Transit Public-Private Partnerships: Legal Issues (2014) / Chapter Skim
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Pages 48-53
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From page 48... ...
48 the assessment district would be unlikely to garner the requisite number of votes to be implemented.620 Although a local authority may choose to levy a tax only on commercial property in a district, usually a majority of the voters in a district must approve the establishment of a special assessment district.621 Another approach is a Transportation Improvement District (TID) , which may be created to levy a special real estate tax on all existing and new land uses in a district for the purpose of financing transit improvements.622 The tax revenues generated by a TID also may be used to secure debt issued to finance infrastructure for transit.623 TIDs, which are authorized in Virginia, usually require the approval of a majority of the electorate in a proposed district.624 However, it is difficult to create an assessment or improvement district that involves multiple jurisdictions.625 D
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From page 49... ...
49 survey have entered into a long-term lease for the operation and maintenance of an infrastructure project.634 A second form of long-term leasing is a leasepurchase agreement in which a private partner finances and builds infrastructure that the private partner leases to the public authority.635 The public authority becomes the owner of the facility at the end of the term or purchases the facility before the end of the term for the amount of the remaining lease payments.636 A third form of long-term leasing is a saleleaseback agreement. A public authority first sells a facility to a private entity.
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From page 50... ...
50 to be considered a governmental obligation, and therefore tax-exempt.648 It has been argued that long-term leasing of public property may fail to provide adequate protection for the public interest.649 For example, a lease with a long duration significantly reduces a transit agency's control and thus may have an impact on the overall transit system.650 B Leasing of Rolling Stock and Other Equipment 1.
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From page 51... ...
51 ing to the Equipment Leasing and Financing Association (ELFA) , the equipment leased in SILO or LILO transactions varies from commercial aircraft and vessels to railcars.662 In SILO transactions, the subleases usually range from 12- to 20year terms.663 The term "LILO" generally refers to a transaction in which property is leased to a U.S.
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From page 52... ...
52 domestic transit authorities, including the California DOT and WMATA. Wells Fargo leased railcars, locomotives, and buses to the transit authorities using the SILO transactions, and it leased telecommunications equipment to Belgacom Mobile.670 The court in Wells Fargo held that Wells Fargo was not the owner of the equipment at issue in the SILO transactions because Wells Fargo never obtained any of the benefits or burdens of ownership of the equipment and therefore was not entitled to deductions for depreciation.
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From page 53... ...
53 has ruled that such a transaction lacks economic substance.680 The IRS maintains a list of abusive transactions and included LILOs and SILOs on the list in 2002 and 2005, respectively.681 On August 6, 2008, the Commissioner of the IRS released a statement that the IRS would offer settlements to companies using LILOs and SILOs in improper tax returns.682 Since Revenue Ruling 2002-69, several investors have appealed IRS decisions that denied them tax benefits derived from SILO or LILO transactions. It appears that investors did not prevail on their appeals.683 As a further attack on the use of SILOs and LILOs, in the American Jobs Creation Act of 2004, Congress amended the tax code by adding § 470, which limits tax deductions for property used by tax-exempt entities.684 However, § 470 does not apply to certain leases that meet four requirements set forth in § 470(d)
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