Skip to content

Consideration of Tax Issues in Developing and Evaluating Public-Private Partnership Concessions for Transportation: A Discussion Paper

June 2017
Table of Contents


Next »


This document is disseminated under the sponsorship of the U.S. Department of Transportation in the interest of information exchange. The U.S. Government assumes no liability for the use of the information contained in this document.

The U.S. Government does not endorse products or manufacturers. Trademarks or manufacturers' names appear in this report only because they are considered essential to the objective of the document.

Quality Assurance Statement

The Build America Bureau and the Federal Highway Administration (FHWA) provide high-quality information to serve Government, industry, and the public in a manner that promotes public understanding. Standards and policies are used to ensure and maximize the quality, objectivity, utility, and integrity of information. The Bureau and FHWA periodically review quality issues and adjust their programs and processes to ensure continuous quality improvement.

Technical Report Documentation Page
1. Report No.
2. Government Accession No. 3. Recipient's Catalog No.
4. Title and Subtitle
Consideration of Tax Issues in Developing and Evaluating Public-Private Partnership Concessions for Transportation: A Discussion Paper
5. Report Date
June 2017
6. Performing Organization Code
7. Author(s)
Susan Binder, Lucian Spatoliatore, Michael Mariani, Jim Ziglar, Valentin Villalbi, Ira Aghai, Colbye Prim, Michael Slawson
8. Performing Organization Report No.

9. Performing Organization Name And Address
Cambridge Systematics, Inc.
4800 Hampden Lane, Suite 800
Bethesda, MD 20814

Deloitte Financial Advisory Services LLP
1919 N. Lynn St
Arlington, VA 22209

10. Work Unit No. (TRAIS)
11. Contract or Grant No.
12. Sponsoring Agency Name and Address
United States Department of Transportation
Federal Highway Administration
Office of Innovative Program Delivery
1200 New Jersey Avenue, SE
Washington, DC 20590
13. Type of Report and Period Covered
14. Sponsoring Agency Code
15. Supplementary Notes
Contracting Officer's Technical Representative: Patrick DeCorla-Souza, FHWA Office of Innovative Program Delivery
16. Abstract
This paper highlights some key tax-related principles of public-private partnership (P3) structures in the U.S. for both public and private sector participants. The report focuses on key considerations for the public sector at different levels of government and different types of private sector entities. Such key considerations include the distinction between direct and indirect taxes in the context of transportation concessions, the choice of legal entity and other investor-specific tax considerations, and applicable state and local income/franchise taxes relevant to P3 transactions. The report also details tax considerations for transportation concessions, for both the toll concession and the availability payment concession. It makes general observations about the tax implications of each structure. The intended audience of this report is policy and decision makers who are involved in the delivery of transportation infrastructure.
17. Key Words
Public private partnerships, toll roads, concession arrangements, tax analysis, competitive neutrality adjustment, value for money
18. Distribution Statement
No restrictions
19. Security Classif. (of this report)
20. Security Classif. (of this page)
21. No. of Pages
22. Price

Form DOT F 1700.7 (8-72) Reproduction of completed page authorized


On July 17, 2014, the Build America Investment Initiative was implemented as a government-wide effort to increase infrastructure investment and economic growth. As part of that effort, the U.S. Department of Transportation (USDOT) established the Build America Transportation Investment Center (BATIC). The BATIC helped public and private project sponsors better understand and utilize public-private partnerships (P3s) and provided assistance to sponsors seeking to navigate the regulatory and credit processes and programs within the Department. In December 2015, the Fixing America's Surface Transportation Act (FAST Act) was enacted, which directed USDOT to establish a National Surface Transportation Infrastructure Finance Bureau, which was renamed the Build America Bureau (the Bureau).

Building upon the work of the BATIC, the Bureau was established in July 2016 as USDOT's go-to organization to help project sponsors who are seeking to use Federal financing tools to develop, finance and deliver transportation infrastructure projects. The Bureau serves as the single point of contact to help navigate the often complex process of project development, identify and secure financing, and obtain technical assistance for project sponsors, including assistance in P3s. The Bureau replaces the BATIC and is now home to DOT's credit programs, including Transportation Infrastructure Finance and Innovation Act (TIFIA), the Railroad Rehabilitation and Improvement Financing (RRIF) and Private Activity Bonds (PAB). The Bureau also houses the newly-established FASTLANE grant program and offers technical expertise in areas such as P3s, transit oriented development and environmental review and permitting. The Bureau is also tasked with streamlining the credit and grant funding processes and providing enhanced technical assistance and encouraging innovative best practices in project planning, financing, P3s, project delivery, and monitoring.

Working through the Bureau, USDOT has made significant progress in its work to assist project sponsors in evaluating the feasibility of P3s, and helping simplify their implementation. In response to requirements under the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the FAST Act to develop best practices and tools for P3s, the Bureau, jointly with FHWA, is publishing this report on U.S. highway P3 concessions.

Executive Summary

Public Private Partnerships (P3s) represent a growing trend as a project delivery option for infrastructure projects in the United States (U.S.). The relative cost savings, risk transfer and project acceleration delivered by private sector participants in infrastructure development make P3s an attractive proposition for many transportation agencies. However, P3s require transactions that often involve extensive negotiations of financial, structural, and legal agreements. An important consideration in these negotiations is the treatment of taxes and the impact of that treatment on project value.

While tax considerations are important for private sector bidders as well as city, state, and federal P3 sponsors, there is currently no specific federal legislation or policy that details the tax treatment of P3 projects. This is primarily because each P3 is unique by nature, pursued in light of the specifics of local economic and political conditions, and structured to match the desired amount of private sector involvement with respect to that particular project. In addition, many of the taxes that might be incurred by a P3 are state and local taxes, and each state has a different tax regime. The choice of legal structure is also heavily reliant on location and the relevant applicable tax laws at federal, state, or local levels.

This paper, therefore, seeks not to define a particular approach to tax implications and considerations for P3s, but attempts to highlight some key tax-related principles of P3 structures in the U.S. for both public and private sector participants. As such, we have kept language and descriptions broadly applicable where possible. The intended audience is policy and decision makers who are involved in the delivery of transportation infrastructure.

Below, we describe the objectives and key observations of each section.

Section 1 - In Section 1, we discuss some key considerations relevant to public sector sponsors of P3 projects, including the types of taxes that they may consider, the performance of P3s versus initial projections, and the impact of P3s on economic activity. Key observations of this section include:

  • By and large, the project is likely to generate economic effects which result in associated tax revenues, regardless of the project delivery mechanism (aside from some timing differences in P3 vs traditional project delivery), so these indirect economic benefits and revenues are not often considered when analyzing the expected comparative impacts of P3 projects vs traditional project delivery.
  • Taxes paid directly by the concessionaire may benefit the government entities in the area of the project. Income taxes paid by the P3 partner or private sector sponsor are likely to be the main tax difference between a P3 and a conventional public project delivery.

Section 2 - In Section 2, we discuss key income tax considerations for private sector bidders, including the types of entities that may be used in the P3 investment structure. Generally, most P3 investment structures with multiple investors utilize a Delaware limited liability company (constituting a partnership for U.S. federal income tax purposes) as the investment vehicle in order to minimize entity-level income taxes and have taxable income "flow through" to the investors. 1 We also discuss investor-specific tax considerations, as well as state and local income / franchise taxes relevant to P3 transactions.

Section 3 - In Section 3, we discuss key tax considerations for two common forms of P3 transactions - toll concessions and availability payment concessions. The discussion focuses on the income tax aspects of such arrangements, as well as relevant state non-income tax aspects. The tax treatment of both types of concessions is subject to some uncertainty but general observations may be made for each.

Section 4 - In Section 4, we discuss key principles for tax revenue valuation. This includes a discussion that places taxes in the broader context of project evaluation, including the Benefit Cost Analysis (BCA) typically performed to evaluate whether to proceed with a project, and the Value for Money (VfM) analysis typically conducted to select a project delivery method. With this background, we discuss the Competitive Neutrality Adjustment (CNA) component of the VfM, which specifically addresses tax revenue valuation. The discussion also raises key considerations and caveats from practitioners who regularly perform and assess these analyses. These considerations center on how these analytical tools are used by entities at different levels of government to analyze various project delivery options. We end with a discussion of the trade-off between taxes levied on a P3 and the value received by the government sponsor, and how these tax streams are typically modeled. Key observations include:

  • BCA typically considers the value of indirect taxes, or tax revenue streams that would be generated regardless of the delivery vehicle.
  • When evaluating project delivery methods, VfM analysis attempts to compare the risk-adjusted lifecycle costs of delivering a project under a public sponsor's conventional method with those under a P3. The difference between these two project delivery mechanisms is the "Value for Money" that is created. There are many variations to the VfM methodology that attempt to capture different nuances between conventional and P3 infrastructure delivery, including quality, risk allocation, the potential accelerative benefit of P3s, and others.
  • In general, the U.S. P3 advisory market appears to be moving away from following a highly-defined and government-prescribed VfM methodology similar to those utilized in other countries, and more towards bespoke analyses designed to assist project sponsors make project delivery decisions based on the particular considerations associated with their project.
  • To account for the fact that some taxes levied on the P3 entity or its owners may be received by the public sector sponsor (or other related public sector entities), a CNA is commonly performed by adding the opportunity cost of the foregone taxes to the costs of the Conventional Project Delivery scenario. The tax streams included in this analysis often depend on the evaluating entity.
  • Generally, a tax levied on a P3 concessionaire will increase the cost of the project to that concessionaire, which will be passed on to the project sponsor or to the user. The result is either higher user fees, higher availability payments, lower up-front payments from the concessionaire, or higher up-front public contributions, due to the reduced ability of expected revenues to repay the investment.
  • Modeling direct taxes is typically done as a part of the Value for Money analysis. Modeling indirect taxes is generally done as a part of the decision to proceed with the project, before the analysis about which project delivery method (Conventional or P3) to pursue is undertaken. This original model can be integrated with the Value for Money models to further refine the indirect tax analysis if desired. Generally, we do not see this performed in practice.


AMT Alternative Minimum Tax
ASC Accounting Standards Codification
BCA Benefit Cost Analysis
BLS Bureau of Labor Statistics
CAD Canadian Dollars
CNA Competitive Neutrality Adjustment
DB Design Build
DCF Discounted Cash Flow
DOT Department of Transportation
DRE Disregarded Entity
EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization
ECI Effectively Connected Income
FASB Financial Accounting Standards Board
FHWA Federal Highway Administration
FIRPTA Foreign Investment in Real Property Act
FTE Full -time Equivalent
GDS General Depreciation System
IRC Internal Revenue Code
IRS Internal Revenue Service
LLC Limited Liability Company
MACRS Modified Accelerated Cost Recovery System
NOL Net Operating Loss
O&M Operations & Maintenance
Opex Operating Expenses
P&I Principal and Interest
PCM Percentage Completion Method
PSC Public Sector Comparator
SPV Special Purpose Vehicle
UBIT Unrelated Business Income Tax
UBTI Unrelated Business Taxable Income
USRPI United States Real Property Interest
VfM Value for Money


Next »

back to top