Authority: IC 6-1.1-31-1

Affected: IC 6-1.1-31

Sec. 2. (a) Types of leases. Generally, agreements which convey the right to use property for a stated period of time are termed leases and are usually classified as either capital leases or operating leases.

(b) "Capital leases" includes sales-type leases, direct financing leases, and leveraged leases. These leases must meet one (1) or more of the following conditions to be so classified and are or should be capitalized by the lessee for federal income tax purposes:

1. (1) Ownership of the property is transferred to the lessee at or before the end of the lease term.
2. (2) The lease permits the lessee to purchase the property or renew the lease at a price or rental which is substantially less than the estimated market value or fair rental of the leased property at the time the option to purchase or renew the lease is exercised.
3. (3) The lease term is equal to seventy-five percent (75%) or more of the estimated economic life of the leased property.
4. (4) The present value of the minimum lease payments equals or exceeds ninety percent (90%) of the fair market value of the leased property at the inception of the lease.

(c) "Operating leases" includes all other leases.

(Department of Local Government Finance; 50 IAC 4.2-8-2; filed Dec 7, 1988, 9:35 a.m.: 12 IR 860, eff Mar 1, 1989; reinstated by IC 6-1.1-3-22, eff Jul 1, 2003; readopted filed Oct 21, 2025, 9:19 a.m.: 20251112-IR-050240632RFA)