Kern County, California defeated Chevron USA Inc. this week in a landmark property tax case. A state appeals court sided with the county's assertion that drilling new wells increases the value of oil property, rejecting Chevron's claim such activity merely preserves the land's value. The case has major implications because it may have set a precedent affecting other oil-producing companies in counties across California. In fact, about a dozen other local oil companies have filed property tax appeals using the same legal argument as Chevron. Kern officials said if they had lost the case, the county might have had to repay $17.8 million in property taxes Chevron and other oil producers claimed the county has overcharged them since 2006. Michael Turnipseed, executive director of the Kern County Taxpayers Association, said Chevron should appeal the case to the state Supreme Court because the taxation issues involved present a long-term challenge to businesses in oil, farming and other industries.
By Jeff Pence, Senior Managing Consultant, Kansas City
& JP Rand, Senior Managing Consultant / Principal, Kansas City
For the most part, the office sector has been soaring in urban markets across the country. Driven by demand for office space from the technology and energy industries, values for trophy office buildings in large U.S. cities led by New York, San Francisco and Houston have seen major increases over the past few years, especially. Unfortunately for the downtown area of Los Angeles, that is not the case. According to the Washington Street Journal, the recent sale of the Aon Center, the second-tallest tower on the Los Angeles skyline, is a prime example of the struggling market. The 40-year-old, 60-story property sits on the edge of the city’s financial district on Wilshire Boulevard. Earlier this month, San Francisco-based Shorenstein Properties LLC. purchased the building from Beacon Capital Partners of Boston for $269 million, about 18% less than what Beacon Capital paid for the building seven years ago. Plummeting vacancy rates seems to be the culprit for the value reduction, as the building is currently about 40% vacant.
A Washington think tank on state and local taxes is cautioning Indiana legislators to think twice about rushing to eliminate the business personal property tax. Governor Pence proposed abolishing the tax completely in order to stay competitive with other states, rather than just give counties the option to do so. Legislators, however, were hesitant to the proposal. No county has eliminated the business personal property tax yet, and a blue-ribbon commission is now studying tax reform options.
On November 4, Santa Monica residents will vote on Measure H and HH, which will decide whether or not to increase transfer tax rates and if so, where to allocate the new funds. Placed on the ballot by City Council to raise local city revenue, Measure H calls for a yes or no vote that would amend the real estate transfer tax so that for commercial and non-commercial real estate sold for one million dollars or more, the rate would increase from $3 to $9 per $1,000 of sale price (or fractional part of $1,000). Transfers for less than $1 million would continue to be taxed by the City at the existing rate of $3 per $1,000 of sale price.
Investors are seeking secondary markets for higher yield, as there are more opportunistic and value-add transactions in those markets, according to industry experts that recently spoke on on the Rise of the Secondary City panel at CCIM Thrive in Downtown Los Angeles. According to an article from GlobeSt.com, panelists agreed the definition of a secondary city or market and a primary market is somewhat subjective, but generally, everyone agreed that the crucial traits of a secondary market include proximity to the central business district and to public transit. Some of the major secondary markets with a great deal of opportunities include Austin, Seattle, Charlotte, Charleston, and Denver. Because demand is higher in coastal markets, investors tend to look at the more inland markets as secondary cities
Categories: Real Property
By Holly I. Unck, Senior Managing Consultant, Phoenix
It is unlikely that the proposed Property Tax Independence Act will pass the Pennsylvania Legislature this year, as GOP leaders refused to call up the bill for vote. House Bill 76 and Senate Bill 76 have been a controversial topic in the state, as it would replace school taxes on real estate by increasing the personal income tax from 3.07 percent to 4.34 percent, increasing the state sales tax from 6 percent to 7 percent, and making more items sales-taxable.
The latest report from the Mortgage Bankers Association shows that there is a lot of mortgage debt available to commercial real estate investors, and lenders are plentiful. According to the National Real Estate Investor, "The mortgage markets have been helped by low interest rates, improving property prices and strengthening fundamentals." This environment has led to more borrowers qualifying for loans and more lenders making capital available.
Last month, Texas comptroller Susan Combs stirred controversy when she said Texas' growing wind energy industry's tax credits and property tax limitations that helped grow the industry gives it an unfair market advantage over other power sources. Combs referenced a 15-page report that described wind power as a massive strain on taxpayer dollars. It cited state property tax reductions, a generous federal production tax credit and a nearly $7 billion power line build-out geared toward adding wind to the grid. Critics dismissed the report largely for what it did not say: that the new power lines have yielded benefits across the grid and that Texas has subsidized its moneymaking fossil fuels sector for a century. Critics argue if a discussion on energy infrastructure investment takes place, it needs to cover across the board. That conversation will likely take place soon.
Large commercial real estate owners and tenants in the District should brace themselves for major property tax increases next year. According to the Washington Business Journal, while talks are ongoing, it does not appear that D.C. Chief Financial Officer Jeff DeWitt will enact any changes to blunt the impact of a major change to how the District assesses and taxes large property owners. The changes, which for many will mean double-digit tax increases starting in 2015, were unveiled earlier this year and caught many by surprise.
Atlanta city officials are seeking proposals to redevelop the 20-acre Boisfeuillet Jones Atlanta Civic Center, with goals of turning the campus into the heart of a "24-hour urban environment" featuring a mix of housing, stores, offices and film and TV studios. According to the Atlanta Business Journal, the city's economic development arm, Invest Atlanta, issued the request for proposals, or RFP. It plans to pick a finalist to buy and redevelop the Civic Center in December, and wants to reach an agreement to sell the site by next April.
In an effort to establish New York as a national leader in the solar industry, Governor Cuomo has signed into law a bill that extends real property tax breaks for installing electricity-generating solar panels on New York City buildings effective September 23, 2014. The new law extends the existing incentive program to January 1, 2017. Further, the new law doubles the possible tax breaks as compared to the existing incentive program from 2.5 percent to 5 percent of eligible installation expenditures. Although the cost of installing electricity-generating solar panels in New York City is higher than in most other cities due to stringent city regulations, the new law aims to offset those higher costs.
By Le Anne Thomas, Managing Consultant, Los Angeles
Last week, two Los Angeles City Council members introduced a motion that calls for landowners to receive tax breaks for leasing vacant property for agriculture, in an effort to transform empty, blighted lots into flourishing urban farms, encourage green enterprises and improve neighborhoods. Last year, the California Legislature approved the Urban Agriculture Incentive Zones Act, which authorized a tax adjustment for private property owners who lease land for commercial or noncommercial agriculture use for at least five years. The council members want that law implemented locally.
The Airbnb/hotel playing field is starting to level in San Francisco. As of October 1, the peer-to-peer apartment rental service is now required to collect the same 14% tax (which helps pay for city services, infrastructure upkeep, programs and cultural arts programs) on behalf of its hosts in San Francisco as is required of the city’s hotel industry. Airbnb and San Francisco regulators were hashing out proposed rules for several months leading up to the decision, due to countless critiques from around the globe that the company is operating outside the confines of established regulatory practices.
Eight of nine legislators on the Legislative Council's Steering Committee on Personal Property Tax (PPT) have concluded that the time has come to repeal this tax on Wisconsin businesses. After hearing from dozens of witnesses in three official meetings over the summer, the legislators have found the personal property tax burden is now on a handful of businesses that have not been given an exemption.
The Pennsylvania Budget and Policy Center (PBPC) released a report today, titled "Reform Not Repeal: Pennsylvania Can Provide Property Tax Relief and Protect Public Schools," that concluded that the state should better target its property tax relief and overhaul its assessment system rather than eliminate the local property taxes that fund schools. Property taxes are the most reliable and stable source of funding for schools, police and fire protection, jails and other basic public services. They represent a reasonable share of income in most school districts across the commonwealth, and are comparable to those in neighboring states, according to the report. The report examined both total and school property taxes in Pennsylvania’s 67 counties and 500 school districts, looking at taxes based on housing prices and incomes of county and district residents.
By Mark Yost, Senior Managing Consultant, Detroit
Office space under construction in Houston has increased by about 54 percent over the last 12 months. According to the Houston Business Journal, more than half of that space is leased or committed, with large tenants that are moving or expanding taking the bulk of the space. It’s the highest level the area has seen since the boom of the 1980s. There is currently 19 million square feet of office space under construction in the Houston area. About 36 percent of that is corporate-owned office space, and includes Exxon Mobil’s 3 million-square-foot campus in north Houston, Phillips 66’s 1.1 million-square-foot campus in Westchase and Southwestern Energy’s 515,0000 square-foot office building in Springwood Village, according to PM Realty. About 5.4 million square feet of new space is expected to deliver by the end of the year, which will bring the yearly delivery total to 10.8 million square feet — far exceeding last year’s delivery total of 3.2 million square feet. In response to the construction boom, Houston added more construction jobs to its market than any other major metro in the country from August 2013 to August 2014, according to a survey conducted by The Associated General Contractors of America.
The Oregon Supreme Court recently reversed a lower court decision, ruling that Comcast and other cable TV companies are subject to central assessment by the state. The decision would add millions of dollars in tax payments to county budgets, costing Comcast several million dollars a year. However, the Oregon Tax Court still has clarifications to make regarding how property tax limits established by Measure 50 apply to the case. Comcast said in a written statement, "There are both federal and state constitutional unresolved questions with the Department of Revenue's assessment of Comcast's property that have not yet been addressed. We look forward to the tax court's decision on the these other issues."
By Domingos Santos, Managing Consultant, Phoenix
The Cook County Board of Commissioners has adopted a new commercial real estate tax incentive known as the Class 7c Commercial Urban Relief Eligibility (CURE) incentive aiming to encourage real estate development in the Chicago region which would not be economically feasible without assistance. The Class 7c incentive is available to real estate primarily used for commercial purposes (goods and services and also hotel and motel), and is similar to other more commonly known Cook County incentive classifications, such as 6b (industrial), 7b (commercial) and Class L (landmarks).