HOUSE OF REPRESENTATIVES
THIRTIETH LEGISLATURE, 2019
STATE OF HAWAII
A BILL FOR AN ACT
relating to down payments.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that Hawaii loses many of its residents via the process of relocation. The primary reason for this phenomenon often stems from financial burden. Hawaii consistently ranks as one of the most expensive states in which to reside, with a cost of living that far outstrips other cities and towns in America. Many residents are forced to leave to seek a better life elsewhere for themselves and for their families.
The negative impact of this relocation process results in an economic, social, and cultural burden for the state of Hawaii. Likewise, the resulting loss of children, parents, aunts/uncles, grandparents, and other members of the immediate and extended family unit is traumatic, especially when the impetus for the move is based upon financial necessity. This practice is disruptive and fragments the important concept of Ohana (family) in the life and culture of our unique island state, which erodes kinship support networks among existing residents and may even impact family-planning decisions for younger generations when considering their ability to clothe, feed, and educate future progeny.
Economically, Hawaii is hemorrhaging potential talent within our workforce. Young or skilled workers leave to accept superior career opportunities far from home. Failure to take appropriate action to stem this loss represents a danger to Hawaii's economic stability.
The purpose of this act is to incentivize the return of Hawaii residents who have relocated to the mainland or elsewhere and to galvanize and strengthen economic, social, and cultural growth in Hawaii.
SECTION 2. Chapter 201H, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§201H- Qualified returning resident down payment program; established. (a) There is established the qualified returning resident down payment program to be administered by the corporation. The program shall provide qualified returning residents matching funds to assist with meeting down payment requirements associated with the purchase of real property.
(b) In addition to meeting the requirements of a qualified returning resident as defined in subsection (d) of this section, the following additional criteria must be met prior to any funds being disbursed:
(1) The real property sought for purchase must be a single-family residential structure, condominium, town home, or other similar type of residence designed for single family occupancy; and
(2) The qualified returning resident must occupy the real property on a full-time basis as their primary residence for no less than two years calculated from the date of closing.
(c) The total amount of assistance provided to a qualified returning resident under this program shall not exceed ten percent of the property value or fifty thousand dollars, whichever is less.
(d) For the purpose of this section, a "qualified returning resident" must meet all of the following conditions:
(1) Graduation from a high school within the State of Hawaii and accredited by the Hawaii Department of Education or, while residing within the State of Hawaii, satisfied the requirements as set forth by the Hawaii department of education for meeting the minimum qualifications necessary for high school graduation equivalency; and
(2) Ceased residency in the State of Hawaii for the express purpose of attending a four-year course of study leading to baccalaureate degree at a college or university recognized as properly accredited by the United States Department of Education's Office of Postsecondary Education."
SECTION 3. Chapter 201H, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§201H- Qualified returning resident down payment program special fund. (a) There is established in the state treasury a special fund to be known as the qualified returning resident down payment program special fund. All taxes collected under chapter 235- (relating to real estate investment trusts) in each calendar year shall be deposited in the qualified returning resident down payment program special fund. The director of finance shall transfer any moneys appropriated for the purpose of the qualified returning resident down payment program.
(b) The special fund may be used by the department for the following purposes:
(1) Creating and maintaining a program to provide a down payment for qualified returning residents; and
(2) Funding the administrative costs, program fees, or other costs associated with the operation of a qualified returning resident down payment program.
(c) Moneys deposited in the fund shall be expended by the Hawaii housing finance and development corporation.
SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2019-2020 for the establishment of the qualifying returning resident down payment program.
The sums appropriated shall be expended by the corporation under the direction of the department of business, economic development, and tourism for the purposes of this Act.
SECTION 5. The legislature finds that real estate investment trusts, under current law, do not pay their full share of taxes. The dividends paid deduction and the corporate structure of real estate investment trusts allows income generated by the corporation to go untaxed in Hawaii costing the state valuable tax dollars that could be used to the benefit of both our residents and those former residents wishing to return.
According to the department of business, economic development, and tourism, the net annual income for real estate investment trusts has risen quickly in the last several years from $79.9 million in 2012 to $720.6 million in 2014. Had real estate investment trusts been subject to the same taxation as other corporations, they would have generated an additional $36 million in state revenue in 2014. The legislature finds it unacceptable that real estate investment trusts are taking advantage of Hawaii's tax laws and real estate market to generate enormous profits that ultimately have little or no benefit to residents within our state or the infrastructure provided by the state to support the properties at issue.
There are two ways to ensure that Hawaii is paid its fair share of income taxes from the economic activity generated by real estate investment trusts. First, real estate investment trusts will be required to withhold a proportion of dividends attributable to Hawaii and remit them to the state. Similar to the way other corporate forms are taxed in Hawaii, this will have the same effect on the real estate investment trust as their shareholders being taxed in their home states. Instead of the tax income going to other states, requiring annual tax returns on dividends ensures that tax income goes to the State for business activity generated in Hawaii.
Second, closing the dividends paid deduction will ensure that real estate investment trusts cannot use it as a loophole to escape proper taxation. According to federal law, real estate investment trusts must distribute at least 90 percent of its taxable income to shareholders. The dividends paid deduction allows real estate investment trusts to escape paying taxes on income generated from doing business in Hawaii. Closing the loophole ensures that Hawaii receives its share of a real estate investment trust's taxable income.
The purpose of this Act is to require real estate investment trusts to submit returns based on dividends distributed and income generated in Hawaii and to repeal the dividend paid deduction for real estate investment trusts thereby creating a revenue source to fund the qualified returning resident down payment program special fund.
SECTION 6. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§235- Real estate investment trust returns; shareholder agreements; mandatory payments. (a) Each real estate investment trust shareholder receiving a dividend from the real estate investment trust shall take into account for purposes of this chapter a pro rata share of income attributable to the State, to the extent modified under this chapter, under rules similar to those adopted pursuant to section 235-122(c). The percentage of the dividend attributable to the State shall be the same as the real estate investment trust's overall percentage of income attributable to the State.
Each real estate investment trust shall make a return for each taxable year, stating specifically:
(1) The items of its gross income and the deductions allowable by this chapter;
(2) The name, address, and social security or federal identification number of each person owning stock in the real estate investment trust at any time during the taxable year;
(3) The number of shares of stock owned by each shareholder at all times during the taxable year;
(4) The income attributable to the State and income not attributable to the State with respect to each shareholder as determined under this chapter;
(5) Any modifications required under this chapter;
(6) The amount of money and other property distributed by the real estate investment trust during the taxable year to each shareholder;
(7) The amount of each distribution constituting a dividend or capital gain dividend; and
(8) Any other information that the department, by form or rule, may prescribe.
The real estate investment trust, on or before the day on which its return is filed, shall furnish to each person who was a shareholder during the year a copy of the information shown on the return as the department may prescribe by form or rule. Any return filed pursuant to this section, for purposes of sections 235-111 and 235-112, shall be treated as a return filed by the real estate investment trust under section 235-92.
(b) The department shall permit any real estate investment trust to file composite returns and to make composite payments of tax on behalf of some or all of its nonresident shareholders. The department may permit composite returns and payments to be made on behalf of resident shareholders.
(c) A real estate investment trust shall file with the department, in the form prescribed by the department, the agreement of each nonresident shareholder of the real estate investment trust:
(1) To file a return and make timely payment of all taxes imposed by this State on the shareholder with respect to the income of the real estate investment trust; and
(2) To be subject to personal jurisdiction in this State for purposes of the collection of unpaid income tax, together with related interest and penalties.
If the real estate investment trust fails to timely file the agreements required by paragraphs (1) and (2) on behalf of each of its nonresident shareholders, then the real estate investment trust, at the times set forth in subsection (d), shall pay to this State on behalf of each nonresident shareholder in respect of whom an agreement has not been timely filed an amount equal to the highest marginal tax rate in effect under section 235-75 (if the shareholder is a corporation) or 235-51 (for any other shareholder), multiplied by the amount of the shareholder's pro rata share of the income attributable to the State as reflected on the real estate investment trust's return for the taxable period. A real estate investment trust shall be entitled to recover a payment made pursuant to the preceding sentence from the shareholder on whose behalf the payment was made.
(d) The agreements required to be filed pursuant to subsection (c) shall be filed at the following times:
(1) At the time the annual return is required to be filed for the first taxable period for which the real estate investment trust became subject to this chapter; and
(2) At the time the annual return is required to be filed for any taxable period in which the real estate investment trust had a nonresident shareholder on whose behalf such an agreement has not been previously filed.
(e) Any amount paid by the real estate investment trust to this State pursuant to subsection (b) or (c) shall be considered to be a payment by the shareholder on account of the income tax imposed on the shareholder for the taxable period.
(f) Any officer of any real estate investment trust who willfully fails to provide any information, file any return or agreement, or make any payment as required by this section or by section 231-15.6 shall be guilty of a misdemeanor.
(g) All moneys collected pursuant to this section shall be deposited into the qualified returning resident down payment program special fund established under section §201H- , (known as the qualified returning resident down payment program).
(h) As used in this section, a "real estate investment trust" means a corporation for which a valid election under section 856 of the Internal Revenue Code, as amended, is in effect."
SECTION 7. Section 235-2.3, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
(b) The following Internal Revenue Code subchapters, parts of subchapters, sections, subsections, and parts of subsections shall not be operative for the purposes of this chapter, unless otherwise provided:
(1) Subchapter A (sections 1 to 59A) (with respect to determination of tax liability), except section 1(h)(2) (relating to net capital gain reduced by the amount taken into account as investment income), except sections 2(a), 2(b), and 2(c) (with respect to the definition of "surviving spouse" and "head of household"), except section 41 (with respect to the credit for increasing research activities), except section 42 (with respect to low-income housing credit), except sections 47 and 48, as amended, as of December 31, 1984 (with respect to certain depreciable tangible personal property), and except section 48(d)(3), as amended, as of February 17, 2009 (with respect to the treatment of United States Department of Treasury grants made under section 1603 of the American Recovery and Reinvestment Tax Act of 2009). For treatment, see sections 235-110.91, 235-110.7, and 235-110.8;
(2) Section 78 (with respect to dividends received from certain foreign corporations by domestic corporations choosing foreign tax credit);
(3) Section 86 (with respect to social security and tier 1 railroad retirement benefits);
(4) Section 91 (with respect to certain foreign branch losses transferred to specified 10-percent owned foreign corporations);
(5) Section 103 (with respect to interest on state and local bonds). For treatment, see section 235-7(b);
(6) Section 114 (with respect to extraterritorial income). For treatment, any transaction as specified in the transitional rule for 2005 and 2006 as specified in the American Jobs Creation Act of 2004 section 101(d) and any transaction that has occurred pursuant to a binding contract as specified in the American Jobs Creation Act of 2004 section 101(f) are inoperative;
(7) Section 120 (with respect to amounts received under qualified group legal services plans). For treatment, see section 235-7(a)(9) to (11);
(8) Section 122 (with respect to certain reduced uniformed services retirement pay). For treatment, see section 235-7(a)(3);
(9) Section 135 (with respect to income from United States savings bonds used to pay higher education tuition and fees). For treatment, see section 235-7(a)(1);
(10) Section 139C (with respect to COBRA premium assistance);
(11) Subchapter B (sections 141 to 150) (with respect to tax exemption requirements for state and local bonds);
(12) Section 151 (with respect to allowance of deductions for personal exemptions). For treatment, see section 235-54;
(13) Section 179B (with respect to expensing of capital costs incurred in complying with Environmental Protection Agency sulphur regulations);
(14) Section 181 (with respect to special rules for certain film and television productions);
(15) Section 196 (with respect to deduction for certain unused investment credits);
(16) Section 199 (with respect to the U.S. production activities deduction);
(17) Section 199A (with respect to qualified business income);
(18) Section 222 (with respect to qualified tuition and related expenses);
(19) Sections 241 to 247 (with respect to special deductions for corporations). For treatment, see section 235-7(c);
(20) Section 250 (with respect to foreign-derived intangible income and global intangible low-taxed income);
(21) Section 267A (with respect to certain related party amounts paid or accrued in hybrid transactions or with hybrid entities);
(22) Section 280C (with respect to certain expenses for which credits are allowable). For treatment, see section 235-110.91;
(23) Section 291 (with respect to special rules relating to corporate preference items);
(24) Section 367 (with respect to foreign corporations);
(25) Section 501(c)(12), (15), (16) (with respect to exempt organizations); except that section 501(c)(12) shall be operative for companies that provide potable water to residential communities that lack any access to public utility water services;
(26) Section 515 (with respect to taxes of foreign countries and possessions of the United States);
(27) Subchapter G (sections 531 to 565) (with respect to corporations used to avoid income tax on shareholders);
(28) Subchapter H (sections 581 to 597) (with respect to banking institutions), except section 584 (with respect to common trust funds). For treatment, see chapter 241;
(29) Section 642(a) and (b) (with respect to special rules for credits and deductions applicable to trusts). For treatment, see sections 235-54(b) and 235-55;
(30) Section 646 (with respect to tax treatment of electing Alaska Native settlement trusts);
(31) Section 668 (with respect to interest charge on accumulation distributions from foreign trusts);
(32) Subchapter L (sections 801 to 848) (with respect to insurance companies). For treatment, see sections 431:7-202 and 431:7-204;
(33) Section 853 (with respect to foreign tax credit allowed to shareholders). For treatment, see section 235-55;
(34) Section 853A (with respect to credits from tax credit bonds allowed to shareholders);
(35) Section 857(b)(2)(B) (with respect to the deduction for dividends paid by real estate investment trusts); provided that the deduction shall remain available for dividends generated from trust-owned housing that is affordable to households with incomes at or below one hundred per cent of the median family income, as determined by the United States Department of Housing and Urban Development;
(35)] (36) Subchapter
N (sections 861 to 999) (with respect to tax based on income from sources
within or without the United States), except sections 985 to 989 (with respect
to foreign currency transactions). For
treatment, see sections 235-4, 235-5, and 235-7(b), and 235-55;
(36)] (37) Section
1042(g) (with respect to sales of stock in agricultural refiners and processors
to eligible farm cooperatives);
(37)] (38) Section
1055 (with respect to redeemable ground rents);
(38)] (39) Section
1057 (with respect to election to treat transfer to foreign trust, etc., as
(39)] (40) Sections
1291 to 1298 (with respect to treatment of passive foreign investment
(40)] (41) Subchapter
Q (sections 1311 to 1351) (with respect to readjustment of tax between years
and special limitations);
(41)] (42) Subchapter
R (sections 1352 to 1359) (with respect to election to determine corporate tax
on certain international shipping activities using per ton rate);
(42)] (43) Subchapter
U (sections 1391 to 1397F) (with respect to designation and treatment of
empowerment zones, enterprise communities, and rural development investment
areas). For treatment, see chapter 209E;
(43)] (44) Subchapter
W (sections 1400 to 1400C) (with respect to District of Columbia enterprise
(44)] (45) Section
1400O (with respect to education tax benefits);
(45)] (46) Section
1400P (with respect to housing tax benefits);
(46)] (47) Section
1400R (with respect to employment relief);
(48) Section 1400T (with respect to special
rules for mortgage revenue bonds);
(48)] (49) Section
1400U-1 (with respect to allocation of recovery zone bonds);
(49)] (50) Section
1400U-2 (with respect to recovery zone economic development bonds);
(50)] (51) Section
1400U-3 (with respect to recovery zone facility bonds); and
(51)] (52) Subchapter
Z (sections 1400Z-1 to 1400Z-2) (with respect to opportunity zones)."
SECTION 8. Section 235-71, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:
"(d) In the case of a real estate investment trust
there is imposed on the taxable income, computed as provided in sections 857
and 858 of the Internal Revenue Code but with the changes and adjustments made
by this chapter (without prejudice to the generality of the foregoing, the
deduction for dividends paid is limited to such amount of dividends as is
attributable to income taxable under this chapter[
)], and for taxable
years beginning after December 31, 2019, no deduction for dividends paid shall
be allowed), a tax consisting in the sum of the following: 4.4 per cent if the taxable income is not
over $25,000, 5.4 per cent if over $25,000 but not over $100,000, and on all
over $100,000, 6.4 per cent. In addition
to any other penalty provided by law any real estate investment trust whose tax
liability for any taxable year is deemed to be increased pursuant to section
859(b)(2)(A) or 860(c)(1)(A) after December 31, 1978, (relating to interest and
additions to tax determined with respect to the amount of the deduction for
deficiency dividends allowed) of the Internal Revenue Code shall pay a penalty
in an amount equal to the amount of interest for which such trust is liable
that is attributable solely to such increase.
The penalty payable under this subsection with respect to any
determination shall not exceed one-half of the amount of the deduction allowed
by section 859(a), or 860(a) after December 31, 1978, of the Internal Revenue
Code for such taxable year.
SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 10. This Act shall take effect on July 1, 2019, and shall apply to taxable years beginning after December 31, 2019.
Qualified returning resident down payment program; real estate investment trusts; special fund
Establishes a qualified returning resident down payment program funded by revenues collected from real estate investment trusts.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.