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Lease Classification Matrix

 

Lease Classification Matrix

Tax Treatment Account Treatment
  Capital Lease Operating Lease
  On Balance Sheet Off Balance Sheet

Tax Lease

Products Products
Huntington/lessor retains ownership benefits

First Amendment tax lease

 

Tax lease with FMV purchase option

    Tax lease with early buyout purchase option (EBO)
 

For over-the-road vehicles:

TRAC lease (vehicle lease with fixed purchase option, lessor has no at-risk residual position)

For over-the-road vehicles:

Shared risk TRAC lease (vehicle lease with fixed purchase option, lessor has at-risk residual position)

  Customer Characteristics Customer Characteristics
  Alternative minimum tax (AMT) taxpayer AMT taxpayer
  New operating loss carry forwards (NOLs) NOLs
Minimal Balance Sheet constraints Needs Off-Balance Sheet treatment (see below)
  Vehicle purchase (TRAC only) Vehicle purchases (shared risk TRAC)
  Prefers 100% financing Prefers 100% financing
  High tech equipment (First Amendment only) Equipment upgrade or return options
Non-Tax Lease Products Products
Client/lessee retains ownership benefits Financing lease Tax retained operating lease
  Customer Characteristics Customer Characteristics
  Needs tax shelter (depreciation)

Needs tax shelter (depreciation)

  No Balance Sheet concerns Needs Off-Balance Sheet treatment
  Prefers 100% financing Prefers 100% financing
    Prefers FMV lease with early buyout option

Reasons for Off-Balance Sheet financing:

  • IRB restrictions on capital expenditures
  • Senior debt loan covenants that restrict leverage and capital expenditures
  • Industry ratings (i.e., bond capacity on contractors or AM Best ratings on insurance companies) both are impacted either by leverage or levels of non-operating assets
  • Management is incented by return on assets (ROA)