REITs hold a valuable place in Hawaii’s economy

Public discussions on important issues should always be based on facts. It is therefore disappointing that misleading information and innuendos about real estate mutual funds in Hawaii continue to be disseminated.

A recent example is Faith Action for Community Equity President Ikaika Hussey’s March 16 Community Voice column, an article that lacks evidence and is speckled with exaggeration.

Mr. Hussey says “the state is losing tens of millions of dollars because it doesn’t collect a corporate tax on REITs” – without offering any facts to support his position.

These unsubstantiated claims are not new. FACE has made many promises of revenue that would be generated – 120 million, 64, 40 million previously claimed – if the state legislature repealed the dividend deduction for REITs enacted by Congress in 1960.

If that happens, Hawaii would be only the second state in the nation to take this action, preventing the average person from funding their retirement and retirement savings by investing in the state’s real estate 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” of tax revenue will be realized by applying the state’s corporate income tax rate to REITs’ gross revenues.

FACE has two major problems undermining its position.

First, the State Department of Taxation reported to lawmakers and the media in 2019 that applying a corporate tax to REITs could net $2.2 million in the first year and theoretically potentially $10 million annually thereafter.

However, DoTax also noted that changing the tax status of REITs and imposing a state corporate income tax would prompt REITs to take advantage of tax deductions and credits — like all Hawaiian corporations — and would likely end up paying little or no corporate income tax.

This leads to the second problem that refutes FACE’s arguments. DoTax records show that in 2018, two-thirds of all Hawaiian businesses paid no state corporate income tax, while the tax liability for the rest was reduced by half as a result of offsetting tax credits.

facts please

Total corporate income tax revenue collected by the state in fiscal 2019 was $164 million, compared to the $3.5 billion generated by the general excise tax ($8.3 billion in total tax revenue collected).

Mr. Hussey may not be aware that REITs, like all companies, pay the GET. In some cases, such as Hotel REITs, for example, pay multiples of GET due to their business structure, as required by REIT regulations.

So if FACE prevails on the corporate tax issue, REITs would have an incentive to restructure and reallocate future investments to other states. Instead of seeing an increase in tax revenue, Hawaii would see a significant decline and loss of job opportunities.

Another unfortunate statement from Mr. Hussey is that a statutory reporting requirement law is needed so that “we can have an honest and accurate conversation about the impact of taxing REITs on the Hawaiian economy.” In fact, DoTax’s corporate tax return form instructions already require REITs to file the information proposed in this bill.

Furthermore, Mr. Hussey’s allegation that public companies do not report complete and accurate information with their tax returns is inflammatory and illogical given the penalty of perjury in signing a tax return.

Mr. Hussey seeks to undermine REITs’ payment of GET and property taxes by stating, “It’s important to note that Hawaii’s property tax rate is the lowest in the country.” This is misleading.

While that may be true for single-family homes, REITs in Hawaii own medical buildings, shopping malls, employee housing, commercial and industrial properties, 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 local taxes and supporting thousands of jobs. But like all businesses, the COVID-19 pandemic has been devastating for REITs, especially in hospitality and retail.

REITs are good citizens of the corporate community and are committed to supporting Hawaii.

Regardless, the REITs have maintained their commitment to supporting affordable housing projects, donating $585,000 last year to support home construction in Eleele, Waianae, Puna, Papakolea and Waimanalo.

REITs have also provided much-needed support to help families navigate the pandemic and communities recover, including:

Donating hundreds of thousands of dollars to charitable organizations to feed the hungry, provide medical care and prevent homelessness.

Donate thousands of meals to feed Kupuna, homesteaders and families in need.

Rent waivers, reductions and deferrals for small businesses, particularly restaurants and retail stores.

REITs are good citizens of the corporate community and are committed to supporting Hawaii over the long term, no matter how the economy fares. REITs operate honestly, ethically and with the well-being of our communities, families and the future in mind.