economic impacts of sales tax reduction on commercial property leases

Economic Impacts of Sales Tax Reduction on Commercial Property Leases

Prepared for:Florida Realtors

Prepared by:Fishkind & Associates, Inc.12051 Corporate Blvd.Orlando, Fl 32817

www.fishkind.com

http://www.fishkind.com/

August 15, 2013 Fishkind and Associates, Inc.Fishkind and Associates, Inc.2

FL and NYC Charge Sales Tax on Commercial Property Leases

AZ allows local governments to collectNationwide, almost no jurisdictions charge

this fee Sales tax drives up operating expensesAdditional expense hurts business

competitiveness and real estate values


Expected Effects of Tax Abatement State Revenue Losses up to $1.9 billion Improved NOI is reflected in higher leased

property valuesValue effect flows to non-leased/owner

property values too Wealth-effect creates additional spending as

net worth risesTenants benefit from reduced costImproved property performance supports an

increase in new construction


Revenue LossFlorida Revenue Estimating Conference

The 6% sales tax is phased out over six years

Direct Revenue Loss to Florida $1.99 billion-yr 6

Does economic benefit offset the loss of revenue?

Estimates of Revenue OffsetsBenefits accrue to a wide variety of industries Those who benefit include property owners, tenants,

construction industry, medical and professional services as well as hospitality

Property OwnersProperty values improve; wealth effect spending

TenantsNew business investment, new employment

New Construction Support Industries Multiplier Effect


Economic Analysis Both correlation and regression indicate

negative impact from sales tax on leasesSimple correlation between tax collection and

employment growth has negative association of -61%

Regression analysis reveals tax is a causal factor in reduced employment growth

Without the sales tax on leases employment growth would increase by 185,000 jobs


Employment Growth Forecast


-50,000

0

50,000

100,000

150,000

200,000

250,000

2011 2012 2013 2014 2015 2016 2017 2018 2019

With Tax Without Tax

Economic ImpactEmployment growth increases by 185,000

jobs each year without the taxTotal Economic impact is $20 billion/yearEconomic Impact is 5x greater than the tax

revenue impactVery substantial benefit to Florida’s economy


Economic Impact FindingsFishkind used IMPLAN (IMpact Analysis for

PLANning) to evaluate the economic impacts of the forecasted lost state revenue of $1.99 billion associated with the 6% commercial lease tax

Two scenarios were evaluatedPublic allocation of the $1.99 billionEconomic impact of 185,000 jobs as a result of

removal of the tax


Economic Impact of State Spending (cont.)

Spending of the $1.99 billion at the state level was allocated across IMPLAN categories and economic impacts were generated


Public % Category 2019394 39.7% Offices of Physicians, dentists, etc… $792,381,411393 29.7% Other educational services $592,161,91636 6.1% Constr. New Non-Res $122,140,03739 6.1% Constr. Repair, Maintenance Non-Res $122,140,037381 18.3% Mngmt of companies/enterprises $365,852,696

100.0% Total $1,994,676,097

ImpactType Employment LaborIncome TotalValueAdded OutputDirect Effect 19,855 1,076,825,427 1,234,590,751 1,994,676,097

Indirect Effect 5,810 274,516,079 442,045,193 743,484,861Induced Effect 10,154 426,334,038 769,382,627 1,291,547,575

Total Effect 35,818 1,777,675,543 2,446,018,570 4,029,708,580

Impact Summary (Public Sector - Across Varied Industries*)

Economic Impact of 185,000 New JobsRemoval of the tax result in 185,000 new job. The

jobs were placed in IMPLAN categories for private industry and economic impacts were generated


ImpactType Employment LaborIncome TotalValueAdded OutputDirect Effect 103,870.9 4,913,357,085.6 6,529,672,504.6 10,961,508,363.0Indirect Effect 32,475.7 1,490,829,816.5 2,377,537,461.9 4,041,369,895.5Induced Effect 48,116.7 2,020,332,192.0 3,645,885,262.2 6,120,413,197.7Total Effect 184,463.4 8,424,519,094.1 12,553,095,228.7 21,123,291,362.0

Impact Summary (185,000 new jobs)

IMPLAN Code Category Descrip % Jobs 2019360 Real Estate and Rental and Leasing 2.8% 5,106 $473,168,480329 Wholesale & Retail Trade 22.3% 41,056 $1,809,334,883384 Office 17.3% 31,836 $1,439,025,000317 Construction & Manufacturing 11.3% 20,785 $1,967,000,000409 Arts, Entertainment & Rec 3.4% 6,280 $451,000,000411 Accomodation and Food Service 13.6% 25,067 $1,612,500,000394 Healthcare 17.5% 32,235 $1,949,555,000369 Professional & Technical Services 7.7% 14,235 $770,325,000335 Transportation & Warehouse 4.3% 7,861 $489,600,000

Total 100.0% 184,460 $10,961,508,363

Revenue Shortfall Concern

State Revenue Losses $1.99 billionNew jobs create $160 million in sales taxNew Construction: $90 million in property

tax – only $38m to School BdState revenue offset $197 million – 10%Economic Impacts VERY largeRevenue replacement very small


Policy MattersFlorida ranks high in Business ClimateFlorida ranks unusually low in tax matters


Policy MattersFlorida’s sales tax system has many loopholesThis system is not used to the State’s best

economic advantageRealtors see front line effects in leasing and

new business formationsEconomic Development Rankings suggest the

sales tax on leases and other tax issues negatively impact Florida’s business climate


Summary- Offsets and PolicyReduction in Lease Sales Tax results in FIVE FOLD

increase in Economic Benefits$2 billion in tax causes either:

$4 billion in State budget economic impact or $20 billion in Total economic impact benefit

Employment growth increases 185,000 jobs/year Improve business climate and tax rankingsLimited revenues offsets go to State, only 10%Limited additional revenues accrue to local

governmentState Revenue Shortfall is expectedGood policy hindered by bad revenue choices


economic impacts of sales tax reduction on commercial property leases

Documents