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Kit Menkin’s Leasing News www.leasingnews.org Friday December 21,2001 Commercial Money Center Interchange Buys Monarch Capital Official Press Release—It is “Announced” from UAEL Key Corp to Build Loan Loss Reserve, Strengthen Balance Sheet Bank of the West Parent Deal Closes XP Windows Vulnerable to Hack Attacks Ohio Up-Front Tax Guidance Expected By December 28 special report by ELA’s Dennis Brown ### denotes press release ___________________________________________________________________________ Commercial Money Center I have been recently reading negative comments in the Leasing News from brokers around the country about Commercial Money Center. Let me say first and foremost, there is nothing more valued than a broker/vendor relationship. But, it's seems we have lost sight of the relationship between broker and the funding source! I have only been in the leasing industry for three years, but I have seen many funding sources recently eliminate the broker from their programs and go strictly direct to vendors or in a dying economy closing their doors altogether. Why then would brokers, begin to attack one of the few funding sources (CMC) that rely on broker business? Why would brokers, that have been earning millions of dollars in commissions since 1997, attack one of their funding sources? Have they lost sight of the millions of dollars they have made and will continually make as long as CMC stays in business? Many brokers will send a C and D deal to CMC from the same vendor that gives them millions of dollars in A and B business! CMC understands how crucial ALL relationships are! But, is the broker without flaws? Does he or she tell the vendor upfront that CMC is slow and tedious? Or do they say and do everything and anything to get that deal and earn the commission CMC pays, including statements such as, "it will fund in less than a week." Knowing that even at its peak efficiency, CMC takes 4 to 6 weeks to fund! Deals are submitted sloppy, containing inaccurate or wrong information, thereby consistently taking weeks and weeks to get through processing. It is not until then, that vendors are being told after a paper nightmare, that CMC funds slowly. Would a vendor be more understanding if a broker submitted a deal right , and got to funding quickly, so the time it takes for CMC to do its part has less of an impact on the vendor and the relationship. Throw in CMC's recent problems caused by the events of September 11th, and you've compounded an existing problem in an already delicate relationship. I wish CMC could fund cattle, computers, Fair Isaacs of 500,bankrupticies,etc..in three to four days. I wish terrorist wouldn't have flown the planes into the World Trade Center. I wish the majority of brokers were honest with their vendors and told them that they have been shopping their transaction for 4 to 6 weeks (with the equipment already being delivered) to no avail. Now they are taking them to CMC where it will take another 7 to 8 weeks! I wish CMC could JUST FUND!, but there are other requirements to be met. But, what I really, really wish is that brokers saw the big picture and were a little more understanding with the people who are signing their commission checks and helping pay their bills!
Ty Hanson Commercial Money Center employee ( Bill Hansen has been under the weather recently, and not able to respond himself. He has agreed to be one of the “Meet the Leasing Newsmaker” on our live forum. We hope he is well enough for the January 3rd. Thursday, 1pm…but if not, then January 10th, as we are going to schedule this as a weekly meet the Leasing News Maker. editor ) #### ########################## ############################ United Association of Equipment Leasing (UAEL); Oakland, California at it's November Board of Director's Planning Meeting approved the appointment of Joe Woodley, CLP as Chief Executive Officer (CEO) effective December 1, 2001. Woodley is a Past President of UAEL and has over 25 years experience in the industry and with the association. Additionally, Joan Dalton was promoted to Chief Operating Officer (COO). Dalton has been with UAEL for over 2 years and has over 20 years in the hospitality and association industry. Bill Grohe continues as Director of Membership. Bill has 40 years of experience in the leasing industry and is a Past President of UAEL. The Executive Committee and Board of Director's are committed to this team and look forward to growth and positive changes. The 2002 Board of Director's are: Executive Committee President - Bob Fisher, CLP Vice President - Bette Kerhoulas, CLP Secretary/Treasurer - Jim Coston Immediate Past President - Chuck Brazier, CLP Board Members Brent Hall, CLP Victor Harris Terey Jennings, CLP John Kruse Larry LaChance, CLP Christopher "Kit" Menkin Ben Millerbis, CLP Troy Molitor Jerry Newell, CLP Peter Stommel, CLP Bob Teichman, CLP Joanie Dalton - Managing Director UAEL - United Association of Equipment Leasing 520 Third Street, #201 Oakland, CA 94607 (510) 444-9235 x27 (510) 444-1346 fax joanie@uael.org www.uael.org #### ##################### ############################################ Leasing News reported this on November 20,2001 http://www.leasingnews.org/Conscious-Top%20Stories/new%20CEO.htm plus this story: http://www.leasingnews.org/Conscious-Top%20Stories/woodley.htm For readers interested in the new by-laws, especially for the standards and ethics committee changes, the vote was: 75%
Yes Go
to the front page, www.uael.org
and click on Results of the 2001 ballot Leasing
News has been patiently waiting since November 29th for
a statement from the sitting officers of UAEL regarding
readers wanting to know about a leasing exec. being appointed
CEO. We have been
told a statement was pending. We assume this press release
is not the statement. If it is, we invite Joe Woodley to join the
Leasing News Maker Forum for readers to ask him questions
directly on January 10th.
editor -### ##################################3 Interchange
Buys Monorach Capital Interchange Financial Services Corporation Signs Definitive Agreement to Acquire Assets and Liabilities of Monarch Capital Corporation Anthony S. Abbate, President and Chief Executive Officer of Interchange Financial Services Corporation ("Interchange") (NASDAQ: IFCJ), whose principal subsidiary is Interchange Bank ("Bank"), reported today that the Interchange has signed a definitive agreement with Monarch Capital Corporation ("Monarch"), to purchase substantially all of Monarch's assets and liabilities. Monarch is a leasing and financing company located in West Caldwell, New Jersey, which was formed in 1986 by its sole shareholder James Jenco. Monarch provides leasing and financing of capital equipment principally to middle market companies. As part of the transaction, James Jenco will join Interchange as President of the Bank's equipment lease financing subsidiary, Interchange Capital Company, L.L.C. ("ICC"). In addition, Monarch's employees, who are instrumental to the success of Monarch, will also join ICC. "James Jenco brings with him almost 25 years of leasing experience and along with his staff will assist Interchange's leasing unit (ICC) to more rapidly achieve its strategic objectives", said Mr. Abbate. Mr. Jenco also stated, "I welcome the opportunity to join the Interchange family to facilitate the Bank's equipment leasing business. It will enable us to enhance the array of products and services available to the customers of Monarch while helping expand the customer base of the Bank". The aggregate lease portfolio to be purchased is approximately$15 million and is scheduled to close in January 2002. The deal is expected to be accretive to Interchange's earnings in the first year. The Company is a $812 million-asset commercial bank holding company, whose principal subsidiary is Interchange Bank. The Company is a financial intermediary that, along with traditional banking, offers a broad range of services including 24-hour, 7-day- a-week online banking and bill paying services through InterBank. Customers can also do their stock trading, obtain insurance services and apply for a loan through the Bank's web site. Mutual Funds and Annuities are offered through the Company's Investment Services Program. The Interchange Bank-Line Call Center enables customers to open new accounts over the telephone; and customers can do basic banking transactions over the telephone with Interchange Bank-Line. The Business Class Banking Account offers checking with a variety of extra services including Interbanking - a proprietary product, which allows the business customer to do routine business banking right from their office PC. And through our subsidiary, Interchange Capital Company, L.L.C., we are able to extend cost- effective equipment leasing solutions for a variety of expansion and upgrading projects. The Bank is headquartered in Saddle Brook, New Jersey and has 17 branch offices located in Elmwood Park, Franklin Lakes, Garfield, Hillsdale, Little Ferry, Lodi, Montvale, Oakland, Paramus, Park Ridge, Ramsey, River Edge, Rochelle Park, Saddle Brook (2), Waldwick and Washington Township. Further information about the Bank, its core values and focus, and its products and services can be found on our web site at www.interchangebank.com. Our web site also has a direct link to the NASDAQ Stock Market that enables you to keep informed of the daily quotes and market activity for the Company's stock, which trades under the symbol IFCJ.
Sites of Reference: http://www.interchangebank.com ############################ ####################################### Key Corp to Build Loan Loss Reserve, Strengthen Balance Sheet KeyCorp (NYSE: KEY) announced today a fourth quarter after-tax charge of approximately $410 million, or $0.96 per common share. Of this amount, $372 million, or $0.87 per share, is for an additional provision for loan losses. The remaining $38 million, or $.09 per share, is for principal investing write-downs and to further strengthen balance sheet reserves. Key also announced that its Board of Directors increased the cash dividend 1.7 percent to an annual rate of $1.20 per share on its common stock. This marks the 37th consecutive year the company has increased its dividend. The first payment at this new rate of $0.30 per quarter is payable on March 15, 2002, to shareholders of record on March 5, 2002. "In May, we announced a series of initiatives to sharpen our strategic focus by returning to our core relationship businesses," said Chairman and Chief Executive Officer Henry L. Meyer III. "Today, we are restoring Key's tradition of having a strong loan loss reserve position coupled with a conservative credit culture. Building our loan loss reserve and strengthening our balance sheet is critically important in the wake of September 11 and the continued uncertainty surrounding the timing of an economic recovery. These actions position us to take full advantage of the economic rebound when it occurs. "Further, I am pleased that the Board reaffirmed its confidence in Key's future financial performance by increasing the dividend." Results for the fourth quarter of 2001 will include pre-tax charges of approximately $650 million ($410 million after-tax), identified as follows: -- An increase in the loan loss reserve of $590 million, a non-cash charge of which approximately $425 million will be used to build the reserve for the continuing portfolio. The remaining amount will be added to non-replenishing reserves for losses on loan sales and the runoff portfolio. -- An additional $60 million represents a $45 million mark-to-market adjustment in our principal investing portfolio, primarily for travel and airline related investments which were directly impacted by the events of September 11, and a $15 million reserve for customer derivative losses. As a result of these actions, Key's allowance for loan losses at December 31, 2001, is expected to be approximately $1.7 billion, or 2.6 percent of period-end loans, compared with 1.8 percent at September 30, 2001. Over this same time period, the allowance for loan losses as a percent of nonperforming loans is expected to increase from 133 percent to approximately 183 percent. For the continuing portfolio alone, the allowance for loan losses as a percent of nonperforming loans is expected to exceed 216 percent at year-end 2001. Key has also continued to strengthen its capital ratios. At December 31, 2001, Key's tangible equity to tangible assets ratio is expected to be above 6.4 percent, compared with 6.1 percent a year ago. The company expects fourth quarter 2001 earnings, excluding the charges announced today, to be $0.54 to $0.56 per common share. Key will release its fourth quarter results on Wednesday, January 16, 2002. ( courtesy of ELAonline.com ) ################### ############################### -------------------------------------------------------------------------------------------------------------- ###### ################################## (
Bank of the West Leasing Parent ) BNP Paribas Completes Acquisition of BancWest
BancWest Corporation Becomes Wholly-Owned Subsidiary of BNP Paribas; First Hawaiian Bank, Bank of the West Remain Separate Banks PARIS and HONOLULU / -- BNP Paribas and BancWest Corporation announced today that they have closed the transaction in which BNP Paribas acquired the 55% of BancWest stock it did not already own. The transaction was structured as a merger of BancWest with a subsidiary of BNP Paribas. BancWest is now a wholly owned subsidiary of BNP Paribas. BancWest stock, which had been listed on the New York Stock Exchange (Symbol: BWE), will no longer be publicly traded. Completion of the transaction means that all outstanding BancWest shares (except those owned by BNP Paribas) have been converted into the right to receive a $35-per-share cash payment. BancWest will also pay a pro rata dividend of $0.0396 per share, with a record date of December 19 and payment date of December 28. BancWest remains headquartered in Honolulu, under existing management. Its major subsidiaries -- Bank of the West (San Francisco) and First Hawaiian Bank (Honolulu) -- will continue to operate as separate institutions using their present names. Michel Pebereau, Chairman and CEO of BNP Paribas, said: "We are delighted to have achieved this merger agreement. Through our relationship with BancWest, we have a great deal of confidence in its people. Not only is this transaction immediately accretive, allowing the Group and its shareholders to fully benefit from BancWest's expanding earnings, but the BancWest platform, with 1.1 million customers in markets offering high long-term growth potential, will allow us to leverage our broad financial services expertise." "This change rewards our stockholders for their support of BancWest and positions our company, under its new ownership, for dramatic growth in the Western United States," said Walter A. Dods, Jr., Chairman and Chief Executive Officer of BancWest. "For our customers in Hawaii and the West, however, it's business as usual at our branches. Both First Hawaiian and Bank of the West will remain community banks, with an emphasis on decentralized, personal service." BancWest stockholders who have stock certificates in their possession will receive instructions by mail from Mellon Investor Services LLC, the paying agent, concerning how and where to forward their certificates for payment. BancWest stockholders should exchange their stock certificates for the merger consideration promptly following receipt of these materials. It is not possible to defer recognition of income for tax purposes by delaying the exchange of stock certificates. Brokers will handle conversion for those holding BancWest stock in a brokerage account. The merger does not affect preferred securities or capital securities issued by BancWest Capital I or First Hawaiian Capital I. On December 10, BNP Paribas and BancWest Corporation announced plans to further expand operations in the west with BNP Paribas' acquisition of United California Bank from its parent company, UFJ Holdings of Japan. Next year, United California Bank branches will become part of Bank of the West, a BancWest subsidiary, more than doubling Bank of the West's California presence. The United California Bank acquisition will solidify BancWest's position as one of the premier western financial services franchises. Following the acquisition, BancWest will have $31 billion in assets and serve 1.5 million customers from more than 350 branches in California, Hawaii, five other Western states, Guam and Saipan. Bank of the West will have $15 billion in deposits within California, ranking fourth in bank deposit market share in the nation's most populous state. This $2.4-billion cash transaction is expected to close by the end of the first quarter of 2002, subject to regulatory and other approvals. United California Bank will then be merged into Bank of the West by the end of the third quarter of 2002, and the consolidated company will operate under the Bank of the West name. About BNP Paribas BNP Paribas ( www.bnpparibas.com ) is a world leader in banking and financial services, offering retail banking and financial services (consumer credit, leasing, e-brokerage, insurance, car fleet management, etc.) to millions of individual customers and corporations mainly in France (2000 branches), Europe, the United States, Mediterranean basin and Africa. Headquartered in Paris, France, it has one of the most extensive international networks in the world with offices in 87 countries. Active in all major financial centers, and providing services to large corporations and institutions, BNP Paribas enjoys key positions in Corporate and Investment Banking, Private Banking, Asset Management and Securities Services. With total assets of $646 billion (EUR 694 billion), shareholders equity of $19.3 billion (EUR 20.6 billion), and Year 2000 net income of $3.86 billion (EUR 4.12 billion), BNP Paribas was the Number 1 listed bank in France and Number 2 listed bank in the Euro zone at the close of 2000. About BancWest BancWest
Corporation ( www.bancwestcorp.com ) is a bank holding company
with assets of $20 billion.
It is headquartered in Honolulu, Hawaii, with an
administrative headquarters in San Francisco, California.
Its principal subsidiaries are Bank of the West (193
branches in Northern and Central California, Oregon, New
Mexico, Nevada, Washington state and Idaho) and First Hawaiian
Bank (56 branches in Hawaii, two in Guam and two in Saipan). ####### ########################## Joe Spencer: We are not heading for extinction, To the contrary sooner or later the funding sources will wake the giant and ask for our help.,When they will quickly begin to realize that they need field people who do not cost anything until they produce income. This industry is to vast to get the proper coverage and produce profits with only in-house on payroll staff. GE Capital - Colonial Pacific is the classic example of an attempt to keep the same volume coming with mainly in house staff. Can you imagine the Insurance industry or the mortgage business with out brokers how about the auto makers with out all the car salesmen ? As John Stossel would say " GIVE ME A BREAK" Vince Paletta BSG Financial Services Corp. bsgfin@home.com Windows Vulnerable to Hack Attacks By Ted Bridis Associated Press Writer WASHINGTON –– Microsoft's newest version of Windows, billed as the most secure ever, contains several serious flaws that allow hackers to steal or destroy a victim's data files across the Internet or implant rogue computer software. The company released a free fix Thursday. A Microsoft official acknowledged that the risk to consumers was unprecedented because the glitches allow hackers to seize control of all Windows XP operating system software without requiring a computer user to do anything except connect to the Internet. Microsoft made available on its Web site a free fix for both home and professional editions of Windows XP and forcefully urged consumers to install it immediately. The flaws, discovered five weeks ago by independent security researchers, threatened to undermine widespread adoption of Microsoft's latest Windows software, which many hope will be an economic catalyst for the sagging technology industry. The company sold more than 7 million copies of Windows XP in the two weeks after it hit stores Oct. 25. The vulnerabilities were discovered by three young security researchers with eEye Digital Security Inc. of Aliso Viejo, Calif., led by Marc Maiffret, a 21- year-old former hacker. In recent months, Maiffret, who calls himself the firm's "chief hacking officer," has advised the FBI and the White House on Internet security questions and testified before Congress. The Windows XP problems affect a little-used feature that eventually will allow consumers to control high-tech household appliances using their computers. Called "universal plug and play," the feature is activated by design in every copy of Windows XP and can be added manually to Microsoft's earlier Windows ME software, also used by millions of consumers worldwide. "This is the first network-based, remote compromise that I'm aware of for Windows desktop systems," said Scott Culp, manager of Microsoft's security response center. "Every Windows XP user needs to immediately take action." He called it a "very serious vulnerability." Microsoft said a new feature of Windows XP, known as "drizzle," can automatically download the free fix, which takes several minutes to download, and prompt consumers to install it. Microsoft also is working with other software companies, such as leading antivirus and firewall vendors, to build protection into their products. Maiffret and his researchers demonstrated the flaws for The Associated Press by hacking into a reporter's laptop running Windows XP from 2,300 miles away and successfully instructing the computer to connect automatically several times to the Web site for the National Security Agency, the government's super-secret spy agency. -------------------------------------------------------------------------------------- Ohio Up-Front Tax Guidance Expected By December 28 The Ohio Department of Taxation expects to issue a “barebones” draft memorandum and rules on the new up-front sales and use tax no later than December 28 with the final available by Mid-January. This was the outcome of Department meetings with leasing industry representatives led by ELA on Tuesday, December 18 and a hastily called session in the Senate Majority Conference Room at the Statehouse complex the following day. Joining ELA in presenting an extensive list of questions from industry were contingents from the American Automotive Leasing Association and National Vehicle Leasing Association. The next morning the Ohio Vehicle Leasing Association and allied industry groups were summoned to the Statehouse to learn the process for issuing preliminary guidelines had been accelerated. Effective February 1, the new law impacts consumer and commercial leases of motor vehicles, watercraft and aircraft as well as commercial leases of all other tangible personal property. Specified exceptions might apply in selected circumstances. The impact on railcars and direct pay permits were among the many questions raised. Enacted as House Bill 405, the bill text is available from the Ohio legislative web site. Go to http://www.legislature.state.oh.us. On the left where it says Current Legislation 2001-2002 type in “405” next to “Find Bill Number” and click on “House” below it. Click on “Go” to reach the next screen where you click on “View Bill Text” Provided below are questions submitted to the Ohio Department of Taxation on December 18 and some clarifications provided by the Department on December 19. ELA does not to edit or eliminate any question submitted by industry members even if it may seem to partly duplicate another. Your additional queries are solicited for submission to the Department anonymously as industry questions. Those wishing to receive periodic email updates on this activity and/or forward questions for submission to the Ohio Department of Taxation should send a request to dbrown@elamail.com Below is a summary of the answers provided by PriceWaterhouseCoopers from the meeting at the Ohio Department of Taxation and Richard Lightner, Ohio Vehicle Leasing Association, from the meeting the following day. Although some points in the latter section may be partially duplicative they are presented so as not to exclude any information. · Sales and use tax in Ohio is imposed on the ultimate consumer, in the case of a lease the “lessee.” · The DOT indicated that they will look at the date the lease was consummated, rather than the when the leased property enters the state of Ohio, to determine if a lease will be grandfathered or if the lease will be taxable under the new law. · For leases consummated prior to February 1, 2002 tax will continue to be collected from the lessee on the lease stream each month as long as there are no changes to the original lessee or the terms of the original lease agreement. · Predetermined extensions or options (for leases consummated prior to Feb. 1, 2002) would be considered part of the original lease agreement. If no changes are made to the terms of the original lease agreement (to include the lessee), tax will continue to be collected from the lessee on the lease stream each month. · If the terms or conditions of the lease are renegotiated or changed in any way, it would be considered a new lease agreement and taxable under the new law. The DOT indicated that a change in price might indicate a change of the lease agreement (this could occur in lease with variable interest rate leases). · Adding new equipment or changing the equipment on a lease has not yet been addressed by the DOT. Further DOT discussion will occur on this topic. · These opinions offered by the DOT, apply only to single car leases. They do not apply to fleet or master lease scenarios. Such leases have not yet been addressed by the Department and will require further discussion. · For property leased out of state, with an effective date after February 1, 2002, the tax will be accelerated and due on the remaining term of the lease upon the leased property entering the state of Ohio. The state will allow a credit for any tax paid upfront in another taxing jurisdiction. However, the DOT’s initial opinion is that there will be no credit allowed for tax imposed by another jurisdiction on anyone other than the ultimate consumer (“lessee”). The question becomes one of legal incidence of the tax – who does this fall upon in the other taxing jurisdiction? If it falls upon anyone other than the ultimate consumer (“lessee”), no credit will be allowed by the state of Ohio for tax paid in another jurisdiction. · Open-end leases will be taxable up front on the total amount paid during the initial fixed term under the new law. Each new term will be taxed upfront as it comes due. (R.C. 5739.01 (H)(4) and R.C. 5741.01 (G)(6)) · For lease stream changes due to interest calculations based on prime rates, the DOT indicated that it is looking at the possibility of allowing an adjustment on a vendor’s state return if the interest rate changes (for a fixed period). There will be further DOT discussion on this topic. · Credits or a refunds of tax paid up front on leased property is currently not provided for in the Ohio statue. Current statue only allows credits/refunds to be issued for taxes illegally or erroneously paid. DOT sees no illegal or erroneous payment in an early lease termination scenario. Further discussion by the DOT is required on this topic. · Insurance loss replacement property and lemon law related issues have not been addressed by the DOT. Further discussion by the DOT is required on these topics. · The DOT will provide further guidance on vehicles, “designed by the manufacture to carry more than/less than one-ton,” requirement of the new law. DOT believes that the intention of the general assembly was to not tax semi trucks/large trucks, thus the one-ton specifications. It is believed that legislative language may be required to better identify/define which vehicles are more than or less than one ton. It was suggested that using weight vehicle class rating might be a valid alternative that would meet legislative intent. Such information is readily available since it is already used within the automotive industry. · Terminal Rental Adjustment Clause (TRAC) Federal Revenue Code Section 777.01(H)- In this type of lease the lessor takes depreciation on the property on its books and records. Upon termination of the lease the difference in value between the sale price and the book value of the property is “trued up”. If the sale price is higher than the book value a refund (including tax) is provided to the lessee. If the book value is higher than the sale price, the lessee is billed the difference (plus tax) as a rental fee. This is used only in commercial leases and is not allowed for consumer leases. Further discussion by the DOT is required on this topic. · In the case of a lease which commenced prior to February 1, 2002 and was assigned after February 1, 2002, the lease will continue to be taxed on the lease stream provided that the original lessee and the terms of the original lease agreement do not change as a result of the assignment. (R.C.5739.01(B)(5)) · The effective date of commencement for a lease is the date on which payment is received or the property is delivered, whichever comes first. Either delivery or payment must occur to constitute a taxable transaction; the act of signing of a lease does not constitute a taxable transaction. Gaining approval for financing is the same as full payment. Further discussion by the DOT is required on this topic. · The commencement date of a lease is important in determining if a current lease will be grandfathered under the new law and when the tax is due. · For lease lines set up prior to February 1, 2002 where the property will not be delivered until after this date, the DOT agreed that the commencement date would be the date the lease line is closed. The property to be leased and total amount of the lease is determined at the time the lease line is closed. · If a lease is terminated and a new lessee takes over the lease under a new lease agreement, a new taxable event is created and the tax must be collected up front. DOT believes this topic may center on “consideration”. If a lessee is relieved from their obligation and the new lessee assumes the obligation, this would constitute consideration and thus new a transaction for tax purposes. A corporate reorganization or merger would not equal consideration as already determined in case law, thus no new transaction would be created for tax purposes. · A sub lease will be allowed a sale for resale exemption under the new law. A completed resale certificate will need to be provided. · All current exemption/exceptions currently provided in the statue will continue to be available under the new law. The vendor must obtain the proper exemption certificates. · The lease of a tractor- trailer combination would be taxable up front under current law since both are designed by the manufacturer to carry more than one ton. Unless an exemption for transportation for hire exists. The issue of equipment attached to the vehicle is to be discussed further by the DOT. · The DOT stated that it is not their intention to roll the tax amount into the tax base of the lease (creating a pyramid tax effect) if the tax is financed at the time the lease is consummated. The amount of tax due up front on the lease should be separately stated in the lease agreement. If the tax is to be financed as part of the lease agreement it must be clearly and separately stated as part of the lease agreement and remitted to the state by the vendor. · The lessor can accept direct pay permits. However, a lessee cannot selectively use or not use a direct pay permit. The direct pay permit must be used for all purchases, unless the direct pay permit specifically excludes the purchase/lease of motor vehicles or tangible personal property. Some direct pay permits may contain such exclusions. · Early terminations of leases occur for various reasons. Reasons sp ecifically addressed included: o Early pay off- if tax has already been paid up front no further tax is due on the early pay off of a lease agreement. The issue of the possibility of applying a credit for tax paid up front on the terminated portion of the lease against any tax obligation created by a new lease was raised. Again the DOT pointed out that current law does not provide for such a credit. o Early pay off with purchase – if terminated 6 months into the 24 month lease the amount due from the lessee would be present value (PV) x 18months remaining in lease term + Fair Market Value (FMV) of the property being purchased. In this case the early termination must be one transaction and the purchase would be a separate transaction. If tax was paid up front when the lease was consummated, tax will only be due on the purchase transaction. Under current law, tax is due on both amounts and these two transactions can be completed as one since tax is due on both amounts. o Early pay off and upgrade of equipment on new lease- this happens frequently with computer/technology related equipment. A new lease will constitute a taxable event and tax will be due up front if the lease is consummated after February 1, 2002. Copies of sample leases with such early termination options were provided to the DOT. Further discussion by the DOT on this topic is required. · Property tax is not included in the accelerated taxes related to leases. · Additional lease charges such as excessive usage or additional mileage charges etc. will be taxed as they are billed to the lessee. (R.C. 5739.01(H)(4) and R.C. 5741.01(G)(6)) · Custom software (exempt from taxation by statue) that is included in the lease of computer equipment and not separately stated on the invoice will be taxed as part of the computer lease. To be exempt, the amount of the custom software must be separately stated as currently required by statue. · Maintenance fees and interim interest for leases where the lessor is billed such fees for the interim period prior to the consummation of the lease have not yet been considered. The DOT is not able to provide an answer at this time. Further discussion by the DOT will be required on this topic. · For leased property that is moved from one Ohio jurisdiction to another Ohio jurisdiction with a different tax rate, the DOT indicated that their intent is not to hold the vendor responsible for the difference in tax rates. This difference is the responsibility of the lessee and is to be paid by the lessee to the proper jurisdiction in the form of use tax. · Synthetic leases are leases where the lessee holds title to the property and has already paid tax on the property to be leased. The lessee maintains all the benefits of ownership and risk of loss under such a lease. The lessee carries the loan and attached asset as off balance sheet items and receives the depreciation deduction for Federal purposes. This type of lease appears to be the same as a finance lease or a securitized loan. The DOT was not knowledgeable about such leases and was not prepared to answer this question. Further discussion by the DOT will be required for this topic. · Regulation M requirements are not effected by the law changes. Regulation M requirements will assist with Ohio taxation requirements. · Bad debt deductions for taxes paid up front on leased property may not apply to sales and use tax. The DOT could only see one scenario where bad debt might occur - if the lessee pays the tax at the time the lease is consummated and the check for the tax is dishonored by the bank, however in this case the vendor would know of the dishonored check prior to paying the tax on the vendor return. For taxes that are financed when the lease is consummated the bad debt deduction may not apply. Further discussion of this topic by the DOT is required. · Railcar sales are currently exempt and such exemptions that are applicable by statue will apply to all leases. · Tax will be remitted on the vendor return. Some of the Ohio returns are being changed. The ST10’s will remain the same however; out of state vendor forms are being combined into one form to be titled “Universal Sales Tax Return”. · The new law may require an out of state leasing company to obtain a transit vendor license to report tax collected on leases · The tax collector will be the entity that delivers the vehicle. · The tax will be paid/reported to the state (ST10 return). BMV and Tax Dept. will explore/work on mechanism to possibly tie it into registration (a receipt needed to register/plate vehicle). · A receipt for tax collected and documentation (particularly if rolled into cap cost & financed) must be kept to avoid audit problems (Tax Dept. Audit chief backed off statement of Dec. 13 that there would be an "exception" because the "proper tax" was not being paid). · All charges known at the time of the lease (GAP, credit life, etc.) are to be included in cap cost/basis; charges unknown(wear/tear, excess mileage, etc.) at lease signing are taxable at end of lease. · Ohio AG to discuss with FRB & FTC disclosure of up front tax (hopefully, it will be classified as a "third party fee" meaning + tax and title, registration); OCSPA may be a problem, not federal law. · There is unequivocally no provision/law at this time for credits/refunds on early terminations, reclaimation (no repo under Ohio law), bankruptcy. · Sen. Harris promised to see that the 28 day period (part of lease definition in Sales/Use Tax law included in HB 405) would in future conform to lease and rent definitions in Motor Vehicle Law (Ohio Title 45). · There will be no corrective bill rushed through General Assembly before effective date of February 1 to correct problems, etc. ********************************************** QUESTIONS PRESENTED TO OHIO DEPARTMENT OF TAXATION December 18, 2001 We need a better explanation of the tax handling of motor vehicle lease with lease contracts signed before and after 2/1/2001, both within and without the state. The answer needs to handled for open-end leases, and closed-end leases, and option periods. Examples: · Vehicle is delivered and put on lease in Tennessee on 12/1/2001, enters Ohio on 2/5/2002. We have a open-end 12 month minimum lease, with 12 month options. How is the unit taxed now and at its option date? Same question for closed-end lease - lease is a fixed term 48 month lease. · Vehicle is delivered and put on lease in Tennessee on 3/1/2001, enters Ohio on 4/5/2001. We have a open-end 12 month minimum lease, with 12 month options. How is the unit taxed now and at its option date? Same question for closed-end lease - lease is a fixed term 48 month lease · Vehicle is currently on lease in Ohio, rental tax will be due on each month rental stream, regardless of option periods. I assume the answer is yes. Tax is calculated based on the anticipated rental stream. The language of the law implies additional tax is due monthly if the rental stream changes. Is this practical? Some our leases have interest calculations based on monthly prime rates, if the Department wants more tax monthly will they issue credits if less tax is due? How will credits be handled? · A vehicle with a closed-end 48-month lease is put on lease in Ohio. 48 months worth of rental tax is paid up-front. The unit is termed after 6 months, or the unit moves to another state. How will credits be handled? The new law applies to motor vehicles "designed by the manufacturer to carry a load of not more than one ton". How does one easily find / determine this information? A more practical approach would be to base the test on GVW or Vehicle Class. Will the Department provide more guidance on the issue? Are TRAC's for motor vehicles and non motor vehicles considered a lease or sale? Is an assignment, which takes place on or after 2/1/02 of an Ohio transaction, which commenced prior to 2/1/02 subject to lump sum tax/acceleration? When is the effective date of commencement for a lease? Delivery date, date of initial payment, or lease start date? Effect of terminating a lease with one lessee and another lessee taking over the lease? If we are leasing a tractor-trailer combination would the tractor be considered a "motor vehicle"(ie: taxed on the rents) and the trailer be considered tangible personal property (ie: taxed upfront)? How will a purchaser of a signed lease (i.e., lessee) know that the seller (lessor) has paid the required tax? Will a lessor be allowed to accept a direct pay permit from an Ohio lessee (purchaser)? a. Early Terminations both as relating to existing leases and leases effective after the effective date of the new law. i. Early buyouts – 1. Credit or refund for sales tax on unbilled rentals. 2. Credit applied to tax on lessee buyout of equipment ii. Rollover of existing schedule(s) into new schedule before maturity. 1. Credit or refund for unbilled rentals 2. Additional equipment added and rental amount modified. 3. Multiple schedules combined for a modified term and rental 1) Taxability of other Lease related costs in a net lease. a. Personal Property Tax b. Financing of Up-Front Sales Tax c. Financing of Not taxable Software included in a lease of computer equipment. d. Maintenance fees & Interim interest · What is the impact for agreements with a commencement date prior to 2/1/02 having a renewal or fixed term holdover effective after 2/1/02? · Which additional lease charges are subject to up-front tax? · Recovery of the tax cannot be 'hidden' in the rent, therefore can a separate billing schedule be issued on a monthly basis? · More clarification on the invoice requirements for the recovery charge is needed. · Can it be listed as a separate charge on each invoice with the rent charge? · Does the first invoice need to state the amount to be recovered for a number of months/periods or any other special verbiage? · Restructuring a lease commencing prior to 02/01/02 - If any terms stated on the lease contract are changed, is up-front tax due? · Is the up-front tax due on the remaining gross receivable from the restructure point? · If the terms are not restated will the prior law still be in effect for this restructured lease? · Asset moves · Moving from a non-up-front state into Ohio will require up-front tax - is the tax basis the gross receivable for the remaining term as of the effective date of the move? · Moving from an up-front state into Ohio where the up-front tax was paid on the equipment cost - will Ohio credit previously paid up-front tax? · Moving from an up-front state into Ohio where the up-front tax was paid on the gross receivable - will Ohio credit previously paid up-front tax? · Moving from Ohio after paying up-front tax - will Ohio credit tax for the remaining term? · Moving from one OH jurisdiction to another OH jurisdiction. If tax rates differ between these jurisdiction · What is required if the tax rate increases? · What is required if the tax rate decreases? · Early terminations/buyouts on Ohio assets where up-front tax has been paid - will tax be credited for the remaining term? · With Synthetic leases will the Department of Taxation follow book treatment or federal tax treatment on this type of transaction? · This transaction normally takes place between the lessor and another financial institution for the sole benefit of securing the loan. The lessee will not see any changes in the payment nor the lessor. · How are assignments between lessors handled? Who is responsible for calculating, collecting and remitting the tax at origination? What happens when a lease is renewed? Most of our leases have terms ranging from 36 to 60 months after which we allow the customer to renew on a month-to- month basis for 6 months. Would we be responsible for collecting and remitting this tax monthly? What if we let a customer renew for a fixed period of, say, 1 year. Would we collect the tax upfront for another year's worth of payments? Would there be any tax liability upon substitution of collateral? The typical situation involving substitution of collateral is where the original collateral is destroyed and replaced with something of the same value. Would there be any liability upon an assumption of the lease? I would assume that there would be no additional liability on the party assuming the lease. Who is responsible for remitting the tax? The dealership? Is the answer different for 2-party vs 3-party paper? What are the proper disclosures to meet REG M requirements? What happens if the lessee moves to another state? Is any portion of the tax refunded? What happens when a vehicle is repossessed for non-payment? How are early terminations handled? If we are leasing a ractor-trailer combination would the tractor be considered a "motor vehicle"(ie: taxed on the rents) and the trailer be considered tangible personal property (ie: taxed upfront)? Railcars: Currently, the railcar industry is exempt from the sale of rail rolling stock under Law 5739.02(B)(14) stating (B) The tax does not apply to the following: (14) Sales of ships or vessels or rail rolling stock used or to be used principally in interstate or foreign commerce, and repairs, alterations, fuel, and lubricants for such ship or vessels or rail rolling stock. The definition of sale or selling price now include under 5739.01(B)(1): All transactions by which title or possession, or both, of tangible personal property, is or is to be transferred, or a license to use or consume tangible personal property is or is to be granted; With the passage of H.B. 405, a new and separate definition of lease will be created (Law 5739.01(VV)). This appears to be creating a separation of the definition between what is a lease and what is a sale. If there is a distinct separation between definitions, will this negate any exemption or exclusion that includes the word "sale" or "sales" only? If it does, will all the exemptions and exclusions be rewritten to include the word "lease"? The gross rental, is it due, calculated, on what's on the contract; rather than the present value? Is it based on the present value? Is there is a lease renewal, do you pay the tax again? The remitted monthly payment to the State, does it stop automatically? I. Effective Date and Grandfathered Leases: A. What is meant by lease consummated? 1. As it pertains to: a. Master Lease and Equipment Schedule? b. Master Lease, Equipment and Acceptance or Commencement Certificate? c. Will delivery date of the property, date of initial payment or lease start date considered if other dates are undeterminable? d. Lease sign date in advance of lease start date? e. Leases entered into prior to Feb. 1st and amended to add equipment after Feb. 1? f. Leaselines entered into with rent rate factor prior to Feb 1st and closed after Feb 1? g. What documentation will the Lessor need to support this date? B. Grandfathered Leases: 1. Leases consummated prior to Feb. 1st 2002 will continue to be taxed under current law, including extensions and renewals. What if: a. The extension and renewal added an upgrade to the equipment under lease? 2. Lease was consummated in another state prior to Feb. 1st and moved into Ohio after Feb. 1st.
II. Will the following be considered Leases subject to the calculation of tax under the new provisions: A. lease with a nominal purchase option? B. A lease with a mandatory end of lease purchase price stated? C. Sale and Leaseback of property where a lessee paid tax on it’s original purchase? 1. If subsequent lease is taxable in a sale leaseback, can lessee file for refund as resale? III. Exemptions: A. Will leases be entitled to the same exemption(s) that would be available to the transaction if it where a sale rather than a lease? B. Will the resale exemption still apply to lessor’s purchase of property for lease? C. Will the resale exemption apply if the property is leased and subleased to another person? D. If a lease consummated after 2/1/02 and subjected to the accelerated tax is later subleased to another person; Will all or a prorated portion of the tax qualify for refund under the resale exemption? Or, will there be an exemption for the subsequent sublease of property under an accelerated tax paid lease? E. Can Lessor’s accept Direct Pay Permits in lieu of collecting and remitting the tax on leases after Feb 1st? F. What happens if Lessor has a Direct Pay Permit on file and Lessee fails to remit the tax? How does the Department confirm that Lessor has or has not received written notice of Lessee decision to revoke their Direct Pay? IV. Collection and timely payment of tax: A. Can lessor’s finance the accelerated tax into the lease payments provided the tax is timely remitted? 1. If yes, how must the tax be documented to exclude it from pyramiding itself in the calculation of gross rent subject to tax? Will it be sufficient to separately state the periodic payment for tax in the lease contracts and not on the periodic invoices?
B. What will be considered timely payment of the tax? 1. Can lessor use cash basis accounting to remit the entire sum once it is received from lessee? 2. Would tax be considered timely if reported in the same period in which lessor first records the lease in it’s books and records for financial purposes? 3. Would tax be considered timely if reported in the same period in which lessor first invoices and first collects rent from lessee? C. Will lessee be audited for liability as well as lessor? If so, what does the lessee need to show to support the fact that lessor collected tax? V. Leases assigned or transferred between different parties. Where is the obligation for collection and remitting of tax in the following situations:
A. Lease originated by seller in seller’s name and assigned to another lessor. Both lease and title to the property are immediately (or as soon as possible) transferred. B. Lease originated by seller in Lessor’s name as agent for lessor. Lease originated in lessor’s name, only title to the property is transferred from seller to Lessor. C. A lease consummated after Feb. 1st that is assigned from one lessor to another lessor. Does the subsequent lessor (assignee) have to obtain documentation that tax was paid by the original lessor? D. If a lease consummated after Feb 1st , with accelerate tax paid, is assigned from one lessee to another lessee, Will the same lease be subject to tax a second time? If so, what will the measure subject to tax be if the lease is assigned in month 32 of a 36 month lease? E. 5739.01 (o)(5) was revised by H.B. 405 to state, “sale” and “selling” do not include transfers of interest in leased property where the original lessee and the terms of the original lease agreement remain unchanged. V. Credits, Adjustments and Bad Debts: A. If a lease is entered into with a variable interest rate adjustment and variable usage rate adjustment, how will the tax be calculated on a total lease contract rent uncertain? B. Will the lessor be allowed an adjustment for Bad Debt on leases consummated after Feb. 1st. If no, what if the lease is written off before any tax is collected from lessee? C. If the lease provides for an adjustment in price, up or down, dependent upon a subsequent event (e.g. anticipated end of lease sale price is adjusted to actual), will accelerated tax paid on the lease be adjusted accordingly? D. If leased property moves outside the state before end of lease, will there be a credit for accelerated tax for the portion of the lease that is used in another state? 1. What if the lease extends or renews after leaving the state, will the extension and renewal continue to be sourced to Ohio and subject to the accelerated tax? E. If leased property from another state moves into Ohio from another location, how will Ohio 1. calculate the accelerated tax? 2. If accelerated tax is due on the entire amount to be paid under the lease without regarding to the amount of usage outside Ohio, a. Will Ohio give credit for sales or use tax paid to another state and/or local government? b. Will Ohio credit be different for a state or local tax that is like in nature, but is imposed differently or called by a name other than a sales tax? For instance Arizona Priviledge tax, New Mexico Gross Reciepts, Other state motor vehicle excise taxes in lieu of sales tax, Alabama Rental Tax, Illinois Use Tax imposed on lessor, Illinois Retailer’s Occupation Tax on the receipts from conditional sales, VAT tax paid in another country New Jersey sale or use tax c. If a prior jurisdiction, where the leased property was located, imposed it’s sales or use tax based on the delivery of leased equipment and continued to tax the lease payments regardless of it movement outside of the jurisdiction, what will Ohio need to substantiate this as a legitimate imposition to give credit for tax imposed and not yet paid? E.g. Texas, Tennessee or Minnesota. VI. Lease Price Subject to Accelerated Tax? A. How will the following amounts be considered in the price subject to tax, and when will the tax be due? 1. Trade-in values for motor vehicles? 2. Trade-in values for aircraft? 3. Trade-in values for watercraft and out-board motors? 4. Trade-in values for other personal property? 5. Maintenance and warranty charges? 6. Installation? 7. Freight to get property to lessee’s location? 8. Freight to return property to lessor’s location? 9. Freight to move property while under lease from one location to another? 10. Is taxability of freight different when lessee bears risk of loss while property is in transit? If lessee arranges for and pays carrier for freight? 11. Separately stated charges for professional services that are financed along with personal property on the same lease agreement? 12. Separately stated charges for insurance? 13. Disposition fees and cap cost reductions? 14. Restocking fees? 15. De-installation at end of lease? VII. Lease Terminations, Refinances and Early Lease Buy/Outs: A. If a lessee and lessor decide to restructure the lease term an payments prior to the end of lease, will the lessee receive a credit for the tax on the remaining portion of the lease that is rolled over onto a new lease? General · What is the effective date of the bill? February 1, 2002 Are current leases grandfathered in with regard to treatment? If lease in place prior to February 1, 2002, it should be treated under the old rules. This includes lease extensions. · Is “vendor” defined in the statute? Returns · Will accelerated tax be paid on the sales/use tax return? · What about taxes that must be collected on the sale of off-lease equipment? · Can we also pay tax on off-lease sales for MVs, boats, aircraft? Currently, the lessor must collect tax on the sale and issue a certified check made payable to the proper county. (OhioRev Code, Sec 4505.06) . It should be sufficient for the Bill of Sale to reflect that tax was collected on the sale, with the tax being remitted on the monthly sale/use return.. Exemption considerations · With addition of separate definition for “lease”, is a lease still a “sale” and will the resale exemption still apply—both on purchase of assets for lease and for subleases? · Current exemptions for interstate commerce only address the term “sale”. Need to be sure that a lease is a sale otherwise may lose exemptions. · Current trade-in provision (Ohio Rev. Code Section 5739.01(H)(2,3)) address the term “sale”. Will these provisions also apply to “lease”? · Will a lessor still be able to accept a direct pay permit from the lessee? · Ensure that all current exemptions will pass through. Tax Base · If the tax due on the lease payments is capitalized into the lease, will OH look to tax the additional lease payments (like NY) or is it sufficient to document and separately identify the tax in the underlying lease documents (like NJ)? Sales tax is excluded from the current definition of “price”. · Seek further clarification on how miscellaneous fees and charges will be treated or excluded such as document fee, late charge, security deposit, insurance and PPT reimbursements that are not included in the original fixed payment term obligation. · What if the lease payments are based upon variable amounts such as: ¨ “pay per use”, “cost per copy”, or other incremental charges associated with use ¨Floating interest rates? ¨Variable payment schedules? · Will adjustments have to be made (like required in NY, ME)? If so, at what interval? Will this apply equally to debit and credit adjustments? Adjustments/Credits · Confirm that no adjustment is necessary if the property moves intrastate between local taxing jurisdictions. · What if the lease terminates prior to the period that the tax was prepaid for? Is there some adjustment/credit available? · Does it matter whether termination due to loss, default, etc.? · How will they address equipment upgrades? Will credit be allowed for the period that was accelerated but did not truly generate rental revenue? These are common in leasing of equipment that is subject to obsolescence. The lease of the old equipment is terminated and a new lease is entered for the newer model. These are usually done under a master lease contract. Each asset is a separate addendum. · What about lease restructurings? · What if the lease originated outside of OH and the tpp is now moving into the state? Is credit allowed for: ¨ Taxes paid upfront on the purchase price? ¨Accelerated taxes in the prior state? ¨Does it matter if imposed on lessee/lessor? · If the out-of-state lease was entered into prior to February 1, 2002, will it be treated under the old law? · What if the property moves out of Ohio? Will they issue a credit? Transfer of Interest · Clarify that term “unchanged” does not include change in the identity of the lessor as part of transaction. Sec. 5739.01(B) · Are they trying to address assignments where the lease is consummated with the dealer, then later assigned to a new lessor? Is dealer or lessor considered to be the “vendor” responsible for paying the tax? · What about lessee assignments? (Are these the same as subleases?—See sale for resale.) · Can this language be expanded to include sale-leaseback transactions? Motor vehicle definition · Can we come up with something that the systems can work with? Prefer GVW. · Are railcars, vessels, and semi-trailers included in the definition of MV, or are they considered business tpp?
Sites of Reference: http://www.legislature.state.oh.us CONTACT: Dennis Brown ELA Phone Number: 703-527-8655 Fax Number: (703) 527-2649 E-mail: dbrown@elamail.com www.leasingnews.org |