure I am comparing apples to apples?
- What do you mean by tax-exempt financing, our organization is already tax-exempt?
- Does the lessee have the option to pay off a lease prior to the last payment when financing with Municipal Financing LLC?
- If I am a vendor or a broker, can I work with Municipal Financing LLC to establish a ‘private label’ program for my company?
