REITs have to disclose property and income

In recent years, property mutual fund taxation has been an ongoing problem as both sides argue that their opponents rely on incorrect numbers.

Now lawmakers have an opportunity to promote transparency and improve REITs by requiring them to submit information about their assets and revenues to the state tax department on an annual basis. House Bill 286 HD1 is due to be negotiated on Tuesday in the Senate Committee on Commerce and Consumer Protection.

Even the Treasury Department noted that while REITs are already required to identify themselves as REITs on their tax returns, but fill out their tax returns as directed and include their federal returns on their state returns, adding a fine would add another compliance tool. This indicates that the information currently offered to DOTAX may not be complete at this time.

The department also noted that the statistical information gleaned from these required tax returns and notifications would help policymakers in the future, as noted above.

Restaurants are being opened in the lanai in the Ala Moana Center, where customers are socially distant and wait for their food orders.  January 11, 2021

The Ala Moana Center is an example of a REIT property.

Cory Lum / Civil Beat

Based on this testimony, it is clear that current legislative policies do not require and / or encourage REITs to report information to the state in a comprehensive and consistent manner. In recent years the legislature has been working on estimated figures. This bill would eliminate such speculation.

Once the REIT Reporting Act is in place, we will be able to have an honest and accurate conversation about the impact of REIT taxation on Hawaii’s economy. The fact is, the REIT investment has not been stifled by the property and general excise taxes paid by REITs.

“Insincere Myth”

Opponents of the REIT tax law have argued that they are contributing to our community through real estate tax and GET. This myth is dishonest because everyone in Hawaii contributes to the community through property taxes (it’s important to note that Hawaii’s property tax rate is the lowest in the country) and GET. But everyone else in Hawaii also pays income taxes.

Unless REITs pay their corporate taxes, they don’t pay their fair share of taxes. Even if the REIT law were passed, they would still enjoy significant tax benefits like federal tax withholding (or else pay up to 21%).

In 2019, the Treasury Department said on a REIT bill that it had conducted a separate study of the potential impact of the legislation and concluded that tax revenues for the state are only between $ 2 million and $ 10 million a year would. Proponents of the REIT Tax Act requested a copy of DOTAX’s analysis in June 2019 after hearing DOTAX statements.

DOTAX submitted its estimates in February 2020 with the actual report dated February 19, 2019. The first sentence of the methodology section states: “TRP has valued the total taxable income of REITS operating in Hawaii in 2013 at USD 720 million.”

Based on this information, assuming a corporate tax rate of 6.4% in Hawaii and an estimate of DOTAX’s taxable income of $ 720 million in 2013, the state could have generated tax revenue of $ 46 million in Hawaii and is easily accessible on the State Capitol website. However, during the 2020 legislative process, DOTAX specifically failed to mention the $ 2 million to $ 10 million figure at all.

Meanwhile, REIT real estate holdings in Hawaii have increased significantly since 2013. According to the National Association of Real Estate Investment Trusts own website, REIT real estate holdings in Hawaii rose 38% from 2013 to 2019.

The state is losing tens of millions of dollars because it doesn’t levy corporate tax on REITs. These revenues could be used for affordable housing, social services, public education, environmental protection efforts, public health, the judicial system. The list is endless. REITs in particular benefit from the business infrastructure provided by the state, but do not contribute their fair share of the financing.

The state is losing tens of millions of dollars because it doesn’t levy corporate tax on REITs.

If opponents of this bill are convinced of their number, they should be happy when the bill for REIT reporting requirements is passed, as it provides accurate information.

Once HB 286 is codified, the state can objectively assess how much revenue we are losing by keeping the dividend deduction paid for REITs. At a time when we should be looking for every opportunity to close the deficit, accurate information about progressive tax options is vital.


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