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Economic Impacts of Sales Tax Reduction on Commercial Property Leases
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Transcript of 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
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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
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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
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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
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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
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Employment Growth Forecast
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-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
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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
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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
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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
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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
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Policy MattersFlorida ranks high in Business ClimateFlorida ranks unusually low in tax matters
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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
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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
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