IDBs are considered special obligations of a governmental unit, and providing the project meets qualifying conditions, the interest on the IDBs is not subject to federal income tax (Section 144 (a), U.S. Internal Revenue Code). The bond purchaser, therefore, will not require the same interest rate in order to receive the same net rate of return (after tax) as if the financing were accomplished on a conventional taxable basis. The resultant interest savings is passed on to the borrower as a differential between the interest rate which the borrower could obtain through IDB financing and conventional financing.
Generally, all capital costs associated with qualified projects may be financed, including: aquisition of land and existing buildings, construction of new facilities and purchase of capital equipment. The ability of a company to obtain 100% financing for capital costs will depend upon factors such as companyu financial strength, nature of project to be financed and others.
Most commonly, the company using the facility (or majority stockholder if privately held) is treated as the owner for federal income tax purposes. Except as limited by federal law, the accounting treatment of project financed with IDB allows the company to receive all applicable tax credits, depreciation expense, interest expense and capitalization of project costs.
The tax exempt status of IDBs and the accounting treatment of projects financed is periodically reviewed by the U.S. Congress and the Florida Legislature. Prior to proceeding, the applicant should inquire as to the status of legislation affecting IDBs.