In each of 2014, 2015, and 2016, the Hawaii legislature considered legislation that would have repealed the dividends paid deduction (DPD) for REITs. The 2014 legislative proposal, H.B. 1726 passed the House of Representatives on March 4, 2014 but was deferred by the Senate Ways & Means Committee.

A number of bills were introduced in the Hawaii legislature in 2015:  H.B. 82, and its  Senate companions,  S.B. 118S.B. 713, and S.B. 1223, all of which would have eliminated the DPD. Following a number of committee hearings, on April 30, 2015, the legislature passed a revised version of S. 118. NAREIT testified in opposition to the proposal, S.B. 118, at a hearing of the Hawaii Senate Committee on Ways and Means in February 2015. Eliminating the DPD would be contrary to the federal income tax rules applying to widely held REITs in every state with an income-based tax system like Hawaii except for New Hampshire.

A revised version of S.B. 118 became law on July 15, 2015 without the Governor’s signature. The enacted bill authorized funding for the Hawaii Department of Business, Economic Development & Tourism (DBEDT) to work with the Hawaii Department of Taxation to “study the impact of real estate investment trusts in Hawaii and the possible effect of repealing the dividends paid deduction for real estate investment trusts.”

DBEDT released an interim study in January 2016 (dated Dec. 8, 2015). The interim report indicates that the repeal of the DPD is unlikely to yield significant corporate income tax revenues and could jeopardize the multiplying effect on jobs and other types of taxes that are a larger portion of the Hawaii state budget than corporate income tax. DBEDT’s final study in September 2016 reached similar conclusions.

Although S.B. 118 resulted in the authorization of a governmental study, a number of the other DPD disallowance bills carried over to the 2016 legislative session because the state legislature did not act on them in 2015. These include S.B. 713S.B. 1223; and H.B. 82. In addition, two anti-REIT bills were introduced in 2016: S.B. 2492 and H.B. 2073.

In Fall 2015, NAREIT launched theREITwayHawaii.com, which explains the “REIT way” of investing and highlights some of the benefits of REIT investment to the state attributable to specific-REIT owned properties. In addition, NAREIT sponsored a study by Hawaii-based economist, Dr. Paul Brewbaker. This study concluded that REITs create thousands of jobs in Hawaii and are responsible for the creation of millions of dollars of general excise taxes (Hawaii’s version of sales tax), which is a far greater percentage of the Hawaii state budget than the corporate income tax.

STATUS: The 2016 legislative session ended with no action on any of the REIT-related bills. 

On January 23, 2017, H.B. 1012 was introduced in the Hawaii House of Representatives. This bill proposes eliminating the REIT dividends paid deduction (DPD) temporarily (for 15 years) except with respect to certain dividends attributable to affordable housing. On Feb.14, 2017, the House Committee on Housing approved a modified version of H.B. 1012, titled H.B. 1012, H.D. 1. On Feb. 23, 2017, the House Committee on Finance approved H.B. 1012, H.D. 1. The full House approved H.B. 1012, H.D. 2 on March 7, 2017. It has been referred to two Senate committees. A seperate companion bill in the Senate, S.B. 1228, was introduced in the Hawaii Senate on January 25, 2017. NAREIT will continue to vigorously oppose this legislation.


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