May 20, 2003
The Honorable Charles E. Grassley
Chairman
Committee on Finance
U.S. Senate
135 Hart Senate Office Building
Washington, DC 20510-1501
Dear Senator Grassley:
On behalf of the American Public Transportation Association (APTA), and its 1500 member organizations, I write to call your attention to tax-increase provisions in the Senate-passed version of the economic growth tax legislation. These provisions would effectively reduce the ability of public transportation agencies to enter into cost-effective leasing transactions that reduce capital costs. Savings generated by these transactions address critical capital investment needs at public agencies across the country.
About APTA
The American Public Transportation Association (APTA) is a nonprofit international association of over 1500 public and private member organizations including transit systems and commuter rail operators; planning, design, construction, and finance firms; product and service providers; academic institutions; transit associations and state departments of transportation. APTA members serve the public interest by providing safe, efficient, and economical transit services and products. Over ninety percent of persons using public transportation in the United States and Canada are served by APTA member systems.
APTA’s Position
Provisions in the Senate bill have already stopped ongoing lease transactions. Specifically, the language clarifying the "economic substance" doctrine, which would affect transactions after May 8, 2003, would prevent a variety of transactions from moving forward. As you know, tax benefits are part of most leasing transactions, where the lessor retains the rights to the leased property and depreciation and other related deductions. The Senate bill states that leasing benefits will not be allowed unless and until the IRS authorizes such benefits.
Additional language, which has been characterized as a "revenue raiser" in the Senate bill, would increase taxes on lease transactions that may be followed by service contracts. Such service contracts have been used in many financing efforts by transit agencies over the years. In short, these provisions would substantially increase the costs of providing lease financing at many of the nation’s transit systems that currently use such innovative financing techniques.
Conclusion & For Further Information
We urge you to drop these tax increase proposals from the final economic growth bill. If you should have questions on this issue, please have your staff contact Rob Healy of our Government Affairs Staff at (202) 496-4811 or rhealy@apta.com. Thank you for your consideration of views.
Sincerely yours,
William W. Millar
President
WWM/amm
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