Commercial Realtors® took to the hill yesterday, educating state representatives about House Bill 700 (Bloom, R-Cumberland), which would allow like-kind exchanges in Pennsylvania.
Rep. Stephen Bloom discussed HB 700 with commercial Realtors® at PAR headquarters in Lemoyne. “Pennsylvania is the only state that doesn’t recognize the like-kind exchange, which allows investors to defer the gain,” Bloom said. “The inability for investors to be able to do that is stifling the business sector. It’s a huge ongoing problem for us because surrounding states allow this tax deferment. It’s one way that Pennsylvania impedes businesses.”
Commercial Realtors® concurred that the inability for investors to be able to use the like-kind exchange in Pennsylvania is driving business out of the commonwealth into states that allow this tax deferment and serving as a detractor to businesses interested in investing in Pennsylvania.
Bloom said while the like-kind exchange would help keep rental prices down, allow for agricultural businesses to reinvest in equipment, property and livestock and help businesses reinvest in equipment while keeping competitive.
“There’s redevelopment activity going on but people don’t want to invest in Pennsylvania because the state doesn’t recognize the like-kind exchange,” according to Craig Fernsler, vice president of investment services with Keller Williams Commercial in Blue Bell.
“We’re seeing investors moving their assets to other states and those states are actively marketing to our investors. Once investors move their investors to other states and become familiar with those markets, the money stays there,” said Barbra Murdocca, operations manager for Landmark Commercial Realty in Lemoyne.
Centre County Association of Realtors® President Tommy Songer, a commercial Realtor® with Gambone, Songer & Associates Realty in State College, added, “The lack of like-kind exchanges is a disadvantage for Pennsylvania businesses. They have to take money out of their pockets to pay the tax in Pennsylvania, in addition to the capital gains tax. It’s a competitive disadvantage for Pennsylvania investors.”
Daniel Hassell, deputy secretary for tax policy for the Pennsylvania Department of Revenue, also spoke to the Realtors®, explaining that Pennsylvania’s income tax is different and not based on the federal system. While other states automatically adopt tax code from the federal government, Pennsylvania courts have taken a strict interpretation of the constitution which means that the state legislature must adopt amendments to include portions of the federal tax code.
Based on the research the Department of Revenue has done, like-kind exchanges would cost the commonwealth about $20 million in tax revenue. However no research has been conducted to determine how much money has left the commonwealth due to the lack of like-kind exchanges.
The commercial Realtors® met with members of the House Finance Committee at the Capitol later in the day, educating them on the merits of HB 700.
Rep. Bloom said meeting with legislators to explain how the bill impacts businesses is important. “It makes a big difference when you show up at the Capitol. We appreciate you talking about the importance of this bill,” he added.