The city of Las Vegas has placed a moratorium until July on the enforcement of commercial property owners paying a fee based on revenue they generate from rents.
The city raised the ire of commercial property owners and the real estate industry when it mailed hundreds of letters earlier this year asking owners to obtain business licenses if they’re leasing out their property.
In a new letter, the city said it “is currently working to further define licensing guidelines for commercial property and expects to finish in July 2016. At this time no further action is required on your part with regard to obtaining this license.”
The move was applauded by the real estate community, which has vehemently opposed the licensing and payment for leasing real estate. They called it a tax on rent that will make people more reluctant to invest in commercial real estate in the city.
“We have gone back and we’re working our way through resolving the issue,” said Mike Shohet, president of the Southern Nevada chapter of NAIOP, the Commercial Development Association. “It gives us some time, but it’s yet to be seen what the outcome will be. They haven’t given any indication that they’re going to change their position at this point.”
Karen Duddlesten, the city’s deputy planning director, said Realtors and NAIOP requested a series of meetings to review several concerns, including investment properties, micro-businesses and companies that lease to themselves. The city has already said that last category isn’t subject to the fee.
“We agreed to meet with them to see if there were ideas that should be implemented or additional types of arrangements that should not be considered a commercial business,” Duddlesten said in an email to the Business Press. “We agreed to hold our licensing efforts pending the outcome of that discussion, and are not pursuing any active enforcement at this time.”
Duddlesten said applicants are contacting the Greater Las Vegas Association of Realtors first to offer input. That will later result in a series of meetings to detail concerns and “see what solutions we can come up with for City Council consideration.”
The city has been aggressive in trying to make its case for the fee. Duddlesten sent a letter to the editor to the Business Press, in which she said that businesses such as shopping malls, industrial centers, office parks and mini-storage centers require a city business license, which are common throughout the country. Those entities are in the business of leasing space and the landlords earn revenue for that, she said.
In recent years, Las Vegas has modernized its business license processes and modified its business licensing code, reducing about 200 outdated categories, Duddlesten said.
“When initiating these changes, the Business Licensing Division also became aware of the fact that many commercial leasing businesses had been categorized inconsistently, which led to misinterpretation for businesses as they attempted to determine what license category would be appropriate for them,” Duddlesten said in the letter. “To correct these inconsistencies, the Business Licensing Division created a specific licensing category dedicated to commercial leasing.”
Soozi Jones Walker, president of the Commercial Alliance Las Vegas, the commercial real estate arm of the Greater Las Vegas Association of Realtors, said her group understands the city’s position but remains concerned that the proposed policy could discourage business investment in Las Vegas and adversely impact local businesses.
Putting a moratorium in place to allow talks works for everyone, she said.
“We’re working together with the industry partners trying to make sense out of it so that works for the city and for the owners and investors of buildings, too,” Jones Walker said. “I’m happy that they’re willing to talk to us. We will see where it goes. I think in three or four weeks we will have a better sense of where it’s going.”
In defense of its license fee, city officials said the same is being done in unincorporated Clark County.
In a previous article, Shohet said there was no such fee in unincorporated Clark County but said he now understands that the code requirement is in place but is enforced with limited success. The concept is a bad one in general, he said.
“It’s a problem for us for a couple of reasons,” Shohet said. “We see that there’s a significant difference between a business and an investment. It’s no different than owning stock. Owning stock doesn’t mean you need to have a business license, and the same should apply to real estate from an investment perspective.”
The biggest problem isn’t the requirement of a business license, Shohet said. This particular one, however, is “onerous” because it’s based on gross receipts, he added.
“We’re in a position where privately held companies have to share their financial information with the city in order to calculate what they should be paying for a business license,” Shohet said. “This is piercing the corporate veil. It’s not right.”
Duddlesten said the city doesn’t want to create a financial hardship for businesses and doesn’t believe the fee will do that. The license fee is .00056 on gross revenue every six months. That’s about $55 for properties generating $30,000 in rental income, she said.
Duddlesten also took issue by some opponents to characterize the city’s efforts as “amounting to arrest and warrants for misdemeanor violations.” That’s “misleading and creating undo fear,” she said.