What is a Tax-Exempt Contract?1
A tax-exempt installment purchase is simply a contract that allows a public school district to finance the purchase of school buses and other equipment by making periodic payments over the life of the asset being financed. It’s a straightforward and efficient way to acquire new school buses for your district. But don’t misinterpret simple as nominal. The benefits of a tax-exempt contract are much more extensive than you might expect.
Benefits of Tax-Exempt Contracts2
Tax-exempt installment purchases are included as a line item in your operating budget, and are treated as a lease rather than as a debt. Therefore, voter referendum may not be required for the purchase and at the end of the day, you hold the title.
Interest rates for tax-exempt contracts are generally lower than commercial rates due to the tax-exempt treatment on the interest portion of the installment payments. The contracts come with flexible repayment terms with easy to add on schedules, which lowers your total cost of ownership and maximizes your budget. Your expense will align with the lifecycle of your bus and protect you from paying for a bus after it is no longer in service. Plus, just like any other loan, you own the bus at the end of the payment cycle.
1Tax-exempt treatment is dependent upon the customer designating the contract as a qualified tax-exempt obligation within the meaning of Section 265(b)(3) of the Internal Revenue Code.
2Daimler Truck Financial does not provide tax or accounting advice. Please consult with your advisor on any tax or accounting implications.