OAR 150-317-0410: Payments Received Under Federal Safe Harbor Lease Agreements for Transactions Entered Into in Tax Years Beginning Prior to 1983

(1) Oregon has not adopted the safe harbor lease provisions contained in the federal Economic Recovery Tax Act of 1981 (IRC 168(f)(8)). Sale and leaseback transactions must meet the prior federal sale and leaseback provisions to qualify as a sale and leaseback for Oregon corporation tax purposes. The Oregon treatment of a safe harbor lease transaction for safe harbor lease transactions entered into in tax years beginning prior to January 1, 1983 is as follows: (a) The down payment received by the seller-lessee is not taxable as income in the year received or accrued. (b) The down payment made by the purchaser-lessor is not deductible from income. The payment is considered a payment in lieu of federal income taxes which are not deductible under ORS Chapters 317 and 318. (c) The purchaser-lessor is not taxable in Oregon under ORS Chapter 317 or 318 solely due to federal tax ownership under a safe harbor lease agreement. (d) The property subject to the safe harbor lease agreement is considered property of the seller-lessee. Depreciation is allowed based upon the original cost less the down payment received. (e) If the corporation is doing business within and without Oregon and the apportionment provisions (ORS 314.650 through 314.667) apply, the property subject to the safe harbor lease agreement is included in the property factor of the seller-lessee. Lease payments made by the seller-lessee under the agreement are not included in the computation of the property factor. (2) Since Oregon does not recognize the transaction as a true sale and leaseback, it is necessary to reverse the effect of such treatment in preparing the Oregon tax returns of the seller-lessee, and the purchaser-lessor. Adjustments are as follows: (a) Seller-Lessee: (A) A depreciation deduction is allowed based upon the original cost reduced by the down payment received. The deduction is computed using the methods allowable under ORS 317.285 and 318.044. (B) The lease payments made to the purchaser-lessor are not deductible except to the extent they exceed the principal and interest payments received from the purchaser-lessor. (C) Interest payments received are includible in income only to the extent the principal and interest payments received exceed the lease payments made to the purchaser-lessor. (b) Purchaser-Lessor: (A) No depreciation deduction is allowed for the property purchased and leased under a federal safe harbor lease agreement. (B) Lease payments received from the seller-lessee are not includible in income. (C) The “interest” payments made are not deductible. (3) Legal fees, accounting costs or similar expenses incurred or paid to third parties in connection with safe harbor leases are deductible.