Montell’s bill: Rebate sales tax for outlet mall

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Developers could receive $800K each year to offset advertising costs

By Todd Martin

State Rep. Brad Montell (R-Shelbyville) has introduced potentially precedent-setting legislation that would provide a tax incentive program for retail space at the Outlet Shoppes of Louisville – and other future establishments.

Montell’s House Bill 307 would provide up to a maximum of $800,000 per year in sales-tax rebates after second year of operation for the outlet mall being built in Simpsonville. Those rebated funds, however, would not return to the retail stores but would be given to the managing company only to be used for regional advertising and marketing expenses.

There are no state tax incentives available for retail development like there are for industrial and manufacturing operations. But Horizon Group Properties, which is developing the Outlet Shoppes of Louisville, did receive local incentives.

The City of Simpsonville is offsetting the price of the sewer installation with a 5-year rebate and offering a 5-year split on occupational tax revenue collected from the retail center.

“Sometimes we do incentives for companies to help offset their investments in our communities, but this one is a little different,” Montell said. “The last thing we want is for this thing [the Outlet Shoppes of Louisville] to come in and be six, seven, eight years down the road, and it’s dried up. The next thing you know is we have this albatross in Simpsonville, and it’s become a liability instead of an asset to our community.”

The Outlet Shoppes of Louisville, a 374,000-square-foot retail center being constructed south of Interstate 64 in Simpsonville, is scheduled to be completed late this summer, and Montell said that the bill was something he has discussed with the mall’s developer, Horizon Group Properties, since before the mall was approved for construction.

“This is something that has been in talks with Horizon since before they came here, and it’s something they were agreeable to,” Montell said. “We didn’t want to go for an incentive to give relief for development, but rather toward maintaining the health of the mall.”

Montell said he has discussed the issue with Horizon representatives, and was told similar incentives are in place at their outlet centers in El Paso, Texas, and Oklahoma City, which Tom Rumptz, Horizon vice president in charge of construction, later confirmed. The company, however, does not receive the incentive on its newest retail center, the Outlet Shoppes of Atlanta, which opened last year.

The bill, which would create a new section of KRS chapter 139, has several benchmarks that retail centers must meet to be eligible for the sales tax rebate, including:

  • Newly constructed and opened in the commonwealth after Dec. 31, 2013.
  • Have a gross leasable retail area of at least 345,000 square feet with a minimum of 51 percent leased by manufactures to sell their products directly to the public.
  • And where the owner has made a minimum initial investment of $70 million in the shopping complex.

The owner of the development can file for the rebate following the first 12 months of operation and then again each fiscal year after.

To qualify for the annual rebate, the owner of the center must:

  • File an application by Aug. 1 each year, including documentation to verify regional advertising and marketing expenses.
  • Maintain a continuous occupancy rate of at least 70  percent.
  • Open for 360 days in the fiscal year.
  • Show that at least 25 percent of total sales made were to nonresidents of Kentucky.

After the second year, if eligible, the retail center’s rebate would be the lesser of the amount spent on regional advertising and marketing during the previous fiscal year, 50 percent of the state sales tax generated in the previous fiscal year or $800,000.

That cap of $800,000 would be reached on sales of about $26.6 million.

That amount can increase if a center has been open at least 10 years and increases the amount of leasable square footage by 25 percent while also meeting the other requirements. The rebate at that point would be the lesser of regional advertising and marketing expenses, 65 percent of the sales tax generated or $900,000.

To reach those levels, the Outlet Shoppes of Louisville would have to increase by 93,500 square feet and have sales totaling more than $30 million.

“But again, one hundred percent of that rebated sales tax would have to be spent on regional advertising and marketing,” Montell said. “I want it [the mall] to remain here and successful for fifteen, twenty or more years.”