Author: Trey Jackson

Real Estate Industry Urges Supreme Court to Expand States’ Authority to Collect Taxes on E-Commerce Purchases

Posted on by Trey Jackson

The Roundtable joined an industry coalition in filing an amicus curiae brief on March 5 with the U.S. Supreme Court in South Dakota v. Wayfair, Inc., No. 17-494 – a case that addresses the constitutionality of states’ authority to collect sales and use taxes on Internet consumer purchases. (SCOTUSblog)  

  The Roundtable joined an industry coalition in filing an amicus curiae brief  on March 5 with the U.S. Supreme Court in South Dakota v. Wayfair, Inc., No. 17-494  – a case that addresses the constitutionality of states’ authority to collect sales and use taxes on Internet consumer purchases.

After the high Court accepted Wayfair in January, the case has become the long-awaited judicial vehicle that may level the playing field between Internet-based retailers and “brick and mortar” stores.  The industry amicus brief, drafted by former U.S. Solicitor General Seth Waxman and his colleague Ari Holtzblatt, urges the Supreme Court to overturn a pair of decades-old decisions (e.g., Quill Corp. v. North Dakota (1992) and National Bellas Hess, Inc. v. Department of Revenue of Illinois (1967).  Wayfair directly challenges these pre-Internet opinions, which prohibit states from imposing tax collection obligations on web-based, catalog, and other retailers that lack an in-state physical presence.

In today’s e-commerce driven world, the brief notes, the law should focus on retailers’ economic rather than physical presence, and level the playing field for all retailers who have in-state sales above a certain threshold.

The brief explains how the outmoded court decisions continue to have damaging effects that reach far beyond actual brick-and-mortar outlets. “First, the loss of physical stores, many of which are integral to the social fabric of their communities, increases unemployment and creates a sense of dislocation among community residents. Second, the decline in the retail sector reduces the value of retail real estate, discourages further development of retail properties, and impedes innovation in the retail sector. Third, the lost revenue from sales, property, and income taxes threatens the ability of state and local governments to provide much-needed public services, including those that benefit online retailers,” the brief states.

The Roundtable joined The International Council of Shopping Centers, Investment Program Association, Nareit®, the National Association of REALTORS® , the National Multifamily Housing Council, NAIOP, the American Farm Bureau Federation and the South Dakota Farm Bureau Federation on the amicus brief, which re-iterates many points set forth by a real estate coalition in an initialamicus  brief filed last November. (Roundtable Weekly, Nov. 3, 2017)

Trump Administration Solicitor General Noel Francisco also joined the wave of other submissions to SCOTUS on March 5.  The Justice Department brief states, “In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible, the states have ample authority to require those retailers to collect state sales taxes owed by their customers.”  (Amicus brief of USA and Wall Street Journal, March 5)

SCOTUS is scheduled to hear oral argument on April 17 and is expected to render a decision by the end of June. (Roundtable Weekly, Jan. 12)

President Trump Authorizes Tariffs on Imported Steel and Aluminum; Exemptions for Canada, Mexico and Potentially Other Countries After Security Reviews

Posted on by Trey Jackson

Despite pushback from GOP leaders, congressional members and allies overseas, President Trump yesterday authorized levies of 25 percent on imported steel and 10 percent on aluminum to take effect March 23, while exempting Canada, Mexico and potentially other countries based on a country-by-country review of bilateral security agreements.  (MarketWatch, March 8 and Bloomberg, March 9)

President Trump authorized levies of 25 percent on imported steel and 10 percent on aluminum. 

The Presidential Proclamation exempts Canada and Mexico based on renegotiation of terms in the North American Free Trade Agreement (NAFTA) and includes a degree of flexibility for exempting other nations.

Roundtable President and CEO Jeffrey DeBoer noted the commercial real estate industry’s concerns, stating “For every job in the steel production industry, there are more than 50 jobs in the US construction industry (140,000 vs. 7-10 million). New tariffs on construction materials like steel could have the unfortunate, unintended side effect of raising construction costs and reducing jobs in real estate development. Exemptions will be important to mitigating the harm to the US economy.”

In response to Trump’s initial tariff announcement last week, Senate Majority Leader Mitch McConnell (R-KY) commented on Tuesday, “There is a lot of concern among Republican senators that this could sort of metastasize into a larger trade war.” (NPR, March 8)

Roundtable President and CEO Jeffrey DeBoer: “New tariffs on construction materials like steel could have the unfortunate, unintended side effect of raising construction costs and reducing jobs in real estate development. Exemptions will be important to mitigating the harm to the US economy.”

A March 7 letter to Trump from 107 House Republicans, including Ways and Means Chairman Kevin Brady, expressed concern that “adding new taxes in the form of broad tariffs would undermine” the economic benefits in recently-passed Tax Cuts and Jobs Act legislation. The letter also suggests conditions for imposing tariffs to minimize negative consequences.  

European Central Bank (ECB) President Mario Draghi said in a news conference yesterday, “If you put tariffs against what are your allies, one wonders who the enemies are.”  Discussing the potential effects of the tariffs, he added, “Is there going to be a retaliation or not? What’s going to be the response of the exchange rate? …and the effect on confidence is very difficult to assess.” (CNBC, March 8)

The tariff announcement comes after a recent White House infrastructure proposal that seeks to leverage $200 billion in federal funding to leverage $1.5 trillion in local, state and private funding over the next decade. Higher tariffs on imported steel and aluminum could present new challenges to obtain the raw materials needed for extensive infrastructure projects.  Funding options for the Trump administration’s infrastructure proposal were discussed during a March 6 House Transportation and Infrastructure Committee that featured Transportation Secretary Elaine Chao. (Hearing, March 6)

“Visit U.S. Coalition” Unveils Policy Goals to Encourage Foreign Tourism and Boost Job Growth

Posted on by Trey Jackson

The multi-industry Visit U.S. Coalition (which includes The Real Estate Roundtable) on Wednesday released its policy agenda aimed at promoting and increasing inbound international travel to the United States. (VisitU.S.Policy Agenda, Feb. 28)

The multi-industry Visit U.S. Coalition  (which includes The Real Estate Roundtable) on Wednesday released its policy agenda aimed at promoting and increasing inbound international travel to the United States. ( VisitU.S. Policy Agenda , Feb. 28)  

The coalition advocates for policies that urge the Trump Administration and Congress to regain the nation’s lost share of the global travel market by 2020, which will result in 88 million international visitors who directly support 1.3 million U.S. jobs and $294 billion in travel exports – crucial to achieving the Administration’s economic goals. (Roundtable Weekly, Jan. 19 and Feb. 9)
 
“Robust international travel helps to power the U.S. commercial real estate markets, not only hospitality properties but retail, attraction, health and investment properties as well,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable.  “We look forward to continuing to work to emphasize that America is a uniquely welcoming, interesting and safe travel destination for international visitors.  Positive national tourism policies boost overall economic growth, support and create jobs, generate revenues to help modernize our infrastructure, and generally improve the quality of life in our communities,” DeBoer added.
 
The coalition aims to safely and securely welcome more overseas travelers to the U.S. – who stay an average of 18 nights and spend approximately $4,360 at hotels, stores, restaurants and attraction properties on business and leisure trips. The coalition’s agenda encourages federal policy makers to:

  • Embrace International Travel to the U.S. as a National Priority
  • Expand Intelligence Sharing and Streamline the Travel Entry Process
  • Make America’s Visa System More Secure and Accessible to International Travelers
  • Increase Security and Efficiency in America’s Travel Screening Systems at U.S Ports of Entry

Led by the U.S. Travel Association and the American Hotel and Lodging Association, the coalition also includes the U.S. Chamber of Commerce and the American Resort Development Association.

NLRB Restores Broad, Obama-Era “Joint Employer” Standard; Industry Coalition Calls for Congress to Pass Unified National Definition

Posted on by Trey Jackson

A conflict of interest by a newly-appointed member of The National Labor Relations Board (NLRB) prompted the agency on Monday to restore a 2015 ruling that renders employers vulnerable to claims by “indirect” workers who are not immediate hires – a move with significant implications that again subjects hotels, other franchise-model businesses, and companies that hire contractors to an expansive “joint employer” liability standard.

With Browning-Ferris  revived, an expanded, vague test – based on “indirect ” and “ potential ” control over workers’ terms and conditions of employment – will replace a more predictable and clear “direct and immediate control” standard for determining joint employer liability.

Last December, the NLRB issued its decision in Hy-Brand Industrial Contractors, Ltd. , which overturned the Obama-era “joint employer” standard announced in Browning-Ferris Industries of California, Inc.  (Roundtable Weekly, Dec. 15, 2017)  With Hy-Brand now vacated – because the board’s inspector general recommended that a Trump appointee who previously worked for a law firm that represented one of the companies in Browning-Ferris should have recused himself – the 2015 decision is back in effect.

The withdrawal of Hy-Brand creates an uncertain and complicated legal landscape for ongoing franchise-related cases. (New York Times, Feb. 26) 

With Browning-Ferris revived, an expanded, vague test – based on “indirect” and “potential” control over workers’ terms and conditions of employment – will replace a more predictable and clear “direct and immediate control” standard for determining joint employer liability.  The decision exposes a broad range of contractors and subcontractors, and franchisors and franchisees, to workplace liability for another employer’s actions and a potential obligation to collectively bargain with workers they have not directly hired.  (Wall Street Journal, Dec. 14.)

As the NLRB’s action vacating Hy-Brand demonstrates, congressional action could  definitively address the joint employer standard and insulate the issue from whichever party has enough appointees to swing the majority on the highly politicized labor board.  The House of Representatives in November 2017 passed the Save Local Business Act (H.R. 3441), which would codify the “direct and immediate control” standard when deeming employers liable for workplace violations.

A multi-industry coalition, including The Real Estate Roundtable, on Feb. 15 wrote Senate leaders urging them to take up H.R. 3441 as soon as possible to provide certainty for small business owners and other employers in all industries, while clarifying protections for American workers.

President Trump’s Plans to Slap Global Tariffs on Imported Steel and Aluminum Spark Concerns Regarding Real Estate and Infrastructure Investment

Posted on by Trey Jackson

President Trump yesterday said he will sign a formal order next week imposing tariffs of 25 percent on imported steel and 10 percent on aluminum for “a long period of time” – an act that could raise domestic construction costs and create new challenges for real estate development and infrastructure projects. (White House Remarks, March 1)

President Trump yesterday said he will sign a formal order next week imposing tariffs of 25 percent on imported steel and 10 percent on aluminum.

Roundtable President and CEO Jeffrey DeBoer voiced concern about how such a broad international penalty could rebound against the domestic commercial real estate industry. “In the United States, forty-two percent of steel is consumed by the construction industry, which employs millions of Americans directly and millions more indirectly,” said DeBoer.  “Aluminum is also a key material used in energy efficient building construction.  The current healthy state of the U.S. commercial real estate industry could be hard hit with the unintended consequences from such broad penalties targeting metals essential to construction. Tariffs will lead to higher construction costs that make many new projects simply uneconomic and unviable — hurting investment and job creation,” DeBoer noted.
 
Trump’s announcement, made during a White House meeting with U.S. metals industry executives, sparked a bout of stock market volatility and immediate responses from Canada and the European Union promising “countermeasures” to “rebalance” international trade with  the U.S.  
 
Federal Reserve Chairman Jerome Powell, following testimony this week before the House and Senate, said, “The best approach is to deal directly with the people who are affected, rather than falling back on tariffs.” (Wall Street Journal, March 1)
 
According to an analysis by the Cato Institute, more than 200 anti-dumping and countervailing duty orders aimed at preventing unfair competition currently constrain U.S. imports of steel and iron products from a long list of countries. The effect has been an increase in U.S. prices well above global levels to the detriment of the large manufacturing and construction sectors in America that use steel to make higher-value products. (CATO Institute, CNN Commentary, Aug. 2, 2017 and Engineering News-Record, Feb. 22, 2018)
 
The impact of tariff penalties on President Trump’s recent infrastructure proposal are uncertain. Transportation Secretary Elaine Chao yesterday testified before a Senate committee about the Administration’s infrastructure plan, which emphasizes policies to lower project costs and reduce project delays.  Higher tariffs on steel – a material necessary to build and repair bridges, tunnels, pipelines, and rail lines – could further constrain the federal state, local and private funding sources touted by the Administration as necessary to finance U.S. infrastructure repair and modernization.  (Bloomberg, March 1)
 
Infrastructure and national policies affecting economic growth will be discussed during The Roundtable’s Spring Meeting on April 25 in Washington, DC.

Roundtable Proposes Framework for Implementing the Real Estate Exception to the New Business Interest Deduction Limit

Posted on by Trey Jackson

The Real Estate Roundtable on Wednesday wrote to Treasury Secretary Steven Mnuchin regarding the new limitation on business interest deductibility created in the Tax Cuts and Jobs Act, including rules that allow taxpayers to continue fully deducting interest related to commercial real estate debt. (Roundtable letter, Feb. 21)

The Feb. 21 Roundtable letter urges that Treasury clarify that interest (other than investment interest) on debt that is allocable to an owner of an entity engaged in a real property trade or business is exempt from the new business interest limitation rule – if that trade or business has elected out of the rule.

The exception for interest allocable to a real property trade or business reflects policymakers’ understanding that limits on the deduction for interest expense could have enormous negative consequences for property values, real estate markets, and economic growth.  (Reference: Real Estate Forum, Jan/Feb 2018, Decoding The New Tax Bill)

The Feb. 21 comment letter requests clarification to ensure the real estate exception operates as intended for common real estate ownership arrangements – focusing on the scope and application of the exception for an electing real property trade or business. 

The letter urges that Treasury clarify that interest (other than investment interest) on debt that is allocable to an owner of an entity engaged in a real property trade or business is exempt from the new business interest limitation rule – if that trade or business has elected out of the rule.  

As relevant examples, the letter describes four common scenarios where the financing of a real property trade or business occurs through a tiered structure.  The letter demonstrates why treating the interest expense of an upper-tier entity as properly allocable to the real property trade or business of a lower-tier entity is consistent with the legislative intent and conforms with existing tax rules and principles.  

The letter also addresses the allocation of indebtedness within entities, requesting that Treasury guidance apply the tracing rules found in existing authorities, which are already used for purposes of the passive loss rules.  

During a Feb. 20 tax conference, both Treasury’s Deputy Tax Legislative Counsel Krishna Vallabhaneni and Deputy Assistant Secretary for Tax Policy Dana Trier said a notice on language limiting interest expenses under the new tax law will be issued soon. (Bloomberg Law, Feb. 20).  

This week’s letter is a follow-up to a Jan. 18 Roundtable letter, which identified several areas where Treasury rulemaking would reduce uncertainty and facilitate continued investment. [Roundtable Weekly, Jan. 19]   

As Treasury and Congress continue to focus on implementation and technical corrections to the new tax law, The Roundtable and TPAC will play an active role in seeking appropriate clarifications affecting the most significant changes to the tax code in more than three decades.

Mnuchin: President Supports Sales Tax for Online Purchases; GAO Study Shows States Losing Billions from Tax-Free Sales

Posted on by Trey Jackson

As expectations grow that the Supreme Court will rule on the issue of state and local taxation of internet purchases by this summer, Treasury Secretary Steven Mnuchin recently testified before two congressional committees about President Trump’s support for an online sales tax.

Treasury Secretary Steven Mnuchin recently testified before two congressional committees about President Trump’s support for an online sales tax.

During a hearing before the Senate Banking Committee, Mnuchin addressed taxing online purchases through the Marketplace Fairness Act, stating: “[T]he president fundamentally supports the idea of some type of sales tax across the board … There are aspects of that he likes a lot and he looks forward to working with you and others on it.” (Video of Exchange with Sen. Jon Tester (D-MT), C-Span, Jan. 30) 

At a Feb. 15 House Ways and Means Committee hearing, Mnuchin said the president “does feel strongly” that the U.S. should impose a sales tax on purchases made over the Internet. (Bloomberg, Feb. 15)

The U.S. Government Accountability Office (GAO) released a study in December estimating that state and local governments could have collected an estimated 8 to 13 billion dollars in 2017 if states were given authority to require sales tax collection from all remote sellers. (GAO report, Dec. 18, 2017).  The Roundtable has recommended that sales taxes collected from on-line consumer purchases may provide a reliable source of state and local revenue to help pay for President Trump’s recently proposed infrastructure re-building plan.  (Roundtable Weekly, Jan. 26, 2011.)

The Supreme Court is scheduled to hear oral argument in South Dakota v. Wayfair, Inc., on April 17 to resolve the constitutionality of collecting sales and use taxes that are due on Internet purchases.  The high court is expected to render a decision by the end of June. (Roundtable Weekly, Jan. 12)

The International Council of Shopping Centers, Investment Program Association, Nareit®, and the National Association of REALTORS® will join The Roundtable on an amicus brief to be filed early next month in Wayfair, urging the Supreme Court to overturn a pair of decades-old opinions prohibiting states from imposing sales and use tax collection obligations on web-based, catalog, and other retailers lacking an in-state physical presence.  The upcoming brief will re-iterate many of the points that the real estate coalition set forth in an initial amicus brief filed last November  (Roundtable Weekly, Nov. 3, 2017.)

Trump Administration Proposes Framework for Nationwide Infrastructure Improvements

Posted on by Trey Jackson

The Trump Administration on Monday released its long-awaited Legislative Outline for Rebuilding Infrastructure in America, which proposes at least $1.5 trillion in new investment across infrastructure asset classes; incentivizing greater state and local funding; shortening the project permitting process to two years; investing in rural projects; and improving worker training. (White House Fact Sheet, Feb. 12)

The Trump Administration on Monday released its long-awaited Legislative Outline for Rebuilding Infrastructure in America  , which proposes at least $1.5 trillion in new investment across infrastructure asset classes. ( White House Fact Sheet  , Feb. 12)    

President Trump proposes that the government would spend $200 billion in infrastructure investment to spur states, localities and the private sector to raise the $1.3 trillion balance. 

According to the Administration’s proposal, states, localities and the private sector are asked to “step-up” their presence to catalyze a larger, modernized, and broader investment market.  New federal funds would be allotted to boost existing federal infrastructure financing (like the TIFIA loan program for surface transportation) and expand federal financing platforms to reach airports, ports, short-line and passenger rail, rural broadband, stormwater, flood remediation and prevention, Brownfields remediation, and others. 

Transportation Secretary Elaine Chao will appear before Senate and House infrastructure panels in early March to discuss the Administration’s proposal. (Bloomberg Law, Feb. 13)   

Since odds for passing a bill with additional spending this year are slim, serious consideration of a specific infrastructure bill is not expected until after the mid-term elections and a new Congress is sworn-in. 

Roundtable President and CEO Jeffrey DeBoer commented on the positive economic benefits that such an infrastructure program would bring to the nation. “Modernizing our roads, tunnels, mass transit, drinking water, power grid, and telecommunications systems – in rural and urban areas alike – are vitally important to economic growth, productivity and America’s global competitiveness,” DeBoer said. 

He added, “Real Estate Roundtable members are experienced in addressing the financing, permitting and government partnership issues that frequently slow or stop infrastructure projects.  We intend to provide positive feedback and ideas to all policymakers working to facilitate improvements in our nation’s infrastructure.”  (Roundtable Letter on Infrastructure Funding, Jan. 11) 

Policymakers Pledge to Issue Technical Corrections and Guidance to Implement New Tax Law

Posted on by Trey Jackson

Treasury Secretary Steven Mnuchin testified before Senate and House tax-writers this week about implementation of the new tax law – including needed corrections affecting carried interest limitations and a drafting mistake that subjects qualified property improvements to a 39-year recovery period, rather than 15 years.

Secretary Mnuchin testified on tax issues before the Senate Finance Committee on Feb. 14, followed by his appearance before the House Ways and Means Committee on Feb. 15.

Ways and Means Chairman Kevin Brady (R-TX) pledged during a Feb 15 hearing to address errors included in the Tax Cuts and Jobs Act (P.L. 115-97).  Brady stated, “We know that certain parts of this provision are having unintended consequences” and that he was “committed to working with our Ways and Means Members, with Senator Hatch and the Senate Finance Committee, and the Administration and stakeholders to develop the right solution now – one that is thoughtful, carefully crafted, and successful  restoring balanced competition in the marketplace.”  (Brady’s Opening Statement, Feb. 15) 

[Earlier that day, Brady invited input from stakeholders on potential problems and unintended consequences arising from the new tax law. “We expect to develop a punch list of provisions that need to be addressed either administratively or through changes in the code itself,” he said.  (BNA, Feb. 15)] 

During the House hearing, Rep. Jim Renacci (R-OH) explained to Secretary Mnuchin that Ways and Means members are working on a tax reform drafting mistake that should have provided for a 15-year recovery cost-recovery period to qualified property improvements, instead of the 39 year period that was enacted.   

Mnuchin responded to Renacci: “I am aware of the error and it obviously was unintended. We are looking at whether there is anything we can do with regulations. I think it is likely that this is something that may need to be fixed in the bill. We look forward to working with you.” (Ways and Means Committee, Mnuchin’s testimony and hearing video) 

If a focused corrections bill cannot be quickly passed by Congress, policymakers are considering adding a corrections provision to a must-pass spending bill to keep the government funded beyond by March 23.  (Bloomberg Law, Feb. 13) 

Mnunchin also testified during a Feb 14 Senate Finance Committee hearing that Treasury will issue guidance this month regarding new tax laws affecting carried interest. Under the new tax law, investment fund managers and others qualify for carried interest tax treatment after holding assets for three years, instead of one year.  Yet the new law doesn’t apply to S corporations’ carried interest profits. (The Hill, Feb. 14) 

“We will be putting out guidance and regulations to make sure that people can’t abuse the pass-throughs,” Mnuchin testified. “The IRS and [Treasury office of] tax policy intends to send out within the next two weeks guidance that we do believe that taxpayers will not be able to get that loophole by going through [S corporations],” he added.  (Bloomberg, and CQ, Feb. 14) 

In January, The Roundtable wrote to Treasury Secretary Mnuchin  offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

International Visitor Spending in the U.S. Drops; “Visit U.S.” Coalition Aims to Spur Tourism and Economic Growth

Posted on by Trey Jackson

Spending by international travelers to the U.S. decreased 3.1 percent over the past year, the second consecutive annual drop in 15 years, according to Department of Commerce data released Tuesday.  (U.S. Travel Association, Feb. 7)

Travel Exports vs. All Other Exports  
(U.S. Travel Association)

— enlarge —   

As the U.S. hospitality sector is a vital component of the commercial real estate industry – providing significant capital investment, opportunities and infrastructure improvements in local communities throughout the country – The Real Estate Roundtable recently joined 12 other national trade organizations as a member of the “Visit U.S.” Coalition to work with policymakers in reversing the decline. (Roundtable Weekly, Jan. 19).  

The two-year fall-off in international visitor spending confirmed by Commerce data also tracks America’s loss in long-haul market share – a decrease from 13.6 percent in 2015 to 11.9 percent in 2017.  Overall travel volume increased 7.9 percent in the same period – meaning that foreign travelers are opting to visit other countries than the US and spending their money elsewhere. (U.S. Travel Association, Travel Exports vs. All Other Exports, Feb. 2)

“The slide (in international travel to the U.S.) has deprived our economy of an estimated $32 billion in additional spending and 100,000 additional jobs.”

 U.S. Travel Association President and CEO Roger Dow     

“We are certainly concerned about the statistics,” said Craig Kalkut, vice president of government affairs at the American Hotel and Lodging Association (AHLA) – a founding member of the Visit U.S. coalition.  Kalkut added, “It’s important for the hotel industry but also the businesses that surround [and occupy] hotels and the economy overall, so it’s time to take some action.” (Commercial Observer, Feb. 8)

USTA President and CEO Roger Dow stated, “International inbound travel is America’s No. 2 export overall; directly supports more than a million American jobs; and brings in $245 billion a year to our economy. But the U.S. share of the growing global long-haul travel market has been eroding since before the start of the Trump administration … That slide has deprived our economy of an estimated $32 billion in additional spending and 100,000 additional jobs. The good news? The problem is fixable, through balanced messaging and sound policymaking.”  (USTA, International Visitors Are Crucial to President Trump’s Priorities, Feb. 7)

In the coming weeks, Visit U.S. will advance policy recommendations that support its shared objectives with the Trump administration. (Visit U.S., Jan. 16)