1982 High Country Warehouse Proposal leaseLEASE PROPOSAL FOR
THE TOWN OF AVON
Olt
afto
HIGH COUNTRY WAREHOUSE
0810 A. Nottingham Road
Avon, Colorado
Submitted
i
VAIL ASSOCIATES REAL ESTATE, INC.
Agent
By: Richard A.. Kesler
Associate Broker
Received by Town of Avon
this 16 day of September, 1982
at �� P.M.
By
PROPOSAL FOR THE
TOWN OF AVON FOR
WAREHOUSE /GARAGE SPACE
Dear Sirs:
September 16, 1982
Please be advised that the following described property is hereby submitted for
your consideration in regard to the Request for Proposal dated September 10, 1982.
PROPERTY DESCRIPTION
Unit A, HIGH COUNTRY WAMIOUSE
0810 A. NCYITINGHAM ROAD , AVCN, CO. 81658
"RECORD OWNER: Henry U. Wolff and Ester Wolff, hereinafter called "lessor ".
"PROPOSAL QUALIFICATIMS" :
"ITEM NO. 1"
- Said garage /warehouse has two.-garage doors. Entry
door is 12' wide x 15' tall with electric door
opener. Loading dock door is-12' wide x 8' tall.
"ITEM 140. 2"
- Total lease space available is 5,100 square feet.
Space is divided into three areas. Two glass store
front offices each with separate entry, totalling
1,209 + square feet and open floor space of 3,891
+ square feet.
"ITEM NO. 3"
- Ceiling height is 18' in open space and 8' in offices.
"ITEM NO. 4"
- Restroom facilities are in each office space (2
individual restrooms) each with commode and sink with
hot and cold running water.
"ITEM N0. 5"
- Concrete flooring in open floor space. Carpet and
tile over concrete in offices spaces.
"ITEM NO. 6"
- 400 -500 VAC power source.
"ITEM NO. 7"
- Adequate heating in accordance with original design for
warehouse space (electrical heat).
"ITE11 NO. 8"
- Flammable item storage would be dictated by the Tmm of
F.von and Fire Departmnt.
"ITEI i 140. 9"
- Fluorescent lighting in accordance with original design
for warehouse space.
"IM1 N0.10"
- In accordance with the building codes established by
the Town of Avon and the direction of the lessor, said
lessee, at their expense, would be allowed to install
a venting system.
"ITE1,1 NO.1V-
Said space is located within the Town of Avon boundaries.
Vail Associates Real Estate, Inc., a Colorado Corporation, as agent for Henry U.
Wolff and Ester Wolff, hereby submit the following lease proposal to the Town of
Avon.
Item 1 - Annual Costs
A. 5,100 square feet of lease space at $8.50 per foot ($43,350.00 per
year) plus an annual cost of living increase as evidenced by the
CSI (Consumer Price Index). Said increase, if any, to be determined
at the lst anniversary of said lease and each anniversary thereafter
until expiration of said lease, together with lessee's percentage of
taxes and insurance.
1. Insurance Costs - $983.00 (1982) Total Cost for Building
- Lessee's Cost - $491.50 (1982) To be prorated in accordance
with lease term.
Note: Hazard insurance costs are adjusted yearly and
are subject to yearly adjustment.
2. Taxes - 1981 - $4,453.81 (Paid) Total Cost for building
- Lessee's Cost - $2,226.90 (1982) To be prorated in
accordance with lease term.
A. $43,500.90 assessed value, 102.175 mills. Tax figures
were furnished by the Eagle County Assessor's and
Treasurer's offices as of September 14, 1982.
t
Page 2
PROPOSAL FOR ME
TOWN OF AVON FOP, .
WAREHOUSE /GARAGE SPACE
September 16, 1982
Item 2 - Annual Estimated Oast of Utilities
Please be advised that -Uie following costs are estimates only and
supplied by the adjoining warehouse space user (Unit B, High Country
Warehouse) A -1 Auto Parts Business (5,100 square feet).
A. Electricity - Supplier - Holy Cross Electric Company
- Summer Costs - $100 per month
- Winter Costs - $400 to $500 per month (winter - 4 months -
1981/82 winter season - November 15 to Mlardi 15, 1982 and
1982 summer season)
B. Water and sewer are paid by the Lessor (normal usage only) -
adjustments would be charged to the user of said space if
said water and sewer costs became excessive and above the
base rates as charged by Upper Eagle Valley Sanitation Dis-
trict and Avon Metropolitan District.
C. Snow plowing and removal costs would be the responsibility
of lessee (no estimate of cost given).
Item No. 3 - Lease Increases (See Item 1 - Annual.
A. Consumer Price Index is determined by the Department of Labor
and published accordingly (no estimate given - CPI increase,
if any, would affect 1st anniversary of lease).
Item No. 4 - See Item 1 (Annual Cost)
1982 - Insurance 1/2 Cost $491.50
1982 - Taxes - 1/2 Cost $2,226.90
ADDITIONAL I NFMATI ON
Lessor will allow a 2 -year lease with 3 one -year options. Lessor will allow
the `"own of Avon a reasonable amount of time to respond to said proposal and
grant a first right of refusal in conjunction with the aforementioned proposal
and subsequent offers because said lessor will continue to actively market
said property to any other prospective user through Lessor's agent, Vail
Associates Real Estate, Inc. Said lst right will be allowed from the dated
date herein for a period of two weeks, then such 1st right of refusal shall be
null and void and no longer in force or effect. Information gathered herein
is deemed to be reliable but subject to change and modification due to user
changes and final inspection.
tted this 16th day of September, 1982.
BY: VAIL ASSOCIATE FFKAL ES"' TE, INC.
AGENT FOR HENF -U & Ester Wolff
BY:
Ridzard A.J Kesler,
P.O. Box
Vail, orado
QAQ—A nn
Richard A. Kesler
Associate Broker
Vail Associates
Real Estate, Inc.
Box 7
Vail, Colorado 81657
Avon Office: 303/949 -4404
Denver Line: 623 -8609
KUTAK ROCK & CAMPBELL
A PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
2400 ARCO TOWER -707 17T-H STREET
DENVER, COLORADO 80202
(303) 297 -2400
July 27, 1984
MEMORANDUM
REGARDING
THE EFFECTS OF THE DEFICIT
REDUCTION ACT OF 1984 ON
TAX- EXEMPT LEASING
Just as cities, counties and charitable organizations
were beginning to look to the private sector for much needed
capital, the Congress determined that tax benefits should not
be available to owners of property used by a tax - exempt
entity. Although an investment tax credit was never avail-
able if property was owned by or leased to a governmental or
other tax - exempt entity, there were no restrictions on accel-
erated depreciation or the rehabilitation credit. Thus, pri-
vate entities could own property, lease it to a tax - exempt
entity and take advantage of most of the tax benefits associ-
ated with such ownership.
The Deficit Reduction Act of 1984 (the "1984 Act ") will
make significant changes with regard to property used by a
tax - exempt entity. The purpose of this memorandum is to
explain those changes, including discussions of the length-
ened depreciation schedule, loss of the rehabilitation
credit, what constitutes tax - exempt use property, and various
exceptions to the general rules for short -term leases, high
technology equipment and service contracts.
Depreciation
The 1984 Act adds a new Section 168(j) to the Code which
provides that the allowable depreciation deduction for any
taxable year with respect to tax - exempt use property will be
determined by using the straight -line method (without
ATLANTA
OMAHA
WASHINGTON
KUTAK ROCK 6 CAMPBELL
regard to salvage value) and the recovery period determined
under the following table:
-- Personal property with no 12 years
present class life
--18 -year real property 40 years
- -All other property The present class
life
However, the recovery period under Section 168 of the Code
cannot be less than 125% of the lease term.
For purposes of the depreciation deduction, the half -
year convention will apply in the case of property other than
18 -year real property. In the case of 18 -year real property,
the amount of the depreciation deduction will be determined
on the basis of the number of months in the year in which the
property is in service.
An exception to the new Section 168(j) is made for any
recovery property if the recovery period which applies to
such property (without regard to Section 168(j)) exceeds the
recovery period for such property under the new provision.
For purposes of depreciation, in the case of any real prop-
erty which is not recovery property, the determination of
whether such property is 18 -year real property will be made
as if such property were recovery property.
Rehabilitation Credit
Tax - exempt use property also includes that portion of a
rehabilitated building which is or may be expected to be used
by a tax - exempt entity. Therefore, to the extent a rehabili-
tated building is used by a tax - exempt entity, the rehabili-
tation credit will be denied.
Tax - Exempt Use Property
The 1984 Act defines "tax- exempt use property" as that
portion of any tangible property (other than 18 -year real
property) leased to a tax - exempt entity. In the case of
18 -year real property, the term means that portion of the
property leased to a tax - exempt entity in a disqualified
lease. A "disqualified lease" is defined as any lease of the
property to a tax - exempt entity, but only if (i) any part was
directly or indirectly financed by an obligation the interest
on which is exempt from tax under Section 103 and the entity
(or a related entity) participated in the financing, (ii)
under the lease there is a fixed or determinable purchase
price or sale option which involves the tax - exempt entity, or
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KUTAK ROCK 3c CAMPBELL
there is the equivalent of such an option, (iii) the lease
term is in excess of 20 years, or (iv) the lease occurs after
a sale or other transfer of the property by, or lease of the
property from, the tax - exempt entity (or a related entity)
and the property has been used by the entity (or a related
entity) before the sale (or other transfer) or lease. This
does not include any property which is leased within three
months after the date such property is first used by the
tax - exempt entity (or a related entity).
In the case of 18 -year real property, such property will
not be tax - exempt use property unless the portion of the
property leased to the tax - exempt entity in disqualified
leases is more than 35% of the property. For purposes of
this limitation, improvements to property (other than to
land) are not treated as separate property.
Tax - Exempt Entity
The 1984 Act defines a "tax- exempt entity" as (i) the
United States, any state or political subdivision thereof,
any possession of the United States, or any agency or instru-
mentality of the foregoing, (ii) an organization (other than
a Section 521 cooperative) which is exempt from United States
income tax or (iii) any foreign person or entity.
The term includes any organization, other than a farmers
cooperative described in Section 521 of the Code, that is
exempt from United States' income tax at any time during the
five -year period ending on the date the property involved was
first leased to such organization. This provision does not
apply to the Federal Home Loan Mortgage Association. Fur-
thermore, in the case of an organization formerly exempt from
tax under Section 501(a) of the Code, such organization will
not be considered a tax - exempt entity with respect to prop-
erty it leases if the organization files an irrevocable elec-
tion not to be exempt from tax under Section 501(a) during
the tax - exempt use period with respect to such property. For
these purposes, the term "tax- exempt use period" means the
period beginning with the taxable year in which the property
is placed in service and ending with the close of the fif-
teenth taxable year following the last taxable year of the
recovery period of such property.
Finally, any organization which is engaged in activities
substantially similar to those engaged in by a predecessor
organization will be treated the same as the predecessor for
purposes of determining its status as a tax - exempt entity.
KUTAK ROCK & CAMPBELL
Related Entities
Governmental units, agencies or instrumentalities are
related to each other if they directly or indirectly derive
their powers, rights and duties from the same sovereign
authority. However, the United States, each state and each
United States possession is to be treated as a separate
sovereign authority. Tax - exempt entities other than govern-
mental units are related if they have (i) significant common
purposes and substantial common membership or (ii) substan-
tial common control (direct or indirect). In addition,
entities are related to each other if one entity owns a 50%
or greater interest in the capital or profits of the other.
To determine whether an entity has a 50% capital or profits
interest, related governmental units (by virtue of derived
power) and related tax - exempt organizations (by virtue of
common control) are treated as one entity. Finally, the 1984
Act provides a catchall definition which deems all tax - exempt
entities to be related if, with respect to a transaction,
such entities are attempting to avoid the provisions of the
1984 Act.
Lease Term
The 1984 Act's broad definition of "lease" includes any
grant of a right to use property. Furthermore, a lease term
includes all options to renew, and two or more successive
leases, which are a part of the same or successive transac-
tions with respect to the same or similar property, are to be
treated as one lease. For 18 -year real property options to
renew at fair - market value,.as determined at the time of
renewal, generally are not taken into account in determining
the length of the lease term. .However, under certain factt
and circumstances, even options at fair rental value will be
treated as part of the original lease term. For example, if
rents during an extended term differ materially from market
rent at that time, an informal agreement that the lease would
be extended at the time of the original lease will be
inferred.
Short -Term Lease Exception
Property will not be treated as tax - exempt use property
merely by reason of a short -term lease. A "short -term lease"
is defined in the 1984 Act as any lease the term of which is
(i) less than three years, and (ii) less than the greater of
one year or 30% of the property's present class life. In the
case of 18 -year real property and property with no present
class life, a short -term lease is defined as any lease the
KUTAK ROCK & CAMPBELL
term of which is less than three years. Furthermore, tax -
exempt use property does not include any portion of property
predominantly used by the tax - exempt entity (directly or
through a partnership of which the entity is a partner) in an
unrelated trade or business the income of which is subject to
tax under Section 511 of the Code (relating to the taxation
of unrelated business income of certain charitable
organizations).
High Technology Equipment Exception
Qualified technological equipment leased to a tax - exempt
entity for a period of five years or less will not be subject
to the lengthened depreciation periods. Qualified technolog-
ical equipment which is leased to a tax - exempt entity for
longer than five years is entitled to straight -line deprecia-
tion, a five -year recovery period and the half -year conven-
tion (but not if it is used predominantly outside the United
States).
The term "qualified technological equipment" includes
any computer or peripheral equipment, high technology tele-
phone station equipment installed on the customer's premises
and high technology medical equipment. However, the high
technology exception will not apply to any property leased to
a tax - exempt entity if (i) part or all of the property was
financed by tax - exempt bonds, (ii) the lease follows a sale
(or other transfer) from the tax - exempt entity, or a related
entity or (iii) the lessee is the United States or any agency
or instrumentality thereof. Property which is sold and
leased.back within three months after the property is first
used by the tax - exempt entity will not be disqualified under
(ii) above. In addition, the Secretary of the Treasury is
given the power to determine that any equipment described by
the language of the 1984 Act as high technology telephone or
medical equipment is not subject to rapid obsolescence
thereby depriving it of the high technology exception on a
prospective basis only. The report of the joint conference
committee (the "Conference Report ") states that:
the conferees intend that the Treasury will so
provide only if it determines that such property
cannot reasonably be expected to become techno-
logically obsolete substantially before the expira-
tion of its useful life.
The term "computer" is defined by the 1984 Act as a
programmable, electronically activated device which:
(I) is capable of accepting information, applying
prescribed processes to the information, and sup-
plying the results of these processes with or
without human intervention, and
(II) consists of a central processing unit contain-
ing extensive storage, logic, arithmetic, and con-
trol capabilities.
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KUTAK ROCK & CAMPBELL
A computer does not include (i) equipment which is an inte-
gral part of other property which is not a computer, (ii)
typewriters, calculators, copy machines or similar equipment
and (iii) equipment whose primary use is entertainment.
The term "related peripheral equipment" includes
auxiliary machines (on -line or off -line) designed to be
placed under the control of the central processing unit of a
computer.
High technology telephone station equipment includes
such station apparatus and connections as teletypewriters,
telephones, booths, private exchanges and comparable equip-
ment, but only if such equipment has a high technology con-
tent. For example, telephone booths and telephones with
standard dialing equipment are not high technology equipment
while telephones which have dialing programs, automatic call
backs or conference call features are high technology
equipment.
High technology medical equipment includes electronic,
electromechanical or computer -based equipment used in screen-
ing, monitoring, observing, diagnosing or treating patients
in a laboratory, medical or hospital environment. Examples
of such equipment include C.A.T. scanners, nuclear magnetic
resonance equipment, clinical chemistry analyzers, drug
monitors, diagnostic ultrasound scanners, nuclear cameras,
radiographic and fluoroscopic systems, halter monitors and
bedside monitors. Incidental use of such equipment for other
purposes, such-as research, will not disqualify it.
Service Contract Exception
The 1984 Act provides that a contract will be treated as
a lease and not a service contract if such treatment is more
properly taking into account all relevant factors including
whether:
(i) the service recipient is in physical
possession of the property;
KUTAK ROCK & CAMPBELL
(ii) the service recipient controls the
property;
(iii) the service recipient has a significant
economic or possessory interest in the property;
(iv) the service provider does not bear any
risk of substantially diminished receipts or sub-
stantially increased expenditures if there is
nonperformance under the contract;
(v) the service provider does not use the
property concurrently to provide significant serv-
ices to entities unrelated to the service recipi-
ent; and
(vi) the total contract price does not sub-
stantially exceed the rental value of the property
for the contract period.
The Conference Report cites an example in the Senate
Committee Report as illustrating the proper application of
these general service contract rules. In that example E, a
school district, and T, a privately owned school bus company,
enter into a multi -year agreement (up to four years) under
which T will provide transportation for all school children
within the district." T was awarded the contract under com-
petitive bid and is paid, so long as it performs under the
contract, at a fixed monthly rate. Under the agreement, T
has the exclusive authority to designate bus stops and estab-
lish pickup and delivery schedules although it does consult
with E. E designates the children to be transported and the
time they are to be at school.
T has sole title to the buses, which generally have an
economic useful life of 9.5 years, and has total discretion
regarding the number and type of vehicles to be used. The
agreement requires that all vehicles, equipment and drivers
must comply with applicable state and federal safety regula-
tions. Under the terms of the contract, T is responsible,
subject to state requirements, for maintaining insurance
coverage within specified limits. T is also responsible for
the training and employing of drivers, and for the storage,
repair and maintenance, which is significant, of all vehi-
cles. In addition, T decides when a bus should be replaced,
determines what models should be purchased and what features
they should have, and exercises discretion over substitu-
tion. It is unlikely the buses will be used for other pur-
poses during the school year.
KUTAK ROCK & CAMPBELL
Absent other factors to the contrary, the agreement is a
service contract under the bill. The following facts provide
the basis for that conclusion: (i) T has physical possession
of the buses; (ii) T has control of the buses; (iii) T bears
a substantial risk of nonperformance in that, among other
things, it will not get paid unless it performs; and (iv) the
monthly rate substantially exceeds the rental value of the
property. The facts that the buses will not be used for
other purposes during the school year, that the agreement is
for up to four years (which is not a substantial portion of
their useful lives), and that T must comply with applicable
regulations do not, by themselves, support a conclusion that
the agreement is a lease.
Solid Waste Disposal, Energy
and Clean Water Facilities
The 1984 Act provides more liberal rules for determining
whether a contract is a service contract with regard to qual-
ified solid waste disposal facilities, cogeneration or alter-
native energy facilities or water treatment works facili-
ties. These liberal rules provide that any contract or
arrangement between a service provider and a service recipi-
ent with regard to the specified facilities will be treated
as a service contract unless:
(i) the service recipient operates such
facility;
(ii) the service recipient bears any signifi-
cant financial burden of nonperformance under the
contract or arrangement (other than for reasons
beyond the control of the service provider);
(iii) the service recipient receives any
significant financial benefit if the operating
costs of such facility are less than the standards
of performance or operation under the contract or
arrangement; or
(iv) the service recipient (or a related
entity) has an option to purchase, or may be
required to purchase, all or a part of such facil-
ity at a fixed and determinable price (other than
for fair market value).
With regard to these favored types of service contracts,
certain factors are not to be considered. First, a service
recipient may be given the right to inspect any facility, to
exercise any sovereign power it may possess or to act in the
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KUTAK ROCK & CAMPBELL
event of a breach of contract by the service provider. In
addition, the service recipient may be allocated any finan-
cial burden or benefits in the event of any change in any
law. Moreover, the costs of any temporary shut -down of the
facility for repairs, maintenance or capital improvements, or
any financial burden caused by the bankruptcy or similar
financial difficulty of the service provider, may be allo-
cated to the service recipient. Finally, any significant
financial benefit merely because payments by the service
recipient under the contract or arrangement are decreased by
reason of increased production or efficiency or the recovery
of energy or other products will not cause the contract to be
treated as a lease.
For purposes of the special service contract rules pre-
cise definitions are supplied for qualifying facilities. A
qualified "solid waste disposal facility" includes any facil-
ity which provides services for residents of part or all of
one or more governmental units and substantially all of the
solid waste processed at such facility is collected from the
general public. A "cogeneration facility" is a facility
which uses the same energy source for the sequential gener-
ation of electrical or mechanical power in combination with
steam, heat or other forms of useful energy. An "alternative
energy facility" is a facility for producing electrical or
thermal energy if the primary energy source for the facility
is something other than oil, natural gas, coal or nuclear
power. Finally, a "water treatment works facility" includes
any devices and systems used in the storage, treatment,
recycling and reclamation of municipal sewage or industrial
wastes of a liquid nature. In addition, the term includes
facilities necessary to recycle or reuse water at the most
economical cost over the estimated life of the works, includ-
ing intercepting sewers, outfall sewers, sewage collection
systems, pumping, power and other equipment, as well as ele-
ments essential to provide a reliable recycled supply such as
standby treatment units and clear well facilities. The term
"treatment works" also means any other method or system for
preventing, abating, reducing, storing, treating, separating
or disposing of municipal waste, including storm water run-
off, or industrial waste, including waste in combined storm
water and sanitary sewer systems.
Low- Income Housing
The tax - exempt leasing rules specifically do not apply
to low- income housing if the apartment complex is operated by
a 501(c)(3) or (4) organization and at least 80% of the units
in the complex are leased to low- income tenants as determined
by the Secretary of the Treasury.
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KUTAK ROCK & CAMPBELL
Partnerships
If property is leased to a partnership in which a
tax - exempt entity is a partner, a portion of that property
will be treated as being leased to that partner. That por-
tion is determined by finding the "proportionate share" of
the property owned by the tax- exempt entity. A tax - exempt
entity's proportionate share is equal to such entity's share
of the partnership's items of income or gain, whichever is
greater. If the entity's share of income or gain fluctuates
over the term of the partnership, the highest possible share
the tax - exempt entity may receive is that entity's propor-
tionate share.
Similar rules are to be applied to other pass- through
entities and tiered partnerships. Furthermore, a "propor-
tionate share" of property owned by a partnership of a
tax - exempt and a taxable entity will be tax - exempt use prop-
erty if any allocation to the tax - exempt entity of partner-
ship items is not a qualified allocation. A "qualified
allocation" is defined as any allocation which
M is consistent with such entity's being
allocated the same distributive share of each item
of income, gain, loss, deduction, credit, and basis
and such share remains the same during the entire
period the entity is a partner in the partnership,
and
(ii) has substantial economic effect within
the meaning of section 704(b)(2).� However, items
allocated under section 704(c) (contributed
property) shall not be taken into account.
The Conference Report states that these rules take
precedence over other provisions relating to tax- exempt
leases. For example, assume that a partnership of a tax -
exempt and a taxable entity owns a building leased to a
taxable entity. Even if the tax - exempt entity owns only 10%
of the partnership interests, unless the partnership's allo-
cations to the tax- exempt partner are qualified, 10% of the
building will be tax - exempt use property even though a build-
ing will not be tax - exempt use property unless 35% is leased
to a tax - exempt entity. Furthermore, property may be deemed
to be tax - exempt use property by virtue of being leased to a
tax - exempt entity as well as being owned by a partnership
with an unqualified allocation to a tax - exempt partner.
KUTAK ROCK & CAMPBELL
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Finally, the Conference Report directs the Treasury to prom-
ulgate regulations concerning, among other things, guaranteed
payments to tax - exempt partners.
Effective Dates
Generally, the 1984 Act applies to (i) property placed
in service by the taxpayer after May 23, 1983 in taxable
years ending after such date and (ii) to property placed in
service by the taxpayer on or before May 23, 1983 if the
lease to the tax - exempt entity is entered into after May 23,
1983.
Several transition rules are granted by the 1984 Act.
First, an exception is granted for leases entered into on or
before May 23, 1983 (or subleases under such leases), or any
renewals or extensions of leases entered into on or before
May 23, 1983, if such renewals or extensions are pursuant to
an option exercisable by the tax - exempt entities which were
held by the tax - exempt entities on May 23, 1983.
Second, the 1984 Act will not apply to any property
leased to a tax - exempt entity if such lease is pursuant to
one or more written binding contracts which, on May 23, 1983,
and at all times thereafter, required (i) the taxpayer (or
his predecessor in interest under the contract) to acquire,
construct, reconstruct or rehabilitate such property, and
(ii) the tax - exempt entity (or a tax - exempt predecessor
thereof) to be the lessee of such property.
In addition, the partnership and other pass- through
entity provisions will not apply to property owned by a
partnership if the property was acquired by the partnership
on or before October 21, 1983, or the partnership entered
into a written binding contract which, on October 21, 1983,
and at all times thereafter, required the partnership to
acquire or construct the property.
Moreover, if (i) on or before May 23, 1983, the taxpayer
(or his predecessor in interest under the contract) or the
tax - exempt entity entered into a written binding contract to
acquire, construct, reconstruct or rehabilitate such property
and such property had not previously been used by the tax -
exempt entity, or.(ii) the taxpayer or the tax - exempt entity
acquired the property after June 30, 1982 and on or before
May 23, 1983, or completed the construction, reconstruction
or rehabilitation of the property after December 31, 1982,
and on or before May 23, 1983 and if such lease is pursuant
KUTAK ROCK & CAMPBELL
to a written binding contract entered into before January 1,
1985, which requires the tax - exempt entity to be the lessee
of such property, then the 1984 Act will not apply.
Finally, for lessees other than the United States or an
instrumentality thereof or any foreign person or entity, the
1984 Act does not apply if (i) on or before November 1, 1983
there was significant official governmental action with
respect to the project or its design, and (ii) the lease to
the tax - exempt entity is pursuant to a written binding con-
tract entered into before January 1, 1985, which requires the
tax - exempt entity to be the lessee of the property.
The 1984 Act excludes from the definition of "signif-
icant official governmental action" the granting of permits
zoning changes, environmental impact statements or similar
governmental actions.
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VYWTATT r
TAX - EXEMPT ENTITY LEASING*
Ben E. Benjamin
O'Melveny & Myers
I. Background
4
A. There are valuable tax benefits that can be derived
from the ownership of real and personal property.
1. Depreciation deductions. IRC §§ 167 and 168.
2. Investment credits. IRC § 46.
(a) Regular credit.
(b) Energy credit.
(c) Qualified rehabilitation credit.
B. In order to realize an economic benefit from these
tax benefits, political subdivisions and other tax - exempt
entities have engaged in transactions under which ownership
of the property rests with a taxable entity but the tax - exempt
entity has the benef =cial use of it. A typical example would
be the lease of property from a taxable entity to a tax - exempt
entity.
C. Prior law.
1. Generally, in order to "transfer" the tax
benefits the taxable entity had to be the owner of the
property for tax purposes. This was determined under
case law and IRS pronouncements. See e.g., Rev. Proc.
75 -21, 19 -75 -1 C.B. 715. It is important to note that
the new law does not alter the ownership requirement.
Thus, the characterization of a transaction as a lease
or a conditional sale is still a relevant issue.
2. if property was used by a tax - exempt entity
(except im a^ unrelated trade or business) or by the
United S =_tes, any State or political subdivision
thereof cr any agency or instrumentality of the foregoing,
no invest -gent credits were available other than qualified
rehabilitation credits. IRC §§ 48(a)(4) and (5).
* The provisions dealing with leases of property to foreign
persons is outside the scope of this outline.
C 1
1 '
(a) Property leased to a tar.- exempt entity or
a governmental unit (other than on a casual or
short -term basis) was treated as used thereby.
Treas. Reg. $§ 1.48 -10) and (k).
(b) There was no similar restriction on the
availability of depreciation or cost recovery
deductions.
(c) In order to avoid the restriction on the
availability of investment credits some trans-
actions were structured as service arrangements
rather than as leases. See e.g., Xerox V. United
States, 656 F.2d 886 (Ct. C1. 1981); Rev. Rul.
68 -109, 1968 -1 C.S. 10.
II. General Operation of Tax - Exempt Entity Leasing Provisions.*
A. Overview.
1. Congress felt it was inefficient and inappro-
priate to permit tax - exempt entities to transfer tax
benefits.
2. To prevent such transfers, with various
exceptions and special rules, DEFRA expands the rule
denying investment credits for property used by tax -
exempt entities and governmental units and substantially
restricts the depreciation deductions available for such
property.
3. There are different rules for personal property
and for real property.
4. Property to which DEFRA restrictions apply.
(a) As under prior law, the investment credit
limitations apply to property used by (which
essentially means leased to) a tax - exempt entity or
a g=-nental unit. DEFRA added certain excep-
tionS for governmental units.
(b) The depreciation restrictions apply to
"tar. - exempt use property" ( "TEUP "), which is a key
concept discussed in detail infra.
* These provisions appear in Section 31 of the Deficit
Reduction Act of 1984 ("DEFRA").
C 2
such
5. Treasury is given authority toro riatelto carry
regulations as may be necessary or app P
out the purposes of the tax - exempt entity leasing
provisions. IRC § 168(j)(10)-
B. DEFRA restrictions on property used by tax - exempt
entities and governmental units.
I. Personal property.
(a) Investment credits.
(i) With limited exceptions, no invest-
ment credits allowed. IRC §§ 48(a)( 4 ) and
48(a)(5)(A)(i). This is essentially a con-
tinuation of prior law.
(ii) One exception is for property leased
under a a'leaselwith aotermof governmental
less than
unit, i.ee.., ,
6 months. IRC § 48(a)(5)(B).
(iii) Another exception is for property
used by a tax - exempt entity predominantly in an
unrelamed trade or business that is subject
to Federal income tax. IRC §§ 48(a)(4).
(b) Depreciation.*
(i) Depreciation deductions must be on a
straight-line basis over the greater of
(1) the property's ADR midpoint life_(12 years
if the property has no ADR midpoint life) or
(2) 125% of the term of the lease. IRC
§ 16B(j)(1). IRC § 168(j)(1)•
(ii) The half -year convention applies.
IRC § 168(j)(2)(B)(i).
(iii) Treasury isersonal authority shave
1 is'7 ADR lives for p property that
none. IRC § 168(g)(2)-
* For purposes of this outline
includes "cost recovery" under the
System provided for in IRC § 168.
C 3
the term "depreciation"
Accelerated Cost Recovery
2. Real property.
(a) Investment credits.
(i) Same as personal property, with
exception for qualified rehabilitation
credits:
(ii) The denial of investment credits does
not extend to any qualified rehabilitated
building leased to a governmental unit to the
extent of the basis of such building attribut-
able to qualified rehabilitation expenditures.
IRC § 48(a)(5)(C). It also does not extend
to qualified rehabilitation expenditures for
property leased to a tax - exempt entity. IRC
§ 48(a)(4).
(iii) However, rehabilitation expenditures
allocable to the portion of a building which is
(or may reasonably be expected to be ) TEUP are
not qualified rehabilitation expenditures except
for purposes of determining whether the building
has been substantially rehabilitated. IRC
§ 48(g)(2)(B)(vi).
(iv) Pursuant to the provisions described
in clauses (ii) and (iii), a qualified
rehab:'_iation credit is allowed for property
that is not TEUP.
(b) *Depreciation.
(i) Depreciation must be on a straight -
lire basis over the greater of (1) 40 years or
(2) 1250; of the lease term. IRC § 168(j)(1).
(ii) Depreciation must be determined on
the basis of the number of months the property
is in service i.e., no half -year convention.
IRC § 168(j)(2)(B).
3. -Provisions applicable to both real and per-
sonal prc ty.
(a) Regulations are to be issued prescribing
the = =eatment of depreciation deductions for
property that either becomes or ceases to be TEUP
after being placed in service. IRC § 168(f)(13).
C 4
(b) IRC § 168(f)(12) provides limitations on
the depreciation deductions for property financed
with the proceeds of industrial development bonds.
This provision does not apply, however, to TEUP
subject to the new depreciation rules. IRC
§ 168(j)(2)*('E).
(c) If the recovery period for property
without the new restrictions is longer than the
recovery period under the restrictions the longer
period is applicable. IRC § 1681(j)(2)(C).
C. Definition of tax - exempt use property.
I. Personal property is TEUP to the extent it
is leased to a tax - exempt entity. IRC § 168(j)(3)(A).
2. Real property is TEUP to the extent it is
leased to a tax - exempt entity under a "disqualified
lease." IRC § 168(j)(3)(B).
(a) A disqualified lease is any lease of
property to a tax - exempt entity which also meets
at least one of the following requirements:
(i) All or a portion of the property is
financed with tax - exempt obligations in a
financing in which such entity (or a related
entity)* participates.
(ii) The lease provides for an option or
a put involving such entity at a fixed or
determinable price.
(iii) The lease term exceeds 20 years.
(iv) The transaction involves a sale/
leaseback or something comparable (unless the
leaseback occurs within 3 months after such
entity first uses the property).
(b) Real property is TEUP only if more than
35% cf the property is leased to one or more tax -
exem,, entities under disqualified leases. IFC
§ 16B(j)(3)(B)(iii).
* All references to an entity will also include a related
entity unless otherwise noted.
C 5
improvements ptovland)sare notrtreated(ashsQ than
property for purposes of determining whetherathee
property is TEUP. IRC § 168(j)(3)(B)(iv).
3• Exceptions.
(a) Short -term leases. IRC §§ 168(j)(3)(C).
(i) Property is not TEUP if leased under
a short -term lease.
(ii) For personal property and property
with a present class life, a short -term lease
is one with a term less than 3 years and less
than the greater of 1 year or 30% of the
property's present class life.
(iii) For real property and property with
no present class life it is a lease with a
term of less than 3 years.
(b) Property is not TEUP to the extent it is
predominantly used in an unrelated trade or busi-
ness the income of which is subject to tax. IRC
§§ 168(j)(3)(D). Property which is debt - financed
within the meaning of IRC § 514 will not avoid
classification as TEUP on that basis alone.
e 4. Special rule for qualified technological
equipment. IRC § 168(j)(5).
(a) Qualified technological equipment leased to
a tar.- exempt entity for 5 years or less is not TEUP.
(b) If such equipment is leased for more than
5 years it can be TEUP (if the other requirements
are satisfied), but it can be depreciated over 5
years.
(c) Qualified technological equipment is
defined as:
(i) Computer or peripheral equipment.
(ii) High technology telephone station
equipment installed on the customer's
premises.
(iii) High technology medical equipment.
C 6
a
(d) Property will
technological equipment
apply:
not be qualified
if any of the following
(i). Part or all of the equipment is
financed with tax - exempt obligations.
(ii) The transaction is a sale /leaseback
(although there is a 3 month exception).
(iii) The property is leased to the United
States or any agency or instrumentality
thereof.
(iv) Treasury determines the property is
not subject to rapid obsolescence.
other Definitions.
1. Tax - exempt entity. IRC § 168(j)(4)-
(a) The United States, any State or political
subdivision thereof, any possession of the United
States, or any agency or instrumentality of any of
the foregoing.
(b) Fn organization (other than a coopera-
tive described in IRC § 521) which is exempt from
Federal income tax.
(c) A corporation is not treated as an instru-
mentality of the United States orofft any aState ors
_political subdivision if (1) all
of such corporation are subject to Federal income
tax and (2) a majority of its Board of Directors
is not selected by the United States or any State
or political subdivision.
(d) If an organization was exempt from
Federal income tax at any time during the five
years ending on the date the property is leased it
is treated as a tax - exempt entity, with a special
exception for cooperatives.
2. Lease. IRC § 166(j)(6)(A)-
(a) A lease is defined to include any grant
of a right to use property.
3. Lease term. IRC § 168(j)(6)(8).
C 7
i
(a) A lease term includes the initial lease
term, any period covered by options to renew the
lease and the term under two or more successive
leases which are a part of the same transaction (or
a series of related transactions) with respect to
the same or.substantially similar property.
(b) In the case of real property, the lease
term does not include any period covered by an
option to renew at fair market value.
(c) The lease term is to be determined on
the basis of all the facts and circumstances. See
Hoakanson y. Commissioner, F.2d (9th Cir.
1984).
4. Related entities. IRC § 168(j)(7).
(a) Each governmental unit and each agency or
instrumentality of a governmental unit is related
to each other such unit, agency or instrumentality
which derives its powers from the same sovereign
authority. Query: Is each city within a state
a related entity to each other city?
(b) Er.tities are also treated as.related with
respect to a particular transaction if such trans-
action constitutes an attempt to avoid the DEFRA
restrictions.
E. Service contracts. IRC § 7701(e).
1. A service contract or other arrangement is to
be treated as a lease if such contract or arrangement,
taking into account all relevant factors, is properly
characterized as a lease.
2. Certain factors which are to be taken into
account are specifically enumerated.
(a) Whether the service recipient is in physical
pose =lion of the property.
(b) Whether the service recipient controls
the ._operty.
(c) Whether the service recipient has a sig-
nificant economic or possessory interest in the
property.
C 8
(d) Whether the service provider bears any
risk of substantially diminished receipts or.
substantially increased expenditures if there is
nonperformance under the contract.
(e) Whether the service provider uses the
property concurrently to provide significant
services to different unrelated entities.
(f) Whether the total contract price sub-
stantially exceeds the rental value of the
property.
3. The Committee Reports contain a number of
examples illustrating the application of this provision.
4. There are detailed exceptions for service
contracts or arrangements relating to the operation of a
qualified solid waste disposal facility, the sale of
electrical or thermal energy produced at a cogeneration
or alternative energy facility and the operation of a
water treatment works facility.
F. Treatment of partnerships and other pass -thru
entities.
1. The determination
to a partnership is TEUP is
tax - exempt entity partner's
property as being leased to
§ 168(j)(8)-
of whether property leased
to be made by treating each
proportionate share of such
such partner. IRC
2. Treatment of property owned by partnerships
and other pass - through entities. IRC § 168(j)(9).
(a) If a partnership has at least-one tax -
exempt entity and one person who is not a tax -
exempt entity as partners and any allocation to the
tax - exempt entity of partnership items is not a
"qu= ??fied allocation, an amount equal to the
tax - exempt entity's proportionate share of such
property is to be treated as TEUP.
(b) A qualified allocation is one which is
consistent with the tax - exempt entity being allo-
cated the same distributive share of each item of
partnership income, gain, loss, deduction, credit
and basis and such share remains the same during
the entire period the entity is a partner. Such
allocation also must have substantial economic
effect.
C 9
(c) A tax - exempt entity's proportionate share
of any property owned by a partnership is to be
determined on the basis of its share of partnership
items of income or gain, whichever results iii the
largest proportionate share.
(d) Note that the partnership and other
pass -thru entity provisions override the other
requirements for TEUP. Thus, for example, real
property can be TEUP even if the 35% threshold use
requirement is not satisfied. Furthermore, prop-
erty can be TEUP under both the general provisions
and the partnership provisions.
(e) If the partnership provisions apply,
the total allowable depreciation deductions are
allocated under the normal allocation rules.
Query: Can a special allocation be devised to
mitigate the partnership provisions?
(f) Guaranteed payments will not disqualify
an otherwise qualified allocation.
(g) The use of multiple partnerships will
not avoid application of the partnership provi-
sions.
3. Rules similar to those for partnerships are
to be applied to other pass -thru entities.
III. Effective Dates.
I
A. The general rule is that the tax - exempt entity
leasing provisions apply to property placed in service after
May 23, 1983 and to property placed in service before May 23,
f 1983 if the lease to the tax - exempt entity is entered into
after May 23, 1983. Improvements that are not substantial
improvements (w4thin the meaning of IRC § 168(f)(1)(C)(ii)
but substituting 20% for 25 %) are not treated as separate
property for zh-- s purpose.
B. These provisions do not apply to property leased
pursuant to a =_ase entered into on or before May 23, 1983 or
to any renewal or extension of a lease entered into on or
before that date pursuant to an option contained in the
lease.
C. They do not apply if, on May 23, 1983, there were
one or more written binding contracts requiring the owner of
the property (or its precedessor in interest under the
C10
contract) to acquire, construct, reconstruct or rehabilitate
the property and the tax - exempt entity to lease the property.
D. They do not apply to property leased to a tax -
exempt entity other than United States or any agency or
instrumentality thereof if, on or before November 1, 1983,
there was significant official governmental action with
respect to the project or its design and any lease to the
tax - exempt entity is pursuant to a written binding contract
entered into before January 1, 1985 which requires the
tax - exempt entity to be the lessee.
E. They do not apply to qualified mass commuting
vehicles financed in whole or in part by tax - exempt obliga-
tions and placed in service before January 1, 1988. They
also do not apply to such vehicles placed in service after
that date pursuant to a binding contract or commitment
entered into before April 1, 1983 and with respect to which
the delay is due to conditions which are not within the
control of the lessor or the lessee.
F. There are numerous other transitional rules with
respect to specific kinds of property and situations.
C 11
`o \111PII /I�� `--'
cNB : COLORADO NATIONAL
tm LEASING, INC.
March 22, 1984
Mr. Bill James
The Town of Avon
P. 0. Box 975
Avon, CO 81620
RE: Lease #882
Dear Mr. James:
141 IVEa, MAR 8"' 19�:;
'/VV
'1 a J 7/I
3�a
Periodically, it becomes necessary to update the financial
information of our customers as required by our internal
examiners.
In accordance with Paragraph 21 of your Equipment Lease
Agreement, we are requesting the most recent financial sta-
tement available from you. If you or your company has not
yet completed a fiscal year -end financial statement, please
notify us to that effect and advise us as to the date in
which that report would be available, and the date you would
be mailing it to us.
Feel free to contact me if you have any questions. If you
are unable to submit a year -end financial statement at this
time, I would appreciate your responding in writing at the
address noted below no later than April 15, 1984.
Thank you for your cooperation.
Sincerely,
Carlton G. Hamm
Credit Review Administrator
/cpb
Building 51, Suite 150
14142 Denver West Parkway
Golden, Colorado 80401
(303) 278 -7750
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- %4'Aa -w- ' /6' )S4.4800
March 14, 1984
Mr. Pat Doyle
City Hall
P.O.B. 975
Avon, Co. 81620
Dear Mr. Doyle:
ft was a pleasure speaking with you the other day. CHRISTOPHER
CAPITAL and I are most anxious to begin working with you. This
letter will give you some additional insight into "our" company.
CHRISTOPHER CAPITAL CORPORATION is a wholly owned subsidiary of
B. C. Christopher and Company, a 106 year old investment banking
firm in Kansas City. Our company and our parent are Midwest based
organizations with seventeen offices throughout the operation.
B. C. Christopher and Company is a member of the American Stock
Exchange, The New York Stock Exchange and all major exchanges.
As a subsidiary corporation we are responsible for the origination
of municipal lease transactions and the resale through our parent
company's Municipal Bond Department. We have been involved in the
origination and funding of municipal lease transactions for over
three years, and look forward to a sizeable expansion in this
market place.
I have enclosed several articles for you that are indicative of
our leadership in the market place. In addition, you will find
some literature that we include in our mailings and an article
written by our vice - president that has been republished in several
municipal magazines.
I look forward to working with you. Please call me at 816 - 561 -4800
anytime.
RE CE IVED MAR 1 61984
Regards,
Darrel %Jarman
Munic' 1 Division
he Bond 131 11
The Authority on Municipal Bonds Since 1891
01. W7 Na 28808 New Y"k N.Y. FH&W. Febru=7 3.
Bond Firm Signs
Deal to Buy Leases
For Unit Trusts
By George Yacik
A Kansas City bond first, that Is
putting together a unit investment
trust program using municipal
leases has struck a deal with a ma-
jor corporate lease- maker.
Christopher Capital Corp.. a sub-
sidiary of B.C. Christopher Securi-
ties Co. in Kansas City. has signed
an exclusive agreement with Ford
Financial Services Inc.. an affiliate
of Ford Motor Credit Co.. in which
Christopher can buy all the munici-
pal leases that Ford Financial ar-
ranges in 29 states and package
them Into tax - exempt unit trusts.
The trusts will be marketed by B.C.
Christopher.
Robert C. Chambers. vice presi-
dent at Ford Financial. said the
leases will be of all types of capital
equipment for state and local gov-
ernments — not only automobile
fleets and fire trucks. but also such
things as computers.
Ford Financial Is a major lessor of
capital equipment. both Ford and
non -Ford products. to states and
cities.
Jeff Brooks. who Is running the
unit trust for B.C. Christopher. said
the firm has applied for approval
from the Securities and Exchange
Commission. and he expects a 815
million unit trust offering to be out
in about,30 to 60 days if the SEC
grants approval. The trust Is aimed
at retail customem he said, and
will be sold in lots as small as
$1.000.
B.C. Christopher said several
months ago that It intended to start
the municipal lease unit Invest-
ment trust program. But the agree-
ment with Ford Financial gives the
program a big boost.
..I think you're going to see B.C.
Christopher coming out of this as a
major name in municipal leasing."
Mr. Brooks said.
Mr. Chambers said the 29 states
are located around the country ex-
cept In the Midwest se as not to
compete In those states where B.C.
Christopher does most of Its
business.
The unit Investment trust will be
insured by Fireman's Fund Insur-
ance Co.. a subsidiary of American
Express Co. Mr. Brooks said his
firm intends to make a secondary
market in the trust shares.
Mr. Brooks also said the firm In-
tends to Include only high- quality
leases In the unit trust. not only to
keep Insurance costs to a minimum
but also to make investors feel
secure.
H r
a aSCALL
inEs
CHEVROLET- OLDSMOBILE INC.
January 18, 1983
Avon Town Council
Box 391
Avon, Colorado 81.620
Dear Sirs:
As Sales Manager of Hascall & Haines Leasing, I can guarantee the
returnee value of leases' cars - in. this case 1983 Buick Skylarks.
The value of $4750.00 on cars returned are specifies in lease
agreement.
Best Regards,
A?�ZL-le- 61.
G. F. Sinclair
Sales Manager
P. 0. Box 547
1520 E. Highway 50
Salida, Colorado 81201
(303) 539 -6641
CHEVROLET 1111
O
BUICK PONTIAC
Zoftln of
V- (0_ pax 975
cAilan, Colaruaa 8162LI
(30-1) 949 -42819
April 14, 1983
Colorado National Bank
Box 968
Grand Junction, CO 81502
ATTENTION: BURL BARLOW
Dear Mr. Barlow:
I have been requested by Colorado National Leasing to detail the
funding for the lease /purchase of three patrol cars and a computer
system.
First, the three patrol cars for the Police Department are being
financed from reduction of operating costs (includes gasoline and
maintenance). The Police Department currently has nine patrol
vehicles of which seven have over 100,000 miles. The maintenance
cost for these vehicles exceeds well over $8,000 annually, of
which the Town will save approximately $6,000 in the first year
with the new vehicles. Also, the Town previously had a policy of
allowing each patrolman to take a vehicle home after his regular
shift. This practice has been discontinued and the fleet will be
reduced from nine patrol cars to five with an estimated yearly
savings of approximately $4,000 per year. The overall savings
will be from $10,000 to $12,000, which is sufficient to pay for
the lease /purchase of three new vehicles.
Second, the computer system has been budgeted for at $12,000
annually for lease /purchase under General Administration Account
in the General Fund for 1983.
If you need any additional information, please let me know.
Sincerely,
W�l"7ri m D. James
F'nance Director
WDJ /jb
r'NB� COLORADO NATIONAL
tM
LEASING, INC.
February 28, 1983
Mr. William D. James
Finance Director
Town of Avon
P. 0. Box D
Avon, Colorado 81620
Dear Mr. James:
Enclosed are the revised Equipment Lease Schedules and Lease
Amortization Schedules for the Minolta Copier, Lease #88204
and the Police Pursuit Cars, Lease #88205.
Please sign and date these schedules and return with the
other documents sent with my letter of February 25, 1983.
Please call if you have any questions. I apologize for the
misunderstanding regarding the payment amount.
Sincerely,
Kenneth B. Shuss
Lease Representative
KBS /chl
Enclosure
Building 51, Suite 150
14142 Denver West Parkway
Golden, Colorado 80401
(303) 278 -7750
v
`cNg COLORADO NATIONAL
LEASING, INC.
February 25, 1983
Mr. William D. James
Finance Director
Town of Avon
P. 0. Box D
Avon, Colorado 81620
Dear Mr. James:
Enclosed are two lease document packages for the Minolta
Copier (Lease #88204) and the Police Pursuit cars (Lease
#88205), along with lease amortization schedules.
After you have presented these leases to the Town Council
for approval, please sign and date the following for the
Town of Avon:
1. Equipment .Lease Agreements 88204 and 88205
2. Equipment Lease Schedules
3. Certificates of Acceptance
We will also need an ordinance similar to Ordinance #82 -28
dated 12/21/82 or an Opinion of Council letter similar in
content to the sample we have enclosed.
Please note that some of the necessary dates on the lease
documents are left blank. Once you have approved the lease
and the equipment is delivered (in the case of the Police
cars), we will insert the proper dates.
Please call me if you have any questions regarding our
leases.
Sincerely,
Kenneth B. Shuss
Lease Representative
KBS /chl
Enclosures
Building 51, Suite 150
14142 Denver West Parkway
Golden, Colorado 80401
(303) 278 -7750
JINCO Leasing Corp.
MUNICIPAL FINANCE SERVICE
LEASE FINANCE SERVICE
July 1 , 1982 180 COOK STREET - SUITE 413
DENVER, COLORADO 80206
(303) 393 -0540
Mr. Richard D. Blodgett, City Manager
City of Avon
P.O. Box D
Avon, Colorado 81620
Dear Mr. Blodgett:
In regard to our recent phone conversation, I am writing this
letter to advise you that JINCO Leasing Corp. is a private firm
specializing in providing tax - exempt financing for communities in
the Rocky Mountain area. Many local governments lack the
necessary funds in their fiscal budgets to purchase equipment
and /or facilities that they currently need in order to operate
effectively and efficiently. Important for you to consider is our
knowledge and experience in financing equipment, buildings and
land through lease purchase agreements, bond issues and purchase
money notes and mortgages.
Enclosed is an information packet on JINCO and leasing. If you
have a possible upcoming project, please fill in the questionnaire
and return it to us. At no obligation to you, we will be happy to
provide answers to questions, more detailed information and
financing proposals.
Thank you for your consideration.
Sincerely,
JINCO Leasing Corp.
F �
CraiP.: Danf' rth
Public Fina 'e Specialist
Enclosure
CPD:lc
RECEIVE®JrC6 1982
)INCO Leasing Corp.
MUNICIPAL FINANCE SERVICE
LEASE FINANCE SERVICE
180 COOK STREET - SUITE 413
DENVER, COLORADO 80206
(303) 393 -0540
WHY LEASE
Many local and state governments are faced with higher
capital and operating coats and lack the necessary
funds in their fiscal budgets to purchase equipment
and facilities that they currently need in order to
operate effectively and efficiently.
Lease /purchase programs offer a solution by providing
a way to buy equipment at today's prices and spread
payments over an extended period of time at favorable
rates. The lease /purchase is a full payout agreement
that is written as a one year lease that is annually
renewable for the length of time necessary to pay for
the acquired property.
* Leasing conserves your capital.
* You use the latest equipment.
* You improve your operating efficiency,
* Leasing acts as a hedge against inflation.
* Realize the advantage of tax- exempt interest rates.
* Maintain the ability to upgrade equipment in the
future and renegotiate the lease purchase agreement.
* A third party lease may provide lower interest rates,
a cash discount, more flexability in structuring the
repayment schedules and no application forms or delays,
which may be advantageous over a manufacturers lease.
* A lease purchase agreement does not create a debt
position. It is annually renewable (or cancelable)
depending on a yearly appropriation.
MUNICIPAL LEASE PROCEDURE
You select the equipment and determine the price as if
you were purchasing it directly from the vendor.
You notify us and we will quote the proposed lease
purchase costs according to the term that you desire.
When the terms have been mutually agreed upon and
finalized, JINCO Leasing can issue a purchase order
to the vendor, subject to documentation, opinion of
counsel and delivery and acceptance of the equipment.
We will then prepare and submit an Agreement for ap-
proval by local counsel and signing by authorized
persons.
The lease will commence when the equipment has been
received and acceptance acknowledged by execution
and delivery of the receipt certificate to J INCO
1406 ing .
There away be variations in each transaction, however,
the above is a simple outline of the basic procedures.
(71),
FACTS ON THE
JINCO leasing Corp.
LEASE PURCHASE PROGRAM
1. The agreement gives the political subdivision the
power to set specifications, to receive all war-
ranties and service obligations, bargain for prices
and cash discounts and value of trade -ins.
2. It provides funds quickly without undue credit delays.
3. It provides for simple interest payments only on
the unpaid balance; no security deposits or advance
payments normally required; no add -ons or balloon
payments and it provides for prepayment privileges.
4. Each payment includes a principal and interest
component which is broken out on an amortization
schedule (Exhibit B) as a part of the lease agreement.
5. It allows the equity interest of the political sub-
division to build over the lease term.
6. Title rests with the Lessor until the final pa nt
is completed or at the time of prepayment at which
time title passes to the political subdivision, which
then owns the equipment at no additional cost.
7. The agreement is tailored to the specific needs
and capabilities of the political subdivision.
8. Payment schedules are set at the convenience of the
political subdivision.
Used wisely, lease purchase becomes a useful financial
tool for state, county, city and special districts in
acquiring new or used equipment and facilities.
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MUNICIPAL LEASE RATES
The 'lease rate is to calculate payment per $1,000 of equipment
value. Compute the lease payment by multiplying total cost times
applicable rate.
Example: Monthly in Arrears at 9 % simple interest
Equipment cost $38,000.00
5 yr lease rate factor .021
$38,000 x .021
Total payment per
montli (Loa- O0 niOiitlas) $798.00
>;xz�n�p e uarterly in Adv.ince iit 13'70 simpte interest
Equipment cost
$46,000.00
4 yr lease rate factor
.07859
$46,000 x .07859
Total payment per
quarter (for. 16 quarters)
$3,615. 14
Equipment cost
$46,000.00
1st payment in advance
3,615.14
New equipment cost for
_ �-
leasing
$4.2,384.86
Other payment schedules will be quoted on
ience of the munic'ipa,lity.
request for the conven-
Some municipalities are subject to certain
must be cleared
taxes, .any trix question
prior to a,firm proposal.
This is a full payout, year to year lease
to the lessor.
purchase and is net net
'
A master lease allows consolidation of various
improvements under one lease,. whether they
types of capital
are
time.or individually over a period of time.
acquired at one
JIMCD LEASING CORP. �
S"l-ANNUAL LEASE PAYMENT SCHEDULE
THE LES'--,:EE IS ANYWHERE U:---:A
THE ORIGINAL LEASE VALUE $ 100.000.00
THE FIRS PAYMENT I3 DUE 09/30/80.
SUCCEEDING PAYMENTS ARE DUE :,----.EMI-ANNl-lRLLY THEREAFTER.
PAYMENT BH�E AMT CREDITED Fit-IT CREDITED TO
DATE PAYMENT TO INTEREST ORIGINAL LEH3E VALUE
ORIGINAL TERM
_______________
9/30/80 $14,678.52 $.00 $14,678.52
3/ �5,32� ~48 30/81 814.678.52 8
OPTION TO PUPCHH�E . 0519.1 $74!-802.38 ^ 38
VALUE: $77.260.92
`
FIRCT RENEWAL TERM
9/30/81 $14°678.52 �3.646.62 �11,031.90 $63,770 48
3/30/82 $14,678.5� V 3,108.81 �11,569.71 . �52,200^77
OPTION TO PURCHHSE ^
VALUE: $53"438.82
�ECOMD RENEWAL TERM
9/30/82 �14"678.�2 $2,544.79 $12,133 73 �40 067 04
3 $14.678.52 $1,953.27 812,725^ ^25 $2734�^79
OPTION TO Fq]RCHHCE ' ^
VHLUE: $27,734.73
THIRD RENEWAL TERM
345.61 s13
3/Wl/84 �14,678'49
OPTION TO PURCHASE
VALUE: $.00
------------ -----------
______________
$117,428,13 A17,428'13 -.1i 100"000.00
THE LE3`-,'.EE HEREBY APPROVE- PFlYMFNT AMOUNT'.' AND DFITE�', --:-ET FORTH ABOVE
ANYWHERE
BY
I think it's telling us we're over budget.
_. 4 rb
TAX EXEMPT LEASES
)INCO Leasing Corp.
MIINICIPAI IINAN(I SIRVI( f
I(AM IINANI I %(H VII 1
180 COOK STREET SUITE 41:1
DENVER, COLORADO 80206
(303) 393 0540
The Tax Exempt Leases: The tax - exempt lease is a simple trans-
action used by states, counties, cities,
and other political subdivisions to finance the acquisition of
machinery and capital improvements.
The transaction can be compared to a municipal bond of similar
maturity with the execption that the lease /purchase transaction
has the added attraction of giving the investor ownership or
a first lien on the equipment. As with a municipal bond,
interest is exempt from federal income taxation. However, be-
cause the lease may be terminated if funds are not appropriated
by the political subdivision for any fiscal year, the yields
are hi her for the lease /purchase agreement than a similar
genera obligation bond.
These leases are offered only to insurance companies, banks,
and sophisticated individual investors.
Parties to the Transaction:
a Investor
b Lessee
c Lessor
d Vendor
The transaction typically involves
four primary participants:
The following is a brief description of each participants role:
The Investor is the participant who finances the
purchase o-r-equipment by contributing funds to the
transaction. Transactions are structured to return
to the investor the entire principal amount of the
Investment, at par value, plus a satisfactory return.
The investor may purchase the agreement by assignment
from the Lessor and therefore would have all the right,
title and interest in the agreement and equipment. As
an alternative an investor may buy a participation in
an agreement and purchase the stream of payments, JINCO
can retain an interest in the stream of payments and its
original position as Lessor, retaining title.and a sec-
urity interest in the leased equipment.
The Lessee, or user of the equipment, is the polit-
ical subdivision who makes use of the equipment in
return for fulfilLment of certain obligations under
the contract including the obligation to pay the
fixed periodic payment.
The Lessor (JINCO Leasing Corp.) buys the equipment
an enters nters into a contract to sell the equipment to
the lessee, or user of the equipment, over a speci-
fied period of time.
The Vendor is the manufacturer or distributor of the
equipment. The vendor sells the equipment to the
lessor.
The Transaction and Agreement: In a municipal lease /purchase
transaction the political
subdivision, or lessee, signs an agreement typically called a
lease and option agreement, with the lessor of the equipment.
The investor provides the funds to the lessor for the purchase
of the equipment. In return, an investor receives a security
interest in the equipment and all rights and interest to the
rental stream due under the contract, or all rights and inte-
rests of lessor by assignment of the contract.
The Lessee has the right to terminate the agreement at the
end of the original term or any renewal period if funds are
not appropriated to continue the agreement. If the lessee
terminates the agreement because of non - appropriation of funds
prior to the expiration of all renewal periods, they cannot
purchase, lease, or rent equipment performing functions
similar to those performed by the equipment. The lessee also
agrees not to permit functions similar to those performed
through the use of the equipment to be performed by its own
employees or by any agency or entity affiliated with or
hired by lessee until after the time at which all renewal
periods provided in the lease would have expired by such
termination.
In the event of default on the part of lessee, the lessor
has several remedies which shall be cumulative and exercisable
concurrently or separately:
(1) Terminate the agreement and repossess the pro-
perty, in which case the remainder of the rent
for the term then in effect plus any related
charges shall be immediately due and payable.
(2) Sell the property at public or private sale with
lessee liable for any deficiency or excess pro-
ceeds will be paid to lessee.
(3) Take any remedy at law or in equity.
Title to the equipment may rest with the political subdivision
or lessor depending upon the form of agreement used for the
specific transaction. The agreement will provide a tax para-
graph stipulating that the lessee or r)()iitical subdivision
agrees to pay, and to indenmiiy and hold lessor harmless
from all license, sales, use, personal property or other
taxes together with any penalities, fines or interest there-
on arising from its use of the equipment.
Benefits to Investors:
(a) The investment is secured by the equipment
being financed; there ore, the equipment
is held as collateral by the investor.
(b) The contract is an obligation supported by
the credit - worthiness of the user of the
equipment, a po t cal subdivision, to make
periodic payments for the term as specified
in the contract.
(c) Yields on tax- exempt leases are approximately
100 to 200 basis points more than general
obligation issues of a similar municipality.
(d) The typical financing is short -term (three
to seven years). Because pry cfpaT is
recaptured with each payment, the average
life of the contract is considerab yl shorter
trian the stated term of the agreement.
(This early recapturing of principal adds
to the lessees equity in the equipment with
each payment.)
(e) Periodic repayment of principal and interest
(monthly, quarterly, semi - annual or annually)
provides investors with an opportunity to
lan cash flow at appointed intervals to
meet cash requirements or to re- invest in
changing market conditions.
Types of Projects & Equipment:
Heavy construction equipment.
Hospital equipment (i.e., x -ray, "CAT" scanner, etc.)
Permanent buildings (i.e., schools, city and county offices,
manitenance build i gibs , etc.)
Relocatable school buildings.
Waste disposal trucks.
Computer equipment (i.e., CPU and peripheral equipment).
Airport hangar facilities.
City parks.
Police station.
Municipal golf course restaurant.
Warehouse.
Fire engines.
Police communication equipment.
Paramedic ambulance.
Solid waste balers, compactors, and shredders.
Should you have any questions or require further.information,
c•:I I i W IVIle Morrison, at 303 /393 -O` IO
LAND ACQUISITION FINANCING
)INCO Leasing Corp.
MUNICIPAL FINANCE SERVICE
LEASE FINANCE SERVICE
180 COOK STREET SUITE 413
DENVER, COLORADO 80206
(303) 393 -0540
JINCO Leasing has helped municipalities and political
subdivisions by providing financing for land acquisitions
for public purpose through a unique instrument titled a
Purchase Money Promissory Note and Mortgage.
Open space and landfill needs hold a high priority on
the list of needs by governmental agencys. With costs of
land skyrocketing, population exploding in certain areas
along with environmental And social impacts among other
considerations, managers find it necessary to look for alter-
native financial methods to pay for large land acquisitions
to be used for public purposes.
A Purchase Money Note and Mortgage, properly done, is
an effective tool tp finance land acquisition as -it permits
payment to be made over a period of years at favorable rates
and release of lien on parcels of land as payments are paid
through the financing agreement. The Purchase Money Note and
Mortgage has proven to be a convenient and trustworthy tool,
and can be used with confidence. Below are some procedural
points that are helpful to better understand this concept.
(1) The Political Subdivision will execute a Purchase
Money Promissory Note that is secured by a Purchase
Money Mortgage encumbering the land being acquired.
(2) Title to the property rests with the Political
Subdivision as purchaser.
Land Acquisition Financing Page 2
(3) The Political Subdivision makes annual appropriations
for payments. The Political Subdivision, as Mortgagor
is entitled to a proportionate release of the mortgage
lien with each payment.
(4) In the event of non - appropriation, that portion paid
for and released from the mortgage remains with the
Political Subdivision; and that portion of land
encumbered by the mortgage lien which has not been
released is deeded to the murtgage holder without
further liability to the Political Subdivision.
(5) JINCO will rely upon the Political Subdivision to
choose the ground and negotiate its purchase price.
We believe you may be able to use this method of financing
your present and future land needs, and we will be pleased to
discuss it with you in detail at your convenience.
k
JINCO LEASING CORP.
JINCO Leasing Corp. has been in business since 1977 providing
municipal financing for many Rocky Mountain area public entities,
some of which are listed below. Mr. Wayne Morrison, President,
has been in the municipal finance business, licensed as a
Registered Representative of National Association of Security
Dealers and the Colorado Securities Division, for the past 25
years. He spent those years prior to forming JINCO Leasing Corp.
as a municipal underwriter, institutional salesman, and manager
of the Denver office of a NYSE member firm. Craig Danforth is
also licensed as a Registered Representative of the Colorado
Securities Division and the National Association of Security
Dealers. His history includes five years as a municipal under-
writer prior to joining JINCO in 1980.
Some of the entities we have done business with:
Jefferson County, Colorado - Steve O'Brien, Buyer
Hyland Hills Metropolitan Park and Recreation District -
Greg Mastriano, Executive Director
City of Louisville - Leon Wurl, City Administrator
Louisville Fire Protection District - Wayne Varra, Chief
University of Colorado - Don Schwartz, C.P.M. Buying and
Contracting
State of Colorado - Department of Social Services - Willis
H. LaVance, Executive Officer of Administrator
Town of Crested Butte - Teresa Hunker, Manager
Town of Vail - Bill Pyka, Finance Director
Weld Board of Cooperative Education Services - Darrell Davis,
Director
Mesa County, Colorado - Jim Westbrook, Finance Officer
Pikes Peak Community College - Don L. Courtier, Dean of
Administrative Services
Colorado School of Mines - Gordon Scott, Vice President for
Business Affairs
Hermosa Cliff Fire Protection District - Bill Cowen, Chief
Genessee Fire Protection District - James Rumsey, Vice
President
Pagosa Area Water and Sanitation District - Jack DuLange,
Manager
TOWN OF AVON
POST OFFICE BOX D
AVON, COLORADO 81620
(303) 949 -4280
September 10, 1982
N O T I C E T O B I D D E R S
The Town of Avon is accepting proposals for warehouse /garage space for
the purpose of housing the Town of Avon's Vehicle Garage and Maintenance
Shop. Minimum qualifications are an open garage or adjacent garages
with inter - garage access and the following:
1. Minimum door width of 12 feet, and minimum door height of 12 feet.
2. 3000 - 4000 square feet of open floor space.
3. Minimum ceiling height of 14 feet.
4. Restroom facilities with hot and cold running water.
5. Concrete flooring.
6. 220 - 240 VAC power source.
7. Adequate heating.
8. Ability to store kerosene, oil, and assorted cleaning and lubricating
products and solvents.
9. Adequate lighting.
10. Authority to install proper exhaust venting without penalty.
11. ,Facility must be within Avon Town limits or within one mile of
Avon Town limits.
All proposals submitted shall include the following minimum information:
1. Annual price per square foot.
2. Annual estimated cost of utilities.
3. Annual lease increases, with a percentage or dollar amount ceiling.
4. Other common or individual assessments such as insurance, snow removal,
or taxes.
AOW
Page 2
Additional information to bidders:
Be advised that this space will be used for regular vehicle maintenance,
equipment overhaul, carpentry, and sign work; storage of related solvents,
tools, and inventory, and related work and storage.
Lease shall run two years with three one -year options.
Proposals will be accepted until 10:00 a.m. Friday, September 24, 1982,
and can be submitted to The Town of Avon, Public Works Department,
Box 975, 400 Benchmark Road, Avon, CO 81620.
DS / j'e