Bill Text: HI SB770 | 2010 | Regular Session | Introduced

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Bill Title: Real Property; Leasehold

Spectrum: Partisan Bill (Democrat 3-0)

Status: (Introduced - Dead) 2009-05-11 - Carried over to 2010 Regular Session. [SB770 Detail]

Download: Hawaii-2010-SB770-Introduced.html

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Report Title:

Real Property; Leasehold

 

Description:

Mandates certain conditions applicable to certain commercial and industrial leases.  Exempts certain sales of fee interest to lessee from state income tax.

 

THE SENATE	S.B. NO.	770
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to real property.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 

     SECTION 1.  The legislature finds that certain elements of inequity exist in the relationship of fee simple owners of commercial and industrial properties and holders of long-term leasehold interest in those properties who undertake the leases for the purpose of developing, improving, operating, and subletting the properties.  These inequities accrue to the detriment of Hawaii's business and economic development and harm Hawaii's working and retired taxpayers.  Uncomplicated and fair legislative remedies exist that can obviate these inequities.

     The purpose of this Act is to implement certain conditions governing long-term leases of commercial and industrial properties.

     SECTION 2.  Chapter 519, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§519-    Leases of commercial and industrial property.  (a)  Anything to the contrary notwithstanding, any lease of commercial or industrial leasehold property where the lessor is the owner, directly or indirectly, of fifty thousand square feet or more of commercial or industrial leasehold property in the State shall be subject to the following terms and conditions:

     (1)  Whenever a lease condition requires that a lessee obtain the approval of the lessor for the assignment, transfer, or encumbrance of the leasehold property, the approval of the lessor may not be unreasonably withheld;

     (2)  Where a lessee is required by a lease with less than thirty years remaining on its term to make major and substantial improvements to any structures on the leasehold property or to any infrastructure supporting the leasehold property, the requirement to the lessee shall be limited to making reasonable maintenance and repair work to satisfy federal, state, and county laws, ordinances, and code requirements to ensure the public's health, safety, and welfare, and the lessee shall not be required to make substantial new improvements to infrastructure or structures;

     (3)  Where a lease provides for the reversion of any improvements on the leasehold property at the termination of the lease, the improvements shall be returned subject to reasonable wear and tear that may have resulted from the use of the improvements over the full term of the lease;

     (4)  Where a lease provides for periodic step-ups in lease rent over the term of the lease, the increases in lease rent shall be determined, in part, on a determination of the financial feasibility of the rent increase in relation to the current use of the leasehold property; and

     (5)  In the event that a lessor determines to sell the leasehold interest and all improvements on the leasehold property to the lessee, the lessor shall be entitled to exclude from gross income subject to the tax imposed by chapter 235, in the year of the sale, any gain the lessor realizes from the sale.

     (b)  For purposes of this section, "commercial or industrial leasehold property" means any real property:

     (1)  Situated in the State;

     (2)  Zoned by a county for commercial, industrial, or mixed use; and

     (3)  That is subject to a lease with an unexpired term of twenty years or more."

SECTION 3.  Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There shall be excluded from gross income, adjusted gross income, and taxable income:

     (1)  Income not subject to taxation by the State under the Constitution and laws of the United States;

     (2)  Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;

     (3)  Any compensation received in the form of a pension for past services;

     (4)  Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

     (5)  Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

     (6)  Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any express exemption or exclusion;

     (7)  Income received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii national guard as compensation for performance of duty, equivalent to pay received for forty-eight drills (equivalent of twelve weekends) and fifteen days of annual duty, at an:

         (A)  E-1 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2004;

         (B)  E-2 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2005;

         (C)  E-3 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2006;

         (D)  E-4 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2007; and

         (E)  E-5 pay grade after eight years of service; provided that this subparagraph shall apply to taxable years beginning after December 31, 2008;

     (8)  Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country; provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft that are documented or registered under the laws of the United States;

     (9)  The value of legal services provided by a prepaid legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (10)  Amounts paid, directly or indirectly, by a prepaid legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

    (11)  Contributions by an employer to a prepaid legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents;

    (12)  Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3 shall not be gross income, adjusted gross income, or taxable income for the acting utility under this chapter.  Any amounts retained by the acting utility for collection or other costs shall not be included in this exemption; [and]

    (13)  One hundred per cent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of owners under chapter 514A or 514B, or the residential cooperative corporation of the leasehold units.

          For purposes of this paragraph:

              "Fee simple owner" shall have the same meaning as provided under section 516-1; provided that it shall include legal and equitable owners;

              "Legal and equitable owner", and "leased fee interest" shall have the same meanings as provided under section 516-1; and

              "Condominium project" and "cooperative project" shall have the same meanings as provided under section 514C-1; [and]

    (14)  One hundred per cent of the gain realized by a lessor where the lessor is the owner, directly or indirectly, of fifty thousand square feet or more of commercial or industrial leasehold property in the State, upon the sale of the leasehold interest and all improvements on the leasehold property to the lessee in the year of sale.

For purposes of this paragraph:

"Commercial or industrial leasehold property" shall have the same meaning as provided in section 519-  ; and

"Lessor" and "lessee" shall have the same meanings as provided under section 516-1."

SECTION 4.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 5.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect on July 1, 2009; provided that section 3 shall apply to taxable years beginning after December 31, 2009.

 

INTRODUCED BY:	_____________________________