Impermissible Tenant Services a Concern for REITs, Westfield Executive Says

Carol Bradshaw, vice president of tax at Westfield Corp. (ASX: WFD), joined REIT.com for a video interview at REITWise 2016: NAREIT’s Law, Accounting and Finance Conference at the Marriott Marquis in Washington, D.C.

According to Bradshaw, a major issue for tax professionals at this time concerns impermissible tenant services. The rules says that if more than 1 percent of the gross revenue at a property is classified as impermissible tenant services, meaning not usual or customary, then that can cause 100 percent of the revenue from the property to be treated as non-qualified income, Bradshaw explained.

Bradshaw said that in response to digital competition, properties owned by retail and other REITs are offering new services to entice tenants. As a result, REITs may be offering services that are considered impermissible tenant services, she said.

“You have a disconnect between what’s good for tax and what’s good for leasing,” Bradshaw commented.

Bradshaw also noted that while the Protecting Americans from Tax Hikes (PATH) Act of 2015 corrected some REIT rules that effectively double taxed shareholders, other issues remain. She noted that the act forces tax directors to manage both an earnings and profit (E&P) capital account and a tax basis inside the REIT. The E&P determines what shareholders pay tax on, she noted. “We’ve now got a dual set of books to maintain to ensure shareholders are not subjected to double taxation,” Bradshaw added.

Meanwhile, Bradshaw commented that finding tax accountants who are fluent in technology is a “challenge.”