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Kit Menkin’s Leasing News www.leasingnews.org Wednesday, January 16,2002
Empire National Leasing to Become First Niagara Leasing Arrow Capital Opens New Southern California Offices Mortgage Boom Boosts Wells Fargo 4th Quarter Earning Silicon Valley to remain strong but faces challenges Ohio Releases Final Advisory on Up-Front Sales Tax Agenda
for upcoming Streamlined Sales Tax Meeting ###Denotes press release _______________________________________________________________ United
Association of Equipment Leasing Membership Up 22% as
of december 31 2001 379 Bill
Grohe Membership
Director bill@uael.org ( June, 2001 membership was 310. http://www.leasingnews.org/DuesComparison.htm Leasing
News is in the process of up-dating all Association information. We
are waiting for the Eastern Association of Equipment Leasing numbers and
then will have the chart to begin comparison and up-dates. -------------------------------------------------------------------------------------------------- Agenda
for upcoming Streamlined Sales Tax Meeting The
National Conference of State Legislatures (NCSL) has posted the
agenda for the upcoming Streamlined Sales Tax Implementing States
Meeting in New Orleans at http://www.ncsl.org/programs/press/2002/NOagenda.htm Dennis
Brown __________________________________________________________________ ###
##################################### ################# Empire National Leasing to Become First Niagara Leasing, Inc.
LOCKPORT, N.Y Effective February 1, 2002, First Niagara Bank subsidiary Empire National Leasing, Inc. will establish a new brand name for the 17-year old commercial equipment lease financing company. Empire National Leasing, Inc. will become First Niagara Leasing, Inc. to allow for more efficient, effective marketing and delivery of leasing services. "Operating under a common brand name will also make it possible for our leasing subsidiary to better align with and leverage the growing presence of First Niagara Financial Group as a full service provider of business and consumer financial services. The benefits of successfully achieving this synergy far outweigh the costs associated with the various aspects of a name change over the long term," said Charles D. Clark, First Niagara's Vice President of Marketing/Public Relations. The nationwide provider of equipment lease financing was acquired by First Niagara Bank in January 2000 allowing the bank to expand its indirect commercial lending business and its customer base outside of its traditional market. The acquisition has brought about positive results for both entities including fully automated systems for Empire, 24-hour turnaround for customers and more than $2 million in leads for the bank and its subsidiaries. Empire National Leasing was founded in 1984 in Buffalo and provides commercial equipment lease financing for manufacturers, distributors, vendors and customers from many industries. First Niagara Bank is the primary banking subsidiary of First Niagara Financial Group, Inc. (NASDAQ: FNFG), and is based in Lockport, N.Y. The bank has 23 locations in the Western New York counties of Erie, Niagara, Orleans, Genesee and Monroe with a 24th opening soon in the Rochester suburb of Greece. First Niagara Financial Group is also the parent of Central New York-based Cortland Savings Bank and Cayuga Bank. CONTACT: First Niagara Bank, Lockport Charles D. Clark, 716/625-7526 V.P. Marketing and Public Relations . ### ###################################### ########### Arrow Capital Opens New Southern California Offices
Media and Entertainment Division Provides Flexible Equipment Leasing Services SAN JOSE, Calif., / -- Financial services company Arrow Capital Corporation announced that it has opened two Southern California sales offices -- in Bel Air and San Diego -- to serve the market for entertainment production equipment and software. The $33-billion Los Angeles entertainment industry is supported by a wide range of companies specializing in all aspects of film, video, television and music production, such as digital and sound effects, film editing, animation and graphic design. Media production requires a substantial investment in equipment and software, and rapid technological change makes equipment leasing a cost-effective way to stay current. "As an established, successful financial services company, we have all the resources needed to meet the special requirements of companies in the entertainment industry," said Richard K. Abrams, vice president of media sales for Arrow Capital. "These companies are challenged to fund the acquisition of critical production equipment quickly and efficiently, and we respond by offering flexible and creative financing packages, unlike traditional lenders who limit financial options to generic transactions." About Arrow Capital Founded in 1988, Arrow Capital is a financial services company that creates innovative, customized equipment leasing programs that enable its customers to increase revenue, maximize profitability and grow market share. Arrow sets itself apart with its financial program flexibility, broad funding capabilities, long-term company stability and deep industry experience. Arrow has headquarters in San Jose, Calif. and sales offices in several other California locations and the East Coast. In Southern California, Arrow Capital can be
contacted at 1820 N. Beverly Glen, Bel Air, Calif., 90077; 310-475-4384;
and 3990 Old Town Ave., Suite A-101, San Diego, Calif., 92110;
619-295-5897; www.arrowcapital.net. ####
############################ ######################## Mortgage
Boom Boosts Wells Fargo 4th Quarter Earning Associated
Press SAN
FRANCISCO – Wells Fargo & Co. Tuesday said a mortgage
refinancing boom enabled the bank to offset sluggish loan demand
among its business customers and boost its fourth-quarter profit
by 5 percent. The
San Francisco-based bank earned $1.18 billion, or 69 cents per
share, during the final three months of 2001, an improvement from
net income of $1.13 billion, or 65 cents per share, the previous
year. The
earnings per share surpassed the consensus estimate of analysts
polled by Thomson Financial/First Call by a penny. The
pleasant surprise helped push up Wells' shares 69 cents to $43.71
in early trading Tuesday on the New York Stock Exchange. Wells
attributed most of the fourth-quarter gains to "robust"
consumer loan demand, particularly in its mortgage division, which
cashed in on the lowest interest rates since the 1960s. With
its home loan volume more than tripling in the fourth quarter,
the bank ended the year with $194 billion in mortgage originations,
breaking its previous record of $109 billion in 1998. Last year's
mortgage volume represented an 155 percent increase from 2000,
the bank said. Meanwhile,
Wells' business loans remained flat as the bank's corporate customers
pulled in their reins to counteract the recession. The
downturn also saddled Wells with more losses. The bank said it
charged off loans totaling $536 million in the fourth quarter,
up 52 percent from the $352 million charged off at the same time
in the prior year. For
all of 2001, Wells earned $3.42 billion, or $1.97 per share, a
15 percent drop from 2000's profit of $4.03 billion, or $2.33
per share. Silicon
Valley to remain strong but faces challenges BY
DAVID A. SYLVESTER San
Jose Mercury News Silicon
Valley shows strong signs of remaining an economic powerhouse
despite the current recession, but it must make progress against
disturbing social problems that threaten the region's long-term
health. That
broad conclusion emerges from the Index of Silicon Valley for
2002, an annual survey of conditions in high-tech region surrounding
Santa Clara County. The study, scheduled for release today, paints
a statistical portrait of the area and measures the region's progress
against key economic and social goals. It was prepared by Collaborative
Economics in Mountain View for Joint Venture: Silicon Valley Network
to help plan regional initiatives this year. It
shows that the recession has without question hurt Silicon Valley.
Last year, the region lost at least 25,000 jobs -- considered
a conservative estimate -- and the real income for each person
dropped for the first time since 1993. The gravy train for investors
also came to a screeching halt: Venture capital investment dropped
by 71 percent in 2001, and initial public stock offerings dropped
below their low level in 1991. But
these setbacks should prove temporary. Some of the most important
findings highlight the strengths of the economy in Silicon Valley,
which the survey defines as Santa Clara County, the part of San
Mateo County south of Highway 92, the southwest area of Alameda
County and the Scotts Valley area of Santa Cruz County. For
instance, despite a decade of competition from other technology
regions in the country, Silicon Valley's industries and institutions
steadily increased their share of technological advance throughout
the 1990s, as measured by the number of patents awarded. In 1999,
the latest data available, Silicon Valley won 6,800 patents, or
8 percent of all U.S. patents, compared to less than 2,000 in
1990 amounting to only 3 percent of U.S. patents. ``Patents
are an indicator of future developments in technology,'' said
Doug Henton, president of Collaborative Economics. ``It is our
best indicator of whether we are developing new knowledge locally.'' This
would mean that assuming Silicon Valley companies can convert
these technological breakthroughs into successful products, local
firms have years of growth ahead of them. Henton
believes Silicon Valley's new strength could come from blend of
information technology and bioscience, in areas such as the development
of biological semiconductors and DNA-specific drugs. ``We may
be at the beginning of something, not at the end,'' he said. AnnaLee
Saxenian, a professor at UC Berkeley, believes the start-ups launched
during a recession will indicate the valley's future direction.
``Typically recessions, like that in mid-1980s and then early
1990s, are a time when new start-ups emerge to experiment with
new directions and the survivors become the basis for the subsequent
wave of growth,'' she said. Another
key indicator shows why Silicon Valley should remain economically
strong: Employees here added more value to the goods and services
produced at nearly three times the national average. This measure
of value added per employee rose by 4.6 percent last year to $170,000,
compared to the average nationally of $56,000. As
long as employees increase their productivity, their employers
are able to pay them high wages. In fact, despite the drop in
2001, average pay in Silicon Valley remains significantly higher
than the national average. Overall,
these indicators suggest the steep tech downturn is not doing
the kind of long-term damage to the valley that the decline in
the defense and aerospace industries did to the Los Angeles area
in the early 1990s. The difference, says Henton, is that LA suffered
because the basic demand declined as the defense budget was cut
sharply with the end of the Cold War. In
Silicon Valley, the current tech downturn reflects too much investment,
not a decline in basic demand for computers, software or communications
products, he says. ``This
is a temporary decline,'' agreed Stephen Levy, director of the
Center for the Continuing Study of the California Economy in Palo
Alto and an advisor to the index survey. ``No one is saying that
it is a permanent decline.'' If
only Silicon Valley could solve its pressing social problems as
easily as it invents new products. The survey shows that some
basic problems have worsened in the 1990s: Housing has become
more expensive, traffic congestion remains intractable and some
disturbing trends are developing in education. ``In
assessing the progress on these challenges, we could do better,''
Levy said. ``If we give these up, we will lose our competitive
edge slowly over time.'' For
instance, only 71 percent of the public high school students graduated
last year, down from 77 percent in 1993, and fewer students are
taking intermediate algebra in high school, the key course for
training in technical fields or college-level mathematics. In
one disturbing sign, Hispanic students, the fastest growing portion
of the student population, were the least likely to take intermediate
algebra of all the ethnic groups. Surprisingly, girls are taking
the intermediate algebra much more than the boys. The
survey also shows that a widening disparity between the most highly
paid and the lowest paid. While the top 20 percent of households
saw their income rise by 22 percent to an average annual of $155,000,
the lowest 20 percent have had virtually no income growth as a
group since 1993. Some
of the worst excesses of the bubble are moderating, according
to the survey, but not by much. Housing prices have dropped, but
only 75 percent of all households could afford to buy a home at
the median price of $481,000. The same is true for renters. Even
though rents have declined, they have risen much faster than incomes
steadily since 1996. Young
families with two wage-earners are feeling the squeeze of living
in Silicon Valley, because the cost of childcare has risen much
faster than inflation. At
the same time, the valley is accomplishing one of its key goals,
to make development more accessible to public transportation.
In 2001, 61 percent of all the new housing units approved were
close to transit, nearly twice the percentage of the year before. Still,
the long-term social trends require more of a response from the
community, the index participants say. ``If we don't deal with
education and housing, we undermine productivity because productivity
isn't just a function of technology but also of people,'' says
Henton. ``We can't have economic innovation without social innovation. sales tax up-front position ELAonline.com Announcement Ohio Releases Final Advisory on Up-Front Sales Tax
The Ohio Department of Taxation has released a final letter to vendors on the new upfront sales and use tax treatment of leases in Ohio. This letter is meant to cover leases of all property and may not expand on any one issue. It will be an important topic of review during the industry workshop on implementation of the up-front sales tax scheduled in Columbus on Tuesday morning, January 29. For additional information on the industry workshop and registration, please see first related site of reference at the end of this article. Comments or questions relating to the letter can
be directed to Tim Sachs, Ohio Department of Taxation at timothy_sachs@tax.state.oh.us
Please copy ELA at dbrown@elamail.com
If you prefer to have ELA submit your comments without your company
name being forwarded to the Ohio Department of Taxation so indicate
in a message to dbrown@elamail.com. Ohio Department of Taxation To All Ohio Vendors: The Ohio 124th General Assembly recently passed
Amended Substitute House Bill 405, which made significant changes
in the way Ohio sales and use tax is applied to the lease of motor
vehicles, watercraft, outboard motors, and aircraft. The change
in the law also applies to leases of tangible personal property
used for business purposes. Effective February 1, 2002, the sales
tax on most leases of these types of property will be computed
and paid at the beginning of the lease rather than on the monthly
payments. The following information will explain the changes of
the law and how they may apply to your business. Statutory Law Section 5739.01 (H) (4) has been added to the definition
of “Price”. It states: “In the case of the lease of any motor vehicle
designed by the manufacturer to carry a load of not more than
one ton, watercraft, outboard motor, or aircraft, or the lease
of any tangible personal property, other than motor vehicles designed
by the manufacturer to carry a load of more than one ton, to be
used by the lessee primarily for business purposes, the sales
tax shall be collected by the vendor at the time the lease is
consummated and shall be calculated by the vendor on the basis
of the total amount to be paid by the lessee under the lease agreement.
If the total amount of the consideration for the lease includes
amounts that are not calculated at the time the lease is executed,
the tax shall be calculated and collected by the vendor at the
time such amounts are billed to the lessee. In the case of an
open-end lease, the sales tax shall be calculated by the vendor
on the basis of the total amount to be paid during the initial
fixed term of the lease, and then for each subsequent renewal
period as it comes due. Additions similar to the above were made to the
Use Tax code in Section 5741.01 (G) (6). Section 5739.01 (VV) has been added. It defines
the term “lease”. “Lease” means any transfer for a consideration
of the possession of and right to use, but not title to, tangible
personal property for a fixed period of time greater than twenty-eight
days or for an open-ended period of time with a fixed period of
more than twenty-eight days. This change in the sales and use tax law applies
to qualifying lease contracts entered into on and after February
1, 2002. The tax will be collected at the time the lease is consummated.
Sales and use tax apply to the total amount that will be paid
throughout the term of the lease. Tax on charges that are not
or cannot be calculated at the time the lease is consummated must
be collected at the time those charges are billed to the lessee.
Examples of this type of charge would be an excess mileage charge
or a reimbursement of personal property tax. There are many questions that arise as a result
of the law change. Below you will find questions and answers to
assist you in implementing the new law. At a later date, there
will be more detailed information available on the Department
of Taxation website, Error! Hyperlink reference not valid./tax.
Questions and Answers Q1) To what items does the new law apply? A1) The law specifically lists motor vehicles,
watercraft, outboard motors and aircraft. (Note the exclusion
of motor vehicles designed by the manufacturer to carry a load
of more than one ton. A lease of this type of vehicle will still
be subject to the tax on each monthly lease payment as treated
under prior law). Also included under the new law is “tangible
personal property used primarily for business purposes.”
This includes, but is not limited to, leases of computers, computer
peripherals, canned software, furniture, machinery, plants, wall
hangings, communication equipment, and any other personal property
used by a business. Q2) How is the “price” determined for
computing sales tax due at the time the lease is consummated?
A2) The price on which to compute the sales tax
is the total amount to be paid by the lessee under the lease agreement.
The change in the law requires that price includes the sum of
all lease payments over the term of the lease. For example, if
the lease calls for 48 payments of $300.00, total payments would
be $14,400.00. “Price” includes this amount. As under
prior law, “price” also includes other amounts that
represent consideration for the lease of motor vehicles, watercraft,
aircraft and other personal property including, but not limited
to: down payments, manufacturer rebates, interest, and documentary
fees. Refundable deposits, to the extent those deposits
are actually refunded to the lessee, are not part of the price.
Should part of the deposit be held at the end of the lease to
cover taxable charges and fees, the tax on that amount will be
collected at the time the charge is imposed. Q3) How will trade-ins be handled? A3) Trade-ins are similar to charges such as down
payments or manufacturer rebates in that they reduce the cost
of the leased property on which the lease payments are computed.
As a general rule, items taken in trade on a sale or lease are
part of the price. Tax will apply on trade-in amounts in the same
manner as for down payments or manufacturer rebates. However, under Ohio law, the credit afforded a
lessee for a trade-in of a used motor vehicle on the lease of
a new motor vehicle is not included in the taxable price of the
transaction. Likewise, the credit afforded a lessee for the trade-in
of a used watercraft or outboard motor on the lease of a new or
used watercraft or outboard motor from a watercraft dealer registered
with the Ohio Department of Natural Resources is not included
in the taxable price. In these types of transactions, no tax need
be collected on the credit afforded the lessee for the trade–in.
If the lessee owes an outstanding balance on the motor vehicle,
watercraft or outboard motor that is traded, and that balance
is financed as part of the lease, the financed amount is part
of the price of the lease. A4) The vendor collects and remits the tax. In
the case of the lease of a motor vehicle, the vendor is the dealer
with whom the lessee negotiates the transaction and from whom
delivery of the leased vehicle is taken. In all other cases, it
is the person to whom the down payment or initial lease payment
is made. The vendor will pay the tax on the appropriate Ohio sales
or use tax return. The vendor is entitled to the .75% discount
of the tax for returns that are paid and received in a timely
manner. Q5) When should the tax be collected and remitted?
A5) The tax should be collected at the time the
lease is “consummated.” For purposes of sales and use
tax, the lease will be considered to be consummated when the property
which is the subject of the lease is delivered or the initial
payment under the lease is required to be made, whichever is earlier.
Charges payable under the terms of the lease during
the period the lease property is being produced, and which compensate
the lessor for the cost of acquiring the leased property, are
not considered to be the initial payment on the lease. Such charges
are part of the taxable price of the leased property and tax should
be collected and remitted on these charges on the sales or use
tax return for the period in which the lease is consummated. Q6) What is the rate of tax to collect? A6) In the case of a lease of a motor vehicle,
watercraft or outboard motor, the dealer must collect the tax
at the rate of the lessee’s county of residence. In the case
of the lease of an aircraft or federally documented watercraft,
the vendor should collect the tax at the rate where the aircraft
or documented watercraft is based. For other tangible personal
property used for business purposes, the vendor should collect
tax at the rate in effect for the county where the property is
to be primarily located and used. Non-Ohio vendors must collect
the tax at the point of use of the property. Q7) What is the appropriate sales or use tax account
on which to report and pay the tax? A7) In-state businesses that facilitate lease transactions
will need two accounts to report their sales and lease transactions:
a regular county vendor’s license and an Ohio transient vendor’s
license, license number 89-X5XXXX. Out-of-state sellers will need
an Ohio seller’s use tax account, account number 99-XXXXXX.
Q8) What is to be reported on each of the sales
and/or use tax returns? A8) For leases where a dealer collects the tax
on the leasing transaction, the dealer is effecting two sales
for purposes of reporting on sales and use tax returns. One for
the sale of the property to the leasing company and the other
for the tax collected on the amount paid for the term of the lease.
For the sale to the leasing company, the sale price
should be reported on the return for the retailer’s regular
vendor’s license (Form ST-10) as an exempt sale. The amount
of the sale would be reported on line 1, Gross Sales, and subtracted
on line 2, Exempt Sales. For the other sale to the lessee, the sale and
tax will be reported and remitted on the return for the transient
vendor’s license (Form UST-1). The amount of the sale and
the tax will be listed on the supplemental portion of the return
on the line for the county rate that was collected. It will be
included with all other taxable transactions on line 1, Gross
Sales. The amount of the sale is everything included in the “price”
as described in A2, above. If the lease is not subject to the
tax, it should be included on line 2, Exempt sales, and not reported
on a county line in the supplemental portion of the return. For leases by an Ohio leasing company where the
leasing company is collecting and remitting the tax, the tax will
be reported and paid under a transient vendor’s license.
An out-of-state leasing company in the same situation will report
and pay the tax on a seller’s use tax account. Q9) If the lease is terminated prior to the lease
term, is there a refund for any of the sales tax previously paid?
A9) No. There is no provision in the Ohio Revised
Code for a refund of the tax, unless the entire purchase price
is refunded to the customer. Q10) Is sales tax due on charges that are not or
cannot be calculated at the time the lease is consummated? A10) If the lessor assesses charges for items such
as property tax reimbursement, or excessive wear or mileage, either
during the lease period or at the end of the lease, sales tax
must be collected on these charges at the time they are billed
to the lessee. This tax collected should be reported and paid
on the lessor’s regular sales or use tax return. Tax is due on any early termination charge unless
that charge represents a compensation for the unpaid amounts on
the lease that have already been subject to taxation at the consummation
of the lease. Q11) If the lessee decides to purchase the leased
property, what is the tax consequence? A11) If the customer decides to purchase the property,
tax should be collected on the purchase price and any other charges
associated with the transfer of ownership. For motor vehicles,
watercraft and outboard motors, tax should be paid to the Ohio
Clerk of Courts at the rate in effect in the customer’s county
of residence. For other property, the tax should be paid on the
leasing company’s Ohio transient vendor’s License. A12) The method of tax collection on these leases
will remain the same as under prior law. Tax should be collected
on each monthly payment through the end of the lease. Tax should
be charged on any fee for the early termination of such a lease.
Similarly, additional fees such as property tax reimbursement,
or excessive wear or mileage charges would be taxable as they
are billed. Q13) When is a lease “entered into” as
it pertains to the February 1, 2002 date? A13) For purposes of applying the “grandfather”
provision of Sub. H.B. 405, the Department of Taxation will consider
a lease “entered into” when the parties are obligated
to the terms of the lease, the specific motor vehicle, watercraft,
outboard motor, aircraft, or tangible personal property that is
the subject of the lease is identified, and steps toward performing
the lease have been undertaken. For example, assume that prior
to February 1, 2002, a lessor and a lessee have agreed to the
lease of an airplane. Also prior to February 1, 2002, an order
has been placed and the airplane is being manufactured for delivery
to the lessor. In this case, the parties have obligated themselves
to the lease, the specific property has been identified and performance
has been undertaken by having production of the airplane initiated.
This lease would qualify under the grandfather clause as one to
be treated under the terms of the law that existed prior to that
date. Often lessors and lessees will enter into agreements
whereby a lessor will agree to lease property to a lessee where
the specific items that may be subject to the lease are not identified
in the agreement or the property leased may change over time.
Some examples of this type of agreement may be styled master lease
or fleet lease. Many of these contracts have been in existence
for many years. In determining the application of the “grandfather”
provision to these agreements, the Department of Taxation will
look to the date when each specific motor vehicle, watercraft,
outboard motor, aircraft, or other tangible personal property
was identified and included in the lease. In other words, we will
consider each item to be separately leased under the terms of
the pre-existing contract. For example, a lessee with an agreement
to lease a fleet of motor vehicles from a lessor orders new vehicles
to be covered by the lease on March 1, 2002. The lease of these
newly identified vehicles would be taxable at the time the lease
is consummated on the total amount to be paid under the lease
agreement for those vehicles. The existing fleet on January 31,
2002, would continue to be taxed on the monthly installments.
Q14) A lessor may advance the tax money to the
lessee and finance the tax over the term of the lease. If this
is done, is the repayment of the tax and any interest on that
repayment subject to tax? A14) The repayment of the financed tax and any
interest on that financed tax are not part of the tax base of
the lease for sales and use tax purposes where the records of
the vendor and the lease clearly document the total price on which
the tax was calculated and the tax collected on the lease. It
would be preferable, though not required, that the financed tax
portion of the lessee’s payment be separately stated on lease
billings. Q15) Will existing sales and use tax exemptions
and exceptions apply to leased property after February 1, 2002?
A15) Yes. Current exemptions and exceptions based
on the use of the item, the identity of the item, or the identity
of the purchaser will still apply. Q16) If the lessee has a Direct Payment Permit,
should tax be paid to the vendor at the time the lease is consummated?
A16) No. The Direct Payment holder will report
tax on their direct payment tax return. Q17) Would non-taxable items such as customized
software and professional services that are included in the lease
of taxable personal property be subject to the tax? A17) No, provided that the payments for non-taxable
items are separately stated within the records of the lease document,
and that the records of the vendor and the lease clearly document
the total price on which the tax was calculated and the tax collected
on the lease. Q18) How should tax be calculated on a lease with
no definite term? A18) Tax should be collected on the total amount
to be paid for the initial established term of the lease in the
manner described in this letter at the time the lease is consummated.
Tax should then be collected for each renewal period as payment
for that period becomes due. If you should have any other questions, please
contact our Taxpayer Service Center at 1-888-405-4039. ( courtesy of ELAonline.com
) www.leasingnews.org
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