What types of entities qualify for a municipal or tax-exempt lease?

Generally speaking, any government entity or political subdivision who retains one of the three following characteristics or sovereign powers: the power of eminent domain, police power, or the power to levy taxes can qualify for a municipal lease purchase. Lease Purchase Financing is also referred to as tax-exempt financing or a tax-exempt lease. Under a tax-exempt lease, the borrower must be a state, possession of the U.S., the District of Columbia, or a political subdivision thereof. This would include:

  • Cities, Counties, States
  • Townships
  • Fire Departments
  • School Districts
  • Special Purpose Districts (fire, parks, utility, water, etc.)
  • Authorities

Because 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 providing essential services on behalf of political subdivisions, such as Volunteer Fire Departments, Rescue Squads, EMS, etc., to enter into a tax exempt lease with some qualifications.

 

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.

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