Real Estate Investment Trust Hits Hawaii

(Credit: John G. Zimmerman) In Hawaii, the Department of Business, the state Department of Taxation and the Economic Development and Tourism made a study as directed by the Senate Bill 118. The study aims to know the effects of repealing tax breaks.Real Estate Investment Trust Hits Hawaii
October 17
11:05 AM 2016

In Hawaii, there are 42 real estate investment trusts (REITs) which do business with an estimated net income of $720.6 million based on a new report.

In 2014, there was $35 million deduction paid as estimated corporate income tax revenues forgone by the state due to the REIT dividend. The average in corporate taxes between 2009 and 2014 which was forgone by the state was estimated at about 9.6 each year.

At a recently released study by the state Department of Business, Economic Development and Tourism regarding real estate investment trusts in Hawaii, these details were revealed and released as parcel of their study.

The majority owner of the largest shopping mall in the state, the Ala Moana Center, was the General Growth properties Inc. (GGP). This firm is studied by the state for knowing the possible effect of repealing tax breaks for these trust as mandated by the Senate Bill 118 which directed the state Department of Business, Economic Development and Tourism and the state Department of Taxation.

As a repeal of the tax break the bill turned into a study by the two state agencies. Its study addressed the total number of REITs that operate in Hawaii. The number of state taxpayers investing the REITs, the direct and indirect impacts of REITs on the economy of Hawaii and the impact of the economy of the state if the tax breaks on REITs are repealed among other issues are being studied. A budget of $90,000 for the study is the allocation of the state, which said that only one REIT had its main office in the state in 2014.

At $7.8 billion was the estimated total assets of REITs in Hawaii, at cost basis with about 50 percent of the assets in retail industry and 24% in hospitality-related industries. At about $720.6 million in 2014 was the estimated dividend income of Hawaii, from its exemption of the corporate income tax.

Hawaii's estimated net income for REITs with property increased 2.6 times between 2012 and 2013, from $79.9 million in 2012 to $208.8 million in 2013, and by 3.5 times between 2013 and 2014, from $208.8 million to $720.6 million.

Moreover, Hawaii generated about retail sales in REITs properties of about $207 million in state general excise tax in 2014, and between 1.8 percent and 12.8 percent of Hawaii households receive income from REIT dividends, which is between 8,114 and 57,698 households. In addition, up to 3 percent of Hawaii taxpayers invest in REITs with property in Hawaii.

REITs indicated that if the dividend paid deduction were repealed, real estate investment in the state would decrease up to 30 percent within five years, report said. In the contrary, a majority of non-REIT in real estate investment within five years of repealing the dividend paid deduction, real estate companies said there would be no change.

In December, Paul Brewbaker, Hawaii economist, had reported on the economic impacts of REITs in Hawaii for the National Association of Real Estate Investment Trusts.

On his report, it noted that eliminating the dividend paid deduction for REITs would subject Hawaii shareholders to double taxation, which would reduce further construction and investment and run the risk of causing investors to send their money to other states where double taxation doesn't exist.

For the economist, Hawaii could lose more tax revenue from foregone economic activity in response to DPD elimination than would be gained in corporate income taxes, which comprise only 0.4 percent of the state's revenues," the report said. "Eliminating DPD for REITs would signal adversely Hawaii's investment climate and undermine the state's credibility as an investment host.



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