Public discussion of important issues should always be based on facts. It is therefore disappointing that misleading information and innuendos about real estate investment trusts in Hawaii continue to be spread.
A recent example is Faith Action for Community Equity President Ikaika Hussey’s Community Voice column on March 16, a piece that lacks evidence and is littered with exaggeration.
Mr. Hussey says “the state is losing tens of millions of dollars from not collecting corporate income tax on REITs” – without offering any facts to back up its position.
These unfounded claims are not new. FACE has made many promises about the revenue that would be generated – $ 120 million, $ 64 million, $ 40 million were previously claimed – if lawmakers were to scrap the dividend deduction for REITs passed by Congress in 1960.
If so, Hawaii would be only the second state in the nation to take these measures, preventing average citizens from backing their retirement and retirement portfolios by investing in real estate in the state through REITs.
FACE’s false promises have never been substantiated and have always been based on the unrealistic expectation that tens of millions of dollars in tax revenue will be generated by applying the state corporate tax rate to gross REIT income.
Ward Village is a development by Howard Hughes Corp., a well-known real estate investment company. Stewart Yerton / Civil Beat
FACE has two main problems that undercut its position.
First, the State Department of Taxation reported to lawmakers and the media in 2019 that applying a corporation tax to REITs could raise $ 2.2 million a year in the first year and theoretically potentially $ 10 million annually thereafter.
However, DoTax also noted that changing the tax status of REITs and setting a state corporation tax would cause REITs to use tax deductions and credits – like all companies in Hawaii – and likely end up paying little or no corporation tax.
This moves on to the second problem, which undermines FACE’s arguments. DoTax records show that in 2018, two-thirds of all Hawaiian businesses did not pay state corporation tax, while tax liability for the remainder was reduced by half due to offsetting tax credits.
Facts please
Corporate tax levied by the state in fiscal 2019 was $ 164 million, compared to the $ 3.5 billion generated by general excise tax ($ 8.3 billion in total tax revenue).
Mr Hussey may not be aware that REITs, like all companies, pay the GET. In some cases, such as hotel REITs, multiples of GET are specially paid due to their business structure under REIT regulations.
So if FACE prevails on the corporate tax issue, REITs will be encouraged to restructure future investments and reallocate them to other countries. Instead of increasing tax revenue, Hawaii would see a significant drop and loss in job opportunities.
Another unfortunate statement made by Mr. Hussey is that a bill is needed to report to lawmakers so that “we can have an honest and accurate conversation about the impact of REIT taxation on Hawaii’s economy”. In fact, DoTax’s instructions on the corporate income tax return form already require REITs to submit the information suggested on that invoice.
In addition, considering the penalty for perjury when signing a tax return, it is inflammatory and illogical for Mr Hussey to suggest that public corporations fail to report full and accurate information with their tax returns.
Mr Hussey seeks to undermine the payment of GET and real estate taxes by REITs by stating, “It’s important to note that Hawaii’s real estate tax rate is the lowest in the country.” It is misleading.
While this applies to single-family homes, REITs in Hawaii own medical buildings, shopping malls, rental housing for workers, commercial and industrial facilities, and hotel and resort properties, all of which have higher tax rates.
REITs hold a valuable place in Hawaii’s economy, paying hundreds of millions of dollars in state and regional taxes, and supporting thousands of jobs. But like all companies, the COVID-19 pandemic has hit REITs devastating, especially in the hospitality and retail sectors.
REITs are good citizens of the corporate community and are committed to helping Hawaii.
Regardless, the REITs continued their commitment to supporting affordable housing projects, donating $ 585,000 last year to build homes in Eleele, Waianae, Puna, Papakolea, and Waimanalo.
REITs have also provided much-needed support to help families cope and recover communities during the pandemic, including:
Donate hundreds of thousands of dollars to nonprofits to feed the hungry, provide medical care, and prevent homelessness.
Donate thousands of meals to feed Kupuna, residents and families in need.
Providing, reducing, and deferring rental of small businesses, especially restaurants and retail stores.
REITs are good citizens of the corporate community and are committed to helping Hawaii for the long term, no matter how the economy is doing. REITs operate honestly, ethically and with the well-being of our communities, families and the future in mind.
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