Relating To Taxation Of Real Estate Investment Trusts.
The bill is expected to generate an additional $65 million in state tax revenue annually if all REITs were taxed like other corporations, instead of having deductions on dividends that effectively shield income from taxation. The funds collected from disallowing these deductions will be evenly divided between the dwelling unit revolving fund and the rental housing revolving fund. This provision is intended to support housing-related initiatives in the state, addressing critical needs in rental assistance and housing development.
House Bill 283 seeks to amend the taxation framework for real estate investment trusts (REITs) in Hawaii by temporarily disallowing dividends paid deductions for taxable years beginning after December 31, 2021, and ending on December 31, 2024. This legislative move aims to address perceived inequities in the taxation of corporations operating in the state and to ensure that REITs contribute fairly to state revenue based on the resources they utilize within Hawaii. The bill specifically focuses on the revenue implications of REITs, which own over $17 billion in assets and generate substantial income that remains untaxed at the state level due to current federal tax provisions allowing deductions on paid dividends.
However, this legislative change may face pushback from stakeholders who advocate for the current REIT structure, arguing that it facilitates investment and accessibility for small investors in income-producing real estate. Critics might contend that changes to the tax treatment of REITs could discourage investment in Hawaii's real estate market. Following the enactment, this bill will sunset in 2024, necessitating reevaluation of the taxation approach towards REITs and their broader implications on the local economy and housing market.