miller nash llp | Spring 2011 real estate, land use, construction, and environmental law GroundBreaking News ™ The Tax Man Cometh, and He’s Got His Eyes on Your Investment employed pay both the employer and the to the extent that Section 1031 applies, employee portions of the Medicare tax. increases in the value of a life insurance policy, and gain in a qualified IRA or Beginning on January 1, 2013, the other retirement account. Additionally, new Medicare tax will apply at a rate of by Jeneé Hilliard taxable distributions from qualified 3.8 percent on the investment income jenee.hilliard@millernash.com retirement accounts, income from a of individuals with a modified adjusted trade or business (other than a passive It’s not news that the current Social gross income of $200,000 ($250,000 trade or business or trading in financial Security and Medicare programs for couples filing jointly) or more. The instruments or commodities), and are not sustainable. In fact, with the tax applies to the lesser of (1) the total income subject to self-employment first wave of baby boomers already investment income for the year, and (2) taxes are exempt from the new Medicare eligible for Social Security and first the amount by which the individual’s (continued on page 6) becoming eligible for Medicare in 2011, total income exceeds the threshold. For the outlook is bleak for each program example, a single individual taxpayer unless significant reforms are made. who has $150,000 of investment income In an attempt to bolster the Medicare and $125,000 of other income will pay inside this issue program, as part of the over-1,000-page the new Medicare tax on $75,000 (the 2 Where Do We Grow From and much-publicized “Health Care and amount by which the individual’s income Here? Education Reconciliation Act of 2010,” exceeds the $200,000 threshold). 3 Clark County Hearings Internal Revenue Code Section 1411 Because the threshold amounts for the Examiner Softens County’s was enacted. This provision will cause new Medicare tax are not indexed for Hardened Stance on Legal investment income of many individuals inflation, more taxpayers will be subject Lot Determinations to be subject to a 3.8 percent Medicare to the new Medicare tax over time. 4 Oregon’s Proposed tax beginning in the year 2013 (the new Legislative Changes to For purposes of the new Medicare Environmental and Natural Medicare tax also applies to trusts and tax, net investment income will Resources Law estates, but this article focuses on the include interest, dividends, annuities, application to individuals). 5 Dodd-Frank and Borrowers royalties, rents, income from passive Costs Traditionally, Medicare has applied activities, and gain from the sale of 5 Announcing Our Real Estate only to an individual’s wages or assets. But investment income that is Development Blog self-employment income earned in not recognized for federal income tax the operation of a trade or business. purposes will not be subject to the new Currently, and in general terms, Medicare tax, including income from Medicare tax is a payroll tax equal to tax-exempt bonds, tax-free distributions 2.9 percent of wages paid, and the cost from qualified retirement accounts, of the tax is shared equally by employers gain from the sale of a principal and employees (each paying 1.45 percent residence to the extent that Section 121 of the tax). Individuals who are self- applies, gain from the sale of property Engaged Guidance, Exceptional Counsel. www.millernash.com
Where Do We Grow From Here? operations, particularly dairy, regulations, and amendments thereto, . . . are presumed valid upon adoption.” 3 struggled under regulatory pressures and competition from larger-scale And Ridgefield and Camas relied on this by James Howsley operations east of the Cascades. The statement in annexing the properties james.howsley@millernash.com County weighed and considered the before the Board issued a decision. We evidence in the record and decided that will return to this point later in the On April 13, 2011, the Washington the de-designation of some of the land discussion. Division II Court of Appeals muddied was appropriate. After the Board’s decision, the the growth plans for Clark County and Futurewise challenged the County’s County and various intervening parties its seven cities with a complex opinion de-designations to the Western successfully appealed this decision to resulting from litigation brought by Washington Growth Management Clark County Superior Court, where Futurewise related to the de-designation Hearings Board (the “Board”), declaring the properties taken out by the Board of agricultural resources were re-included. Because T 0 9TH ST 2 lands. 1 W S NE 209TH ST NE 176TH AVE the Board had overstepped NW 199TH ST NE 199TH ST E V E A SW EATON BLV V SE EATON BLV NE 199TH ST H A T E 2 C 1 1 A E R N G E its authority, substituting In September 2007, S N E 1 8 9 T H S T NE CRAMER RD N W 1 7 9 T H S T its own judgment rather Clark County adopted a new NE 179TH ST NE 122ND AVE NE 15TH AVE E V A NE 102ND AVE NE 142ND AVE H 1 T than giving deference to the comprehensive plan calling 1 W NE 182ND AVE N NE 164TH ST N E U N NE 159TH ST E O I V N A NE 159TH ST R D County as the finder of fact. for the expansion of the D NE 64TH AVE N NE 156TH ST 2 9 W N E D A R R S D N L E RD N W 1 4 9 T H S T N E 1 4 9 H T T S E SALM O N C R EEK S T P E C A V NE REEK A N W B L I S S NE 10TH AVE R NE 20TH AVE D Futurewise immediately boundaries of all the cities in N C N M O W H A L A T H S A W A E Y R NW 139TH ST N N D E T E N N E Y R D N E 1 3 T 4 H S T filed an appeal in the Clark County except Yacolt. E V A T H 0 5 E N court of appeals. But in But a predominant amount NW 119TH ST NE 119TH ST N E 1 7 1 T E H S T A V L L NE 172ND AVE E D L NE 87TH AVE E Z A H an interesting twist, even of the land included in the E N NE 172ND AVE NE SAINT JOHNS RD N W 9 9 H T S T NE 99TH ST N E 9 9 T H S T N E 9 9 T H S T though the County and expansion areas was formerly E N E 8 T 8 H S T V A NE WARD RD N W LAKES NE 88TH ST H 4 T 9 N E 8 8 T H S T E intervening parties won, the designated as lands for H O W N E P A D D E N NE 130TH AVE R E N P K N K P NE 182ND AVE E N E P A D D W E A V A V D E N W R N E 8 7 T H S T A NE 78TH ST W E N NE 76TH ST NE WARD RD burden of proof remained on farming. 9 9 NE 107TH AVE E N N E C O V N I G IN BLV N T O 4TH PLA W NE 63RD ST A S T D N E M INN E H A H R R N E F N S D R U E NE 63RD ST I M them to show that the Board T A V J A L T NE 137TH AVE During the adoption L N NE GHER RD EY RD I NE SA N E RO N E 5 4 T H S T S T S S E AV T H had erred in its decision. 5 NE VANCOUVER MALL DR 1 E ANDRESEN RD process, the County hired N V NE 49TH ST N E 4 T 9 H S T NE 48TH ST L B N NE 44TH ST A I TH AVE ND AVE TH PL 4 W 39TH ST E Essentially this made the Clark County, Washington, Comprehensive Growth Management Plan Urban Growth Area Map a consultant to review the that these lands still met the definition superior court’s decision superfluous. long-term viability of these lands under of agricultural land despite the Lewis By the time the court of appeals the new-at-the-time Lewis County case. 2 County case and that the County had heard this case, several things had That case allowed the County not only violated the Growth Management Act occurred. First, we all know that a to look at soil types and productivity, (“GMA”) by considering the economic worldwide recession hit, particularly but also to look at the so-called WAC WAC factors. After a one-day hearing, battering the real estate development factors to examine the proximity of the the Board ruled in favor of the County community. And this caused several land to the urban services and areas as for some of the lands, but in the vast development plans to stall. But several well as better potential economic use majority of the cases against the County, of the parcels annexed by Camas and of the lands under consideration. The including huge swaths of industrial Ridgefield continue to be taxed, and the consultant, Globalwise, provided a very lands at the La Center interchange and cities and owners continue to expend detailed paper and matrix outlining in North Orchards along SR-503. money on the planning of these areas. the justification for expansion onto certain properties with the agricultural But during the course of the Board And then came the opinion. In a designation. And landowners provided appeal, the cities of Ridgefield and 39-page read, the court of appeals did additional evidentiary support to the Camas annexed several of the properties several things. First of all, it directed Board of County Commissioners, under appeal. GMA proclaims that the Board to reexamine two areas that proclaiming that larger-scale farming “comprehensive plans and development it had taken out under the original (continued on page 6) 1 Clark Cnty. v. Western Wash. Growth Mgmt. Hearings Review Bd ., No. 39546-1-II (Wash. Ct. App. Apr. 13, 2011). 2 Lewis Cnty. v. Western Wash. Growth Mgmt. Hearings Bd ., 157 Wn.2d 488, 497-98, 139 P.3d 1096 (2006). 3 GMA, RCW 36.70A.320(1). 2 | miller nash llp | GroundBreaking News
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