“...every lessor in this state is looking at potential large liabilities.”

     Russ Wilder, CLP, San Francisco

:

To me, the term "discounting" of a lease has always meant that title to the

equipment was retained by the selling lessor.  All they did was sell the

right to collect a stream of payments.  The real problem I have found is

that far too many people in our industry throw around the term, "selling" a

lease too loosely.   There is a clear difference between selling all of a

lessor's right, title and interest in a lease's payment stream and the

underlying equipment (what I call a sale of the lease and equipment) vs.

selling the rights to a lease payable stream (a discounting). 

Having been on the buying and selling end of the business of discounting and

selling hundreds of leases over the past couple of decades (including a few

from you), most of the time the selling lessor retained the rights to any

purchase options, etc. and title to the underlying equipment stayed with

them, i.e., title to the equipment did not pass.  The buyer usually just got

a security interest in the lease stream, the lease itself, the underlying

equipment and all proceeds thereof.  Whenever I have been involved in

purchasing or discounting of leases, be it on a one off basis or portfolios

containing hundreds of leases, I have made sure that the

Buy/Sell/Discounting agreements clearly state whether or not title to the

equipment is being passed so that the firms I have worked for do not get

caught in the potential tax trap Bette describes. 

Lessors contemplating discounting or selling leases should carefully read

the agreements between themselves and their funders on this point (as well

as others) and if necessary get clarifying language inserted that shows what

the true intent of the parties was regarding whether title to the equipment

is being passed or not.  If the Franchise Tax Board is going to start

claiming that a sale of payment rights alone is a sales taxable event every

lessor in this state is looking at potential large liabilities.

Russell H. Wilder, CLP

Russell Wilder <RWilder@ATEL.com>

Vice President, Chief Credit Officer

ATEL Capital Group

( And perhaps other states, as these governmental agencies share all their

information when it comes to raises more “taxes.”  Yes, the financial cost to Bette’s
company will be large, not just in “back taxes” but penalties.

Yes, this could be some serious large liabilities here.  She stated the assignments

to Colonial Pacific Leasing did not have the clause, but others she was dealing

with, the Franchise Tax Board treated as a “separate sale” as title was passed.

 As  I understand it from Bette, the key is how the “master agreement” is made, meaning who had title to the equipment.  It is not “recourse” or “non-recourse” or “reps-warrants liabilities”.
   I also do not know if this applies to warehousing, meaning the lessor pays for the equipment and then at a later time assigns the lease.  I also do not understand how this applies to “discounting” a lease and whether the lessee or funder pays the vendor.  I would also think that even in discounting, the payment may be on the discounters check, but paid with the funder funds.  However, it appears the California Franchise Tax Board has their own viewpoint, including that “document fees” are part of the lease and therefore also subject to sales/use tax!!! editor )