Requesting The Department Of Taxation To Conduct A Study On Disallowing The Dividends Paid Deduction For Real Estate Investment Trusts.
The bill highlights a significant anomaly in Hawaii's tax system, where local REITs, despite their significant presence in the state’s real estate market, often lead to zero state income tax from dividend distributions. The study proposed in HR19 will investigate how disallowing this deduction could alter Hawaii's tax revenue, particularly focusing on general excise taxes from hotel operations and the overall financial impact on public services funded by tax dollars.
House Resolution 19 (HR19) seeks to address tax implications associated with real estate investment trusts (REITs) operating in Hawaii. Specifically, it requests the Department of Taxation to conduct a comprehensive study on the benefits and drawbacks of disallowing the dividends paid deduction currently granted to REITs. This federal provision allows REITs to distribute income to shareholders without incurring tax at the state level, creating a revenue shortfall for the state as shareholders instead pay taxes in their respective states.
There are potential points of contention surrounding this bill. Supporters might argue that eliminating the dividends paid deduction could level the playing field for local investment entities and enhance state revenue management. However, opponents may express concerns about how this change could disincentivize investment in local real estate, ultimately affecting property values, development projects, and the broader economy. The discussions may also delve into the comparative analysis of policies in other states regarding the taxation of REIT dividends and the implications of adopting similar measures in Hawaii.