The mission of the ICSC Office of Global Public Policy is to actively shape public policy and influence the Federal, State, local, provincial and European Union’s legislative, regulatory and political processes for the benefit of our members.

This quick 30-second survey (from ICSC) has some important tax reform items in it that will affect our business.  ICSC is gauging how to best tackle the issues in Congress. You don’t have to be an ICSC member to take the survey. This is a reminder regarding the brief Tax Reform Questionnaire that ICSC members received via email last week.

We thank all of those who responded to the survey. The information collected will help us shape our formal response to the Senate Finance Committee.

For those who have not yet responded, please note that the survey is now available online, and the ICSC Office of Global Public Policy greatly appreciates your time and attention to this important matter.

The survey will close on Friday, January 10, 2014.

  **Please click here to respond.**    

Background:

The United States Congress has been discussing the potential for major tax reform for the last few years.  The most recent developments include a discussion draft issued by the Senate Finance Committee related to capital recovery and accounting that we believe could negatively impact retail real estate. A formal response has been requested by the Senate Finance Committee by January 17, 2014 and the ICSC Office of Global Public Policy is looking for your input as we draft our response.  Providing specific examples of how the proposal would impact you or your business would be greatly appreciated.

It is important to note that this is only one part of the tax reform discussion.  We expect additional proposals to be released on issues such as simplification, income tax rates, business interest deduction, partnerships and pass-thrus, and capital gains.  Those future proposals will likely include changes to tax matters such as carried interest, which has been a top tax issue for ICSC for several years.

An overview of the proposal we are responding to:

• Extend the depreciable life of real estate to 43 years as opposed to the current lives of 39 years (office), 27.5 years (multi-family), and 15 years (qualified leasehold improvements). These longer tax lives are effective even for existing properties. For example, if a 27.5 residential property has been depreciated by 20 years, the remaining 7.5 years is depreciated over 23 years (43 year new life less 20 years of prior depreciation).
• Tax real property depreciation recapture as ordinary income (i.e., 39.6% top rate as opposed to current 25% top rate, in addition to the 3.8% healthcare tax for many individuals).
• Repeal the Section 1031 like-kind exchange rules (this would materially impede liquidity for REITs who otherwise distribute annual taxable earnings).
• Repeal the “completed contract method”, except for small construction contracts (this is used by homebuilders and had allowed a deferral of tax on profit until the construction contract was complete).
• Require businesses to deduct 50% of advertising expenses over 5 years.
• Repeal the Section 179D tax deduction for energy efficient buildings.

A more extensive overview of the cost recovery and accounting discussion draft can be found here, and a one-pager on the draft can be found here.  Click here for the full proposed text of the changes.

Thank you again for your assistance.

Boston, Chicago, Minneapolis and Philadelphia passed new energy benchmarking mandates this year, and others are seeking to do the same.  U.S. shopping centers owners already contending with European-style energy-benchmarking laws had better prepare for more of the same. Municipalities and environmental groups argue that these efforts will ease operating costs and boost property values. Critics say the measures cannot be applied equitably to multitenant retail buildings. But these laws are not going away, according to sources.

“Energy benchmarking and disclosure laws are now a reality for center owners with multiple locations in top metro areas,” said Will Teichman, director of sustainability at Kimco Realty Corp. The mandates require owners of midsize and large shopping centers and other commercial buildings to track and report energy-consumption and greenhouse-gas data. But because the laws fail to account for the high percentage of space controlled by the triple-net-tenant majority, they do not represent true energy use, some say. Most tenants are separately metered, says Teichman, and it remains a maddening challenge to access energy-consumption data from them. Regardless, the laws require “whole building” disclosure from owners responsible for producing data on both landlord (common area) and tenant (building interior) metrics, he says.

“In instances where utility providers can’t disclose such data directly to landlords, the steep hurdle of obtaining waivers and data from tenants could render such laws ineffective for large portions of the commercial-building stock,” said Teichman. A few cities have thought to include provisions requiring utilities to aggregate meter data without need for tenant release forms, he notes. “Unfortunately, this isn’t the norm yet.” Unless the regulations require such disclosures, though, inaccuracies and inefficiencies are likely to persist, he says. (For that reason, ICSC opposes city benchmarking measures.)

ICSC’s Property Efficiency Scorecard, a benchmarking system to be introduced at this month’s RetailGreen Conference, in Phoenix, enables shopping center owners to measure their own energy use and green operations against those of their peers; the gauge is intended to fill the gaps left by systems that fail to account for tenant control of triple-net lease spaces.

Many of those involved say they prefer for cities and states to craft benchmarking laws that factor in tenant control of retail spaces. “When tenants control any building, the owner is at a disadvantage even though he may be taking all the measures possible,” said Wood. “If the tenant doesn’t follow the same guidelines, that hurts the overall building performance.”

Read more about green benchmarking laws in the upcoming December 2013 issue of Shopping Centers Today. from the ICSC (subscription required).

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