Tax-Exempt Equipment Financing for Tribal Governments
Tax-exempt lease-purchase financing for federally recognized tribes
What is tax-exempt lease purchase financing for tribal equipment?
In tax-exempt lease purchase financing agreements, the organization receiving the financing pays for the equipment in installments over time. The organization then owns the equipment at the end of the lease term.
An organization must be a state or political subdivision such as a city, town or county to qualify for this form of financing, according to Section 103 of the Internal Revenue Code of 1986. This means an organization must have at least one of three powers required to issue tax-exempt obligations: taxation power; police power; and/or the power of eminent domain.
Tribal governments qualify if their tribe is organized under Section 16 of the Indian Reorganization Act of 1934, 25 USC 461 (the IRA), and is governed by a constitution adopted under Section 16 of the IRA, 25 USC 476.
These tribal governments are treated as states for the purposes of tax-exempt lease purchase financing, and the financed equipment must be used for essential government functions as noted in Internal Revenue Code, Section 7871.
Is tax-exempt financing for tribes different from other governments?
Tax-exempt lease purchase financing for tribal entities is the same as it is for state and local governments with two slight variations. They are:
1. Limited Waiver of Sovereign Immunity. The first is that the tribal entity must sign a limited waiver of sovereign immunity for the lease term that applies to the specific equipment financed. This allows the lender to secure and liquidate the financed equipment if the tribal entity is unable to meet its lease payment obligations.
2. Not Subject to Non-appropriation Clause. Tax-exempt lease purchase financing for municipalities in many states includes a non-appropriation clause. This allows the government entity to end the agreement without penalty if funding is not appropriated in subsequent budget years. However, non-appropriation clauses are not included in tax-exempt lease purchase agreements with tribal
entities. The financing contract is considered a firm term agreement that is not subject to annual appropriations.
What are the benefits of tax-exempt lease purchase financing?
Which types of tribal equipment are essential use?
“Essential use” refers to equipment that tribal government departments, schools or medical centers need to operate daily. Section 7871 of the Internal Revenue Code specifically says the equipment must be used for “essential government functions.” Many categories of equipment and real property qualify as essential use, and Baystone considers any and all capital projects for financing. A list of frequently financed equipment is highlighted later in this section.
Is financing available for non-essential equipment?
Yes! Options include taxable lease purchase financing for equipment that is not considered essential for the daily operations of the tribal entity. Examples may include equipment used for businesses owned by tribes.
Baystone Government Finance: Experts in Tribal Equipment Financing
Here are a few examples of equipment funded by Baystone Government Finance for American Indian and Alaska Native communities in Montana, Oklahoma, Arizona, Utah and beyond:
- Modular buildings for a tribal school facing growing enrollment.
- Dump trucks for a tribe with critical construction needs.
- Medical imaging technology, school buses, fire trucks, copiers and a building ventilation system for other tribes in the U.S.
At Baystone, we have one of the largest teams in the nation dedicated to state, local and tribal government financing, including financing specialists and in-house lawyers. We also team up with equipment manufacturers, dealers and other finance originators so their tribal customers can benefit from Baystone financing.
We consider any and all capital projects deemed “essential use” for tax-exempt financing, and have additional financing options available for other equipment and real property.
All Equipment and Capital Projects Considered
Equipment – New and Used
- Fire trucks
- Police vehicles
- School buses
- Ambulances
- Public works equipment
- Emergency response vehicles and equipment
- Computers and tablets
- Body cameras and security equipment
- Copiers
- Software
- Telecommunications
- IT Infrastructure
- Energy savings projects
- HVAC, LED Lighting, Roofs, Boilers, etc.
- Modular classrooms and buildings
- 911 systems
- Artificial Turf and sports complexes
- Water treatment equipment
- Metering equipment
- Capital improvement projects
- Exercise and Fitness Equipment
Real Property
- Administration Buildings
- Gymnasiums
- Shop Buildings
- Fire Stations
Bond Financing
- General Obligation Bonds
- Revenue Bonds