Tax Exempt Lease Purchase
A lease is a contract agreement between two parties under which the lessor allows the lessee to use an asset belonging to the lessor in return for payment of an agreed amount in installments. Most often the lessee has the option to buy the asset in question at a nominal price at the end of the lease period. The amount received by the lessor is subject to government taxes. A tax exempt lease program (TELP) is a special lease arrangement allowed only to tax exempt parties.
This lease allows tax exempt entities to obtain items of essential use now and pay for them in installments later. The lease is structured so that cost of the assets is amortized over the agreed lease period. As in the case of the normal lease, ownership of the assets in question may be transferred to the lessee for a nominal agreed sum. The arrangement is also called “lease financing”, or “lease purchase”. In such an arrangement the lessee often takes possession of the assets at the very start.
Such financing is encouraged by governments and humanitarian organizations to promote, among other things, the use of clean energy, including PV. Payments are arranged in such a manner that they are close in value to the expected savings in energy. Payments include the cost of the equipment plus interest. Since the interest is not subject to tax, the overall payment is less than it would be for a commercial project of the same nature.
This is a very convenient arrangement for those individuals who cannot afford to buy solar assets outright. The state, and the society in general gains from an increasing foot print of clean energy, and of, course, the lending organizations recover their capital with interest. That is not all. Equipment providers also gain by having sold so much equipment more easily. Normally, the lessor has already worked out sales arrangements with suppliers who install and transfer equipment directly to the lessee. Some people may consider it a limitation that the lessee does not have a very wide choice in selecting a supplier.