Bill Text: HI HB740 | 2019 | Regular Session | Introduced
Bill Title: Relating To Real Estate Investment Trusts.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2019-01-28 - Referred to EDB, JUD/CPC, FIN, referral sheet 6 [HB740 Detail]
Download: Hawaii-2019-HB740-Introduced.html
|
HOUSE OF REPRESENTATIVES |
H.B. NO. |
740 |
|
THIRTIETH LEGISLATURE, 2019 |
|
|
|
STATE OF HAWAII |
|
|
|
|
|
|
|
|
||
|
|
||
A BILL FOR AN ACT
RELATING TO REAL ESTATE INVESTMENT TRUSTS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. 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. Instead, dividends are taxed as income in a shareholder's home state. 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.
It is unacceptable that real estate investment trusts are taking advantage of Hawaii's tax laws to export profits out of the state. 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 on 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 based on income generated in Hawaii and to repeal the dividend paid deduction for real estate investment trusts.
SECTION 2. 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 3. Section 235-2.3, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
(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
taxable exchange);
[(39)]
(40) Sections
1291 to 1298 (with respect to treatment of passive foreign investment
companies);
[(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
zone);
[(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);
[(47)] (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 4. 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 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect on July 1, 2019 and shall apply to taxable years beginning after December 31, 2019.
|
INTRODUCED BY: |
_____________________________ |
|
|
|
Report Title:
Real estate investment trusts
Description:
Requires real estate investment trusts to submit returns based on dividends distributed based on income generated in Hawaii and repeals the dividend paid deduction for 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.
