Recent changes to federal tax law have opened new opportunities to finance space infrastructure and public-private partnerships within the U.S. space industry. Amendments to Internal Revenue Code § 142 now allow tax-exempt private activity bonds to fund spaceports and spaceparks in much the same way airports have long been financed. This means large, complex space infrastructure and economic development projects may tap into the lower borrowing costs as well as tax-exempt capital markets traditionally reserved for municipal issuers and exempt facilities.
To qualify for tax-exempt status:
- The new law defines a "spaceport" broadly to include fixed assets, equipment, and facilities located at or near a "launch site" or "reentry site," and serving one or more of the following functions:
– manufacturing, assembling, or repairing spacecraft, space cargo, or components thereof;
–launch or reentry services;
–flight control operations;
–transferring crew, spaceflight participants, or space cargo to/from spacecraft.
- This definition seeks to allow for the development of "spaceparks" that include manufacturing and assembly space facilities.
- A state or local government must be the federal tax owner of the financed facilities, however, the facility may be on land leased by the U.S. federal government to a state of local governmental unit.
- The Internal Revenue Code outlines certain "safe harbor" rules pursuant to which a leased space facility would be considered governmentally owned, including: a lease term not in excess of 80% of the property's economic life, any purchase option being at fair market value, and the lessee's waiver of the right to claim federal depreciation and tax credits.
- Spaceports do not need to be open to the general public, and activities such as spacecraft manufacturing, assembly, and repair are explicitly eligible for tax-exempt bond financing.
- Federal payments of rent and other user-fee arrangements for use of a spaceport by the federal government will not automatically cause the financing to be treated as benefitting from a prohibited "federal guarantee," which might otherwise disqualify the project for tax-exempt financing.
- These requirements mirror familiar airport tax-exempt bond financing practices while aiming to provide spaceport developers flexibility to structure public–private partnerships.
For states and municipalities, the result is a new economic development tool that may help attract aerospace companies and high-tech jobs. Public issuers such as airport or port authorities may issue bonds, while private operators contribute capital, technology, and operational expertise through leases that share risk and revenue. Private developers have the ability to access tax-exempt financing through conduit issuers to finance space facilities constructed on governmentally owned property. Investors and underwriters, in turn, may gain access to a pioneering asset class with the advantages of federal tax exemption.
Tax-exempt spaceport bonds that blend the lower borrowing cost of public finance with the growth potential of the commercial space economy may allow stakeholders and investors to position themselves at the forefront of a transformative space infrastructure market.
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