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August 2010
HIGHLIGHTS
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HOUSE PASSES FIRPTA REFORM PROPOSAL
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DODD-FRANK WALL STREET REFORM SIGNED INTO LAW
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ENERGY LEGISLATION RECEIVING RENEWED ATTENTION
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RESOLUTION INTRODUCED TO RECOGNIZE 50th ANNIVERSARY OF REITS
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COALITION TO INSURE AGAINST TERRORISM PROVIDES RESPONDS TO REQUEST FOR INFORMATION ON TERRORISM RISK INSURANCE
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CARRIED INTEREST TAX INCREASE STILL ON THE TABLE
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MAIN STREET FAIRNESS ACT INTRODUCED IN THE HOUSE
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OMB REJECTS PROPOSED EPA QUESTIONNAIRE ON POST-CONSTRUCTION STORMWATER DISCHARGES
On July 30, the House of Representatives passed H.R. 5901, the “Real Estate Jobs and Investment Act” by a vote of 402-11, under a procedure that requires a two-thirds vote for passage and is reserved for non-controversial measures. Introduced by Rep. Joseph Crowley (D-NY), this proposal represents an important step toward enactment for reforms to the Foreign Investment in Real Property Tax Act (FIRPTA) advocated by NAREIT and other real estate organizations. For more information on this broader effort, CLICK HERE.
Specifically, H.R. 5901 would increase the current “portfolio investor” exception for sales of stock and capital gains dividends of listed REITs from 5 percent to 10 percent, including for investors of 10 percent or less in listed foreign entities entitled to pass-through treatment under applicable U.S. tax treaties. This change would be consistent with the definition of portfolio investor used in tax treaties and which is applicable to foreign investment in U.S. debt securities. REIT dividends paid to non-U.S. investors would remain subject to U.S. withholding (but not FIRPTA) tax. To read NAREIT’s letter of support for H.R. 5901, CLICK HERE. To read the floor debate on H.R. 5901, CLICK HERE, and to view the roll call vote results, CLICK HERE.
NAREIT appreciates the leadership of Rep. Crowley, as well as House Ways and Mean Committee Chairman Sander Levin (D-MI), Ways and Means Committee Ranking Member Dave Camp (R-MI), and Rep. Pat Tiberi (R-OH) for their efforts in addressing the obstacles FIRPTA creates to foreign investment in U.S. real estate companies. We are hopeful that similar legislation will soon be introduced and considered in the Senate to enact this and other needed FIRPTA reforms.
On July 21, President Obama signed the "Dodd-Frank Wall Street Reform and Consumer Protection Act" (Pub. L. No. 111-203) into law. Attention now turns to the regulators who will write and implement rules in accordance with the new law. CLICK HERE to read the text of the final legislation.
Regulators must now begin to implement rules based on the law's new requirements to provide new consumer protections, establish an orderly resolution authority for failed financial firms, create new registration and reporting requirements for private funds, and oversee the derivatives market, among other initiatives.
NAREIT, under the guidance of its Derivatives Reform Task Force, and in coordination with the Coalition for Derivatives End-Users, advocated both for the creation of new transparency in the over-the-counter derivatives market and for clear protections for REITs and other "end-users" that utilize derivatives to manage business risks. CLICK HERE to read NAREIT's Policy Report summarizing the derivatives provisions of the new law and the challenges that remain during the rulemaking process, and CLICK HERE for additional information.
Additionally, the Dodd-Frank Act preserves the federal preemption from state registration requirements of private placement offerings of securities, ensuring that companies can continue to raise capital and expand their enterprises through private placements pursuant to Rule 506 of Regulation D of the Securities Act of 1933. NAREIT joined a broad-ranging group of business organizations to advocate for this outcome. CLICK HERE for more information on this effort.
Due to the upcoming August Recess and the desire of lawmakers to be in their districts as much as possible prior to the November election, very little time remains on the legislative calendar for the 111th Congress. The shortened schedule calls into question the ability of Congress to move far-reaching energy or climate change legislation this year.
Reflecting the evolving landscape for energy legislation, but also a continued interest in energy tax incentives, the House Ways and Means Committee unveiled on July 26 a new “discussion draft” of legislation, the “Domestic Manufacturing and Energy Jobs Act of 2010,” that would extend and, in some cases, modify energy related tax incentives. To read a Ways and Means staff summary of this proposal, CLICK HERE, and to read the draft bill text, CLICK HERE.
Of particular interest for NAREIT members are provisions to extend a popular program, enacted as part of last year’s American Recovery and Reinvestment Act, that provides direct cash payments to offset the cost of investments in qualifying renewable energy technology, such as rooftop solar panels. Authored by Reps. Earl Blumenauer (D-OR) and Linda Sanchez (D-CA), these provisions would convert the existing grant program into a refundable tax credit for investments made through 2012 and make it available to REITs without regard to their dividends paid deduction. CLICK HERE for more information on the legislation championed by Reps. Blumenauer and Sanchez and strongly supported by NAREIT.
The Ways and Means discussion draft also includes modifications to the section 179D energy efficient commercial building deduction. Specifically, the bill would include investments in energy efficient roofing as qualifying expenses and provide an enhanced deduction for efficiency investments in certified historic structures. NAREIT continues to engage with key staffers on the Ways and Means Committee to seek a technical change to address a mismatch in the treatment of this deduction for tax and earnings and profits purposes that prevents REITs from fully benefiting from this deduction.
While the House of Representatives passed an ambitious “Cap and Trade” proposal in 2009, there has been little consensus in the Senate around proposals to limit carbon emissions. Instead, Senate Majority Leader Harry Reid (D-NV) released on July 27 a summary of the “Clean Energy Jobs and Oil Company Accountability Act,” legislation intended to address the BP oil spill in the Gulf of Mexico and make investments in other energy and environmental initiatives. This proposal does not include a package of tax incentives that may benefit REITs and other commercial real estate owners who pursue certain “green” efforts. To read a Senate staff summary of this proposal, CLICK HERE, and to read the draft bill text, CLICK HERE.
NAREIT will continue to encourage policymakers to ensure that REITs can fully participate in incentives for energy efficiency and renewable energy production.
On Friday, July 30, Chairman Sander Levin (D-MI) and Ranking Member Dave Camp (R-MI), and 25 other members of the House Committee on Ways and Means introduced a Congressional Resolution recognizing the 50th Anniversary of the signing of the legislation that first enabled the creation of REITs. To read the text of H.Res.1595, which includes the list of original cosponsors, CLICK HERE.
NAREIT appreciates the recognition these lawmakers are providing for REITs and the REIT approach to real estate investing, and we are hopeful that the full House of Representatives will take up and pass this resolution on or about September 14, which is the 50th anniversary of REITs.
On August 2, the Coalition to Insure Against Terrorism (CIAT) responded to a Request for Comments on the Terrorism Risk Insurance Act (TRIA) issued by the President's Working Group (PWG) on Financial Markets as it prepares to submit a report to Congress on the long-term availability and affordability of terrorism insurance. NAREIT and The Real Estate Roundtable are founding members of CIAT, a broad coalition of commercial insurance consumers that came together immediately after 9/11 to ensure that American businesses could obtain comprehensive and affordable terrorism insurance.
CIAT’s formal comments make clear that TRIA has successfully promoted the availability of terrorism risk insurance and has established a mechanism for public-private sector cooperation following an act of terrorism – and at limited cost to the federal government. The submission also notes that TRIA has been improved since its enactment in 2002 and that all evidence strongly points to the need to continue the TRIA program beyond its current 2014 authorization. To review CIAT’s submission, CLICK HERE.
By a vote of 59-39, the Senate passed legislation on July 21 that would extend unemployment insurance through November 30, and retroactively restore the program for individuals whose benefits expired several weeks ago. The House passed this bill July 22 by a vote of 272-152 and President Obama signed it into law later that day.
Of particular interest to the broader commercial real estate industry, this proposal was originally attached to provisions that would recharacterize, and therefore increase, the tax on the partnership interests attributable to investment-related services, known as “carried interests.” This tax increase has been tied to efforts that would extend popular tax incentives that expired at the end of 2009.
Under significant political pressure to address the expiration of unemployment insurance, and the need to surpass the 60 vote threshold needed to move legislation in the Senate, the Senate dropped the “extenders” and the carried interest proposal from this bill. While these provisions were not included in the final version of this bill, it is likely that they will resurface in the fall.
NAREIT will continue to monitor proposals to change the tax treatment of "carried interests" and will encourage lawmakers to maintain the technical fixes advocated by NAREIT, and included in recent proposals. Specifically, these provisions would prevent the immediate recognition of built-in carried interest gains during UPREIT “roll-ups,” and protect against the loss of REIT status due to the recharacterization of income as non-qualifying income or due to the possibility that REIT-owned partnerships could be considered to be corporations due to other provisions of the proposal.
On July 1, Representative Bill Delahunt (D-MA) introduced H.R. 5660, the "Main Street Fairness Act." NAREIT supports this legislation that would allow states that conform to Streamlined Sales and Use Tax system to enforce sales tax parity for retail sales that occur online and at physical locations.
This legislation would ensure that online retailers will be subjected to the same tax requirements as traditional bricks and mortar retailers for sales in participating states, and it will allow those state governments to address unprecedented budget shortfalls by collecting taxes that they are already legally owed - all at little to no cost to the federal government. CLICK HERE for additional resources on the Main Street Fairness Act.
NAREIT anticipates a companion to Rep. Delahunt’s bill to be introduced in the Senate in September, and NAREIT staff will continue to encourage lawmakers in the House and the Senate to support the Main Street Fairness Act.
In May, as part of its efforts to begin regulating post-construction stormwater discharges from developed property, the Environmental Protection Agency (EPA) circulated a draft questionnaire that would be used to collect information about current industry practices. On June 9, NAREIT and other real estate organizations, including The Real Estate Roundtable and the International Council of Shopping Centers, sent a letter to EPA asserting that the questionnaire was not only burdensome but violated the intent of the Clean Water Act. To read this letter, CLICK HERE.
On July 26, the U.S. Office of Management and Budget (OMB) rejected the EPA’s questionnaire, stating that it has “continuing concerns about whether all of [EPA’s] questions have practical utility and minimize to the extent practical the burden on respondents, as required by the Paperwork Reduction Act and its implementing regulation.” This decision puts the questionnaire on hold for now, and will require EPA to make significant revisions before it resubmits a new draft to OMB for review.
NAREIT will continue to work with its industry partners to monitor the development of this questionnaire and to question the EPA’s statutory authority to regulate post-development stormwater runoff.
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