Photo: Wes Kirk Tony Edwards, NAREIT

By Erin Corcoran

As the phrase goes, "with time comes change." To get a sense of what policy changes may be in store for the real estate investment industry in 2009, Portfolio sat down with NAREIT Executive Vice President and General Counsel Tony Edwards to talk about policy issues that may affect real estate investment.

Portfolio: What policy issues are likely to arise next year that could materially impact REITs and real estate investment?

Edwards: The new administration and the next Congress will examine the income tax system. The Bush tax cut acts are set to expire in 2010, and with that there is likely to be a fundamental reexamination of taxes, including tax rates for both individuals and corporations. As a result, we may be base broadening under both corporate and individual tax systems to pay for maintenance of some of the lower rates, or perhaps, even create new tax cuts. Additionally, there is a remote possibility that there will be fundamental tax reform.

Current estate tax laws rate cuts are scheduled to expire in 2010, which will return these tax rules to high rates and the lower exemptions that were in effect in 2001.

There also is likely to be changes made to the alternative minimum tax. Both Republicans and Democrats agree that something must be done, but a complete repeal is projected to cost $1 trillion dollars over 10 years.

Beyond tax policy, the new Administration inevitably will consider how best to reformulate the oversight of financial institutions and markets, as well as new ways to stimulate the economy.

Portfolio: How might these issues be addressed?

Edwards: One of the ways to address the issue of tax reform is to lower the rates and broaden the base, which happened in 1986. That might mean rules that are business-friendly or taxpayer-friendly would be slated to be sacrificed to offset the costs. NAREIT will continue to monitor these issues and weigh in on them at the appropriate times.

Portfolio: Is there non-tax legislation of importance on the horizon?

Edwards: Yes, one item of importance which has been pending for a number of years deals with the simplified collection of sales and use taxes by state and local governments. The Supreme Court has ruled that a state may not compel a vendor to collect sales or use taxes, even if the vendor sells to residents of the same state, if the vendor does not have a physical presence in that state. The Supreme Court said requiring collection by such "remote vendors" was interference in interstate commerce unless Congress enacted a law authorizing such collections.

Therefore, unless Congress acts, it appears today that states can't require remote vendors to collect sales or use taxes. However, more than 20 states have come together to participate in the Streamlined Sales and Use Tax Agreement (SSUTA), which is part of an interstate compact. Many retailers have begun to collect sales and use taxes voluntarily under this agreement for both brick-and-motar retailers as well as online retail operations.

So, there is now an effort underway to have Congress pass legislation that would allow states that are part of the SSUTA to require out-of-state vendors to collect sales and use taxes on behalf of the state in which the payer resides. Given the deteriorating financial conditions of many states and localities, e-fairness is more important than ever.

NAREIT has joined with the International Council of Shopping Centers (ICSC) and the National Retail Federation (NRF), as well as state and local government groups, to support this legislation.

Portfolio: What is happening on the international front?

Edwards: Over the last several years NAREIT and its global counterparts worked successfully to update the Organization for Economic Cooperation and Development's (OECD) model tax treaty to include lower withholding tax rates for cross-border REIT investments. We now are seeking resolution of two additional issues tied to REIT cross-border investment. The first item addresses the tax treatment of one nation's REIT investing in another nation, and the second matter focuses on the tax treatment of a REIT when it acquires more than 10 percent of the stock of a REIT based in another country.

NAREIT, as a founding member of the Real Estate Equity Securitization Alliance (REESA), met with OECD officials in Paris in September 2008 to pursue these concerns.

Additionally, in the U.S., NAREIT will seek adoption by Congress of a proposal would allow a U.S. REIT to own more than 10 percent of a foreign REIT's securities.

Importantly, NAREIT and its REESA partners also will continue to work in 2009 on a number of issues tied to the convergence of U.S. GAAP with and international financial standards.

Bill Tracker Here is an update of recent legislative activity involving REIT and real estate-related bills considered by Congress.
Name	What the bill would do	Status and Next Steps
Emergency Economic Stabilization Act of 2008—offered as an amendment to H.R. 1424, the Paul Wellstone Mental Health and Addiction Equity Act, in the Senate by Senator Christopher Dodd (D-CT) and in the House of Representative by Congressman Barney Frank (D-MA)	• Establishes the Troubled Asset Relief Program (TARP) to purchase “troubled assets”—residential or commercial mortgages, and any securities, obligations, or other instruments that are based on or related to such mortgages—from any financial institution on terms determined by the Treasury Secretary. • Authorizes up to $700 billion in three installments to carry out TARP’s provisions. • Provides homeowner protections. • Establishes executive compensation requirements for financial institutions participating in TARP.	• The Senate passed H.R. 1424 on October 1 by a vote of 74-25. The House approved the same measure on October 3, 263-171. President Bush signed the legislation into law on October 3 as Public Law 110-343. • NAREIT will work with the Treasury Department to ensure that mortgage and hybrid REITs are defined as “financial institutions” under the new law during the upcoming rulemaking process.
S. 2286—The Commission on Natural Catastrophe Risk Management and Insurance Act of 2007, sponsored in the Senate by Senator Christopher Dodd (D-CT)	• Creates a Commission to study the availability and affordability of insurance coverage for natural catastrophes. • The Commission will also study the impact of federal and state laws and regulations on commercial and residential development for high risk areas. • Within nine months of enactment, the Commission will submit to Congress a final report with its findings.	• The Senate attached S.2286 to a larger insurance bill, H.R.3121, the Flood Insurance Reform and Modernization Act of 2007. H.R. 3121 passed the Senate on May 13, 2008. • NAREIT will monitor this legislation and support its passage this year, which may occur if Congress reconvenes for a lame duck session after the November elections.
H.R. 3396, S. 34—Sales Tax Fairness and Simplification Act, sponsored in the House of Representatives by Representatives William Delahunt (D-MA), Ray LaHood (R-IL) and Spencer Bachus (R-AL), and in the Senate by Senator Michael Enzi (R-WY)	• To grant federal authorization to states that are party to the Streamlined Sales and Use Tax Agreement (SSUTA) to require remote sellers (i.e., catalog and Internet retailers) to collect or remit sales and use taxes.	• Meet with key governors (1) to garner their support for the SSUTA, (2) to ask that they request that the National Governor’s Association make this issue a priority in 2009, and (3) to request they ask their Congressional delegation to co-sponsor the bill. • Work with the e-Fairness Coalition to pass this legislation in 2009. • Meet with Representatives and Senators to secure additional co-sponsors for next year.
H.R. 5792, the Increase Insurance Coverage Options for Consumer Act, sponsored by Representatives Dennis Moore (D-KS) and Deborah Pryce (R-OH)	• Will allow risk retention groups and risk purchasing groups to expand their insurance offerings beyond liability coverage to include commercial property coverage.	• H.R. 5792 was introduced on April 15, 2008. • NAREIT and the Coalition to Insure Against Terrorism support the bill because it should give commercial policyholders an additional tool with which to manage their terrorism risk exposure. • On July 9, the House Financial Services Subcommittee on Capital Markets unanimously approved this bill and forwarded it to the full House Financial Services Committee for consideration. The bill awaits further action, which may occur if Congress reconvenes for a lame duck session after the November elections.