Rumors, Myths and Falsehoods

The following are a number of statements that are commonly repeated and generally are almost always FALSE. Please check these issues with your competent advisors, such as your tax preparer. Never solicit or rely on tax advice from a sales person for a leasing company or truck vendor.

1. CREDIT REPORT: The falsehood: “Loan financing for your mobile shredding truck will be reported on your personal credit report.” THIS IS FALSE. I have never in my 27 years in the industry had one of my lenders report a business to business loan on a personal credit report.
2. EFFECT ON OTHER BORROWING: The falsehood: “Loan financing for your mobile shredding truck will make it harder to get equipment financed or leased in the future versus lease financing.” THIS IS FALSE. The type of “lease” financing you are likely to do has a $1.00 buyout or other fixed buyout. This type of transaction is accounted for exactly the same as a loan, for both tax and financial accounting purposes. There is only one type of lease which is not listed on the balance sheet. It is very unlikely you will enter into such a lease. That type of lease is disclosed in the notes to the financial statements and will likely show up on the tax returns, so no one is going to be fooled. Secondly, you don’t want to “fool” or mislead lenders.
3. INCOME TAX BENEFITS: The falsehood: “Lease financing is better for you from a tax basis.” THIS IS LIKELY FALSE. Most times, leasing versus financing is tax neutral. Again, check with your tax preparer. This statement begins by assuming your accounting method would be different for a Lease versus a Loan. Almost all leases are accounted for the same as a loan for tax purposes. The tax benefits of a lease might be better if your asset was depreciated over a very long time, such as 15 to 29 years. Assets, like trucks have a much shorter depreciation schedule such as five (5) years. Your tax preparer will likely tell you the tax benefit is NO DIFFERENT. Please check with your preparer.
4. SALES TAX BENEFITS: The falsehood: “If you lease, you only have to pay sales tax on the chassis.” THIS IS FALSE. I have been financing and leasing mobile shredding trucks for almost 10 years. I have heard this a number of times from shredding companies who heard it from other leasing companies or truck vendors. Each time, I have sent the shredding company back to his local accountant and State sales tax authority. NEVER has anyone provided any evidence that the box and shredder are tax exempt. Offer: I will give $100 to the first person who can provide evidence from their State that a chassis is sales taxable, but the box and shredder are sales tax exempt. Chassis sales tax is generally paid to the department of motor vehicle at the time of licensing. Sales tax on the shredder and box is either due at that time or due later in the year to the state. Again, follow up with your tax preparer.
5. INDEPENDENT LESSOR VERSUS A BROKER: The falsehood: “It is beneficial for the shredding company to finance through an independent lease company rather than a broker.” First, the so-called “independent lease company” may be very dependent on a third party bank. I know of one example of a leasing company that emphasizes they are “independent”. However, when you read the documents, you will see on page one of the lease, that they assigned all rights to the lease to a third party bank. Further in the documents, you will see the payments are paid to the third party bank. Later in the documents, you will see you need permission from and the proceeds go to the third party bank if you terminate the lease early. You may think this is no big deal, but this "dependent - so called independent leasing company" is not in control of your deal, no matter what they say. In fact, the third party bank is the entity which checked your personal credit bureau. So much for being “independent”. Why say one thing, when the evidence contradicts the representation? Let’s just say, it won't wont be the last surprise that is encountered with this tpe of dependent so-called independent lease company.
6. INDEPENDENT LESSOR VERSUS A BROKER (part two): The broker can pick and choose which leasing companies he wants to represent. The sales person for the "dependent - so called independent lease company" has to sell their program. For example, suppose the "dependent - so called independent lease company" - has a mileage clause in their document, which charges the shredding company 15 cents per mile for each mile they drive the truck over 80,000 miles over the term of the lease. The "dependent - so called independent lease company" sales person has to either "hide" that from the shredding company or verbally tell them it doesn't apply to them because of the $1.00 buyout program. REMEMBER, verbal representations in business to business transactions are not enforceable. The BROKER simply stops using the lessor with inappropriate terms and conditions and finds better lenders/lessors.