April 5, 2013
Highlights of the Issues:
Obama Administration Calls for FIRPTA Reform as Part of Infrastructure Proposal
On Friday, March 29, the Obama Administration released a summary of its plan to encourage domestic infrastructure investment. Among other policy proposals designed to promote investment and job creation, the Administration’s plan includes to-be-proposed legislative changes to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) governing non-U.S. investment in domestic real estate assets.
In its release, the White House noted the deleterious effects of FIRPTA on real estate investment.
"Under current law, gains of foreign investors from the disposition of U.S. real property interests are generally subject to U.S. tax under FIRPTA, and foreign investors including large foreign pension funds regularly cite FIRPTA as an impediment to their investment in U.S. infrastructure and real estate assets" the release said. "With U.S. pension funds generally exempt from U.S. tax upon the disposition of U.S. real property investments, the Administration proposes to put foreign pension funds on an approximately equal footing: exempting their gains from the disposition of U.S. real property interests, including infrastructure and real estate assets, from U.S. tax under FIRPTA."
NAREIT, along with other real estate organizations, has been calling for FIRPTA reform as a way to provide additional equity investments in U.S. real property. We will continue to monitor the Administration’s proposal as additional details are provided in the coming weeks.
Marketplace Fairness Act Scores Major Victory in the Senate-Passed Budget
In the early hours of Saturday, March 23, the Senate passed a budget resolution that contains the Marketplace Fairness Act (MFA), thanks to an amendment offered by Senators Michael Enzi (R-WY) and Richard Durbin (D-IL). Among other things, the MFA would allow states that meet certain minimum simplification standards to impose sales and use tax collection responsibility equally on retail sales regardless of whether they occur in stores or online. While the budget resolution passed narrowly, the Enzi-Durbin amendment was adopted by an overwhelming vote of 75-24.
Given that Congressional budget resolutions, even those negotiated and approved by both chambers of Congress, are never enacted into law with the signature of the President, the Senate vote on the MFA was largely symbolic. However, the fact that the Enzi-Durbin amendment was passed on a strong bipartisan vote should add to the momentum building for this commonsense legislation by proving to the leaders of both the House and the Senate that the bill has ample support to pass the Senate, an uncommon feat in this era of intense partisanship.
NAREIT is a member of the Marketplace Fairness Coalition, a broad group of businesses and trade associations, including the American Booksellers Association, the International Council of Shopping Centers, the National Association of College Stores, the National Retail Federation, and the Retail Industry Leaders Association, which supports the Marketplace Fairness Act. Notably, online retailer Amazon.com is a member of the Coalition. The Marketplace Fairness Coalition and NAREIT will continue to advocate in the strongest terms possible for the passage of the Marketplace Fairness Act in both chambers of Congress.
Tax-writing Committees Continue to Study Comprehensive Tax Reform, Issue Discussion Drafts
The House and Senate tax-writing committees are in the midst of wide-ranging discussions focused on comprehensive tax reform. In February, the House Ways and Means Committee established 11 working groups to review comprehensive reform of the tax code. At least six of the groups touch upon the world of REITs and real estate investment in a meaningful way: Debt, Equity and Capital, Financial Services, International, Pensions/Retirement, Real Estate, and Small Business/Passthroughs. In March, the Senate Finance Committee announced it would undertake a series of weekly meetings to discuss high level issue paper on topics including: the tax treatment of small businesses and corporate investment, different types of income and tax structures, and international taxation.
House Ways and Means Committee Chairman Dave Camp (R-MI) also has released three different discussion drafts on various elements of broad-based tax reform. They are focused on international taxation, financial products, and small businesses and passthrough entities. Each of these drafts raises issues of interest for REITs and real estate investors generally - "international" with respect to inbound and outbound investment, "financial products" in connection with the use of contracts with options, financial instruments and derivatives, and "small businesses and passthrough entities" tied to possible future rules for partnerships, LLCs and S corporations that are widely used by REITs and all other investors in the real estate market.
NAREIT continues to provide its input to policymakers as appropriate and we will continue to reach out to NAREIT members through NAREIT's various committees and task forces to develop an informed perspective on tax reform-related issues as they arise.
Legislation Reauthorizing TRIA Introduced in 113th Congress
The Terrorism Risk Insurance Act (TRIA) is set to expire at the end of 2014. Efforts are already underway in the 113th Congress lay the groundwork for the reauthorization of this important law.
On February 5, Representative Michael Grimm (R-NY), a member of the House Financial Services Committee, introduced bipartisan legislation providing for a five-year extension of the program through 2019. H.R. 508, the “TRIA Reauthorization Act of 2013,” was co-sponsored by 5 Democrats and 4 Republicans upon introduction, and has since secured the support of 3 additional Republican members for a total of 13 co-sponsors. Despite this support, it is clear that several members of the House Financial Services Committee, including Chairman Jeb Hensarling (R-TX), believe it is time for the federal government to completely withdraw from this area and let the private market be totally responsible for insuring against any future terrorist incidents.
The Coalition to Insure Against Terrorism (CIAT), of which NAREIT is a founding member, has been reactivated to advocate for the extension of TRIA. The Coalition endorsed H.R. 508 before it was introduced. Recognizing that the Chairman Hensarling has publicly stated his intention to make changes to TRIA, CIAT indicated in its letter that Representative Grimm’s bill is “the first important step in a long legislative process” and that the Coalition looks forward to working with the Committee to “craft a workable solution that provides businesses with the terrorism risk insurance coverage it needs while remaining sensitive to taxpayer exposure.”
No companion bill has been introduced in the Senate, and none is expected in the near future, though Banking Committee Chairman Tim Johnson (D-SD) has included the re-authorization of TRIA in his agenda for the 113th Congress.
CIAT and other advocates, including the insurance industry, will make the case to Chairman Hensarling, and members of the relevant House and Senate Committees that TRIA has been a tremendous success at no cost to the taxpayer and that it is too critical to maintaining a strong U.S. economy in the face of potential terrorist attacks to let it expire.
REIT CEOs “Hike the Hill” to Meet Policymakers – 2013 Washington Leadership Forum Recap
NAREIT held its annual Washington Leadership Forum (WLF) in Washington, D.C. on February 26 and 27. This year, a total of 33 REIT CEOs and industry executives participated in meetings with key policymakers on Capitol Hill, discussing NAREIT’s legislative agenda for the year and providing an update on the latest issues impacting REITs and the publicly traded real estate industry. NAREIT members met with 44 Members of Congress – 30 Representatives and 14 Senators – from both political parties and focused on those Members who serve in leadership positions or on the congressional committees that deal with real estate and tax issues – the House Ways & Means Committee, the House Financial Services Committee, the Senate Finance Committee, and the Senate Banking Committee.
This year, NAREIT’s legislative agenda included several issues. First, participants urged Members of Congress to support pending legislation that will modify the “Foreign Investment in Real Property Tax Act,” or FIRPTA, to attract greater non-U.S. equity capital investments in U.S. commercial real estate. Second, executives asked for co-sponsors of the Marketplace Fairness Act introduced in both the House and the Senate to provide equity in the collection of sales and use taxes for purchases made online. Third, with the Terrorism Risk Insurance Act (TRIA) expiring in 2014, CEOs encouraged Congress to begin the process this year to reauthorize TRIA in order to avoid any disruption for businesses to acquire the terrorism risk insurance they require to operate. In addition, with discussions underway about comprehensive tax reform, several meetings included a discussion of the important role REITs play in real estate markets and the economy. Photos of this year’s Capitol Hill WLF meetings are available on REIT.com.
NAREIT appreciates the special effort made by participants in this year’s WLF, and encourages all NAREIT members to mark their calendars for the 2014 Washington Leadership Forum, to be held next year in Washington, D.C. on February 25-26.