1031

Tax Reform

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1031 Like-Kind Exchanges

THE ISSUE

Section 1031 of the Tax Code permits the seller of property to defer capital gains taxes from a transaction if the exchange is for property that is of a “like kind.” These transactions must be for productive use in a trade or business or for investment.

For nearly one hundred years, property owners have used 1031 exchanges to grow their businesses and hire new employees. However, in the 113th Congress, federal politicians in the House and Senate discussed the repeal of Section 1031 as a part of a comprehensive tax reform package.

Since then, AAHOA has fervently advocated to keep this important section in the tax code. By deferring tax payments on property exchanges, hoteliers have more available capital to invest in additional properties. This leads to new employee hires, job protection, business growth, and increased opportunities for local community investment.

The numbers speak for themselves: On average, a replacement property obtained through a 1031 exchange is $305,000 to $422,000 more valuable than the original property. Further, repealing this essential tax code would reduce GDP by $61 billion to $131 billion over 10 years, and would reduce workforce income by approximately $1.4 billion.

Stand with local small businesses and urge your legislators to preserve Section 1031 “Like-Kind” Exchanges today!

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Policy One-Pager

 

Hotel Lodging / Occupancy Taxes

Taxes on hotel room nights are almost everywhere in the United States on some level. Many of these taxes are imposed on the local level, but some exist on a statewide basis, as well, and are in combination with local taxes.

Hotels already pay a long list of taxes, as all business do. A non-exhaustive list includes federal, state, and local payroll taxes, social security taxes, Medicare/Medicaid taxes, state and local property taxes, corporate or personal income taxes, and sales taxes. Hotel have also been targeted specifically with hotel occupancy taxes.

Ultimately, it’s the hotel customer that pays the tax. Like other taxes, there’s only so much money customers have to spend, and every dollar the government takes is a dollar less that the customer can spend at the hotel or other businesses, such as shops, restaurants, entertainment, and other services.

For the most part, AAHOA doesn’t want to end hotel occupancy taxes, but we do demand they meet certain criteria:

They are an ad valorum tax – that is, a tax that is a percent of the value of the purchase, like 3%

This is the only fair way to enact hotel occupancy taxes, because hotels span a wide variety prices that rely on vastly different customer bases.

They are at a low, reasonable level.

The government must take into account what customers are willing to pay. No city, county, or state exists in a vacuum; customers will go elsewhere if hotel occupancy taxes are too high.

The funds are used to benefit hotels

The best use for hotel occupancy tax dollars is to advertise and market to bring in additional customers, which in turn generates even more of all other taxes as customers spend more money and businesses thrive (sales taxes, increased payroll taxes as wages rise in response to demand, increase property taxes as property values increase, etc.).

They are capped at a maximum level that no local government can go beyond

This way, there’s no competitive disadvantage for certain cities and counties that might want higher taxes. All jurisdictions pay the same rate.

 

Legislation

AAHOA supports legislation on the state level that will set a cap for all combined state and local hotel occupancy taxes. This will give existing hotels and prospective hotel developers certainty for future customer demand and taxation. When our business has certainty with taxes, we can plan accordingly and everyone will prosper as a result.

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