How Will the New Tax Law Impact Facilities?

01/10/2018 | By Justin Feit

Don’t expect tax savings to trickle down into facilities budgets

The recently passed tax reform has many individuals and businesses wondering exactly what will change in 2018. Corporations are expected to save considerably under the new tax law, but what does that mean for the facilities industry? The only certainty is that the exact consequences of tax reform will reveal themselves in time. But even though some facility managers might need to contend with tax-related changes, many trends and predictions suggest that the change in tax code will not have a major impact on facility management.

The Tax Cuts and Jobs Act cuts the corporate tax rate from 35% to 21% in 2018. Additionally, the law raises the standard deduction to 20% for pass-through business, which can include some real estate companies. But outside of new commercial development, facilities budgets will likely have some distance from both the positive and negative effects that will come with these changes.

Corporations will be the biggest beneficiaries of the new tax law and are likely to see a net tax cut of $400 billion over 10 years, explains global real estate services firm Cushman & Wakefield. Trying to predict what those in the C-suite might choose to do with these savings will come down to the goals of individual organizations.

While some might increase hiring or invest in the company itself, it is hard to imagine that most will. Thus, seeing those savings transferred to facilities (or most other departments) in operational budgets is less likely. “We anticipate that the tax cut will be preferentially used to return capital to shareholders or reduce debt, rather than to increase corporate spending,” explains Cushman & Wakefield.

Health Insurance Propelling Change in Buildings

Corporate facility managers and other departmental heads should not expect these tax savings to trickle down into their individual budgets. For those in the healthcare industry, there might be a little more instability, which could reach some facilities managers in that field. The repeal of the individual insurance mandate could have consequences for healthcare business and by extension facilities, as the business of healthcare adapts to this change in law.

“Medical facilities could see some disruption in the short-run with the repeal of the individual insurance mandate,” explains commercial real estate service provider JLL. “But demographics continue to drive the sector so the long-term outlook remains positive. The continuation of private activity bonds should also support medical property development.”

With some uncertainty revolving around the healthcare sector, facilities managers in other types of workplaces might find opportunity. According to Cushman & Wakefield, increased insurance premiums might have a different kind of effect for facilities: it might incentivize the adoption of wellness programs in the workplace. This is already an emerging trend in the industry, so the change in premiums might very well speed up that process.

Ultimately, facilities managers in most cases will probably not find a larger budget than in years past from the weight of the tax law itself, but it might catalyze other changes and cultural shifts in the facilities industry.

Justin Feit justin.feit@buildings.com is Associate Editor of BUILDINGS.


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