Economic Impacts of Sales Tax Reduction on Commercial Property Leases

1
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

2
FL and NYC Charge Sales Tax on Commercial
Property Leases

• AZ allows local governments to collect
• Nationwide, almost no jurisdictions charge this
  fee
• Sales tax drives up operating expenses
• Additional expense hurts business competitiveness
  and real estate values

3
Expected Effects of Tax Abatement

• State Revenue Losses up to 1.9 billion
• Improved NOI is reflected in higher leased
  property values
• Value effect flows to non-leased/owner property
  values too
• Wealth-effect creates additional spending as net
  worth rises
• Tenants benefit from reduced cost
• Improved property performance supports an
  increase in new construction

4
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?

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Estimates of Revenue Offsets

• Benefits 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 Owners
• Property values improve wealth effect spending
• Tenants
• New business investment, new employment
• New Construction
• Support Industries
• Multiplier Effect

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Economic Analysis

• Both correlation and regression indicate negative
  impact from sales tax on leases
• Simple 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

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Employment Growth Forecast
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Economic Impact

• Employment growth increases by 185,000 jobs each
  year without the tax
• Total Economic impact is 20 billion/year
• Economic Impact is 5x greater than the tax
  revenue impact
• Very substantial benefit to Floridas economy

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Economic Impact Findings

• Fishkind 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 evaluated
• Public allocation of the 1.99 billion
• Economic impact of 185,000 jobs as a result of
  removal of the tax

10
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

11
Economic Impact of 185,000 New Jobs

• Removal of the tax result in 185,000 new job.
  The jobs were placed in IMPLAN categories for
  private industry and economic impacts were
  generated

12
Revenue Shortfall Concern

• State Revenue Losses 1.99 billion
• New jobs create 160 million in sales tax
• New Construction 90 million in property tax
  only 38m to School Bd
• State revenue offset 197 million 10
• Economic Impacts VERY large
• Revenue replacement very small

13
Policy Matters

• Florida ranks high in Business Climate
• Florida ranks unusually low in tax matters

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Policy Matters

• Floridas sales tax system has many loopholes
• This system is not used to the States best
  economic advantage
• Realtors see front line effects in leasing and
  new business formations
• Economic Development Rankings suggest the sales
  tax on leases and other tax issues negatively
  impact Floridas business climate

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Summary- Offsets and Policy

• Reduction 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 rankings
• Limited revenues offsets go to State, only 10
• Limited additional revenues accrue to local
  government
• State Revenue Shortfall is expected
• Good policy hindered by bad revenue choices