Hawaii lawmakers have introduced legislation that would eliminate the tax deduction for dividends paid by real estate investment trusts to their shareholders, the eighth consecutive year that the Legislature has tried to make the state only the second in the nation to levy tax on REITs.

House Bill 283 passed first reading last week and was referred to three committees but have yet to schedule hearings on it.

REITs own many of Hawaii’s hotels, office buildings, shopping centers and apartment complexes. Under federal law, they may deduct the dividends paid to shareholders from their state taxes; New Hampshire is the only state to disallow the deduction.

This year, lawmakers are also proposing a new law to require a REIT to notify the state Department of Taxation that it has a presence in the state and to report its assets and annual revenues. House Bill 286 and its companion, Senate Bill 786 each passed first reading in their respective chambers last week.

HB286 was referred last week to three House committees, but hearings have yet to be scheduled. SB786 was referred to two committees that have yet to schedule hearings on the measure.

A similar Senate bill was introduced early in the 2020 session, but debate was delayed by the Covid-19 pandemic, and the bill stalled in the House after passing second reading.

In 2019, a similar bill made it all the way to the desk of Gov. David Ige, who vetoed it, saying any potential gains would not be worth unintended consequences to Hawaii’s economy.

Gladys Quinto Marrone, executive director of industry group Nareit Hawaii, noted in a letter to the editor in the Honolulu Star-Advertiser that the Department of Taxation has cautioned that enacting a tax on the REITs may compel the organizations to seek other tax deductions and credits, “like more corporations — and not pay any corporate income tax,” which would be detrimental to revenue during the current downturn.

Janis L. Magin
Senior Editor
Pacific Business News