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PLANNING SERVICES

Leasing vs. Ownership


First things first. Is leasing the best option for you? Many times, comparisons between leasing and owning come down to little more than a funding comparison. And certainly, leasing almost always allows a better cash flow for individuals and corporations. But at Union Leasing, we think itís imperative that all facets of fleet management are reviewed: administrative, sales tax implications, balance sheet treatment, acquisition cost and vehicle remarketing.


Administration

Managing a fleet requires resources to be committed to ordering new vehicles, selling used ones, monitoring fleet incentives and conducting maintenance activity. These tasks require specialized skills and dedicated resources. The use of a fleet management company provides a low-cost way to out-source these necessary activities. A fleet management company handles workflow fluctuations and keeps up with constant changes in manufacturer redesigns and incentives.


Sales Tax Implications

The impact of sales and use tax can vary dramatically based on whether a vehicle is leased or owned. Consider this: in 35 states, tax is applied to the lease vehicle's monthly rental payment instead of being an up-front charge against the vehicle's initial purchase cost. Paying taxes on the monthly payment stream not only reduces the total tax paid, but also improves cash flow.


Balance Sheet Treatment

One fundamental difference between leasing and ownership is the potential financial accounting treatment. Depending on how itís structured, most leases may qualify as an operating lease in accordance with FASB 13. This allows the lessee to expense the lease payment up to the amount utilized for business purposes.


Manufacturers Incentives

According to available statistics, 30% of the incentive dollars available must be solicited directly from the manufacturer or dealer. Taking full advantage of all possible manufacturers' rebates and incentives is an effective way to reduce acquisition costs.


Resale Value

Traditional financial comparisons frequently assume the same net resale value of a vehicle whether leased or owned. But thatís not necessarily the case. Maximizing the resale value of a vehicle depends on knowing which sale outlet to use, and judging the best timing to get the best market value of a particular vehicle. A fleet manager can help ensure a vehicle gets the best resale price possible.


AT A GLANCE

Advantages of leasing:

  • No sales tax
  • Increased vehicle incentives
  • Off-balance sheet financing
  • Preserves working capital
  • Tax-deductible payments
  • Disposal options
  • Purchase option after 12 months