Relating To Taxation Of Real Estate Investment Trusts.
Currently, many REITs that operate in Hawaii pay less in state taxes compared to other corporations, primarily because the dividends paid to shareholders living outside Hawaii are not taxed in the state. The proposed legislation identifies that REITs hold substantial real estate assets in Hawaii, generating significant income that is not effectively taxed under the existing laws. By disallowing the deduction, the state anticipates an additional tax revenue of approximately $65 million per year, which will be crucial for funding housing initiatives, as the bill outlines that tax revenues will be split between the dwelling unit revolving fund and the rental housing revolving fund.
SB359, titled 'Relating to Taxation of Real Estate Investment Trusts', proposes significant changes to the taxation framework for real estate investment trusts (REITs) operating in Hawaii. The bill seeks to decouple the state's income tax treatment of REITs from federal provisions, specifically by disallowing the dividends paid deduction for taxable years beginning after December 31, 2023, and ending before January 1, 2027. This strategic move aims to ensure that REITs contribute a fair tax burden to the state, reflecting their use of local resources and privileges.
Supporters of SB359 argue that the bill addresses an inequity in the tax system, as existing practices allow REITs to benefit from Hawaii's resources while minimizing their tax contributions. Conversely, opponents may express concerns about the financial burden imposed on REITs and the potential implications on investments in the local real estate market. The temporary nature of the disallowance—set to expire in 2026—might also be contentious, as stakeholders debate the long-term viability and effectiveness of such a policy change.