Week in Insights: Vacancy Taxes Would Boost Real Estate Revenue

Curated by Daniel Xu

Office real estate markets are struggling, to put it mildly. The decrease in demand for office space following the Covid 19-era shift toward remote work has left states and municipalities with serious tax deficits. In Boston alone, estimates put the lost tax revenue over the next five years at $1 billion.

The cost of a building remaining unoccupied isn’t borne solely by the property owner—it affects tax revenue and shifts societal costs onto other taxpayers. Vacant properties lose value rapidly, and with lost value comes lost property tax revenue. But tax policy can help solve these problems.

There is an unoccupied-property tax rate at which owners would be encouraged to convert their property or otherwise find a way to make productive use of it—or compensate society if they choose not to.

Several jurisdictions have implemented vacancy taxes to mitigate various ill effects of widespread unused property. They appear to function well to reduce vacancy rates by altering the cost-benefit analysis for owners who might otherwise attempt to wait out market fluctuations, hoping to eventually be the surviving supply to meet the dwindling demand.

Given the current reality of telework, vacancy taxes targeting office space could push property owners to convert office space into housing rather than let them stand as totems of social waste.

At Bloomberg Tax, we carefully observe the role of tax policy in addressing challenges posed by a global economy constantly in flux. We are committed to offering insightful analyses on how well-tailored strategies can foster more efficient use of social resources.

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Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social

Buildings outside of South Station in downtown Boston, on July 12, 2023.

Photographer: Adam Glanzman/Bloomberg via Getty Images

Federal Insights

Orrick’s Rachel Patterson delivers strategies for associates who feel uncertain about their future as partner and what steps to take next.

GW Law’s Richard Pierce says judges will be empowered to quash agency decisions that clash with their personal beliefs if the US Supreme Court ends Chevron deference and the major questions doctrine continues to gain steam.

Investors and their tax advisers must pay attention to the tax implications of reallocating previously invested capital into Bitcoin ETFs, CryptoTaxAudit’s David Canedo says.

Leticia Balcazar of Aliant explains the benefits to foreign lenders, US borrowers, and cross-border families offered by the portfolio interest exemption in the US tax code.

Businesses should use the lull in the M&A market to perform a checkup on their corporate tax health, Stout’s Jerry Schwartzman, Joel Wukelic, and James Lewis say.

Amy Freitag, president of the New York Community Trust, says proposed IRS regulations for donor-advised funds would damage community foundations and cause administrative headaches.

Global Insights

Jones Day’s Niv Tadmore, Benjamin Lancaster, and Brianna Steinochr explain the intricacies of dealing with the Australian Tax Office when managing transfer pricing matters and offers tips for successful outcomes.

EY’s Mike McDonald says the OECD’s final report on Amount B could increase transfer pricing uncertainty and risks of double taxation, largely due to its optionality.

Columnist Corner

A balanced reform to the state and local tax deduction cap would be to eliminate the marriage penalty while introducing an income limit to the deduction, Andrew Leahey argues in his Technically Speaking column. The failed House vote on Feb. 14 to double the deduction cap reflects ongoing political challenges, Leahey says, but he adds that SALT reform advocates should continue to pursue “a rare bipartisan consensus forged in economic and political interests.”

Career Moves

Jack Prytherch has joined Osborne Clarke as a partner with the tax disputes team in London.

Luis A. Silva has joined Shumaker as an associate with the wealth strategies service line.

Sara Langan has joined Akerman as a partner in the real estate practice group.

David Levy and Brian Senie will join Kirkland & Ellis as partners.

Kent Strader has joined Baker McKenzie as counsel in San Francisco.

Tim Williams has been promoted to partner at Burges Salmon.

Brent E. Baxter has joined Williams Mullen as a partner with the tax section in Richmond, Va.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team (login required).

• A new OECD report breaks down rules to simplify transfer pricing methods for certain transactions under part of the 2021 global tax deal known as Amount B.
• Illinois Gov. J.B. Pritzker plans to raise roughly $827 million in new tax revenue through a new cap on the corporate net operating loss deduction, higher taxes on sports betting, and a limit on the rebates retailers pocket for administering the sales tax.
• The IRS is bringing the hammer down on the ultra-wealthy’s abuse of tax breaks on the use of corporate jets.
• Proposed IRS rules excluding domestic critical mineral extraction and certain processing costs from advanced manufacturing credits threaten to undermine US efforts to challenge China’s dominance of the minerals used to make electric vehicles and other green technology, companies said during an IRS hearing.

Private jets at the Sao Paulo Catarina International Executive Airport in Sao Roque, Sao Paulo state, Brazil, on June 21, 2023.

Photographer: Maira Erlich/Bloomberg via Getty Images

Tax Journals

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Tax Management International Journal

Businesses should review HMRC’s recent guidance clarifying their interpretation of the OECD’s control of risk framework to determine what risks they might face, KPMG’s Alistair Pepper and Phil Roper say.

To limit double taxation from the relation-back doctrine due to the number of time-barred refund claims from slow-acting foreign tax authorities, Section 905(c) and possibly Section 6511(d)(3)(A) of the tax code may need to be amended, Dirk Suringa of Covington & Burling says.

Tax Management Memorandum

Strict Treasury regulations as proposed pursuant to the clean hydrogen production tax credit would disincentivize production against Congressional intent, Tom Quinlan and Jason Wade of EQT Corporation say.

Our Team

We talk about tax a lot. But you would hear much more if you popped into one of our Teams meetings. Here’s a quick look at what some of us are watching, reading, and listening to this week.

Watching
Melanie Cohen (Content Editor): Season 6 of “Love Is Blind.” After a slump of the last couple of seasons, I’m finding this one to be really good!

Reading
Jessie Kamens (Editor-at-Large): I’m reading “Tracy Flick Can’t Win,” by Tom Perrotta. It’s a sequel to his novel “Election,” which was made into a movie starring Reese Witherspoon as a Type A high school student who ties her teacher, played by Matthew Broderick, into knots.

Listening
Jada Chin (Content Editor): Sarah Jarosz’s new album, “Polaroid Lovers.”

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