Dee Wisor Denver, Colorado

Transcription

1 Dee Wisor TITLE OF PRESENTATION CLIENT/LATERAL NAME 4600 South Syracuse 9 th Floor DATE Denver, Colorado

2 SELECTED TAX ISSUES IN CONNECTION WITH PUBLIC PRIVATE PARTNERSHIPS Dee Wisor Butler Snow LLP Denver, CO February 24, 2014

3 Private business use of tax-exempt bond financed facilities by nongovernmental entities is restricted. Private business use and private payment/security tests must be met for the life of the tax-exempt bonds. 3

4 Private Business Use Generally occurs when a nongovernmental entity, which includes the federal government and 501(c)(3) entities, has use of the bond-financed property. Use of more than 10% of the proceeds by a private entity satisfies the private business use test. Use can occur through ownership, lease, management contract or other special entitlement. 4

5 Private Payment/Security The issuer must not receive payments/revenues derived from the private business use that exceed 10% of the present value of debt service on the bonds. 5

6 If the private business use and the private payment/security test both are met, then the bonds are private activity bonds and are generally not eligible for tax-exempt status. If this occurs after the issuance of tax-exempt bonds, it may result in retroactive loss of taxexemption. 6

7 A loan of the lesser of 5% of the proceeds or $5 million to a private entity generally meets the private loan test and results in the loss of taxexemption. 7

8 Certain Qualified Management Contracts do not result in private business use. Revenue Procedure provides safe harbors. Generally, compensation must be reasonable and not based upon a share of net profits. Qualified management contracts have a limit on the amount of compensation and term. 8

9 Compensation Fee Structure Contract Terms 95% Periodic Fixed Fee Including all renewal options, the lesser of (i) 80% of the reasonably expected useful life of the financed property and (ii) 15 years. Onetime incentive award under which compensation automatically increases, if a revenue or expense target is met, does not cause this test to be failed if the award is a single, stated dollar amount. 80% Periodic Fixed Fee Including all renewal options, the lesser of (i) 80% of the reasonably expected useful life of the financed property and (ii) 10 years. Onetime incentive award under which compensation automatically increases, if a revenue or expense target is met, does not cause this test to be failed if the award is a single, stated dollar amount. 9

10 Compensation Fee Structure Contract Terms Either (i) 50% Periodic Fixed Fee or (ii) capitation fee or (iii) a combination of a Capitation Fee and Periodic Fixed Fee. Including all renewal options, not more than 5 years, terminable by the qualified user without penalty or cause at the end of the 3 rd year. Either (i) Per Unit Fee or (ii) combination of a Per Unit Fee and a Periodic Fixed Fee. Either (i) a percentage of fees charged or (ii) a combination of a Per Unit Fee and a percentage of revenues or expenses or (iii) during a start-up period, a percentage of gross revenues, Adjusted Gross Revenues or expenses. Including all renewal options, not more than 3 years, terminable by the qualified user without penalty or cause at the end of the 2 nd year. Including renewal options, 2 years, terminable by the qualified user without penalty or cause at the end of the 1 st year. These terms are available only for contracts under which the service provider generally provides services to third parties (for example, radiology services to patients) and management contracts involving a facility during an initial start-up period.

11 Qualified highway or surface freight transfer facility bonds. Special category of tax-exempt private activity bonds. Any surface transportation project or international bridge or tunnel project receiving federal assistance under Title 23 of the United States Code or any facility for transfer of freight from truck to rail or rail to truck which receives assistance under Title 23 or Title 49. Up to $15 billion may be issued. Secretary of Transportation allocates. $4.5 billion has been issued. Over $397 million was issued for RTD Eagle P3 project. $4.7 billion has been allocated.

12 Tax-exempt private activity bonds may also be issued for: Mass Commuting Facilities All property must be governmentally owned. Property leased to private entity is treated as owned by government if Lessee does not claim investment credit or depreciation. Lease term is limited and option to purchase must be for FMV. Must satisfy public use test. Must have allocation of state volume cap.

13 High-speed intercity rail facilities Must satisfy public use test. Must use vehicles which are capable of speeds of in excess of 150 mph. May not finance rolling stock. Must provide service between metropolitan statistical areas. May be privately owned. Need allocation of state volume cap for 25% of principal amount. Owner may not claim investment credit or depreciation.

14 State Law Is property owned by a government but used by private entity subject to property taxation? Possessory interest is taxed in some states. Management contract may create possessory interest. Is property used in construction of facilities pursuant to P3 exempt from sales or use tax?

15 Dee Wisor TITLE OF PRESENTATION CLIENT/LATERAL NAME 4600 South Syracuse 9 th Floor DATE Denver, Colorado