News Column

Congressmen Say Tax Reform Could Hurt Retail Real Estate

May 19, 2014

NEW YORK, May 19 -- The International Council of Shopping Centers issued the following news release:

As the long-sought "e-fairness" act finally draws closer to passage, the retail real estate world faces another legislative issue that many in the industry fear could gut investment incentives for decades to come: the Tax Reform Act of 2014.

Citing the devastating consequences on commercial real estate of the last major effort to simplify the tax code, the Tax Reform Act of 1986, a panel of three Congressmen, all former mayors, implored attendees at ICSC's public-policy tax-reform session at RECon, in Las Vegas, to educate their local legislators on the potential impact that regulations would have on their businesses and investment in their communities.

The most problematic of them, said panelists, would be restrictions on 1031 tax exchanges (which defer investment-property capital-gains taxes), elimination of some interest deductions and of state and local real estate tax deductions, and the taxation of public-private Tax Increment Financing (TIF) Districts. "Your industry rightfully fears 1986-like repercussions and it's up to you to make sure your local congressperson is aware of the potential impact," said Congressman James Renacci of Ohio's16th District, a former developer.

Moderator Nicholas Giordano, principal of Ernst & Young's Washington D.C. Council, direly noted: "These regulations would impose significant hits on the industry." He added that most legislators don't grasp the full content of the unwieldy 979-page Tax Reform Act draft, nor its implications.

Following the Senate passage by nearly 2 to 1 of the Marketplace Fairness Act, which would level the tax advantage that Amazon and other online retailers wield over brick-and-mortar competitors, there are two likely ways the Act could come to fruition, said Steve Womack, Congressman in Arkansas' District 3. The U.S. House Judicial Committee, where the bill presently resides, could create a standalone bill with additional legislative input that could be passed along to President Obama for signing. Or it could be attached to another bill, most likely a permanent version of the Internet Tax Freedom Act, which bars taxes on such things as email and bandwidth, and expires in October.

Though passage appears imminent, this isn't time for the industry and other proponents of the bill to let up, Womack said. "We have made remarkable progress on the Marketplace Fairness Act -- more so than any other Congress -- but it is not finished."

Womack cited estimates that the Marketplace Fairness Act will funnel $23 billion back into state and local governments. One challenge, however, is persuading certain members of Congress that it is not a tax increase, said Richard Neal, Congressman from Massachusett's District 1. "It's not," he said. "It's a (legitimate) collection tax. The problem we are facing now in drafting any meaningful legislation is that Congress is so dysfunctional and ideologically driven."

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Source: Targeted News Service

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