It’s no secret that the self-storage industry is a behemoth–a lucrative target for cash-strapped states.
Every year, the National Self-Storage Association and the State Associations join forces to battle state legislators’ proposals to tax self-storage rents. Currently there are only a handful of states that tax storage rent: Connecticut, New Jersey, Maine, Ohio and a few others. However, it’s a constant battle on the state legislative front.
In 2012, legislators in Michigan, Illinois, Rhode Island, South Dakota, California and North Carolina all put forth proposed bills for taxing sales tax on storage, but most of these bills died or were tabled. Nevertheless, the threat is still there, and the NSSA fights every year on behalf of facility operators.
The self-storage industry is a target for state legislators, as it’s a gigantic industry and sales tax on rents would provide much-needed state revenue. The argument of lobbyists, lawyers and storage operators is threefold:
1. Self-storage buildings are rented real estate, and operators just rent space, rather than provide a service that would be subject to sales tax.
2. Legislators should not go after the self-storage industry, as renters are generally moderate and lower-income citizens. Of all self-storage tenants, 34% have a household income under $30,000 per year and 55% have a household income under $50,000 per year. Moreover, self-storage tenants are often single parents, retirees, soldiers and small business owners.
3. Taxing self-storage, but no other group within the commercial real estate sector, is completely arbitrary.
Michael McCune, Founder of Argus Self Storage Sales Network, writes about a less obvious, albeit equally practical reason for storage operators to fight against sales tax on storage rents. McCune believes sales tax on storage rents will affect city councils and planning commissions’ attitudes, resulting in overbuilding and increased competition in competitive markets. Should a tax on rents be sanctioned, McCune foresees cities becoming increasingly apt to green-light developers’ self-storage projects.
States to watch:
Rhode Island: Self-storage operators in Rhode Island were relieved after the state’s House Finance Committee decided to drop the self-storage tax from their budget last June.
South Dakota: Although the state does not have many facilities, it is important for the Self Storage Association to battle the sales tax initiatives in South Dakota, lest a bad precedent be set. The 2012 bill, SB142, was tabled by the South Dakota Senate last February. This bill was rather similar to a measure that was struck down by the South Dakota Supreme Court back in 2009.
Illinois: The Illinois bill, H4099, didn’t get anywhere last year.
Michigan: Nor did Michigan House bill H3501.
North Carolina: Senate bill SB658 died without much debate last year.
California: State Assembly member Mike Gatto’s bill, AB 2540, proposed a 7.5% sales tax on storage in CA, but it was ultimately rejected by the Assembly in 2012.
Although it’s still early in the legislative calendar, the National Self-Storage Association and the respective State Associations can expect more trouble from legislators in these states in 2013.
Image courtesy of cnn.com