2015 Legislative Outlook
Will 1031 exchanges survive tax reform?
As of November 2014, the 113th Congress had only passed 185 bills - 99 fewer than the previous year. As a result, many of CCIM Institute's legislative and regulatory priorities remained unchanged at year-end. The gridlock between Democrats and Republicans has also prohibited the passage of legislation that could have detrimental effects on the commercial real estate industry.
Following the 2014 midterm elections, commercial real estate issues are likely to be among Congress's priorities in 2015. With a Republican-led House and Senate, there may be movement on a number of important matters and some with bipartisan support. The following issues are likely to have an impact on CCIM members' business in the year ahead.
The U.S. has the highest tax rate among the developed global economies, with U.S. corporations subject to a 35 percent federal tax rate on income. After accounting for credits, deductions, and exemptions, the effective tax rate is still often higher than some of the lowest tax countries. As a result, U.S. corporations are opting to relocate to other countries. To combat this issue, President Obama, Speaker of the House John Boehner (R-Ohio), and projected Senate Majority Leader Mitch McConnell (R-Ky.) have expressed interest in addressing corporate tax reform in 2015. The president has called for a reduction in corporate tax rates from 35 percent to 28 percent, while Republicans are aiming for a rate as low as 25 percent.
Although, this change will likely fare well for CCIM members, other projected tax policy changes may not be as beneficial. Due to CCIM's participation in advocacy efforts, proposed changes to the U.S. Tax Code that eliminated 1031 like-kind exchanges in 2014 were quashed. However, President Obama's 2015 budget proposes that 1031 like-kind exchanges be limited to a maximum deferred amount of $1 million per taxpayer per year. CCIM must continue discussions with lawmakers to preserve this investment vehicle for the commercial real estate industry as well as the benefit it provides to the overall economy.
Patent Litigation Reform
In recent years, there have been several lawsuits involving the alleged infringement of a patent regarding property valuation brought on by “patent trolls.” The “trolls” are companies or firms whose primary purpose is to police companies that infringe upon broad patents in an effort to collect licensing fees. In October 2013, the Republican-led House of Representatives passed the Innovation Act, a bill that would change the rules and regulations of patent infringement lawsuits in an attempt to reduce the latitude of these companies. However, the Democrat-led Senate failed to pass similar legislation. President Obama has taken executive action to ease the issue and has called for legislation to deter the practice. The support of President Obama and the Republican majorities in the House and Senate will likely spur bipartisan legislation to fully tackle this growing issue.
Waters of the U.S.
In April 2014, the Environmental Protection Agency and Army Corps of Engineers proposed a rule that would change the definition of “waters of the U.S.” and significantly broaden bodies of water that are regulated under the Clean Water Act. This new definition would require federal permits to develop private property near most bodies of water - not just navigable water. The House passed the Waters of the United States Regulatory Overreach Protection Act of 2014 that would block any proposed change to the definition. In order to permanently halt this proposed rule, CCIMs and other commercial practitioners must communicate the negative impact this will have on the commercial industry.
Online Sales Tax
In 2013, the Senate passed the Marketplace Fairness Act with strong bipartisan support. This bill would enable states to collect sales and use taxes from Internet and remote purchases in hopes of leveling the playing field between brick-and-mortar stores and online retailers. Despite advocacy efforts, this bill has remained stagnant in the House of Representatives due to Republican opposition. In November 2014, Speaker Boehner announced that he would not take any action to move the bill forward during the last session of the 113th Congress. Given that, it is highly unlikely that the 114th Congress will even see the bill in 2015 since most House Republicans are opposed to this proposed legislation.