Economic Impacts of Sales Tax Reduction on Commercial Property Leases - PowerPoint PPT Presentation

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Economic Impacts of Sales Tax Reduction on Commercial Property Leases

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Economic Impacts of Sales Tax Reduction on Commercial Property Leases Prepared for: Florida Realtors Prepared by: Fishkind & Associates, Inc. 12051 Corporate Blvd. – PowerPoint PPT presentation

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Title: 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 Loss Florida 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?

5
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

6
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

7
Employment Growth Forecast
8
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

9
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

14
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

15
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
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