The bill proposes to disallow dividends paid deductions for REITs over a three-year period, starting with taxable years post-December 31, 2021. This adjustment is seen as a solution to address the significant budget shortfalls Hawaii has been facing, as it is estimated this measure could recover around $65 million in annual tax revenue that is lost under current federal conformity. Additionally, it acknowledges the vital need for promoting affordable housing, tying tax considerations directly to local housing needs, where REITs providing affordable housing within the state will still be exempt from this disallowance.
Summary
Senate Bill 785 aims to amend the taxation of real estate investment trusts (REITs) in Hawaii by decoupling state income tax regulations from federal guidelines concerning dividends paid deductions. This legislative change is motivated by an objective to ensure a more equitable taxation system for all corporations operating in Hawaii, especially as REITs have been identified as benefiting disproportionately from existing tax structures without contributing adequately to state revenues. With this bill, the state seeks to collect fair taxes reflective of the resources used to generate profits within Hawaii.
Contention
This change has been met with contention, as critics argue that it could hinder investment in real estate, particularly concerning affordable housing initiatives. Proponents contend that while REITs benefit from Hawaii's resources, they have been inadequately taxed compared to their contributions to the local economy. There lies concern about the potential impact on availability and development of rental units amidst an already-pressing housing crisis, thus making the discussion around this bill multifaceted, involving economic, social, and regulatory implications.