Sales tax impacting self-storage?

If your state already charges sales tax on self-storage, there may be efforts afoot to increase it. If no sales tax is currently charged in your state, be alert to possible changes.

Governments across the country are seeking more revenues, and sales taxes are a current hot favorite source. This is reflected in current Congressional legislation that would force Internet retailers doing more than $1 million in revenues to charge applicable state sales taxes on every purchase. Currently, the Internet rule of thumb is not to charge sales tax, leaving consumers on the honor system to pay it in their state.

Self-storage sales taxation has faced repeated opposition in a number of states. Recently, the Louisiana legislature retreated from passing a 4 percent self-storage sales tax.

Regardless of present status, this is not an issue likely to go away quietly. Between federal efforts to tax Internet purchases and levying of taxes abroad, ways to impose and/or increase sales taxes will likely be the subject of intense scrutiny for the foreseeable future.

Just last October, United Kingdom self-storage companies with net revenues of more than about $124,000 had to start charging customers a 20 percent value-added tax (VAT), essentially sales tax.

If your state does not yet charge self-storage sales taxes, what should you think about now in case the issue arises later?

1. Ponder perks. How will you handle a potential price increase caused by a sales tax added to rental fees? One way to turn this challenge into something positive is to plan to offer value-adds to tenants as a compensatory offset for the increase-and to clearly explain the reason for the increase (namely, that it's beyond your control and being assessed across the board).

Consider something will little or no cash outlay required on your part, but that has value to tenants-such as a trade arrangement with a local restaurant so that tenants get a discount, free appetizer/drink, or other perk every month. All tenants would have to do is show proof that they're renting at your facility.

2. Fight tax initiatives. Think about how you could contribute to a local self-storage association or other force fighting a self-storage sales tax measure if/when the issue arises. Assess the potential impact on your business from the tax and prepare a statement that could be used to help support your position.

3. Give a heads-up. Going forward, apprise tenants via website info, a special blogpost or other communications vehicle, about industry developments that may impact them. This is a way to give people a heads-up that something could happen down the road, and "soften the blow" if a sales tax comes to pass. You can use this opportunity to let tenants know that you will do everything reasonably possible to lessen the impact of anything coming down the pike--thereby showing that you're invested in their wellbeing

Regardless of what taxing experiences come down the pike, learning to be in a proactive mode with prospects and tenants will prove beneficial to a long-term relationship.

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