REALTORS CONTINUING EDUCATION WEBINAR MAY 29, 2020 … · Final Treasury Reg. 1 –1400Z 2(d) –1(3)(v)(D) provides the QOZ business an additional 24 months to complete the acquisition

Burnet R. Maybank, III, Esquire [email protected]

REALTORS CONTINUING EDUCATION WEBINAR

MAY 29, 2020

STATE ECONOMIC DEVELOPMENT AND TAX RANKINGS

mailto:[email protected]

[email protected] 2

State Economic

Development and Tax

Rankings

[email protected] 3

Business Climate

Rankings

[email protected]

Site Selection’s 2019 Top State Business Climate Rankings

4

State

Overall Rank

Executive

Survey

Rank

GA – 1 4

NC – 2 3

TX – 4 1

OH – 3 9

VA - T5 10

SC – T5 2

[email protected]

CHIEF EXECUTIVE2019 BEST & WORST STATES FOR BUSINESS

5

1. Texas

2. Florida

3. Tennessee

4. North Carolina

5. Indiana

6. Nevada

7. Arizona

8. South Carolina

‣ SC was tied for 3rd in 2018, 4th in 2017,

7th in 2016, 10th in 2015

[email protected]

AREA DEVELOPMENT 2019 TOP STATESFOR DOING BUSINESS

6

SC places 3d overall (up from 5th last year); SC is:

Tied for 3d, Overall cost of doing business

No 1, business incentives programs

9th, access to capital

5th, competitive labor climate

2nd, leading workforce development programs

3d, shovel ready sites

3d, cooperative and responsive state government

4th, favorable general regulatory climate

3d, favorable utility rates

3d, speed of permitting

[email protected]

AREA DEVELOPMENT 2019 TOP STATESFOR DOING BUSINESS

7

TOP STATES FOR DOING BUSINESS 2019

1. GEORGIA

2. TENNESSEE

3. SOUTH CAROLINA

4. ALABAMA

5. NORTH CAROLINA

6. TEXAS

7. MISSISSIPPI

8. LOUISIANA

9. OHIO

10. INDIANA

[email protected]

AREA DEVELOPMENT

CORPORATE TAX ENVIRONMENT (2017)

8

1. Texas

2. Florida

3. Georgia

4. Nevada

5. South Dakota

6. North Carolina

7. Tennessee

8. South Carolina

‣ Evaluating effective corporate tax rate can be a bit of a

challenge – each state has a different corporate tax rate (flat,

adjusted, or none)

‣ Other factors often come into play to determine the overall

adjusted tax rate, such as type of business structure, and

taxes on payroll, property, inventory, goods in transit, and

sales, as well as any credits or adjustments to those taxes

‣ Texas has no corporate or personal income tax & has other

significant tax advantages like sales tax exemptions on

selected M&E, R&D-related exemptions and property tax

abatements

‣ NC significant corporate income tax rate reductions – cut of

its corp. income tax from 4% to 3% as the final component of

multiyear phase-in – lowest rate of any state levying a

corporate income tax – down from 6.9% in 2013

[email protected]

AREA DEVELOPMENT

CORPORATE TAX ENVIRONMENT (2019)

9

‣SC not ranked in 2019

[email protected]

AREA DEVELOPMENT

BUSINESS INCENTIVES PROGRAMS (2019)

10

1. South Carolina

2. Georgia

2T. Tennessee

4. Alabama

5. Mississippi

‣ SC incentive packages target services and

manufacturing – 3 discretionary grant funds (one of

which is the Governor’s closing fund) are

administered by the SC CCED to secure high-value

projects on a case-by-case basis

[email protected]

AREA DEVELOPMENTCOOPERATIVE & RESPONSIVE STATE GOV’T (2019)

11

1. Tennessee

2. Georgia

3. South Carolina

4. Alabama

5. North Carolina

[email protected]

AREA DEVELOPMENTFAVORABLE REGULATORY ENVIRONMENT (2019)

12

1. Alabama

2. Texas

3. Georgia

4. South Carolina

5. Tennessee

[email protected]

AREA DEVELOPMENT

SPEED OF PERMITTING (2019)

13

1. Georgia

1T. Alabama

3. South Carolina

4. Tennessee

4T. Mississippi

5. North Carolina

[email protected]

AREA DEVELOPMENT

SHOVEL-READY SITES PROGRAM (2019)

14

1. Tennessee

2. Georgia

3. South Carolina

4. North Carolina

5. Alabama

[email protected]

AREA DEVELOPMENT

FAVORABLE UTILITY RATES (2019)

15

1. Tennessee

2. Georgia

3. South Carolina

3T. Washington

5. North Carolina

[email protected]

AREA DEVELOPMENT

COMPETITIVE LABOR ENVIRONMENT (2019)

16

1. Georgia

2. Texas

3. Tennessee

3T. North Carolina

5. South Carolina

‣ For most companies, the #1 site selection concern

is labor: availability and cost, skill level, training

resources, and state support

‣ Common denominator for states with top-ranked

workforces is strong network of universities and

colleges (for example, Texan workforce is

supported by nearly 40 public universities and 50

community college districts)

[email protected]

AREA DEVELOPMENTLEADING WORKFORCE DEV. PROGRAMS (2019)

17

1. Georgia

2. South Carolina

3. Louisiana

4. Alabama

5. North Carolina

‣ Companies ask if location’s workforce will have the training needed

to perform the job (especially when it comes to STEM skills) – best

programs in the South

‣ GA’s Quick Start program is #1 ranked workforce development

program and has trained more than one million in 6,500 projects,

many of them for large-scale manufacturing projects. Quick Start

will even build state-of-the-art training facilities using identical

equipment off site at a nearby technical college assuring company

workers will be fully trained and ready to work once their new facility

has been constructed

‣ In 1961 SC launched readySC™. Today, it continues to design and

implement customized training for new employees & works with

existing employees to meet or maintain their certifications and

credentials. Training resources are provided through SC’s 16

technical colleges. The program has trained about 289,000

employees for more than 2,000 companies since its inception.

[email protected]

AREA DEVELOPMENT

18

2019 GOLD & SILVER SHOVEL AWARDS

South Carolina received Silver Shovel

[email protected]

BUSINESS FACILITIES’ 15TH

ANNUAL RANKINGS (2019)

19

Best Business Climate

1. Tennessee

2. Virginia

3. Alabama

4. Texas

5. Utah

6. Indiana

7. South Carolina

[email protected]



20

1. Indiana

2. Wisconsin

3. Michigan

4. Iowa

5. Alabama

6. Kentucky

7. Arkansas

8. Ohio

9. Mississippi

10. South Carolina

Top Manufacturing States (% of Workforce)

[email protected]



21

1. Michigan

2. Ohio

3. Indiana

4. Tennessee

5. Kentucky

6. Alabama

7. Illinois

8. South Carolina

Automotive Manufacturing Strength

[email protected]



22

1. Texas

2. Louisiana

3. California

4. South Carolina

5. Tennessee

FTZ Activity (Imports)

[email protected]



23

1. Texas

2. South Carolina

3. Louisiana

4. Alabama

5. California

FTZ Activity (Exports)

[email protected]



24

South Carolina not ranked:

Economic Growth Potential

Workforce Training Leaders

Lowest Industrial Electricity Rates

Best Business Tax Climate

[email protected]

CNBC AMERICA’S TOP STATES FOR

BUSINESS IN 2019

25

South Carolina

Overall:34

Workforce: 28

Economy: 22

Infra-structure: 30

Cost of Doing Business: 24

Quality of Life: 41

[email protected]

CNBC AMERICA’S TOP STATES FOR

BUSINESS IN 2019

26

Virginia: No. 1

Texas: No. 2

NC: No. 3

Georgia: No. 6

[email protected]

24/7 WALL STREET

Best and Worse States for Business (2019)

27

SC: 31st 31. South Carolina

VA: 8th > 1-yr. real GDP change: +2.6% (17th best)

NC: 6th > Avg. earnings per job $50,893 (11th lowest)

GA: 22nd > Adults with a bachelor’s degree: 28.3% (14th lowest)

> 2018 venture capital deals: 0.08 per 100,000 people

(10th fewest)

[email protected]

SMART ASSET

28

THE 25 BEST AMERICAN CITIES TO WORK IN TECH IN

2019

Charleston tied for 23

[email protected]

RICH STATES

POOR STATES

29

ALEC – Laffer State Economic

Competitiveness Index (2019)Economic Performance Rank – SC No. 8

Economic Outlook Rank – 29th

Variable Rank

Top Marginal Personal Income Tax Rate 37

Top Marginal Corporate Income Tax Rate 11

Property Tax Burden 30

Sales Tax Burden 14

State Liability System Survey 34

Average Workers’ Compensation Cost 37

1st is Best; 50th if Worse

[email protected]

BROOKINGS INSTITUTIONINNOVATION INDUSTRIES

30

Charleston – 9th fastest growing in the Country

[email protected]

BALL STATE UNIVERSITY

MANUFACTURING SCORECARD 2019

31

The Scorecard shows how each state ranks among its peers

in several categories relevant to site selection consultants.

Their Chart shows the change from 2018 to 19. The next

slide shows the 2019 Rankings for SC.

[email protected]

BALL STATE UNIVERSITY

MANUFACTURING SCORECARD 2019

32

Mfg Industry

Health

Logistics

Health

Human Capital Workers

Benefit Costs

Tax Climate Global Reach

A C- F C C- A

[email protected]

WALTON FAMILY FOUNDATIONMOST DYNAMIC METROPOLITANS JUNE 2019

33

City Overall Rank 2013-2018 Job

Growth Rank

2013-2017

Average Annual

Pay Growth

Rank

Hilton Head –

Beaufort

35 31 76

Charleston-North

Charleston

42 50 40

Myrtle Beach-

Conway

48 49 63

Charlotte, NC-

SC

55 24 105

Greenville

Anderson

142 96 157

Rankings for all 379 Metropolitan Areas

[email protected]

WALTON FAMILY FOUNDATIONMOST DYNAMIC METROPOLITANS JUNE 2019

34

City Overall Rank 2013-2018 Job

Growth Rank

2013-2017

Average Annual

Pay Growth

Rank

Spartanburg 149 46 172

Augusta, GA –

SC

188 118 89

Columbia 220 124 176

Sumter 229 240 282

Florence 238 213 292

Rankings for all 379 Metropolitan Areas, Con’t.

[email protected]

2020 TOP REAL ESTATE MARKETS:

AFFORDABLE ALTERNATIVES TO MEGAPRICEY

CITIES

35

Columbia – No. 5

Medium Home Price - $178,000

Home Price Change – -0.2%

Sales Change – -5.5%

Charleston – No. 9

Medium Home Price - $270,000

Home Price Change - +1.9%

Sales Change - +1.2%

[email protected]

UNIONIZATION

36

SC: No. 1, Lowest % of Labor Union Participants

SC had 47,000 members of Labor Unions in 2019, which

was a 14.5% drop; Federal Bureau of Labor Statistics

Gallup Poll – 64% of Americans have favorable views of

organized labor – 4th highest ranking in 50 years

[email protected] 37

State Tax

Rankings

[email protected]

TAX FOUNDATION2019 State Business Tax Climate Index Ranks and Component Tax Ranks

38

Overall

Rank

Corporate Tax

Returns

Individual

Income

Tax

Returns

Sales

Tax Rank

Property

Tax Rank

Unemployment

Insurance Tax

Rank

North Carolina 11 3 16 20 33 7

South Carolina 37 19 34 34 27 27

NOTABLE RANKING CHANGES IN INDEX - North Carolina

After the most dramatic improvement in the Index’s history in 2015 – from 41st to 11th in

one year – North Carolina has continued to improve its tax structure, and now imposes the

lowest-rate corporate income tax in the country at 3 percent, down from 4 percent the

previous year. This rate cut improves the state from 4th to 3rd on the corporate income tax

component, the best ranking for any state that imposes a corporate tax.

At 11th overall, North Carolina trails only Utah and Indiana among states which do not

forego any of the major tax types.


‣ Most recent 2019 Lincoln Institute 50-state Property Tax Comparison

released in June 2019 for taxes paid in 2018

(https://www.lincolninst.edu/sites/default/files/pubfiles/50-state-property-tax-comparison-

for-2017-full_1.pdf)

‣ In study, compare both urban (largest city in each respective state) and

rural areas and break down into 3 separate categories based on land &

building value to compare state tax rates

‣ Ranking of 1st denotes highest tax rates, 53rd denotes lowest tax rates

‣ In 2018 study, the first time Charleston used because now largest city in

SC instead of Columbia (this switch improved our rankings but 2017 &

2016 reveal high tax burden in Columbia area)

LINCOLN INSTITUTE OF LAND POLICYApril 2019 50-State Property Tax Comparison Study (Taxes Paid in 2018)

https://www.lincolninst.edu/sites/default/files/pubfiles/50-state-property-tax-comparison-for-2017-full_1.pdf


Commercial Property

Tax Rankings

[email protected]

COMMERCIAL PROPERTY TAXES IN

SC & NC - URBAN

41

South Carolina 2019

Ranking

2018 Ranking

Land and Building

Value = $100,000

30th 29th

Land and Building

Value = $1,000,000

33rd 30th

Land and Building

Value =

$25,000,000

34th 31st

Source: Lincoln Institute (2019); Ranking of 1st denotes highest tax rate, 53rd denotes lowest tax rate

‣ Based upon the largest city in each state – Charleston, SC / Charlotte, NC

North Carolina 2019

Ranking

2018 Ranking

Land and Building

Value = $100,000

48th 46th

Land and Building

Value = $1,000,000

48th 47th

Land and Building

Value =

$25,000,000

48th 47th

[email protected]

2019 – URBAN - COMMERCIAL PROPERTY

TAXES IN THE SOUTHEAST

42


State Ranking

Tennessee (Nashville) 43rd

South Carolina (Charleston) 33rd

Georgia (Atlanta) 30th

Alabama (Birmingham) 34th

North Carolina (Charlotte) 48th

‣ Effective Tax Rate for $1 Million Valued Property (plus $200k in

fixtures) for the largest city in each state

[email protected]

2017 – URBAN - COMMERCIAL PROPERTY


43


State Ranking

Michigan (Detroit) 1st

South Carolina (Columbia) 7th

Tennessee (Memphis) 12th

Georgia (Atlanta) 32nd




fixtures) for the largest city in each state

[email protected]

2019 – RURAL - COMMERCIAL PROPERTY

TAXES IN SOUTH CAROLINA

44

South Carolina

(Mullins – Marion

Cnty)

2019

Ranking

2018 Ranking

Land and Building

Value = $100,000

5th 5th

Land and Building

Value = $1,000,000

5th 6th

Land and Building

Value = $25,000,000

6th 7th


‣ Based upon a rural city in each state – Mullins, SC (Marion County) /

Edenton, NC (Chowan County)

North Carolina

(Edenton – Chowan

Cnty)

2019

Ranking

2018 Ranking

Land and Building

Value = $100,000

37th 37th

Land and Building

Value = $1,000,000

37th 37th

Land and Building

Value = $25,000,000

37th 37th

[email protected]

2019 – RURAL - COMMERCIAL PROPERTY


45


State Ranking

Kansas (Iola) 1st

South Carolina (Mullins) 5th

Georgia (Fitzgerald) 26th

North Carolina (Edenton) 37th

Tennessee (Savannah) 43rd

Alabama (Monroeville) 45th


fixtures) for a selected rural city in each state


Industrial Property

Tax Rankings

[email protected]

2019 – URBAN - INDUSTRIAL PROPERTY

TAXES IN SOUTH CAROLINA

47


$100,000 7th

$1 million 8th

$25 million 8th

‣ Industrial (M&E is 60% of Parcel Valve) in Charleston

[email protected]



48

State Ranking

South Carolina (Charleston) 8th



Tennessee (Nashville) 36th


‣ Effective Tax Rate for $1 Million Valued Property (plus $1M in Personal

Property) for the largest city in each state

Source: Lincoln Institute (2019); Ranking of 1st indicates the highest tax rate, 53rd indicates lowest

[email protected]



49

State Ranking

South Carolina (Columbia) 1st (4.202%)

Tennessee (Memphis) 4th (2.635%)

Georgia (Atlanta) 24th (1.518%)

Alabama (Birmingham) 40th (1.160%)

North Carolina (Charlotte) 43rd (0.947%)

‣ Effective Tax Rate for $1 Million Valued Property (plus $200k in fixtures) for

the largest city in each state – assumes Personal Property = 50% of total

parcel value

‣ Lincoln Study has six classifications (depending upon real estate and M&E

Cap X) for manufacturers – Columbia is number 1 in all six!


[email protected]

2019 – RURAL - INDUSTRIAL

PROPERTY TAXES IN SOUTH CAROLINA

50

South Carolina

Mullins – Marion

County

2019

Ranking

2018 Ranking

Land and Building

Value = $100,000

1st 1st

Land and Building

Value = $1,000,000

1st 1st

Land and Building

Value =

$25,000,000

1st 1st


[email protected]

COMMERCIAL PROPERTY TAXES IN SOUTH

CAROLINA – URBAN - 2019

51


Apartments

SC: 38th

SC’s ranking last year was 25th highest and this was the

largest drop in the rankings in the country for apartments.

Lincoln Institute said this was a result of the growing

underassessment of apartments (resulting from Act 388).

[email protected]

COMMERCIAL PROPERTY TAXES IN SOUTH

CAROLINA – URBAN - 2019

52


Taxes on Commercial vs. Primary Residence

SC: 4th

Apartment vs. Primary Residence

SC: 1st

[email protected]

2019 – RURAL - INDUSTRIAL PROPERTY


53

State Ranking

South Carolina (Mullins) 1st

Georgia (Fitzgerald) 14th

Tennessee (Savannah) 35th

North Carolina (Edenton) 37th

Alabama (Monroeville) 48th

‣ Effective Tax Rate for $1 Million Valued Property (land and

building) with M&E equal to 50% of total parcel value



Residential Property

Tax Rankings

[email protected]

2019 – URBAN PRIMARY RESIDENCE

(HOMESTEAD) CHARLESTON

55


Tax Rate: 52nd

Tax Bill: 51st

Primary Residence with Assessment Limits (max. of 15% increase)

Tax Rate: 53rd

Tax Bill: 51st

Difference in Property Taxes between new Home and Home owned for

average duration: 28%

[email protected]

2019 – RURAL PRIMARY RESIDENCE

MULLINS

56


Tax Rate: 35th

Tax Bill: 45th

[email protected]

2019 – URBAN - COMMERCIAL / HOMESTEAD

PROPERTY TAX RATIO IN THE SOUTHEAST

57

Source: Lincoln Institute (2019); Ranking of 1st denotes the highest ratio, 53rd denotes the lowest ratio

State Ranking

South Carolina (Charleston) 4th


Tennessee (Nashville) 24th



[email protected]

2019 – URBAN - HOMESTEAD PROPERTY


58

State Tax Rank Bill Rank

Tennessee (Nashville) 44th 40th (Median Value = $246,800)

Georgia (Atlanta) 35th 17th (Median Value = $299,000)

North Carolina (Charlotte) 38th 38th (Median Value = $215,500)

Alabama (Birmingham) 48th 53rd (Median Value = $87,800)

South Carolina (Charleston) 52nd 51st (Median Value = $344,600)

‣ Homestead property taxes for the largest city in each state

based on median valued homes; rankings out of 53 (including

Washington, DC and two cities in NY and IL)

Source: Lincoln Institute (2019); Ranking of 1st indicates highest tax rate, 53rd indicates lowest rate


Rankings of Various

Industries

[email protected]

KPMG’S LOCATION MATTERS:

STATE TAX COSTS OF DOING BUSINESS (2015)

60

‣ From 2015, not updated since then because lack of funding

‣ Attempts to provide apples-to-apples comparison of corporate

tax costs in the 50 states based on 7 modeled firms: (1) Corp.

HQs, (2) R&D facility, (3) Independent Retail Store, (4) Capital-

Intensive Manufacturer, (5) Labor-Intensive Manufacturer, (6)

Call Center, and (7) Distribution Center

‣ Only Retail and Distribution Center rankings (Mature / New)

covered here. Rest can be found at

https://files.taxfoundation.org/20170112211359/TF_LocationMat

ters_2015.pdf

Source: KPMG ‘Location Matters’ (2015)

https://files.taxfoundation.org/20170112211359/TF_LocationMatters_2015.pdf

[email protected]

RETAIL TAXES

61

Assumptions

‣ Independent clothing store

‣ 25 employees

‣ $2,000,000 capital investment

‣ $2,900,000 commercial revenue

‣ 10,000,000 sq. ft. lease downtown

‣ Equity ration assumed to be 100%

‣ Apportionment methodology assumes that property, payroll, and sales are all

in state


[email protected]

RETAIL TAX RANKINGS –

MATURE FACILITIES

62

State Rank

Wyoming 1st (6.6%)

North Carolina 5th (11.9%)

Alabama 8th (13.0%)

Georgia 18th (14.5%)

Tennessee 30th (tied) (16.1%)

South Carolina 36th (17.4%)

New York 50th (26.5%)

Source: KPMG ‘Location Matters’ (2015); Ranking of 1st denotes lowest tax rates

[email protected]

RETAIL TAX RANKINGS – NEW FACILITIES

63

State Rank

Alaska 1st (16.8%)


Alabama 19th (29.0%)

Georgia 23rd (30.8%)

Tennessee 34th (33.7%)


Rhode Island 50th (49.3%)


[email protected]

DISTRIBUTION CENTER TAXES

64

Assumptions

‣ Warehouse facility

‣ Operated by independent third-party logistics provider for a large

company

‣ 95 employees in transportation, materials handling, administrative, and

management occupations

‣ Leases 350,000 sq. ft. of Class B suburban industrial space

‣ Investment = $11,000,000

‣ Sole customer assumed to be located out of state


[email protected]

DISTRIBUTION CENTER TAX RANKINGS–

MATURE FACILITIES

65

State Rank

Wyoming 1st (12.9%)

Alabama 3rd (16.4%)

Georgia 4th (18.7%)




New Jersey 50th (48.2%)


[email protected]

DISTRIBUTION CENTER TAX RANKINGS –

NEW FACILITIES

66

State Rank

Georgia 1st (13.0%)

Alabama 7th (22.3%)





“Property taxes account for an astonishing 94% of the state & local tax burden

experienced by the new distribution center in SC (largely because of job tax

credits & withholding tax rebates that essentially wipe out the firm’s income tax

burden and much of its sales tax burden.”

[email protected]

QUOTES ABOUT SOUTH CAROLINA – KPMG

“LOCATION MATTERS”

67

‣ “…states like Indiana, Massachusetts, Rhode Island, and

South Carolina impose unusually high property tax

burdens on mature operations in significant part because

their property taxes extend beyond land and buildings.”

‣ “The new distribution center (in SC) experiences the

heaviest tax burden of any operation in our study with an

effective tax rate of 68.1%, more than double the median

rate for this type of firm nationwide.”


Burnet R. Maybank, III

Member, Nexsen Pruet

[email protected]

Austin Smallwood

Director of Legal and Regulatory Affairs

SC Association of Realtors

[email protected]

LEGISLATIVE UPDATE

REALTORS WEBINAR

MAY 29, 2020



www.nexsenpruet.com 69

LEGISLATION SIGNED INTO LAW

LOW INCOME HOUSING CREDITS

ANGEL INVESTOR ACT

Burnie Maybank and Austin Smallwood

Austin Smallwood Burnie Maybank

www.nexsenpruet.com

LEGISLATION SIGNED INTO LAWLOW INCOME HOUSING CREDIT

70

Developers entitled to Section 42 Federal low income housing credit are entitled to state tax credit for the same

amount. Credit for income taxes, bank taxes and insurance premium taxes and retaliatory taxes.

A. Overview of the Federal LIHC

The LIHC provides a tax credit that may be claimed by owners of residential rental property used for low-income

housing. The LIHC available to a property owner is based on five factors: (1) the costs of constructing the building,

if new construction; (ii) the costs of rehabilitating and, in most cases, acquiring used property; (iii) the kind of

financing and other funds provided to the project; (iv) the portion of the building occupied by low-income

households; and (v) the applicable credit percentage, as announced by the IRS. The portion of the eligible basis

attributable to low-income units is the building’s qualified basis. A percentage of the qualified basis may be

claimed annually for 10 years as the LIHC. The LIHC is now available for the cost of land.

B. Allocation of the Credit by States

The states or designated state agencies are authorized to allocate credits. In South Carolina it is the State

Housing Authority. The credit allocation will be extremely competitive.

C. Overview of the Tests Which Must Be Passed to Qualify for the LIHC

In most cases, for a building to qualify for the LIHC, one of two tests must be met: (1) at least 20% of the units in

the building must be “rent restricted” and occupied by households with incomes at or below 50% of the area

median income; or (2) at least 40% of the units in the building must be rent restricted and occupied by households

at or below 60% of area median incomeBurnie Maybank and Austin Smallwood


www.nexsenpruet.com

LEGISLATION SIGNED INTO LAW

ANGEL INVESTOR ACT

71

The Angel Investor Act sunsetted in 2019. New legislation sunsets in 2025.

To qualify for the credit, an angel investor must make an investment in a company that has been recognized as qualified by

the South Carolina Secretary of State. The company must:

‣ be less than five years old

‣ be headquartered in SC

‣ have 25 or fewer employees

‣ have gross income under $2 million in any previous fiscal year

‣ be engaged in manufacturing, processing, warehousing, wholesaling, software development, IT services, R&D, and

certain service-related facilities

‣ complete an application with the Secretary of State and receive approval prior to receiving a qualifying investment

In addition, the angel investor must:

‣ be an accredited investor defined in 17 CFR 230.501

‣ make the investment after the company has been qualified by the Secretary of State

‣ Apply for the credit prior to December 31st of the year in which the investment is made

‣ file a tax credit form with your tax return

The Credit – 35% of accredited investment capped at $100,000 per year



www.nexsenpruet.com

LEGISLATION WHICH PASSED IN THE HOUSE

72

The General Assembly in their Sine Die Resolution, may take up any

bill which passed one House when they return on September 24, 2020

for Special Sine Die session.



www.nexsenpruet.com

LEGISLATION WHICH PASSED ONE HOUSE

BUSINESS LICENSE TAX ACT

73

This legislation is currently supported by the South

Carolina Realtors’ Association, the South Carolina

Manufacturer’s Association, the State Chamber of

Commerce and the South Carolina Municipal

Association, among other groups.



www.nexsenpruet.com

LEGISLATION WHICH PASSED ONE HOUSEBUSINESS LICENSE TAX ACT

74

The Legislation:

Allows electronic filing and payment of Business License Taxes (BLT)

with a State Agency (RFA)

Provides Uniform Filing Dates, Forms and Rate Classes for all

municipalities and counties

Grandfathers any existing formal or informal BLT arrangements with

municipalities and counties

Allows municipalities and counties to continue to enact special rate

classes for Economic Development Projects

Appeals will go to ALC (rather than Circuit Court) after payment of 80%

of Proposed BLT

BLT Tax Base for Realtors – Gross income for agents means gross

commissions received or retained. If commissions are divided with other

brokers or agents, then only the amount retained by the broker or agent is

considered gross income.Burnie Maybank and Austin Smallwood


www.nexsenpruet.com

LEGISLATION WHICH PASSED ONE HOUSE

ELECTRONIC NOTARY ACT

75

Some 46 states – but not SC – now allow Electronic Notary signatures.

The SC Remote Online Notarization Act unanimously passed the Senate but

House hasn’t taken it up.

(A) The following notarial acts may be performed by remote online notaries

using communication technology:

(1) acknowledgments;

(2) oaths and affirmations;

(3) attestations and jurats;

(4) signature witnessing;

(5) verifications of fact;

(6) certification that a tangible copy of an electronic record is an

accurate copy of the electronic record; and

(7) any other acts authorized by law.Burnie Maybank and Austin Smallwood


www.nexsenpruet.com

LEGISLATION WHICH PASSED ONE HOUSEELECTRONIC NOTARY ACT

76

A commissioned remote online notary public physically located in this State may perform a remote online

notarial act using communication technology in accordance with this chapter and any rules or regulations

adopted by the Secretary of State for a remotely located individual who is physically located:

(1) in this State;

(2) outside of this State but within the United States; or

(3) outside of the United States if:

(a) the remote online notary public has no actual knowledge that the act of making the

statement or signing the records is prohibited in the jurisdiction in which the person is located;

and

(b) the person placing his or her electronic signature on the electronic record confirms to the

remote online notary public that the requested remote online notarial act and the electronic

record:

(i) are part of or pertain to a matter that is to be filed with or is currently before a court,

governmental entity, or other entity in the United States;

(ii) relates to property located in the United States; or

(iii) relates to a transaction substantially connected to the United States


www.nexsenpruet.com

LEGISLATION WHICH PASSED NEITHER HOUSE

77

Conformity

Abandoned Building Sunset



www.nexsenpruet.com

LLR UPDATE

78

LLR has begun accepting renewals but has extended its deadline from

June 30th to September 30th. Continuing Education requirements can

be obtained throughout the extended deadline. Background checks

with fingerprinting will begin next renewal cycle. PSI exam sites also

reopened May 1st and are observing social distancing guidelines.



x-apple-data-detectors://0/

Burnet R. Maybank, III [email protected]

REALTORS’ WEBINAR

OPPORTUNITY ZONES

Updated: May 29, 2020


OPPORTUNITY ZONES www.nexsenpruet.com [email protected]

OPPORTUNITY ZONES

OVERVIEW

I want to build a $4 million commercial office building.

I sell Wells Fargo stock I own for $3 million and borrow $1 million. I originally purchased the

Wells Fargo stock in 2012 for $1 million so I have a $2 million long-term capital gain. I am in

the 20% Capital Gains tax rate. I will build a new building or renovate an existing building in an

Opportunity Zone.


OPPORTUNITY ZONES

OVERVIEW

TAX INCENTIVES FOR BUILDING/RENOVATING IN OPPORTUNITY ZONES

A. First OZ Incentive: Deferral of Gain

I sold stock in December, 2019 for a $2 million capital gain

On April 15, 2020, I either (1) write a check to the IRS for $400,000 for the capital

gain; (2) or invest the Capital Gain within 180 days in my Maybank Qualified Opportunity Fund,

LLC (and pay no taxes on it)


OPPORTUNITY ZONES

OVERVIEW


B. Second OZ Incentive: Reduction of Capital Gain

I sold stock in December, 2019 for a $2 million capital gain

If I invest the Capital Gain within 180 days in my Qualified Opportunity Fund and hold

for five years, then 10% of the $400,000 capital gain is permanently excluded ($40,000) and if I

hold the investment for seven years, then 15% of the $400,000 ($60,000) is excluded when I

pay taxes on the $2 million capital gain on December 31, 2026 (due April 15, 2012).


OPPORTUNITY ZONES

OVERVIEW


C. Third OZ Incentive: Total Elimination of Second Capital Gain

The Maybank Opportunity Fund, LLC builds a commercial office building through

Maybank Opportunity Business, LLC in an Opportunity Zone and holds it for ten years. The

Fund sells the office building in year 11 for a $1 million capital gain. This Capital Gain is totally

exempt from income taxes (a savings of $200,000 under today’s income tax rates).


OPPORTUNITY ZONES

CREATION

‣ The Opportunity Zone Program was created as part of the Federal Tax Bill

‣ It was co-sponsored by Senators Tim Scott and Cory Booker

‣ Purpose

‣ Combat geographical inequality:

‣ In the 1990s, half or more of all counties grew at the national rate. Now only 25% do

‣ More than half of the country’s distressed zip codes contained fewer jobs and places of business in

2015 than they had in 2010

‣ This bill should expand the geography of economic growth


OPPORTUNITY ZONES

HOW ARE OZs DETERMINED?

Governors of each state (and territory) were allowed to designate up to 25% of

their low income census tracts


OPPORTUNITY ZONES

HOW ARE OZs DETERMINED?

In South Carolina, we have 1,097 census tracts

‣ 538 were eligible to be submitted

‣ Submitted 135 tracts

‣ 128 Low Income Community tracts were submitted

‣ 7 eligible contiguous tracts were submitted


OPPORTUNITY ZONES

WHERE ARE THEY?

www.scopportunityzone.com


OPPORTUNITY ZONES

WHERE ARE THEY?

PROPERTY STRADDLING CENSUS LINES

Because zones are based upon census tracts, some properties will only be partly in a Zone. The April 2019

Regs. provide that a contiguous parcel will be treated as entirely in the Zone if the square footage inside the

QOZ is “substantial” relative to the square footage outside the Zone. The Preamble to the Regulations state

that the parcel inside the zone is “substantial” if the unadjusted cost of the real property inside the Zone is

greater than the unadjusted cost outside the Zone.

The final regulations include both a square footage test and an unadjusted cost test to determine if a project

is primarily in a QOZ, and provide that parcels or tracts of land will be considered contiguous if they possess

common boundaries, and would be contiguous but for the interposition of a road, street, railroad, stream or

similar property. Importantly, the final regulations also extend the straddle rules to QOF’s and QOZB’s with

respect to the 70-percent use test.


OPPORTUNITY ZONES

IRS REGULATIONS

On Friday, October 19, 2018, the U.S. Treasury Department issued its first set of guidelines for

opportunity zones. That guidance included 74 pages of proposed regulations, a five page

revenue ruling, an updated Q&A document and a draft of Form 8996 for qualified opportunity

funds.

The IRS issued a second set of Regulations on April 17, 2019. While the first set was almost

entirely pro-taxpayer, the second set contained anti-taxpayer provisions.

While the regulations are proposed, taxpayers and opportunity funds may rely on the proposed

regulations, presuming they apply the rules in their entirety and do so in a consistent manner.


OPPORTUNITY ZONES

REQUIREMENTS

There are three requirements:

A. A Capital Gain must be invested in a

B. Qualified Opportunity Fund which invests (in many cases through a Qualified

Opportunity Business) in a

C. Qualified Opportunity Zone

D. Where such occurs, substantial Federal Income Tax Incentives are generated


TAX INCENTIVES

Natch, I will go out of order and start with the tax incentives.

There are two forms of federal income tax incentives:

(1) A deferral and possible reduction of the ORIGINAL capital gain; and

(2) Elimination of the SECOND capital gain (if any) from the subsequent sale of the

investment in the Opportunity Fund.


TAX INCENTIVES

ORIGINAL CAPITAL GAIN

The Opportunity Zones program offers two Income Tax Incentives for the underlying capital gain:

1) A deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund. The

deferred gain must be recognized on the earlier of the date on which the opportunity zone investment

is disposed of or December 31, 2026; and

2) A capital gain reduction resulting from a step-up in basis for capital gains reinvested in an

Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held

by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby

excluding up to 15% of the original gain from taxation.

3) The equity investment must be made by the end of 2019 in order to get the full 15% tax basis step-

up.


TAX INCENTIVES

SECOND CAPITAL GAIN (IF ANY)

The Act provides a second tax incentive:

A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in

an Opportunity Fund if the investment is held for at least 10 years, i.e. no tax will be due on the appreciation

of the Qualified Opportunity fund other than the original deferred gain that must be recognized by December

31, 2026.

After the end of the tenth year, the basis of a partnership interest owning real property will be adjusted to an

amount equal to the FMV of the partnership interest including debt. Presumably, a negative tax basis

capital account will not result in taxable gain to the partner and depreciation expense will not be recaptured.

The April 2019 draft Regulations exclude any carried interest received in exchange for services (e.g.,

management and development fees) from the ten-year complete exclusion of the second capital gain (A

service provider partner’s interest can be split between qualifying and non-qualifying investments).


QUALIFYING CAPITAL GAIN

The first Requirement above requires a capital gain.

The Legislation allows taxpayers to defer short or long-term capital gains due on the sale of any investment (stocks,

bonds, real estate) if the capital gain portion of the sale is reinvested within 180 days in a Qualified Opportunity Fund.

NOTE: Under IRS Notice 2023, relating to COVID-19, if the 180 days expires on or after April 1, 2020 and before July 15,

2020, the 180 deadline does not expire until July 15, 2020. The extension is automatic and no election or other filing is

required.

If the capital gain results from the sale or exchange of real estate it must be with an unrelated party.

TRACING: Arguably, the taxpayer that owns the Opportunity Fund Investment must be the same individual or entity that

recognized the gain. So, the eligible taxpayer must directly invest into a Opportunity Fund, rather than investing the

proceeds into another entity (even a pass-through) which would then invest into the Opportunity Fund.



RELATED PARTY SALE

The gain must not arise from a sale or exchange with a related person as defined in section

1400Z-2(e)(2). Section 1400Z-2(e)(2) incorporates the related person definition in sections

267(b) and 707(b)(1) but substitutes “20 percent” in place of “50 percent” each place it occurs

in section 267(b) or section 707(b)(1).



The Proposed Regulations provide that any person that recognizes capital gain for U.S. federal

income tax purposes (including any individual, “C” corporation (including a regulated

investment company, commonly known as a mutual fund (“RIC”), or a real estate investment

trust (“REIT”)), partnership, “S” corporation, trust or estate) is eligible to defer all or a portion of

such gain by investing in an Opportunity Fund.



Any gain that is not treated as capital gain is not eligible to be deferred. In addition, any gain

that is realized but not recognized for U.S. federal income tax purposes, such as gain in

corporate reorganizations, certain partnership transactions and Section 1031 “like-kind”

exchanges, is not eligible to be deferred.

The Proposed October 2018 Regulations allow a taxpayer to “split” the gain derived from a

single transaction into multiple Opportunity Fund investments. For example, if a taxpayer

realized a $100,000 capital gain on January 1, 2019 and invested $80,000 of the gain into an

Opportunity Fund on February 1, 2019, the remaining $20,000 portion of the gain could be

invested into an Opportunity Fund prior to the expiration of the 180-day period beginning on

January 1, 2019. However, to the extent that the second investment exceeded $20,000, the

excess amount would not qualify for the Opportunity Fund tax benefits.



The Proposed October 2018 Regulations provide special rules for the deferral of capital gain by

a partnership and/or its partners. Where a partnership recognizes a capital gain and invests

the gain into an Opportunity Fund, the rules provide that the deferred partnership-level gain will

not be taxed at the partner level in the year of deferral. When the gain is later recognized (e.g.,

upon the earlier of the sale of the Opportunity Fund interest or December 31, 2026), the

partnership’s partners will be taxed on the recognized gain at such later time.

To the extent that a partnership does not elect to defer its eligible gain, each partner may elect

to defer its allocable share of the gain. Several special rules allow the individual partner to

defer its capital gain where the partnership declines to do so.



HOW DOES THE TAXPAYER DEFER THE GAIN

The proposed October 2018 Regs state that it is anticipated that taxpayers will defer the gain

by making a deferral election on Form 8949 which will be attached to their Federal Income Tax

Return for the taxable year in which the gain would have been recognized but for the deferral.


TAX INCENTIVES

STACKING OF THE CREDITS

The Opportunity Zone tax incentive can be stacked with both federal and state tax incentives:

Federal:

NMTC

Historic Rehabilitation

Low Income Housing

State

Fee-in-Lieu/MCBP

Bailey Bill

Abandoned Building/Textile

Revitalization Acts

Infrastructure Credit

Low Income Housing

These are explained below.


TAX INCENTIVES

STACKING OF THE CREDITS - FEDERAL

NMTC

The federal New Market Tax Credit Program creates a 39% tax credit claimed over a seven-

year period for qualified investors that invest equity in Community Development Entities

(CDEs). The CDE invest in qualifying projects in low income communities, including retail and

commercial projects. There are a number of qualifying Census tracts in Myrtle Beach.


TAX INCENTIVES

STACKING OF THE CREDITS - FEDERAL

HISTORIC PRESERVATION

The federal Historic Tax Credit provides a 20% income tax credit claimed at a rate of 4% per

year for five years of the rehabilitation costs of rehabilitating buildings listed on the National

Register of Historic Places.


TAX INCENTIVES

STACKING OF THE CREDITS - STATE

FEE-IN-LIEU/MCBP

Fee-in-Lieu is a significant property tax incentive provided by county council. It can lower the

assessment ratio on both real and personal property and freeze the millage. A MCBP can

increase the Job Tax Credit and in some cases (typically large Cap X and new jobs) provide a

Special Source Revenue Credit which reduces the property tax bill.


TAX INCENTIVES


BAILEY BILL

Local government may freeze for up to 20 years the value for property tax purposes at the pre-

rehabilitation value of a rehabilitated Historic Property. The owner of the property must obtain

the consent or the local taxing entity and the appropriate historical preservation reviewing

entity.


TAX INCENTIVES


ABANDONED BUILDING REVITALIZATION ACT

The purchaser of a building which has at least 66% of its space abandoned or non-operational

for five years may get a credit for either income or property tax purposes of 25% of the

rehabilitation costs, capped at $500,000.


TAX INCENTIVES


TEXTILE COMMUNITIES REVITALIZATION ACT

The purchases of a Textile Mill site which at least 80% has been closed for business for at least

one year may receive an income or property tax credit of 25% of the rehabilitation cost.


TAX INCENTIVES


INFRASTRUCTURE CREDIT

South Carolina provides an income tax credit, subject to various limitations, to a real estate

developer who constructs or improves water lines, sewer lines and road projects that are

eventually dedicated to public use or a qualifying private entity.


QUALIFIED OPPORTUNITY FUNDS

108

The second requirement is that the capital gain must be invested within 180 days in a qualified Opportunity

Fund. (As stated above this deadline is extended until July 15, 2020 if the capital gain was generated after

April 1, 2020 – July 15, 2020.)

Corporate and partnership investments must be made in cash – i.e., in-kind contributions or promissory

notes issued to a qualified opportunity zone business are not qualified investments.

The gain must be invested in an Opportunity Fund within the 180-day period that begins on the date on

which the taxpayer would otherwise be required to recognize that gain (the “Recognition Date”). In the case

of a stock sale effected on an exchange, the Recognition Date is the trade date. In the case of a capital

gain dividend received from a RIC or REIT, the Recognition Dated is the date that the dividend is paid. In

the case of a taxpayer that is a partner (or “S” corporation shareholder or beneficiary), seeking to defer its

share of gain realized by the partnership (or “S” corporation or trust or estate), the Recognition Date is the

last day of the entity’s tax year.



109

The Proposed October 2018 Regulations provide that any entity classified as a

domestic corporation or a domestic partnership for U.S. federal income tax

purposes, which should presumably include a limited liability company (LLC) or

business trust, is eligible to be an Opportunity Fund. Opportunity Funds may be

organized as REITs and “S” corporations.

The Proposed Regulations clarify that an eligible interest in an Opportunity Fund

includes preferred stock and a partnership interest with special allocations, but

not a debt instrument. Deemed contributions under section 752(a) do not qualify.

The eligible interest can be used as collateral for a loan, whether purchase money

borrowing or otherwise.



110

“Qualified Opportunity Funds” were determined by the Community Development

Institutions Fund of the Treasury Department. It was originally thought that this

would be in a process similar to allocation of New Markets Tax Credits to

“community development entities,” and that only CDE type organizations would

qualify.

This was a substantial negative for many real estate developers, who would be

reluctant to make investments in a CDE with limited real estate experience, and

the process to qualify as a CDE was lengthy.



SELF CERTIFICATION

111

The IRS recently issued a FAQ which states in part:

Q. How does a taxpayer become certified as a Qualified Opportunity Fund?

A. To become a Qualified Opportunity Fund, an eligible taxpayer self certifies. (Thus, no

approval or action by the IRS is required.) To self-certify, a taxpayer merely completes a form (Form

8996) and attaches that form to the taxpayer’s federal income tax return for the taxable year. (The

return must be filed timely, taking extensions into account.)

The proposed Regs confirmed the self-certification.



SELF CERTIFICATION

112

On October 19, 2018, the IRS issued a Draft IRS Form 8996 for qualifying as an

Opportunity Fund. The draft form implies that the Opportunity Fund must own the

Opportunity Zone Business Property directly. The draft Regs say that it is

expected that taxpayers will use Form 8996, Qualified Opportunity Fund, both for

initial self-certification and for annual reporting of compliance with the 90-Percent

Asset Test. It is expected that the Form 8996 would be attached to the taxpayer’s

Federal income tax return for the relevant tax years.



113

The statute outlines two requirements:

(1) The entity must be organized as a corporation or partnership; and (2) must

maintain at least 90 percent of assets in “Qualified Opportunity zone property,”

including investments in “Qualified Opportunity zone stock,” “Qualified

Opportunity zone partnership interest,” and “Qualified Opportunity business

property.”

Business Property is covered below.



QUALIFYING OPPORTUNITY ZONE BUSINESS PROPERTY

114

The qualifications as “Qualified Opportunity zone stock,” “Qualified Opportunity

zone partnership interest,” and “Qualified Opportunity zone business property”

include real estate investments in (1) new or (2) substantially improved tangible

property, including commercial buildings, equipment, and multi-family complexes.


QUALIFIED OPPORTUNITY

ZONE BUSINESS

115

As stated below, there is a very important working capital safe harbor for real

estate projects. The safe harbor only applies to Qualified Opportunity Zone

businesses – and not to Qualified Opportunity Funds. For this reason for real

estate projects the QOF will need to do business through a QOZ Business. (Real

estate developers will accordingly have to satisfy both the QOF and QOB rules.)



ZONE BUSINESS

116

A qualified opportunity zone business is a trade or business:

‣ In which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property;

‣ At least 50 percent of the business’ total gross income is derived from the active conduct of the trade or business;

‣ A substantial portion of the business’ intangible property is used in the active conduct of the trade or business;

‣ In which less than five percent of the average of the aggregate unadjusted bases of its property is attributable to nonqualified financial

property;

‣ Which is not a private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility

used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises; and

‣ De minimis exception for “sin businesses” – The final regulations provide that a QOZB may have less than 5 percent of its property leased

to a so-called “sin business” described in 26 U.S.C. §144(c)(6)(B). For example, a hotel business of a QOZB could potentially lease

space to a spa that provides tanning services.



ZONE BUSINESS

117

ACTIVE CONDUCT OF TRADE OR BUSINESS

The great majority of real estate projects will be done by a QOZ Fund through a QOZ Business. As stated

above, a QOZB must be engaged in an “active trade or business.” There was a concern prior to April 2019

Regs whether rental real estate was sufficiently “active.” The April 2019 Regs stated that rental real estate

will be deemed an active trade or business.

NOTE: The Regs say that “merely entering into a triple-net-lease” is not an active trade or business!


QUALIFIED OPPORTUNITY ZONE BUSINESS

SUBSTANTIALLY ALL REQUIREMENT

118

In order for an entity to be treated as an Opportunity Zone Business (and

therefore count towards an Opportunity Fund’s 90% Asset Test), “substantially

all” of the tangible personal property owned or leased by the entity must be

Opportunity Zone Business Property. The Proposed Regulations provide a

bright-line rule that, if at least 70% of the entity’s tangible property is Opportunity

Zone Business Property, the entity satisfies this “substantially all” test (the “70%

Safe Harbor”).



ZONE BUSINESS

119

Qualified opportunity zone business property means any tangible property used in a trade or business if:

‣ The property was acquired by the qualified opportunity fund by purchase after 2017;

‣ The original use in the qualified opportunity zone commenced with the qualified opportunity fund or

QOZ Business or the qualified opportunity fund or business substantially improves the property; and

‣ During substantially all of the qualified opportunity fund’s holding period, substantially all of the use of

the property was in a qualified opportunity zone.


ORIGINAL USE –

LEASED PROPERTY

120

QOZ business property must be (1) acquired by purchase from an unrelated person; and be originally used

by the taxpayer. Does Leased (not purchased) property qualify?

The April 2019 Regulations provide very favorable treatment of leases. Leased property qualifies as QOZ

business property if (1) the lease was entered into after December 31, 2017; and (2) the lease terms must

be market rate. The lease maybe from a related party subject to certain conditions. Presumably, the lease

should qualify as a “true lease” for federal income tax purposes.

The Leased property does not have to be substantially improved or meet the original use requirement.


ORIGINAL USE –

PURCHASE OF PROPERTY UNDER CONSTRUCTION

121

The OZ Act requires that the original use of the property commenced with the qualified Fund/Business (or

what was substantially rehabilitated).

What if a Fund/Business purchases a real estate project already under construction – does this satisfy the

“original use” test?

The April 2019 Regs provide a pro-taxpayer rule that purchase of a development prior to the receipt of a

Temporary Certificate of Occupancy will meet the Original Use test.


90% QUALIFIED PROPERTY ALLOCATION TEST

122

The law states that an Opportunity Fund must hold at least 90 percent of its assets in

Qualified Opportunity Zone Property “Qualified Property,” which is measured as the

average holding over two periods: (A) “on the last day of the first 6-month period of

the taxable year of the fund, and” (B) “on the last day of the taxable year of the fund.”

The proposed Regs say, “For example, if a calendar-year entity that was created in

February chooses April as its first month as a QOF, then the 90-Percent-Asset-Test

testing dates for the QOF are the end of September and the end of December.

Moreover, if the calendar-year QOF chooses a month after June as its first month as

a QOF, then the only testing date for the taxable year is the last day of the QOF’s

taxable year. Regardless of when an entity becomes a QOF, the last day of the

taxable year is a testing date.



123

For this purpose, the Opportunity Fund is required to use the “book” value of its

assets as shown in its financial statements filed with the U.S. Securities and

Exchange Commission (or another U.S. federal agency), or the value of its assets as

prepared in accordance with U.S. GAAP. If the Opportunity Fund does not have

applicable financial statements, it must use the cost of its assets.



124

Does this mean there is a strict requirement that, in just the Opportunity Fund must invest 90

percent of the fund in real estate construction or improvement six months? Construction and

rehabilitation of real property typically takes longer than six months. As stated above, the Fund

can hold only a maximum of 5% of its assets in non-qualified Financial Property.



WORKING CAPITAL SAFE HARBOR

125

The Proposed Regulations adopt a working capital safe harbor that applies to cash as well as other “financial property” (including stock, bonds

and other debt, partnership interests, options and certain derivatives). Under this safe harbor, such cash and financial property counts toward

the 90% Asset Test, if for a period of up to 31 months: (1) if there is a written plan that identifies the financial property as property held for the

acquisition, construction, or substantial improvement of tangible property in the opportunity zone, (2) there is written schedule consistent with

the ordinary business operations of the business that the property will be used within 31 months, and (3) the business substantially complies

with the schedule. (4) Taxpayers are required to retain any written plan in their records.

The final regulations provide several refinements to the working capital safe harbor: They create an additional 62-month safe harbor for start-

up businesses to ensure that they can comply with the 70-percent tangible property standard, the 50-percent gross income requirement and

other requirements to qualify as a QOZB.

NOTE that this safe harbor applies only to Opportunity Zone Businesses – not Opportunity Funds.

Final Treasury Reg. 1 – 1400Z 2(d) – 1(3)(v)(D) provides the QOZ business an additional 24 months to complete the acquisition or

rehabilitation of the business property if the QOZ business is located in a federally-declared disaster area.


DEFINITION OF SUBSTANTIAL IMPROVEMENT

126

Qualified Business Property must be either constructed or “substantially improved.”

Substantial improvement is more complicated, but the new October 2018 Revenue

Ruling and proposed Regs provide a very pro-taxpayer treatment to real estate

developers.

The definition of “substantial improvement” to Qualified Opportunity Zone Business

Property “Qualified Business Property” is met only if “additions to basis with respect to

such property in the hands of the qualified opportunity fund exceed an amount equal

to the adjusted basis of such property at the beginning of such 30-month period in the

hands of the qualified opportunity fund,” i.e., the cost of the property improvements

must exceed the tax basis of the property at the time of acquisition. If you purchase a

property for $2 million you must expend more than $2 million renovating it.



VACANT BUILDINGS

127

The April 2019 Regs provide an exception similar to the SC Abandoned Building Act. If a building was unused or vacant

for an uninterrupted period of at least 5 years prior to being acquired and placed in service by the QOF or QOZ Business,

it is treated as if it was new construction and the QOF or QOZ Business does NOT need to satisfy the “substantial

improvement test” outlined above and below.

The final regulations reduce the five-year requirement in the proposed regulations to a one-year vacancy requirement, if

the property was vacant for at least one-year prior to the QOZ being designated and remains vacant through the date of

purchase; For other vacant property, the proposed five-year vacancy requirement is reduced to three years. In addition,

property involuntarily transferred to local government control is included in the definition of the term vacant, allowing it to

be treated as original use property when purchased by a QOF or OQZB from the local government.

Accordingly, a modest rehabilitation of a vacant building qualifies!

NOTE: not always easy to prove how long building was vacant.



128

The October 2018 Proposed Regulation and Revenue Ruling provides a pro-taxpayer view that with respect to an

acquisition of land with an existing building, located within an Opportunity Zone, the tax basis of the land is not taken into

account in determining whether the building has been substantially improved, and that there is no separate requirement to

improve the land, so long as the existing building itself is substantially improved.

You spend $3 million acquiring a building and land. The land is valued at $1 million and the building at $2 million. You

only need to spend more than $2 million – and not $3 million – renovating the property.

Aggregation of property for purposes of the substantial improvement test - In certain cases, the final regulations permit a

group of two or more buildings located on the same parcel(s) of land to be treated as a single property. In these cases,

any additions to the basis of the buildings in the group are aggregated to determine satisfaction of the substantial

improvement requirement. Thus, a taxpayer need not increase the basis of each building by 100% as long as the total

additions to basis for the group of buildings equals 100% of the initial basis for the group.


SUBSTANTIAL IMPROVEMENT

REV. RUL. 2018-29

129

In September 2018, QOF A purchases for $800x Property X, which is located wholly

within the boundaries of a QOZ. Property X consists of a building previously used as

a factory erected prior to 2018 and land on which the factory building is located. QOF

A intends to convert the factory building to residential rental property. Sixty percent

($480x) of the $800x purchase price for Property X is attributable to the value of the

land and forty percent ($320x) is attributable to the value of the building. Within 24

months after the date of QOF A’s acquisition of Property X, QOF A invests an

additional $400x in converting the building to residential rental property.



REV. RUL. 2018-29

130

Under § 1400Z-2(d)(2)(D)(ii), tangible property used in a QOF’s trade or business is

treated as substantially improved by the QOF only if, during any 30-month period

beginning after the date of acquisition of such tangible property, additions to basis

with respect to such tangible property in the hands of the QOF exceed an amount

equal to the adjusted basis of such tangible property at the beginning of such 30-

month period in the hands of the QOF.



REV. RUL. 2018-29

131

Because the factory building existed on land within the QOZ prior to QOF A’s

purchase of Property X, the building’s original use within the QOZ did not commence

with QOF A. However, under § 1400Z-2(d)(2)(D)(ii) QOF A substantially improved

Property X because during the 30-month period beginning after the date of QOF A’s

acquisition of Property X QOF A’s additions to the basis of the factory building ($400x)

exceed an amount equal to QOF A’s adjusted basis of the building at the beginning of

the 30-month period (#320x).


DEBT FINANCED DISTRIBUTIONS

Many real estate projects make debt financed distributions to the LLC members. The April

2019 Regulations follow general partnership tax principals and allow distributions from QOFs

taxed as partnerships up to the amount of the Member’s basis, which includes the Members

share of partnership debt. The distributions cannot, however, trigger the disguised sales rules.


APRIL 2019 REGULATIONS

ANTI-TAXPAYER PROVISION SECTION 1231 GAIN

Section 1231 Property is real or depreciable property held for more than a year. Total gains are netted from losses so a

taxpayer who sells multiple assets will not know until the end of the year if he has a long term capital gain (or an ordinary

loss if the net is a loss).

The April 2019 Regulation says that the 180-day period for reinvestment of section 1231 gains is at the end of the year

(rather than the date the asset was sold) in order to see if such gains are netted against losses.

This would have created issues for QOF investments made in 2018 which were thought to be gains at the time of the sale.

The final regulations allow a taxpayer to invest the entire amount of gains from such sales without regard to losses and

changes the beginning of the investment period from the end of the year to the date of the sale of each asset.

Jim Rourke, Esquire [email protected]

ATI ALTERNATIVE VALUATION CREDIT

REALTORS Continuing Education Seminar

ATI – Alternative Valuation

The 2006 legislative session produced sweeping property tax

reform. Among the most significant components were

changes to the valuation of real property effective for property

tax years after 2006.

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As before, a countywide reappraisal of most real property

takes place every five years, usually followed in the next

year by implementation of a countywide reassessment

program. However, the reform measures provide for a 15%

cap on any increase in the fair market value of any parcel

when a countywide reassessment program is implemented.

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This 15% cap on value remains in effect until an

“assessable transfer of interest” or “ATI” occurs. An ATI will

trigger a valuation not limited by the 15% cap. To soften the

impact of the ATI, a provision for a partial

exemption/alternate valuation for eligible property was

added in 2011.

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Real property that undergoes an ATI after 2010 may be subject to a partial

exemption/alternate valuation if the following eligibility requirements are met:

‣ The property must be subject to property tax before the ATI;

‣ The property must be subject to the 6% assessment ratio before the ATI and

remain so thereafter i.e. commercial property; second homes; and

‣ The owner must notify the assessor that the property will be subject to the 6%

assessment ratio before January 31st of the property tax year for which the

owner first claims eligibility for the partial exemption/alternate valuation.

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Example 1: Suppose commercial (6%) property was purchased in 2014 in Richland

County after the last reassessment for $400,000.

It has increased in value; according to the assessor it was worth $550,000 on

December 31, 2018

Because of the 15% cap, it was taxed in 2018 with a value of $460,000

Suppose it was sold on January 1, 2019 for $625,000

Current FMV = $550,000

ATI FMV = $625,000

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Example 1:

Step 1: Does ATI FMV > current FMV?

Yes, ATI FMV ($625,000)> current FMV ($550,000)

Step 2: Reduce ATI FMV by 25%.

$625,000-$156,250 = $468,750

$468,750 is the exemption value

Step 3: Is the exemption value ($468,750) less than the current FMV ($550,000)?

Yes; therefore the current FMV ($550,000) becomes the taxable value

(versus the ATI FMV of $625,000)

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Example 2:

Same facts, except assume the property was sold for $750,000

Current FMV = $550,000

ATI FMV = $750,000

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Step 1: Does ATI FMV > current FMV?

Yes, ATI FMV ($750,000) > current FMV ($550,000)

Step 2: Reduce ATI FMV by 25%

$750,000 - $187,500 = $562,500

$562,500 is the exemption value

Step 3: Is the exemption value ($562,500) less than the current FMV ($550,000)? No.

The exemption value of $562,500 becomes the taxable value (versus $750,000)

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Example 3:

Assume the property is sold for $525,000.

If the ATI FMV ($525,000) is less than the current FMV

($550,000) the ATI FMV ($525,000) becomes the taxable

value.

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ATI Exemption Notice must be filed by

January 31st of the year following the closing

What if it wasn’t timely filed?

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Case Law Update – ATI Exemption

Fairfield Waverly, LLC v. Dorchester County Assessor and GS Windsor Club, LLC v. Dorchester County Assessor

‣ Issue: Filing for exemption after January 31 of the year immediately following the sale of the property

‣ This case – appeal for 2014 tax year; purchased Dec. 2012, filed for ATI Exemption after Jan. 31, 2013, but before Jan.

31, 2014

‣ County’s position – if exemption is not filed for, then “current fair market value” must reflect valuation after ATI (e.g., use 2013

assessed value)

‣ Taxpayer’s position – plain language of statute allows filing after initial January 31 deadline (e.g., use 2012 assessed value)

‣ ALC ruled in favor or Taxpayer

‣ Prospective impact only; no refunds

‣ DOR filed amicus brief in March 2019 in favor of County’s interpretation

‣ Status – Oral Argument held on February 11, 2020 – we are awaiting an order from Court of Appeals

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WHEN IS THE ATI INAPPLICABLE/LIMITED USE?

‣ Property was not previously taxed as commercial

‣ Property has been recently sold prior to current transaction

‣ New construction

‣ Late filings

‣ Newly subdivided parcel

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Jim Rourke, Esq.

1230 Main Street, Suite 700

803.540.2030

[email protected]

QUESTIONS?

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Joan Hartley [email protected]

ENVIRONMENTAL ISSUES

IN REAL ESTATE

TRANSACTIONS

MAY 2020

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‣ Environmental due diligence for

prospective purchasers/developers

‣ Discuss methods of managing

environmental risks for

redevelopment of environmentally

impacted properties

ENVIRONMENTAL ISSUESOVERVIEW

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‣ Comprehensive Environmental

Response, Compensation and Liability

Act of 1980 (“CERCLA”) enacted by

Congress in response to Love Canal

and other abandoned hazardous waste

sites

‣ Strict liability for current

owners/operators, past

owners/operators, transporters, and

arrangers

ENVIRONMENTAL LIABILITY

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‣ In 1996 Congress amended CERCLA to

provide an “innocent purchaser” defense if

the party acquired the contaminated

property by inheritance or bequest or the

party “did not know and had no reason to

know” about the contamination prior to the

acquisition of the property.

‣ In 2002 Congress enacted the Small

Business Liability Relief and Brownfields

Revitalization Act (“Brownfields

Revitalization Act”), which amended

CERCLA to provide for additional CERCLA

defenses, including the bona fide

prospective purchaser (“BFPP”) defense.

‣ The 2018 Amendment allows tenants to

claim the BFPP defense based on landlord’s

status.

ENVIRONMENTAL LIABILITY

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‣ Not responsible for the disposal of HS and disposal occurred prior to purchase

‣ Made “all appropriate inquiries” prior to purchase

‣ Exercised appropriate care with respect to any release

‣ Cooperated with any response actions

‣ Complied with land use restrictions

‣ Provided all legal notices

‣ Is not potentially liable or affiliated with a PRP

REQUIREMENTS FOR BFPP DEFENSEBONA FIDE PROSPECTIVE PURCHASER

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Phase I according to ASTM E1527-13 & E2247-16 Standards

‣ Reconnaissance of site and surrounding area

‣ Review of State and Federal environmental regulatory agencies’ records – data bases

‣ Review of sources such as aerial photographs, city directories & Sanborn maps

“ALL APPROPRIATE INQUIRIES”

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ASTM E1527-13 & E2247-16 Standards

‣ Review of the history of ownership of

the Site

‣ Interviews with individuals familiar with

the management of the property

‣ Phase I ESA is non-intrusive

“ALL APPROPRIATE INQUIRIES”PHASE I ESA

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Specified a shelf life for a Phase I

ESA to assert BFPP defense at

time of closing

‣ 180 days for certain components

‣ Site visit

‣ owner & operator interviews

‣ Data base search

‣ Environmental lien search

‣ 365 days for remainder

MAJOR CONSIDERATIONS OF AAI

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‣ Ensure Phase I ESA report identifies

correct purchasing entity as the

“authorized user” – i.e., the title taker!

‣ Must specifically reference E1527-13

‣ Typically referred to as “reliance letter”

– should be an addendum to Phase I

to add another party as an “additional

user” for data gaps, e.g., lender

‣ Complete additional “user questionnaire”

ADDITIONAL CONSIDERATIONS OF

PHASE I ESA REPORTS

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‣ Requires Phase I ESA by BFPP

‣ Provides:

‣ Covenant not to sue

‣ Contribution protection

‣ Third party liability protection

‣ Must be executed prior to purchase

‣ 2008 Amendment covers petroleum

contamination

‣ Tax credit – SC income tax

SC BROWNFIELDS PROGRAM (VCP)

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‣ Vapor intrusion assessment/mitigation

‣ Assessment and remediation

according to proposed redevelopment

‣ Impacts for dry-cleaning facilities

‣ Will likely required restrictive covenant

‣ May facilitate financing process

‣ Improves marketability of property

SC BROWNFIELDS PROGRAM (VCP)

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‣ State regulations require an ACM survey not more than 3 yrs. prior to any demolition or renovation for commercial purposes

‣ DHEC demolition permit is required (10 days in advance) regardless of the presence of ACM

ASBESTOS-CONTAINING MATERIALS

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‣ Suspected or known historical UST on property:

‣ Do not conduct Phase II sampling prior to

registering the UST with DHEC if a regulated

UST under SUPERB Act. The following

USTs are not regulated:

‣ farm or residential tank of one thousand

one hundred gallons or less capacity used

for storing motor fuel for noncommercial

purposes;

‣ tank used for storing heating oil for

consumptive use on the premises where

stored;

‣ Expressly exclude the UST from the property

conveyed by deed

SUPERB FUNDING

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QUESTIONS?

Joan [email protected]

http://www.nexsenpruet.com

Burnet R. Maybank, III [email protected]

REALTORS CONTINUING EDUCATION

ENVIRONMENTAL TAX INCENTIVES

MAY 29, 2020

BROWNFIELDS

VOLUNTARY CLEANUP

TAX INCENTIVES

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BROWNFIELDS VOLUNTARY

CLEANUP INCENTIVE

GENERAL

The General Assembly has provided several tax incentives to promote

cleanup of brownfield sites: an income tax credit as well as a property tax

incentive.

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CLEANUP INCENTIVE

INCOME TAXES

South Carolina law allows a credit against taxes due for costs of voluntary

cleanup activity by a non-responsible party pursuant to the Brownfields

Voluntary Cleanup Program in South Carolina Code Title 44, Chapter 56,

Article 7.

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CLEANUP INCENTIVE

INCOME TAXES

The “basic” credit amount is equal to 50% of the cleanup expenses

paid or accrued or cash contributions for site cleanup conducted

during the tax year the tax credit application is submitted, not to

exceed $50,000 in a tax year. Any unused credit, up to $100,000,

may be carried forward 5 years. An “additional” credit equal to 10% of

the total cleanup costs, not to exceed $50,000, is allowed in the final

year of cleanup, as evidenced by the South Carolina Department of

Environmental Control (“DHEC”) issuing a certificate of completion.

Section 12-6-3550(B)&(C).

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CLEANUP INCENTIVE

INCOME TAXES

Multiple taxpayers working jointly to clean up a single site are allowed

the credit in the same proportion as their contribution to the payment

of cleanup costs.

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CLEANUP INCENTIVE

INCOME TAXES

The following requirements apply to the credit:

1. The taxpayer must have entered into a non-responsible party

voluntary contract with the DHEC as provided in South Carolina Code

§44-56-750.

2. The taxpayer must file a tax credit certificate application annually with

DHEC in order to obtain a tax credit certificate. The tax credit

application and required documentation must be received by DHEC by

December 31.

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CLEANUP INCENTIVE

INCOME TAXES

Information included with the tax credit application form must include:

(a) copies of contracts, invoices or payment records involving the actual

costs incurred for the tax year related to the site rehabilitation and (b) a

copy of an independent certified public accountant report attesting to

the accuracy and validity of the cleanup costs.

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CLEANUP INCENTIVE

INCOME TAXES

DHEC will issue a tax credit certificate upon review of the application

and documentation before April 1 if it determines that the applicant has

met all requirements. It may revoke or modify any written decision

granting eligibility for partial tax credits if it is discovered that the

taxpayer submitted false information. The taxpayer must pay DHEC’s

administrative review costs.

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CLEANUP INCENTIVE

INCOME TAXES

The credit is claimed on Form TC-20, “Credit for Expenses Incurred

Through Brownfields Voluntary Cleanup Program.”

DHEC may prescribe forms required to claim the credit and provide

administrative guidelines and procedures required to administer this

section. Section 12-6-3550(G).

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CLEANUP INCENTIVE

PROPERTY TAXES

Five Year Exemption

South Carolina Code §12-37-220(B)(44) provides a 5 year exemption

from county property taxes (the exemption does not apply to school and

municipal property taxes) for property and improvements subject to a

non-responsible party voluntary cleanup contract for which a certificate

of completion has been issued by the South Carolina Department of

Health and Environmental Control pursuant to Article 7, Chapter 56,

Title 44 (The Brownfields Voluntary Cleanup Program). The exemption

applies beginning with the taxable year in which a certificate of

completion is issued.

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CLEANUP INCENTIVE

PROPERTY TAXES

Five Year Exemption

This exemption is very similar to the manufacturer’s abatement, except

that unlike the manufacturer’s abatement, the County must approve the

Brownfield exemption.

It exempts only the county millage, which is typically between 20-40%

of the property tax bill depending upon whether the property is in a

municipality.

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CLEANUP INCENTIVE

PROPERTY TAXES

Fee-in-Lieu

Fee-in-lieu is an important property tax incentive. The statutory

minimum to enter into a fee with the county normally requires $2.5

Million in new capital investment.

The minimum investment for a non-responsible party is a Voluntary

Cleanup Program is only $1 million, and amounts expended pursuant to

the cleanup may be added to the $1 million minimum investment.

Counties have to approve the fee.

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CLEANUP INCENTIVE

ISSUES

These incentives have been used very rarely. This probably results

from a lack of knowledge of the incentives. More importantly, most

people miss the deadline because they don’t timely file for the

Brownfield Voluntary Cleanup Program (i.e., they miss the DHEC

Voluntary Cleanup Program deadline, not the tax deadline). In addition,

there is a mismatch between those wanting and needing the credit (i.e.

typically the investors for the purchaser of the property), and the person

who incurs the costs of the cleanup (frequently the seller). Lastly, the

income tax credit is modest, although it can equal $150,000 for a two-

year period. The property tax credit can be significant- 20-40% tax

savings but counties are reluctant to grant it.

BREAKWe’ll resume after a 15 minute break.

Nexsen PruetReal Estate Seminar – May 29, 2020

KEY BENEFITS

No overly burdensome criteria to meet

Leverages key workforce and target industry data

Customized strategic development plans

Comprehensive site and community analysis

Marketing support

PALMETTO SITES PROCESS

Request for Information

Site & Community Readiness

Visit

Strategic Development

Plan

SITE AND COMMUNITY READINESS EVALUATION PHASE

Due DiligencePhase

DUE DILIGENCE PHASE

REQUEST FOR INFORMATION

• Consists of one Excel file and 12 recommended attachments

• Applicants gather information on:

o County property & project pipeline data

o Property availability & price

o Buildability/ Impediments

o Zoning

o Topography

o Transportation infrastructure

o Utility availability

o Workforce / Training Data & Resources

KEY BENEFITS:• No more hard copies!

• No engineering work required for this phase

• Feedback provided on the RFI submission to improve competitiveness

• Takes counties’ property portfolio into consideration

SITE & COMMUNITY READINESS

Our consultant will conduct a comprehensive site visit and analysis that include:

• Community overview

• Site evaluation

• Workforce discussion

• Property and community windshield tour

KEY BENEFITS:Site and Community Readiness Phase will:

• Layer robust workforce and target industry data to inform product development

• Leverage extra time in the field with consultant team

• SSG will be a partner and committed to education process

• Results in customized Strategic Development Plan for each property

STRATEGIC DEVELOPMENT PLANS

Our consultant will work with the community to create a customized Strategic Development Planthat prioritizes improvements to be made at both the property and community level to increase competitiveness.

Site Readiness

• Surveys

• Utility Extensions

• Roadway Extensions/Improvements/Signalization

• Demo/Clearing/Grading

• Site Prep/Clearing/Padding/Grading

• Rail Extensions/Improvements

• Due Diligence Plan (Phase I ESA, Geotech, Wetlands Delineation, Threatened and Endangered Species, Archaeological Investigation, Survey, Title Search, etc.)

Community Readiness

• Community Online Perception Assessment

• In-Depth Labor Assessment

• Wage/Benefit Survey

• Economic Developer Staff Training

• In-Depth Target Industry Assessment

• Marketing Assessment/Marketing Plan

• Drone Photography

• In-Depth Local ED RFI and Site Visit Assessment

• Survey Local EDO and Key Stakeholders

• Competing Market Comparison

It’s important to Commerce that our designation identify sites that have all of the information and due diligence that a prospect would expect readily available. Therefore, with a prospects expectations in mind, our consultant will create a customized due diligence plan that will ensure a site will has the following items available:

• Documentation of control and ownership

• Phase I Environmental Site Assessment

• Wetlands Delineation and Jurisdictional Determination letter from the U.S. Army Corps of Engineers

• Threatened and Endangered Species Survey

• Archaeological and Historical Investigation

• Geotechnical Assessment

• Master Conceptual Plan

• Boundary Survey

• Title Search

KEY BENEFITS:

Due Diligence Plans will:

• Be customized

• Use a common-sense approach

DUE DILIGENCE PHASE

• The designation represents that these sites have been vetted by a site selection firm and have all the information, including due diligence, to respond to prospects questions

• Only properties that have completed the Due Diligence Phase will earn the designation

• Designation typically lasts about five (5) years

• Funding support available for publicly owned/controlled sites • Each county qualifies for one submission/county/year

• Funding can offset portion of due diligence and other strategic items recommended by consultant

• Expedited Review option available for previously certified sites

PALMETTO SITE DESIGNATION

Marketing Support

MARKETING SUPPORT

SCHEDULE

Dates

Program Materials Distributed August 17, 2020

Deadline for RFI Submission September 25, 2020

Site Visit October 2020

Due Diligence Phase Rolling basis

NEXT ROUND DATES

LOCAL DEVELOPMENT AGREEMENTS,

RESTRICTIVE COVENANTS AND HORIZONTAL

PROPERTY REGIMES

Jim Price [email protected]

MAY 2020


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INTRODUCTION

‣ Development Agreements, Restrictive Covenants

& Horizontal Property Regimes

‣ What are they?

‣ What are their benefits?

‣ How are they established?

‣ What is the relationship between them?

‣ What are some of the opportunities/pitfalls for

each?

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DEVELOPMENT AGREEMENTS

‣ Contractual

‣ South Carolina Local Government Development

Agreement Act

‣ Statutory process to enhance and coordinate land

planning and development.

‣ Development occurs in accordance with the

existing laws and policies of the local government,

as of the effective date of the agreement,

throughout the term of the agreement.

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‣ Qualifying Properties under Development Agreement Act:

‣ 25 to 250 acres – Term not to exceed 5 years.

‣ 251 to 1,000 acres – Term not to exceed 10 years.

‣ 1001 to 2,000 acres – Term not to exceed 20 years.

‣ 2,000+ acres or redevelopment authority for Military Facilities regardless of size – Term may be negotiated.

Note: Parties can extend the termination date by mutual agreement or subsequent development agreements

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‣ Process to establish statutory Development

Agreement:

‣ Agreement must provide legal description, duration,

uses permitted (including population densities and

building intensities and height), public facilities that will

support the development and all local development

permits approved or to be approved.

‣ Agreement may provide reservation or dedication of

land for public purposes, preservation and restoration of

historic structures, deadlines for development

completion or stages of completion, Developer’s

performance standards and economic incentives.

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‣ Process to establish statutory Development

Agreement (cont.)

‣ Local govt ordinance – 3 readings for County & 2

readings for City

‣ 2 public hearings (may be held by local planning

commission)

‣ Notice in newspaper in general circulation in county

where local govt is located.

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‣ Land subject to a Development Agreement may

be subject to restrictive covenants and may

include horizontal property regimes.

‣ Opportunities/pitfalls:

‣ Conflicts between developer’s and local govt’s

requirements.

‣ Change in developers.

‣ Development Agreements not always recorded.

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Knowledge Park, Rock Hill

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Lowenstein Building, Rock Hill Sports & Event Center

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Parking Deck, Future Development

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RESTRICTIVE COVENANTS

‣ Restrictive covenants are contractual in nature.

‣ By deed or

‣ By declaration.

‣ Restrictions generally relate to multiple parcels

and consequently reflect a development concept.

‣ Restrictions for the benefit of the adjoining

property.

‣ Common development schemes for a group of

properties.

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‣ Restrictions on the use of land may be created by

express terms or by plain and unmistakable

implication.

‣ All restrictions are strictly construed by courts.

‣ All doubts resolved in favor of the free use of

property.

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‣ Express Terms - rules of construction:

‣ Construed according to the plain and ordinary

meaning attributed to it at the time of execution.

‣ Ascertain and give effect to the intent of the parties

as determined from the whole document.

‣ When the language is clear, explicit and

unambiguous, the language of the contract

alone determines the contract’s force and

effect.

‣ Hanold v. Watson’s Orchard Property Owners

Association, Inc., et al., SC Ct of Appeals, Apr 15,

2015 and SC Supreme Court, Feb 15, 2017.

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WATSON’S ORCHARD

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‣ Developer’s right to amend the restrictions or impose new

covenants is enforceable if:

‣ Right is unambiguously set forth in original restrictions;

‣ Developer, at the time of amendment, possesses a

sufficient property interest in the development;

‣ Developer must strictly comply with the amendment

procedure set out in the original restrictions;

‣ Developer must provide notice of the amendment or new

covenants in strict accordance with the original

restrictions; and

‣ Amended or new covenants must not be unreasonable,

indefinite or contravene public policy.

‣ Queen’s Grant Horizontal Property Regime v. Greenwood

Development Corp, SC Ct of Appeals, Apr 10, 2006.

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‣ When by implication and subdivided land is

involved restrictions are “reciprocal negative

easements.”

‣ Elements of a reciprocal negative easement:

‣ Must be a common grantor;

‣ Must be a designation of the land subject to

restrictions;

‣ Must be a general plan or scheme of restriction in

existence; and

‣ Must run with the land.

‣ Reynor v. Stephens, SC Supreme Ct, Jan 9, 1986.

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‣ Statutory restrictions on restrictive covenants.

SECTION 27-1-60. Right of homeowner or tenant to fly United

States flag; restrictive covenants and rental agreements;

definitions.

(A) Regardless of any restrictive covenant, declaration, rule,

contractual provision, or other requirement concerning flags or

decorations found in a deed, contract, lease, rental agreement,

or homeowners’ association document, any homeowner or

tenant may display one portable, removable United States flag

in a respectful manner, consistent with 36 U.S.C. Sections

171-178, as amended, on the premises of the property of which

he is entitled to use.

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‣ Statutory restrictions on restrictive covenants (cont.).

‣ SC Homeowners Association Act enacted in 2018.

‣ All governing documents (declarations, master deeds, or

bylaws, or any amendments) must be recorded.

‣ All rules, regulations, and amendments must be accessible

to HOA members (delivered upon request, posted in

conspicuous place in common area or available on HOA

website).

‣ Must be at least 48-hour notice of meetings “in which a

decision to raise the annual budget is made.”

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‣ SC Homeowners Association Act (cont.):

‣ May adjudicate monetary disputes less than $7,500 in

magistrates court.

‣ SC Department of Consumer Affairs may take

complaints about HOA’s and report the complaints to

the HOA, but the department is prohibited from

promulgating regulations/guidelines concerning HOA

administration or governance and cannot arbitrate

disputes.

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‣ Land subject to restrictive covenants may be

within land subject to a development agreement

and may include horizontal property regimes.


‣ Developer’s rights during development, including

rights to add or subtract property from

development.

‣ Easements.

‣ Setbacks and easements when further subdivide.

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‣ Owners Associations creation and operation.

‣ Architectural Review Committees creation and

operation. What if you disagree with them?

‣ Termination, modification or extension of restrictive

covenants?

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‣ How do you overcome or set aside the

restrictions?

‣ In accordance with their express terms.

‣ Violation of Public Policy.

‣ Change in circumstances.

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‣ Violation of Public Policy Argument:

‣ US Fair Housing Act and SC Fair Housing Law.

Prohibit discrimination in the rental of a dwelling

based on a person’s ‣ race,

‣ color,

‣ religion,

‣ sex,

‣ familial status or

‣ national origin.

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‣ Violation of Public Policy Argument:

‣ Fourteenth Amendment of the US Constitution

and Equal Protection Clauses of Article I,

Section 3 of the SC Constitution.

‣ To satisfy the Equal Protection Clause, a

classification within the restrictions must (1) bear a

reasonable relation to the purpose sought to be

achieved, (2) members of the class must be treated

alike under similar circumstances and (3) the class

must rest on some rational basis.

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‣ Change in Circumstances:

‣ Affirmative relief may be granted against a

restrictive covenant where there is such a change

in the character of the neighborhood as to render

the enforcement of the covenant valueless to the

covenantee and oppressive and unreasonable to

the covenantor.

‣ BUT, SC courts have been hesitant to terminate a

restrictive covenant on the basis of a change in

conditions.

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HORIZONTAL PROPERTY REGIME

‣ SC Horizontal Property Act enacted in 1962.

‣ Statutory process to submit property to a

horizontal property regime.

‣ Property typically land and improvements.

‣ Fee or leasehold interest may be subjected to

regime.

‣ Development scheme for multiple owners and

frequently for multiple uses.

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‣ Property is submitted to a regime by the owner(s)

executing a Master Deed which:

‣ Describes the land whether leased or in fee simple

and building or buildings in existence or to be built.

‣ Describes each apartment/unit – area, location.

‣ Sets value of each apartment/unit and ownership

percentage in the common elements.

‣ Names the regime with the “Name” to be followed

by “Horizontal Property Regime.”

‣ Describes the full legal rights and obligations, both

currently existing and which may occur.

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‣ Master Deed (cont.):

‣ If regime is to be developed in 2 or more stages:

‣ Establishes maximum number of units in each

proposed state;

‣ Sets out schedule of development;

‣ Provides general description of additional common

areas; and

‣ Includes chart showing the percentage interest in

common areas of each original unit owner at each

stage of development.

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‣ Master Deed creates restrictive covenants

‣ Same rules of construction applicable to Restrictive

Covenants apply to express terms of Master Deed.

‣ The SPUR at Williams Brice Owners Association,

Inc. v. Sunil v. Lalla and Sharan W. Lalla, SC Ct of

Appeals, November 18, 2015.

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‣ Common Areas vs. Common Elements

‣ Common Areas: Land and improvements owned by the

developer or the owners association for the benefit of the

development (e.g. subdivision entrance, clubhouse, pool,

recreational areas).

‣ Common Elements:

‣ General Common Elements: Land, foundations, main walls,

roofs, halls, lobbies, stairways, entryways, basements, yards,

gardens, utility services, elevators, garbage incinerators, and in

general, all devices or installations existing or to be constructed or

installed for common use.

‣ Limited Common Elements: Common elements which are

agreed upon by all co-owners to be reserved for the use of a

certain identified units to the exclusion of the other units (e.g.

special corridors, specific stairways or elevators).

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‣ Horizontal property regime is frequently within a

development subject to restrictive covenants and

sometimes within land subject to a Development

Agreement.


‣ Ownership of the undeveloped land - common

area?

‣ Developer’s rights when all the units have not been

sold. What are the unit owners’ rights?

‣ Conversion of an existing building into a regime.

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‣ Conversion of an exiting regime into a fee simple

property.

‣ One development with multiple regimes and/or

ownership structures.

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Village Overlook Horizontal Property Regime at

The Cliffs at Mountain Park Village

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Village Overlook Horizontal Property Regime at

The Cliffs at Mountain Park Village

225

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Questions & Comments

LUNCH BREAKWe’ll resume after a 30 minute break.

REALTORS CONTINUING EDUCATION –

COLUMBIA LLR COURSE NO. CEE 2486

PROPERTY TAX BASICS AND INCENTIVES

MAY 2020

Tushar V. Chikhliker [email protected]


www.nexsenpruet.com

I. Basic Property Taxes

II. Fee in Lieu of Tax (“FILOT”)

III. Multi-County Industrial or Business Park

(“MCP”) /Special Source Revenue Credit (“SSRC”) /

Special Source Revenue Bonds (“SSRB”)


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Property Subject to Tax:

• Real Property – land and all structures and other things contained in the

land or annexed or attached to the land (e.g., buildings and other

improvements)

• Personal Property – all things, other than real estate, which have any

pecuniary value (e.g., M&E)

• Intangible personal property and inventories not subject to tax

• See S.C. Code § 12-37-10 & 12-37-210 and S.C. Code of Regulations 117-

1700.1

• Example – Air Conditioning

Building air conditioning, incl. refrigeration equipment – real property

Air condition window units & package units – personal property

I. BASIC PROPERTY TAXES

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Equation to calculate your property tax bill

FMV * Assessment Ratio * Millage =


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• FMV – Real Property (other than agricultural real property and FILOT

real property) – appraised to determine FMV

Generally, reappraised every 5 years, though county can delay reassessment

by 1 year

Maximum increase in FMV due to countywide reassessment is 15% in 5 year

period

FMV of improvements added to FMV of land upon completion – not subject to

15% cap

Can also be reassessed for assessable transfer of interest – not subject to 15%

cap

See S.C. Code §§ 12-37-3120 – 12-37-3170; § 12-43-217


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• FMV – Personal Property

Manufacturers – from cost, fixed annual statutory depreciation down to

residual value – S.C. Code §12-37-930

Examples: Default – 11%, Aerospace – 15%, Life

Sciences and Renewable Energy – 20%

Merchants and other businesses – from cost, income tax depreciation

down to residual value


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Assessment ratios are found in the State Constitution:

• Commercial Personal Property: 10.5%

• Warehouse & Distribution: 6%

• Commercial Real Property: 6%

• Primary Residences: 4%

• Farm: 4%

• Personal Motor Vehicles: 6%


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• Manufacturing and Utility Assessment Ratio: 10.5%

H. 3516 (SC Infrastructure and Economic Development Reform Act) provides

that the ad valorem tax assessment ratio for manufacturers effectively

decreases from 10.5% to 9% over a six-year period commencing property

tax year 2018

Not actually an assessment ratio reduction – in reality, a valuation exemption

of 14.2857% over six years (2.382% per year)

Taxing entities to be reimbursed statewide up to $85 million

SC Revenue and Fiscal Authority Office estimates a General Fund revenue

impact of approximately $36 million once fully phased in


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Manufacturer’s Assessment Ratio:

• Generally, 10.5% on real and personal property (subject to phased-in reduction

effectively to 9%)

• Exceptions for real property owned by, or leased to, a manufacturer and used

primarily for:

R&D;

Office building – if not located on premises of, or contiguous to, plant site;

or

Warehouse and wholesale distribution – if property not physically attached

to plant unless area is separated by a permanent wall


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• Millage includes the combined millage for all taxing

entities within jurisdiction

Always includes county and school district; sometimes

includes municipalities or special purpose districts

Determined by each taxing jurisdiction by dividing cost of

its annual budget by the total assessed value within

taxing jurisdiction

Restrictions in millage increases


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Pollution Control Exemption:

• Complete exemption for facilities or equipment which are designed for

the elimination, mitigation, prevention, treatment, abatement or control

of internal or external water, air, or noise pollution requirement by the

state or federal government

Upon request of DOR, DHEC can investigate property and provide DOR with

listing of pollution control property

Dual purpose equipment – production and pollution control – value eligible for

exemption is difference between cost of equipment with vs. without pollution

control ability

See S.C. Code § 12-37-220(A)(8)


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Change in Use – Rollback Taxes:

• Agriculture use valuation generally based on 1991 values

• Change in use of agriculture real property results in additional taxes

• Equals sum of difference between taxes based on FMV for agricultural

purposes and taxes that would have been paid if real property had been

valued, assessed, and taxes as other real property in taxing district

• Current tax year (year of change in use) and 5 preceding tax years

• See S.C. Code § 12-43-220(d)


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County Abatement – S.C. Code § 12-37-220(B)(32)

• All new corporate headquarters, corporate office facilities, or distribution

facilities as well as all additions of at least $50,000 and 75+ new jobs or

150+ substantially equivalent jobs

• No job requirements for manufacturers

• Abates (exempts) the county portion of the millage for five years –

Automatic (county consent NOT required)

• Typically between 20% (in a city) and 40% (not in a city) of the millage

• Cities (by ordinance) may also abate their portion of the millage

• Not available if benefiting from a negotiated FILOT


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Extension of Abatement to Unrelated Purchasers – S.C. Code § 12-37-220(C) and SC Revenue

Ruling # 04-14

• Facility must be acquired in arms-length transaction by unrelated party

• Existing facility and # of jobs must be preserved

• County council must approve

• If transferee makes $50,000 or more of additional investment, 5-year period may re-start

• Timing – need to approach county and, perhaps, conduct any layoffs prior to closing

• In certain extended closing scenarios, may qualify for abatement for “new” facilities (no

requirement to maintain jobs or facility) if meets additional factors including change in product and

change in product market


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Equation to calculate your property tax bill:

FMV * Assessment Ratio * Millage =

• FILOTs affect all 3 variables in property tax formula –

(1) FMV; (2) AR; and (3) Millage

II. FILOT

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• 3 FILOT Statutes/Acts – Most commonly used today – Title 12, Ch. 44 of

S.C. Code (Simplified FILOT)

• Minimum “Project” Requirements

Standard FILOT

$2.5 MM ($1 M for certain counties or in Brownfields Voluntary Cleanup

Scenarios)

Super Fee/Enhanced Investment FILOT

$150 MM and 125 new full-time jobs or $400 MM

Very broad definition of “project”

II. FILOT

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• Investment Period

Standard FILOT – 5th anniversary of end of property tax year in which

FILOT property initially placed in service

Super Fee/Enhanced Investment FILOT – 8th anniversary of end of

property tax year in which FILOT property initially placed in service

Extensions – up to 5 more years (but NOT to reach statutory minimums)

15 year investment available for very large investors in SC

• FILOT Term

Up to 30-year rolling payment period for Standard FILOTs (40-year period

for Enhanced Investment FILOTs)

Possible extension of 10 years

• FILOT affects all 3 variables in property tax calculation

II. FILOT

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Fair Market Value (FMV):

Real Property

• Outside of FILOT: Based on assessment by DOR or county

assessor

• Inside of FILOT: Traditionally, original cost over the life of the

FILOT (but statute now allows for value to be based on

appraisal by DOR)

Machinery & Equipment (M&E)

• Generally, same outside and inside FILOT, but if in FILOT not

entitled to extraordinary obsolescence

II. FILOT

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Assessment Ratio:

• Outside of FILOT

Commercial – 10.5% on personal property and 6% on real property

Manufacturing – 10.5% on both real and personal property

• Inside of FILOT

Down to 6% on both real and personal property

4% for Super Fees/Enhanced Investment FILOTs

II. FILOT

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Millage:

• Outside of FILOT

Millage is set annually – can actually go down in reassessment years

but tends to increase

• Inside of FILOT

Millage is fixed for the life of the FILOT or subject to 5-year rate reset

II. FILOT

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Advantages of FILOT to Taxpayers:

Reduction of assessment ratio (on personal property for commercial)

Elimination of agricultural rollback taxes (if real estate is AG use)

Freezing of millage rate

Greater predictability in forecasting FILOT payments

Advantages of FILOT to County:

Eliminates 5-year abatements (corporate HQ, R&D, distribution,

manufacturing)

• County does not lose first 5 years of property taxes

II. FILOT

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Disadvantages of FILOT to Taxpayers:

Possible clawback (although clawback is negligible if no SSRC)

Normally, freezes the FMV of the real property

Lose extraordinary obsolescence

Generally, can’t include property previously subject to tax

• Limited exceptions – example – true third party sale and additional $45 MM

investment

• May be addressed through special source revenue credit

• Modifications to existing real property – DOR takes position that square footage

expansion required

II. FILOT

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Additional Notes:

• Affiliates, lessors, and other investors may be able to also benefit

• Amendment of FILOT Agreements – Can NOT lower the millage rate

or AR

• Transitions to Simplified Fee from other 2 FILOT statutes is allowed

• Transfers of FILOT agreements or property under a FILOT

Allowed if pre-approved or subsequently ratified by county

Transferee assumes basis of transferor – IMPORTANT

II. FILOT

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• Why wouldn’t a purchaser want to assume an existing

FILOT arrangement?

Primary consideration – prospective FILOT payment

schedule vs. prospective standard property tax payment

schedule

- Upon FILOT transfer, purchaser assumes basis (value) that

seller had in real and personal property for purposes of

calculating FILOT payments – can create issues, especially for

real property

- If FILOT Agreement allows, purchaser could assume FILOT

and then remove real property from FILOT

II. FILOT

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• FILOT/Tax payments aren’t only consideration

Initial investment or job creation requirements

Investment or job maintenance requirements

Clawback payments or prospective termination of

benefits

II. FILOT

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• Established pursuant to Article VIII, Section 13(D) of the

State Constitution and Title 4, Ch. 1 of the S.C. Code

• Counties may jointly development MCP within the

geographical boundaries of one or more of the member

counties

• Written agreement to share expenses and revenues of the

park

• If the MCP encompasses property in a municipality, the

municipality must consent prior to creation of the MCP

• All MCPs must consist of contiguous counties – enacted in

1995

III. MCP/SSRC/SSRB

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• “Industrial” or “Business” parks are NOT always MCPs

• Area comprising the parks and all property located therein is

exempt from ad valorem taxes

• Owner consent not needed

• Owners or lessees of park MCP property pay an amount equal

to property taxes or FILOT that would have been due and

payable except for exemption

• Why bother with a MCP?

• MCPs facilitate taxpayer benefitting from SSRCs and issuance

of SSRBs

III. MCP/SSRC/SSRB

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• County may use SSRCs to equalize (or lower) its property tax rate

with minimal restrictions

• FILOT NOT a requirement for SSRCs

• Typically, presented as a % of FILOT payment or a flat $ amount

for a defined period of time

• Both real and personal property expenditures may be reimbursed

• Examples:

25% SSRC for 10 years

$50,000 SSRC per year for 20 years

33% SSRC per year until SSRC cap of $250,000

III. MCP/SSRC/SSRB

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Advantages of SSRCs

• Additional decrease of FILOT or tax payments – especially helpful for

cash flow in early years

• Hard dollar incentive

• Allows high millage counties flexibility to be competitive

Disadvantage of SSRCs

• Clawbacks can be severe

Retroactive or prospective?

Complete or partial? Pro-rata?

• Can be difficult to track and calculate

III. MCP/SSRC/SSRB

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SSRBs

• Tool for providing up front funds other than credit over

time

• Can be more useful to developer/landlord in triple net

lease scenario

• Secured by and payable from FILOT payments made by

property owners

• Improved or unimproved real estate, infrastructure, etc.

• More complicated and subject to bond market conditions

III. MCP/SSRC/SSRB

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Tushar V. Chikhliker

Member

1230 Main Street

Columbia, South Carolina 29201

803-540-2188

[email protected]

REALTORS CONTINUING EDUCATION – COLUMBIA


REALTORS CONTINUING EDUCATION –

COLUMBIA LLR COURSE NO. CEE 2486

THE ABANDONED BUILDING REVITALIZATION

AND TEXTILE REVITALIZATION ACTS

MAY 2020

Tushar V. Chikhliker [email protected]


www.nexsenpruet.com

• Textile Facilities Revitalization Act – The General Assembly has

passed several versions of the Textile Revitalization Act –

PowerPoint covers sites acquired after December 31, 2007

• Abandoned Buildings Revitalization Act enacted in June 2013

• Both targeted at bolstering redevelopment of abandoned

buildings – Textile Facilities Act more narrowly targets abandoned

textile facilities

• Abandoned Buildings Revitalization Act was slated to sunset on

December 31, 2019 – per S. 1043, Act No. 265 of 2018, extended

until December 31, 2021

• Acts are similar but there are some very important differences –

many can be pitfalls for the unwary

BACKGROUND

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Textile Facilities Act

• Allows a taxpayer who rehabilitates a “textile mill site” to benefit

from an income, License, or insurance premium tax or a property

tax credit based on level of “rehabilitation expenses”

Abandoned Buildings Act

• Allows a taxpayer who rehabilitates an “abandoned building” to

also benefit from an income, License, bank, Savings & Loan,

insurance premium tax credit or a property tax credit based on

level of “rehabilitation expenses”

BASIC INCENTIVES

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• The textile mill together with the land and other

improvements on it which were used directly for textile

manufacturing operations or ancillary uses

• Area of the site is limited to the land located within the

boundaries where the textile manufacturing, dying or

finishing facility structure is located and does not include

land located outside the boundaries of the structure or

devoted to ancillary uses

TEXTILE FACILITIES ACT – “TEXTILE MILL SITE”

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Per S. 1043, for a site which, on the date the notice of intent

to rehabilitate is filed, is located in a distressed area of a

county in this State, as designated by the applicable council

of government; the textile mill site includes the textile mill

structure, together with all land and improvements which

were used directly for textile manufacturing operations or

ancillary uses, or were located on the same parcel or a

contiguous parcel within one thousand feet of any textile mill

structure or ancillary uses.

• “Contiguous parcel” means any separate tax parcel sharing a

common boundary with an adjacent parcel or separated only by

a private or public road.

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• “Ancillary uses” – uses related to the textile manufacturing, dying,

or finishing operations on a textile mill site consisting of sales,

distribution, storage, water runoff, wastewater treatment and

detention, pollution control, landfill, personnel offices, security

offices, employee parking, dining and recreation areas, and

internal roadways or driveways directly associated with such uses

• “Abandoned” – at least 80% of the textile mill has been

continuously closed to business or otherwise nonoperational as a

textile mill for at least 1 year immediately preceding the date on

which the taxpayer files a Notice of Intent to Rehabilitate

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• The abandoned building and the parcel of land it is located on and

other improvements on the parcel

• Area of the building site is limited to the land the abandoned

building is located upon and the land immediately surrounding the

building used for parking and other similar purposes directly

related to the building’s income producing use

ABANDONED BUILDINGS ACT– “BUILDING

SITE”

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• A building or structure where at least 66% of the space has been closed

continuously to business or otherwise nonoperational for income

producing purposes for at least 5 years immediately preceding the date

on which the taxpayer files a Notice of Intent to Rehabilitate

Allows for buildings or structures that otherwise qualify as an “abandoned

building” to be subdivided into separate units or parcels

May be owned by the same taxpayer or different taxpayers

Each unit or parcel is deemed to be an abandoned building site

• Building does not qualify if immediate preceding use was a single family

residence

• Use of any portion of a building or structure listed on the National

Register for Historic Places when used solely for storage or warehouse

purposes is consider nonoperational for income producing purposes

ABANDONED BUILDINGS ACT – “ABANDONED

BUILDING”

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Both Acts - Condition of Site – DOR Policy

• An abandoned building or textile mill that has fallen in but

remains on the ground and whose walls are collapsing

meets the definition of an eligible site.

• If the facility has been cleared except for the concrete

foundation, the facility will not meet the definition of an

eligible site.

TEXTILE AND ABANDONED BUILDINGS ACTS –

CONDITION OF SITE

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Both Acts – Subdivision of Site

• Textile mill site or abandoned building may be subdivided into separate

parcels or separate units which may be owned by same or different

taxpayer

• Each unit (in the case of Abandoned Buildings Act only) or parcel is

deemed to be a textile mill site or abandoned building site, as the case

may be, for purposes of determining whether each unit or parcel is

abandoned

• Each unit or parcel must qualify independently: (a) meet the minimum

investment requirement (in the case of Abandoned Buildings Act only),

(b) file a separate Notice of Intent to Rehabilitate and report estimated

expense; and (c) meet the applicable Act’s purpose and requirements

SUBDIVISION OF SITE INTO UNITS OR PARCELS –

BOTH ACTS

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• For building sites which have had no portion thereof placed into service

before July 1, 2018, and upon which is located a redeveloped multi-floor

structure that is listed on the National Register of Historic Places, the

taxpayer may subdivide the structure into separate units in the manner

provided for in the Abandoned Buildings Act, except that up to seven

separate floors may be considered seven separate subdivided units if a

floor is redeveloped for the exclusive use as a residential apartment or

apartments.

Alters Notice of Intent to Rehabilitate requirements that would otherwise

apply

Applies to eligible building sites placed in service after June 30, 2018

New provision in S. 1043

ABANDONED BUILDINGS ACT –

SUBDIVISION OF MULTI-FLOOR STRUCTURE

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• Expenses or capital expenditures incurred in the

rehabilitation, renovation, or redevelopment of the

eligible site, excluding the cost of acquiring the textile

mill site or the cost of personal property maintained at

the textile mill site

• Includes demolition, environmental remediation, site

improvements and construction of new buildings

• Per S. 1043, rehabilitation expenses now don’t qualify if

more than double existing square footage on site

QUALIFYING REHABILITATION EXPENSES –

TEXTILE FACILITIES ACT

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• Expenses or capital expenditures incurred in the rehabilitation, demolition, renovation,

or redevelopment of the building site

Renovation or redevelopment of existing buildings

Environmental remediation

Site improvements

Construction of new buildings and other improvements on the building site

• Also excludes the cost of acquiring the building site or the cost of personal property

located at the building site

• Site improvement expenses only qualify if the building site is renovated or redeveloped

• Rehabilitation expenses don’t qualify if more than double existing square footage on

site

• Demolition expenses for building on the National Register for Historic Places don’t

qualify


ABANDONED BUILDINGS ACT

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Rehabilitation that Includes Excess Enlargement over Twice the Size of

Original Building – DOR Policy

The expenses must be allocated between the qualifying portion of the rehabilitated

building(s) (no more than double the square footage of the original building) and the

non-qualifying portion of the rehabilitated building(s) (i.e., the excess enlargement).

• If it is not possible to make a specific allocation of expenses, expenses must be

allocated to each portion on some reasonable basis, such as reasonable

allocation of costs by the contractor or architect based on justifiable factors (e.g.,

type of improvement and how the improvement relates functionally to the

building.)

• If a reasonable allocation cannot be determined, the allocation should be based

upon square footage.



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Abandoned Buildings Credit:

• Minimum Rehabilitation Expenses

more than $250,000 for buildings located in the unincorporated areas of a

county or in a municipality in the county with a population of more than

25,000 persons

more than $150,000 for buildings located in the unincorporated areas of a

county or in a municipality in the county with a population between 1,000

persons and 25,000 persons

more than $75,000 for buildings located in a municipality with a population

of less than 1,000 persons

based on most recent U.S. Census

No minimum rehabilitation expenses for Textile Facilities Credit



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Textile Facilities Income Tax Credit

• 25% of the actual “rehabilitation expenses” at the site

Entire credit may not be taken for the taxable year in which the

eligible site is placed in service

Claimed in equal installments over a 5 year period beginning with

the year “placed in service”

• “Placed in service” the date upon which the textile mill site is suitable

for occupancy for the purposes intended

Unused credit may be carried forward for 5 years

No limit on percentage of income tax liability that can be offset

through credit

INCOME TAX CREDIT – TEXTILE FACILITIES ACT

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Abandoned Buildings Income Tax Credit

• 25% of the actual “rehabilitation expenses” at the site

Entire credit is earned in the taxable year in which the site is placed in service

Claimed in equal installments over a 3 year period beginning with the tax year in

which the applicable phase or portion of the building site is placed in service

• “Placed in service” – the date upon which the building site is completed and ready for

its intended use

Unused credit may be carried forward 5 years – now, per S. 1043, at the

individual, partnership, or LLC level

Entire credit earned may not exceed $500,000 for any taxpayer in a tax year for

each abandoned building site

No limit on percentage of income tax liability that can be offset through credit

INCOME TAX CREDIT – ABANDONED BUILDINGS ACT

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• A partnership or LLC taxed as a partnership may pass through the

credit to its partners or members and may allocate the credit in any

manner

May allocate the entire credit to one partner or member

Abandoned Buildings Act allows allocation without regard to

any provision of the Internal Revenue Code to the contrary,

including treatment as a disguised sale

Textile Facilities Act is silent as to Internal Revenue Code

compliance

PASS THROUGH OF INCOME TAX CREDIT -

BOTH ACTS

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• After S. 1043, if the taxpayer is a partnership or LLC taxed as a

partnership, the credit, including any carry forward, may be passed

through to the partners or members and may be allocated among

any of its partners or members on an annual basis including,

without limitation, an allocation of the entire credit or unused credit

carryforward to any partner or member who was a partner or

member at any time during the year in which the credit or unused

carryforward is allocated.

• Previously, the statute did not address allocation of the credit on an

annual basis or allocation to any partner or member who was a

partner or member at any time during the year in which the credit

or carryforward is allocated.

PASS THROUGH OF INCOME TAX CREDIT -


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• Transfer of only income tax credit specifically allowed

Transfer to both a tenant and a purchaser of the site (or applicable

portion)

Similar notice to SCDOR required but silent on whether SCDOR has

approval rights

• Notice to SCDOR within 30 days

TRANSFERABILITY OF INCOME TAX CREDIT - BOTH ACTS

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Property Sold or Leased After Being Completed – DOR Policy

• Taxpayer renovates and rehabilitates an eligible site and

meets all the Act requirements and then sells the site to

Purchaser.

• Taxpayer is deemed to have "placed in service" the eligible

site and is eligible for the credit.

• Taxpayer may transfer the credit to Purchaser; if instead of

purchasing the site, Purchaser leases the site, Taxpayer may

transfer the credit associated with the site to Purchaser as a

lessee.

INCOME TAX CREDITS – PROPERTY SOLD OR LEASED AFTER

COMPLETED – BOTH ACTS

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Textile Facilities Property Tax Credit

• 25% of the “rehabilitation expenses” at the eligible site times

the “local taxing entity ratio” for each local taxing entity

consenting to the credit

“Local taxing entity ratio” – that percentage computed by dividing

the millage rate for each local taxing entity by the total millage rate

for the eligible site

Capped at 75% of the real property taxes due on the eligible site

each year for up to 8 years

Can begin claiming credit in year placed in service

PROPERTY TAX CREDIT – TEXTILE FACILITIES ACT

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Abandoned Buildings Property Tax Credit

• 25% of the “rehabilitation expenses” at the building site times

the “local taxing entity ratio” for each local taxing entity

consenting to the credit

Same definitions of “local taxing entity ratio”

Also capped at 75% of the real property taxes due on the eligible

site each year for up to 8 years

Can begin claiming credit in year in building site (or portion

thereof) placed in service

PROPERTY TAX CREDIT – ABANDONED BUILDINGS ACT

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• Income Tax Credit – Taxpayer required to file with SCDOR a “Notice of Intent to Rehabilitate”

before receiving building permits (in case of Textiles Facilities) or incurring its first rehabilitation

expenses (in case of Abandoned Buildings) at the building site

Only those rehabilitation expenses incurred after the Notice is provided qualify

• Property Tax Credit – Taxpayer required to file same Notice, but with the municipality or county

(if in unincorporated portion) in which the building is located

Before incurring first rehabilitation expense

• “Notice of Intent to Rehabilitate” must include:

Intent to rehabilitation the site

The location of the site

The amount of acreage involved in the site

The amount of square footage of existing buildings involved in the site (Abandoned Buildings only)

The estimated expenses to be incurred in connection with rehabilitation of the site

Which buildings the taxpayer intends to renovate and whether new construction is to be involved

• Amount of estimated rehabilitation expenses provided in the Notice is critical

ADVANCE NOTICE TO GOVERNMENTAL ENTITIES –

BOTH ACTS

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Textile Revitalization and Abandoned Buildings Credits – Importance of Notice

• Both credit amounts apply only to the actual rehabilitation expenses incurred in

rehabilitating up to 125% of the estimated rehabilitation expenses in the Notice of Intent to

Rehabilitate

If the actual rehabilitation expenses exceed 125% percent of the estimated

expenses in the Notice of Intent of Rehabilitate, the taxpayer qualifies for the credit

based only on 125% of the estimated expenses as opposed to the actual expenses

If the actual rehabilitation expenses are below 80% of the estimated rehabilitation

expenses, the credit is not allowed (Textile Facilities income tax credit – silent on

issue)

• According to DOR policy document, the Notice of Intent cannot be amended to restate

estimated expenses to be incurred in connection with the rehabilitation or to change the

number of building sites or units to be rehabilitated

ADVANCE NOTICE TO GOVERNMENTAL ENTITIES –

BOTH ACTS - NOTICE OF INTENT TO REHABILITATE

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• Initial Approval by Resolution – By governing body of municipality (or county if located in

an unincorporated area) approving the eligibility of the site and the proposed

rehabilitation expenses

Both require “positive” majority vote – approval by majority of all council members

whether present or not

• Final approval by ordinance and public hearing required

Local governing body must provide notice to all affected local taxing entities

where the eligible site is located of its intention to grant the credit and the amount

of the credit proposed to be granted

Notice must be at least 45 days prior to public hearing

If a local taxing entity does not file an objection to the credit with the locality prior

to the public hearing, it is deemed to have consented to the credit

• Locality also required to find that the credit will not violate any existing TIF or GO Bond

covenant, representation, or warranty

6

LOCAL GOVERNMENT APPROVALS –

PROPERTY TAX CREDIT – BOTH ACTS

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• Taxpayer may now apply to the municipality or county for a

certification of the textile mill or abandoned building site

• Made by ordinance or binding resolution of governing body

• Taxpayer to include copy of certification on first return for which

credit is claimed

CERTIFICATION BY COUNTY OR MUNICIPALITY–

BOTH ACTS

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• Taxpayer not eligible for credit if it owned the building site when the site

was operational and immediately prior to is abandonment

• No “stacking” of income tax credits with the credit allowed under the

Textile Facilities Act

Allows for stacking with any other tax credit that allows stacking

• Only applies to abandoned building sites put into operation for income

producing purposes

Construction or operation of a charter school, private or parochial school, or other similar

educational institution does qualify

Construction of a single family residence does not qualify

SPECIAL PROVISIONS –

ABANDONED BUILDINGS

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Demolish Building and New Construction

by Same Taxpayer – DOR Policy

• A taxpayer demolishes (completely destroys) an

abandoned textile mill or an abandoned building (as the

case my be) and constructs a new building meeting all the

applicable Act’s requirements.

• The taxpayer is eligible for the credit.

DEMOLITION OF THE BUILDING – BOTH

ACTS

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Demolish Building and New Construction

by Different Owners – DOR Policy

• A developer purchases an abandoned textile mill or building and

demolishes it.

• The developer sells the land to a business owner who will construct a

new building on the land.

• Since the developer did not redevelop the site with a new building and

the business owner purchased vacant land and not an abandoned textile

mill or building, neither meets the applicable Act’s requirements.

• Accordingly, neither the developer nor the business owner is eligible for

the credit.

DEMOLITION OF THE BUILDING – BOTH

ACTS

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• Abandoned Buildings Credit not limited to textile facilities

• Abandonment Requirement:

Textile Facilities Credit – At least 80% of Textile Mill closed 1 year prior to eligibility

determination

Abandoned Buildings Credit – 66% of building closed 5 years prior to Notice of Intent

to Rehabilitate

• Abandoned Buildings Income Tax Credit is the same as Textile

Facilities Credit but allows benefits to be received quicker (3 years vs.

5 years)

• Abandoned Buildings Credit has minimum rehabilitation expense

requirements

KEY POINTS

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REALTORS CONTINUING EDUCATION – COLUMBIA

THE ABANDONED BUILDING REVITALIZATION AND TEXTILE

REVITALIZATION ACTS

Tushar V. ChikhlikerMember

1230 Main Street, Suite 700

[email protected]


BREAKWe’ll resume after a 15 minute break.

REALTORS CONTINUING EDUCATION SEMINAR

DEALING WITH OUT OF STATE BUYERS AND

SELLERS: SC COMMERCIAL REAL ESTATE

CONTRACTS

MAY 2020James (Jim) Warren

[email protected]


www.nexsenpruet.com

WHO’S YOUR CLOSER?

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NON-RESIDENT SELLERS

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ROLLBACK TAXES

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TAX COMPLIANCE CERTIFICATE

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AS-IS

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ARBITRATION


LIMITED WARRANTY DEED

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LIQUIDATED DAMAGES

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DEED RECORDING FEE

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JURY TRIAL WAIVERS

Moerhl v. National Association

of Realtors, et al. (NAR)

MAY 29, 2020

Jim Warren, [email protected]

www.nexsenpruet.com Moehrl v. NAR

Moehrl v. National

Association of Realtors (NAR)


A class action lawsuit filed on

March 6, 2019 in Illinois federal court.

Moehrl v. (NAR)


What is a class action lawsuit?

A Class Action is a civil lawsuit

brought on behalf of many

people who have been

harmed in a similar manner.


Class Action Lawsuits: The Basics

‣ A Number of people suffer the same or similar harm

‣ An Attorney is hired by one of the harmed individuals

‣ The attorney does some research and files a suit for one or more parties

‣ The attorney asks that the court certify the case as a “class action” where all people

in the class can get redress

‣ A class action cannot be prosecuted unless at least one person

harmed by the conduct is willing to serve as a class representative

(called the “Lead Plaintiff”)


How does a class action become certified by the court?

To have the case certified, the Lead Plaintiff(s) and class action attorneys for the Lead

Plaintiff(s) must show the case meets several criteria:

‣ There is a legal claim against the defendant(s).

‣ There is a significantly large group of people who have

been injured in a similar way and the cases of the members

of the class involve similar issues of fact and law as the case

of the Lead Plaintiff(s).

‣ The Lead Plaintiff is typical of the class members and has

a reasonable plan and the ability to represent adequately the class.


The court will direct that NOTICE be given to all parties that have a similar

claim for the duration of a particular time period.

They are to be notified so that may be informed and have input into the case.

‣ This means that all class members are supposed to have equal input,

rights to any money awards, remedies ordered by the court and so forth.

There are often several notices mailed to class members over the course of

the case.

‣ The first notice is to allow all harmed parties to have equal input in the

case AND to allow a harmed person the option to “opt-out.”

Once the case is certified...


‣ If a party “opts out,” they have no further standing in the

case.

‣ They can forget the whole matter OR bring an action on

their own behalf BUT neither option gives them the right to

any damages won in the original “class action” case.

‣ If a party does NOT “opt out,” they are generally deemed

to be a party to the case, they are bound by the

settlement/decision, and are prohibited in taking any

further action on the matter.

What does it mean to “opt out?”


‣ If you don’t get notice and have no idea of what is

going on – TOO BAD!

‣ The court normally is required to direct that only the

“best notice practical under the circumstances” be

given. This typically requires notice by mail or

sometimes publication.

What if you don’t get notice?


At some point in time, the parties will either:

‣ reach an agreement, which is presented

to the court for its approval as to fairness,

OR

‣ the case is tried before the court and the

judge renders a decision.

What happens next?


Justice for all?


If the DEFENDANT wins…


…the Plaintiffs (class members) get

nothingand are precluded from further action on the same

complaint.


If the PLAINTIFFS win…


…the judge assesses damages,

orders the company to make a restitution payment

and

orders notice be given when

claim to the “pot” can be made.


Note: MOST class action lawsuits are settled by

agreement by the parties and approved as fair and

equitable by the court.


The court decides how to divide any recovery at the end of a class action

suit.

The attorneys are awarded costs and fees, often calculated as

a percentage of the entire recovery, the Lead Plaintiff(s)

receive an amount determined by their participation

in the lawsuit and the rest of the recovery is

divided amongst the class

members.

How is recovery divided?


The typical class action lawsuit takes

approximately two to four years -

from the time the initial complaint is

filed until it is concluded.

How long do class action lawsuits take?


Class Plaintiff: Christopher Moehrl (a seller of a residential home listed in

MLS - home located in Minnesota)

Defendants: The National Association of Realtors

Realogy Holdings Corp.

Homeservices of America, Inc.

RE/MAX Holdings, Inc.

Keller Williams Realty, Inc.

Parties to Moehrl v. NAR


‣ Alleges a violation of Sherman AntiTrust Act – challenges the Buyer Broker Commission

Rule – alleges NAR, MLS and other big players have colluded to inflate realtor

commissions.

‣ “Defendants’ conspiracy has centered around NAR’s adoption and implementation of a

rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker

compensation when listing a property on a Multiple Listing Service.”

‣ Claims the Buyer Broker Commission Rule inflates the total commissions paid by home

sellers.

‣ Claims in a competitive market, seller would pay nothing to buyer broker who would

instead by paid by buyer and seller’s commission would be set to a level to compensate

seller broker only

Claim in Moehrl v. NAR


‣ To create a truly competitive market for buyer broker services.

‣ To compensate class members (sellers) for overcharges they have suffered. Looking for

damages in the billions.

‣ Want buyers to hire buyer agents and buyers to negotiate and pay buyer’s agents a

commission – think pricing will go way down. Advocating a model used in England.

‣ Envision a world where buyers would go out to the market and their brokers would have to

quote them…a flat rate or percentage and believe it would not be as high as it is now and

there would be negotiations. Buyers would be paying their brokers.

Goals of Plaintiff/Plaintiff Lawyers


1. A homeowner/seller enters into a listing agreement with a broker (called listing broker and

is seller’s broker), in which the homeowner/seller agrees to pay such broker 6% in total

commissions in exchange for marketing and facilitating the sale of the home.

2. Broker Commission Rule -- the seller’s broker (a/k/a the listing broker) makes a blanket,

non-negotiable offer of 3% commission to buyer’s broker (sometime referred to as the

“selling” broker”) when the seller’s broker/listing broker lists the home on the local MLS.

3. A buyer’s broker shows the property to a buyer client who buys the home for $500,000

4. Seller’s broker receives 6% of the sales price ($30,000) from seller. Seller's broker pays

3% of the sale price ($15,000) to buyer’s broker. In reality, seller pays seller’s broker (i.e.

listing broker), $15,000, and seller pays buyer’s broker (i.e. selling broker) $15,000.

Example of Current Typical Process


NAR LAWSUIT DAMAGE POTENTIAL:

‣ Total MLSs included: 20

‣ Total Sales covered: 4.5 million (number of homes sold in such markets since March 6,

2015 – March 6, 2019)

‣ Total Sales price: $1.44 trillion

‣ Total Buyer Side Seller commissions: $36 billion to $44 billion (3/6/2015 – 3/6/2019)

*Antitrust laws require treble damages – meaning triple the damages actually suffered – could mean

serious rewards for class action plaintiffs (sellers), not to mention big losses for NAR and other named

defendants.

Dollars Involved


‣ The two lead law firms in the case are two of the most successful class action plaintiff law

firms in the country.

‣ Lawsuit not likely to settle. If Plaintiff prevails, could change MLS and Realtor associations

significantly. Also, if Plaintiff prevails, commission sharing would mostly likely end.

‣ Appeal likely by party that loses. A bombshell lawsuit. Not possible to predict outcome.

Real case filed by real lawyers involving huge dollars. A serious threat to existing brokerage

industry.

‣ Lawsuit likely to last 10 years.

‣ Deals with 20 MLSs in largest markets in the nation.

Observations on Moehrl v. NAR


If you are a broker,

what is your

contingency plan if this

lawsuit is successful?


Jim Warren

Member

Greenville, SC

[email protected]

QUESTIONS?

Presenter Email:

TUSHAR CHIKHLIKER [email protected]

JOAN HARTLEY [email protected]

BEN JOHNSON [email protected]

BURNIE MAYBANK [email protected]

JIM PRICE [email protected]

JIM ROURKE [email protected]

AUSTIN SMALLWOOD [email protected]

JIM WARREN [email protected]

CONTACTS:

www.nexsenpruet.com

Documents

REALTORS CONTINUING EDUCATION WEBINAR MAY 29, 2020 … · Final Treasury Reg. 1 –1400Z 2(d) –1(3)(v)(D) provides the QOZ business an additional 24 months to complete the acquisition