This bill is particularly targeted due to Hawaii’s ongoing affordable housing crisis, which has been exacerbated by rising demand projected to require nearly 65,000 new housing units by 2025. By disallowing the dividends deduction, the bill aims to collect additional revenue that could be utilized to address housing issues, while still allowing deductions for REITs that provide a specific percentage of affordable housing. The state legislature contends that this approach will not only create a more equitable tax system but also incentivize the development of affordable housing.
SB2528 addresses the taxation of real estate investment trusts (REITs) in Hawaii by proposing to decouple the state's income tax treatment of these entities from federal standards. The bill aims to ensure that REITs doing business in Hawaii contribute a fair share of taxes, especially given the significant use of state resources to generate their profits. Under the proposed law, dividends paid deductions would be disallowed for these trusts for a period of three years, which takes effect from taxable years starting after December 31, 2024, unless the trusts are dedicated to providing affordable housing in the state.
Despite the intended benefits, the bill may face opposition from various stakeholders, including those representing the interests of REITs and property owners, who might argue that the change could deter investment in the state or reduce the appeal of REIT structures. Concerns may be raised regarding the potential hindrance to the development of new properties, particularly for those that could otherwise contribute to alleviating the housing crisis. The proposed sunset of the law on December 31, 2027, suggests that legislators anticipate reviewing its effects within a defined period, potentially accommodating adjustments based on its perceived impact on the housing market and tax revenue.