June 20, 2006
The Honorable William M. Thomas
Chairman
House Ways and Means Committee
1102 Longworth House Office Building
Washington, DC 20515
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Dear Mr. Chairman:
I write on behalf of the American Public Transportation Association (APTA), and its more than 1,600 member organizations, to express concern about provisions in the recently enacted Tax Increase Prevention and Reconciliation Act of 2005 (PL 109-222) (the Tax Act) that appear to affect transit agencies that entered into Sale In/Lease Out or Lease In/Lease Out (SILOs or LILOs) transactions. In brief, it appears that section 4965 of the Tax Act could impose an excise tax on transit systems, including those which are state agencies, of up to 75 percent of the proceeds of such transactions allocable to the current and future taxable years.
The U. S. Department of Transportation and its Federal Transit Administration (FTA) for years urged public transit systems to use innovative financing mechanisms such as tax-advantaged SILO or LILO leasing transactions to generate additional revenue for public transportation purposes. Transit systems responded and earned critical revenues from these transactions. The FTA reviewed each transaction involving federally funded equipment to make certain that the equipment remained under the control of the transit system and that each deal's transaction costs were not unreasonable.
In response to criticism about aspects of the transactions, however, the 2004 America Jobs Creation Act prohibited them, although a number of transactions pending at the time of that legislation were "grandfathered" and permitted to proceed. Other than these, to the best of our knowledge no more SILO or LILO transactions involving transit systems have been entered into since the 2004 Act. Now the Tax Act appears to impose a new excise tax on transactions involving transit systems that were entered into in good faith long before the 2004 Jobs Creation Act prohibited such transactions. Many of the transit systems that entered into such transactions would face significant tax liabilities - likely in the millions of dollars - when in fact the proceeds were in many cases invested long ago in the capital and operating budgets of these public agencies. It is not clear why the federal government would now require public agencies to pay excise taxes on proceeds derived from transactions that were entered into in good faith, and approved by a federal agency, long before they were prohibited by law. Even more confusing, the transactions that were "grandfathered" by the 2004 Job Creation Act apparently are not subject to the new excise tax.
Accordingly, we would like to meet with you or your staff at the earliest convenience to discuss and clarify this issue.
For further information about this matter please have your staff contact Rob Healy of APTA's Government Affairs Department at (202) 496-4811 or email rhealy@apta.com.
Thank you for consideration of our views.
Sincerely yours,
William W. Millar
President
WWM/cbo
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