In each of 2014, 2015, and 2016, the Hawaii legislature considered legislation that would have repealed the dividends paid deduction (DPD) for REITs.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. 118, S.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 but one 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. 713; S.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. The 2016 legislative session ended with no action on any of the REIT-related bills.
On Jan. 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 separate companion bill in the Senate, S.B. 1228, was introduced in the Hawaii Senate on January 25, 2017. The Hawaii House and Senate have adjourned for the 2017 Legislative Session. There was no action on H.B. 1012 in the Senate, but the bill remains alive for the 2018 Legislative Session.
On Jan. 24, 2018, the following bills were introduced in the Hawaii State Legislature : H.B. 2702; S.B. 3067; and S.B. 3101. In general, these bills would require REITs to file either a composite (entity-level) tax return or pay withholding tax attributable to distributions to non-resident shareholders based on their pro rata share of a REIT’s income attributable to Hawaii. In addition, these bills would require REITs to include on a REIT’s Hawaii corporate income tax return the name, address, and social security or federal identification number of each person owning stock in the REIT at any time during the taxable year. Among other issues (including possibly being unconstitutional), because shares in all publicly traded companies, including REITs, change hands constantly, and because public shareholders hold stock in “street name,” these requirements would not be administrable.
On Feb. 8, 2018, the House Finance Committee held a hearing on H.B. 2702, and passed the bill out of committee with amendments. On Feb. 13, 2018, the Senate Ways and Means Committee will hold a hearing on S.B. 3067, but deferred its decision on the bill until Feb. 15, 2018. On Feb. 15, 2018, it once again deferred its decision until Feb. 21, 2018. In response to a question from one of the committee members during the hearing, the State Deputy Attorney General noted that the bill raises potential constitutional issues with respect to taxation of passive investors. On Feb. 21, 2018, the Committee voted 7-3 (with 1 excused) to pass a revised version of S.B. 3067.
Also on March 2, 2018, the Senate Ways and Means Committee posted a committee report with respect to SB 3067, and the amended version of the bill, SB 3067 SD 1 passed the second reading in the Senate. However, bills are required to pass three readings. On March 6, 2018, the Senate voted to recommit SB 3067 SD 1 to the Senate Ways and Means Committee.
On May 3, 2018, the Hawaii State Legislature adjourned for the session without further action on any of these bills.
Nareit will continue to monitor future legislative developments in Hawaii and will oppose any bills that propose to treat REITs and their shareholders inappropriately.
Honolulu City Council Defers Bill Proposing Use of Income Method for Certain High Value Properties
On Feb. 28, 2018, Honolulu City Councilmember Ann Kobayashi introduced Honolulu City Council Bill 11, which would have mandated the use of an income approach as the tax basis for commercial and hotel properties with valuations at or over $100 million dollars at any point in time. The income approach would be a more burdensome approach not only for property owners, but also for the local assessor’s office, which expressed concerns about the legislation. Furthermore, it would have the potential effect of including non-assessable value such as intangibles in the tax base.
On Feb. 28, 2018, Honolulu City Councilmember Ann Kobayashi introduced Honolulu City Council Bill 11, which would have mandated the use of an income approach as the tax basis for commercial and hotel properties with valuations at or over $100 million dollars at any point in time. The income approach would be a more burdensome approach not only for property owners, but also for the local assessor’s office, which expressed concerns about the legislation. Furthermore, it would have the potential effect of including non-assessable value such as intangibles in the tax base
- Nareit Alert: Hawaii anti-REIT bills dead/Honolulu property tax assessment change deferred - 5/4/18
- Honolulu City Council Bill 11 - Additional Information - 5/2/18
- SIFMA Letter in Opposition to H.B. 2702, H.D. 1 - 3/28/18
- SB 3067 SD 1 - 3/2/18
- HB 2702 HD 1 - 3/2/18
- Honolulu City Council Bill 11 - 2/28/18
- All testimony with respect to Hawaii House Finance Committee Hearing on H.B. 2702 - 2/8/18
- Nareit testimony opposing H.B. 2702 - 2/7/18
- HB 2702 - 1/24/18
- SB 3067 - 1/24/18
- SB 3101 - 1/24/18
- All testimony submitted with respect to H.B. 1012, HD 1 - 2/23/17
- Nareit Testimony in Opposition to H.B. 1012, HD 1 - 2/23/17
- All testimony submitted with respect to H.B. 1012 - 2/9/17
- NAREIT Testimony in Opposition to H.B. 1012 - 2/8/17
- SB 1228 - 1/25/17
- HB 1012 - 1/23/17
- "HAWAII LOSES IF PROPOSED LEGISLATION TO DISCRIMINATE AGAINST REIT INVESTMENT PASSES," (Op-ed by Jay H. Shidler and Lawrence J. Taff, as Published in The Honolulu Star-Advertiser on Feb. 14, 2016) - 2/14/16
- SB 2492 - 1/22/16
- HB 2703 - 1/22/16
- All testimony submitted with respect to S.B. 118, S.D1 - 3/18/15
- NAREIT Testimony regarding SB 118, SD 1 - 3/18/15
- Honolulu Star-Advertiser Op-ed: Opposing REIT Taxes at the Entity Level - 2/25/15
- SB 118 Testimony - 2/18/15
- State of Hawaii Department of Taxation Testimony on HB 0082, Relating to Real Estate Investment Trusts - 2/4/15
- NAREIT Testimony to the Hawaii House of Representatives Consumer Protection and Commerce and Judiciary Committees in Opposition to H.B. 82 - 2/4/15
- SB 1223 - 1/28/15
- SB 713 - 1/23/15
- HB 82 Introduced - 1/22/15
- SB 118 Introduced - 1/22/15
- NAREIT Testimony to the Hawaii House of Representatives Finance Committee on Opposition to Hawaii H.B. 1726 (Proposing to Eliminate the Dividends Paid Deduction) - 2/25/14
- NAREIT Testimony to the Hawaii Legislature’s Committee on Consumer Protection & Commercein on Opposition to Hawaii H.B. 1726 (Proposing to Eliminate the Dividends Paid Deduction) - 2/10/14