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1031 Like-Kind Exchanges
Section 1031 of the Tax Code permits a 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 100years, 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-$422,000 more valuable than the original property. Further, repealing this essential tax code would reduce the GDP $61 billion-$131 billion over 10 years and 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!
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 also exist on a statewide basis 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 also have been targeted specifically with hotel occupancy taxes.
Ultimately, it’s the hotel customer that pays the tax. Customers have only so much money to spend, and every dollar the government takes is a dollar less that customer can spend at a hotel or other businesses, such as shops, restaurants, entertainment, etc.
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, i.e., a tax that is a percentage of the value of the purchase, like 3%. This is the only fair way to enact hotel occupancy taxes, because hotel prices span a wide range, therefore, different hotels rely on 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 in advertising and marketing to bring in additional customers. This will generate even more in other taxes – sales tax, increased payroll taxes as wages rise in response to demand, increase property taxes as property values increase, etc. – as customers spend more money and businesses thrive.
- 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.
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.
Short Term Rentals
Hoteliers are no strangers to competition. It is the hallmark of the hospitality industry. Dozens of hotel brands, owned and operated by our members exist to cater to unique market segments. In fact, many hoteliers even compete against their family and friends for business on a daily basis.
Competition thrives on a level playing field, but some commercial landlords are using online short term rental platforms, like Airbnb, to rent out multiple residential properties year-round, just like a hotel. Doing so allows them to avoid paying the required taxes.
AAHOA supports the rights of property owners to occasionally rent their homes to earn extra income. However, according to a report released by CBRE Hotels’ Americas Research, the real face of short-term rentals are not occasional renters, but unregulated, commercial operators running full time, multi-unit lodging businesses.
Commercial operators using these platforms gain an unfair competitive advantage because they are not required to pay the same taxes as lodging businesses.
To provide a level playing field for all lodging businesses, short-term rentals should be subject to the same taxes that hoteliers have been paying by the millions to support tourism promotion, convention centers, sports facilities, state and local budgets and much more.
Here is how you can take action in your community.