Relating To Taxation Of Real Estate Investment Trusts.
The legislation addresses an inequity in the existing tax system, where substantial sums are bypassed in terms of tax contributions by REITs. The Hawaii state legislature estimates that, if taxed similarly to other corporations, the REITs would contribute approximately $65 million annually in taxes. Given the substantial real estate assets owned in Hawaii by these trusts, the intent is to create a fairer taxation landscape that holds all entities accountable for their operations within state boundaries.
SB359 proposes to decouple Hawaii's taxation of real estate investment trusts (REITs) from federal tax treatments, aiming to rectify the current situation where REITs that operate in Hawaii but pay dividends to shareholders outside the state do not contribute to Hawaii's income tax revenue. The bill intends to temporarily disallow dividends paid deductions for REITs from the tax years starting after December 31, 2023, to December 31, 2026. It also mandates that funds collected from this disallowance be split between the dwelling unit revolving fund and the rental housing revolving fund.
The consideration around SB359 combines fiscal responsibility and equity in tax treatment, suggesting a significant reshaping of how REITs report and pay taxes in Hawaii. Proponents argue this bill is a necessary step toward ensuring that local resources are equitably taxed while allowing REITs to maintain their federal advantages. Critics may raise concerns over the potential impact on investors and the real estate market, questioning whether the disallowance of dividend deductions may deter investments in Hawaii's real estate sector.