OTHER CONSIDERATIONS
A. Land Use Laws
In addition to the above considerations, the foreign business owner should be aware of various non-quantifiable risks posed by land use laws that limit or even preclude development. For example, the Comprehensive Plans adopted by certain cities and counties in the State of Washington require the designation of certain lands as being “rural,” which classification carries significant development limitations. A local municipality may be required to conduct an environmental impact study for certain developments pursuant to the Washington State Environmental Policy Act, Ch. 43.21C RCW, which may lead to the imposition of expensive permit conditions to address impacts from the proposed development. Other land use laws such as the Sensitive Areas Ordinance and Shoreline Management Program impose severe restrictions on development near sensitive areas such as rivers, streams and wetlands. Although such limitations should affect the market value of the real property, and apply primarily to new development/construction or re-development, a particular parcel of land may be rendered useless for one particular business owner but not for another because of the application of such laws. The risks from these laws, however, can be minimized with due diligence. Some counties in Washington, such as King County, maintain websites where anyone can ascertain critical information known to the county regarding that parcel of land, such as identified wetlands and sensitive areas.[1] Surveyors and environmental consultants can further locate sensitive areas and shoreline areas, and land use attorneys can inform the business owners in advance of many the limitations attendant with such areas. By adopting a cautious and deliberate approach, the foreign business owner can largely anticipate and control for the risks posed by land use laws.
B. State of Washington Incentive Programs
The State of Washington routinely offers various incentives in hopes of spurring development in certain industries, which may apply to either ownership or leasing of real property. For example, the State of Washington offers a sales tax exemption for the construction of large warehouses, provided the benefit of the sales tax exemption is passed on by the landlord to the tenant[2]. In addition, the State of Washington has created special zones where sales tax incentives have been granted. For the most part, these programs require affirmative election by the owner and the benefits can be lost through inaction. The website maintained by the Department of Revenue of the State of Washington[3] should therefore be consulted regularly for such programs, and Choose Washington representatives can assist in identifying various other State of Washington programs that may be beneficial to the foreign business owner.
C. Environmental Laws
Along with the benefits that accompany ownership of real property, the foreign business owner should expect certain duties or burdens, including potential liability from hazardous waste contamination, including liability for contamination existing prior to the date of purchase and not caused by the new owner. These liabilities do not usually apply to a tenant under a lease (assuming the tenant did not cause the contamination. There are numerous federal and state laws regulating the generation and use of hazardous materials that may result in potential liability for the owner of real property, such as Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq., and the Washington Model Toxics Control Act, Ch. 70.105D RCW (“MTCA”). Under MTCA, which allow for actions against the owner of contaminated property for the cost of remediation. The expense of remediating hazardous materials can exceed the value of the property and can extend to other adjoining properties if the materials have migrated onto the land of another. However, the environmental laws do provide certain “safe harbors” from liability if the owner performed the necessary diligence before purchasing the property. By conducting a Phase I environmental report, and if there is sufficient cause therefor, a Phase II environmental report which involves actual testing of soils and ground water, the foreign business owner can learn of the general condition of the property, including whether there are any reports of contamination concerning the property filed with the State of Washington Department of Ecology. If these reports were properly conducted and do not disclose contamination, the owner can as a general rule avoid liability for pre-existing conditions. The foreign business owner’s main protection against liability for the cost of remediating environmental contamination is therefore to avoid incurring it in the first place by investigating the parcel of land with the assistance of a qualified professional prior to the closing of the sale.
D. Foreign Investment in the United States
Several federal laws apply to foreign investment in the United States. The first and most pertinent federal law applicable to foreign ownership of real property is the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). FIRPTA enacted several Internal Revenue Code sections that impose a tax on gains realized by a foreign business owner from the sale or other transfer of a real property interests within the United States, which may include interests in shares of U.S. corporations with substantial U.S. real property interests. FIRPTA also imposes a burdensome withholding obligation on real property purchasers where the seller is a foreign person. Failure by the purchaser to withhold can result in the purchaser’s liability for the tax. As one would expect, the amount of tax to be paid will be impacted by permissible deductions and losses. In addition to FIRPTA, the foreign business owner will also need to comply with International Investment and Trade in Services Survey Act, and potentially the Agricultural Foreign Investment Disclosure Act of 1978. Each of these laws is intended to be disclosure laws, requiring the foreign business owner to provide the federal government with required information of their investments in the United States. The foreign business owner should consult with appropriate legal counsel for assistance in comply with these and other pertinent federal regulations.
In addition, foreign business owners should be aware that all U.S. persons, including companies, must comply with economic sanctions enacted against certain countries and groups of individuals, such as terrorists and narcotics traffickers, enforced by The Office of Foreign Assets Control (“OFAC”). OFAC publishes a list of Specially Designated Nationals and Blocked Persons ("SDN list"), which includes over 3,500 names of companies and individuals connected with the sanctions targets. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. U.S. persons are prohibited from dealing with SDNs, including entering into any agreements, wherever they are located, and all SDN assets are blocked.
[1] King County maintains two websites, IMAP and Parcel Viewer, the former of which contains much more detailed information concerning parcels of land. See http://www.kingcounty.gov/operations/GIS/Maps/iMAP.aspx
[2] See RCW 82.08.020.
[3] See http://dor.wa.gov/Content/FindTaxesAndRates/TaxIncentives/IncentivePrograms.aspx
In addition to the above considerations, the foreign business owner should be aware of various non-quantifiable risks posed by land use laws that limit or even preclude development. For example, the Comprehensive Plans adopted by certain cities and counties in the State of Washington require the designation of certain lands as being “rural,” which classification carries significant development limitations. A local municipality may be required to conduct an environmental impact study for certain developments pursuant to the Washington State Environmental Policy Act, Ch. 43.21C RCW, which may lead to the imposition of expensive permit conditions to address impacts from the proposed development. Other land use laws such as the Sensitive Areas Ordinance and Shoreline Management Program impose severe restrictions on development near sensitive areas such as rivers, streams and wetlands. Although such limitations should affect the market value of the real property, and apply primarily to new development/construction or re-development, a particular parcel of land may be rendered useless for one particular business owner but not for another because of the application of such laws. The risks from these laws, however, can be minimized with due diligence. Some counties in Washington, such as King County, maintain websites where anyone can ascertain critical information known to the county regarding that parcel of land, such as identified wetlands and sensitive areas.[1] Surveyors and environmental consultants can further locate sensitive areas and shoreline areas, and land use attorneys can inform the business owners in advance of many the limitations attendant with such areas. By adopting a cautious and deliberate approach, the foreign business owner can largely anticipate and control for the risks posed by land use laws.
B. State of Washington Incentive Programs
The State of Washington routinely offers various incentives in hopes of spurring development in certain industries, which may apply to either ownership or leasing of real property. For example, the State of Washington offers a sales tax exemption for the construction of large warehouses, provided the benefit of the sales tax exemption is passed on by the landlord to the tenant[2]. In addition, the State of Washington has created special zones where sales tax incentives have been granted. For the most part, these programs require affirmative election by the owner and the benefits can be lost through inaction. The website maintained by the Department of Revenue of the State of Washington[3] should therefore be consulted regularly for such programs, and Choose Washington representatives can assist in identifying various other State of Washington programs that may be beneficial to the foreign business owner.
C. Environmental Laws
Along with the benefits that accompany ownership of real property, the foreign business owner should expect certain duties or burdens, including potential liability from hazardous waste contamination, including liability for contamination existing prior to the date of purchase and not caused by the new owner. These liabilities do not usually apply to a tenant under a lease (assuming the tenant did not cause the contamination. There are numerous federal and state laws regulating the generation and use of hazardous materials that may result in potential liability for the owner of real property, such as Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq., and the Washington Model Toxics Control Act, Ch. 70.105D RCW (“MTCA”). Under MTCA, which allow for actions against the owner of contaminated property for the cost of remediation. The expense of remediating hazardous materials can exceed the value of the property and can extend to other adjoining properties if the materials have migrated onto the land of another. However, the environmental laws do provide certain “safe harbors” from liability if the owner performed the necessary diligence before purchasing the property. By conducting a Phase I environmental report, and if there is sufficient cause therefor, a Phase II environmental report which involves actual testing of soils and ground water, the foreign business owner can learn of the general condition of the property, including whether there are any reports of contamination concerning the property filed with the State of Washington Department of Ecology. If these reports were properly conducted and do not disclose contamination, the owner can as a general rule avoid liability for pre-existing conditions. The foreign business owner’s main protection against liability for the cost of remediating environmental contamination is therefore to avoid incurring it in the first place by investigating the parcel of land with the assistance of a qualified professional prior to the closing of the sale.
D. Foreign Investment in the United States
Several federal laws apply to foreign investment in the United States. The first and most pertinent federal law applicable to foreign ownership of real property is the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). FIRPTA enacted several Internal Revenue Code sections that impose a tax on gains realized by a foreign business owner from the sale or other transfer of a real property interests within the United States, which may include interests in shares of U.S. corporations with substantial U.S. real property interests. FIRPTA also imposes a burdensome withholding obligation on real property purchasers where the seller is a foreign person. Failure by the purchaser to withhold can result in the purchaser’s liability for the tax. As one would expect, the amount of tax to be paid will be impacted by permissible deductions and losses. In addition to FIRPTA, the foreign business owner will also need to comply with International Investment and Trade in Services Survey Act, and potentially the Agricultural Foreign Investment Disclosure Act of 1978. Each of these laws is intended to be disclosure laws, requiring the foreign business owner to provide the federal government with required information of their investments in the United States. The foreign business owner should consult with appropriate legal counsel for assistance in comply with these and other pertinent federal regulations.
In addition, foreign business owners should be aware that all U.S. persons, including companies, must comply with economic sanctions enacted against certain countries and groups of individuals, such as terrorists and narcotics traffickers, enforced by The Office of Foreign Assets Control (“OFAC”). OFAC publishes a list of Specially Designated Nationals and Blocked Persons ("SDN list"), which includes over 3,500 names of companies and individuals connected with the sanctions targets. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. U.S. persons are prohibited from dealing with SDNs, including entering into any agreements, wherever they are located, and all SDN assets are blocked.
[1] King County maintains two websites, IMAP and Parcel Viewer, the former of which contains much more detailed information concerning parcels of land. See http://www.kingcounty.gov/operations/GIS/Maps/iMAP.aspx
[2] See RCW 82.08.020.
[3] See http://dor.wa.gov/Content/FindTaxesAndRates/TaxIncentives/IncentivePrograms.aspx