Hawaii House Bill HB947

Hawaii 2025 Regular Session

• Introduced: 1/23/25
• Refer: 1/23/25

Caption

Relating To Taxation Of Real Estate Investment Trusts.

Summary

HB947 would amend Hawaii’s tax code to remove the special dividends-paid deduction currently available to real estate investment trusts (REITs). Under the bill, REIT dividends would be taxed in the same manner as dividends paid by other corporations, rather than receiving the existing preferential treatment tied to the REIT structure. The bill’s stated purpose is to align REIT dividend taxation with general corporate dividend taxation. The measure makes a targeted change to section 235-2.3 of the Hawaii Revised Statutes by striking the operative treatment of Internal Revenue Code section 857(b)(2)(B), which governs the REIT dividends-paid deduction. It also preserves the rest of Hawaii’s conformity rules and specifies that the change applies to taxable years beginning after December 31, 2025. In practical terms, the bill would increase taxable income for affected REITs and could increase state tax collections from those entities and their investors, depending on how the tax burden is ultimately borne. Because no committee transcripts or recorded votes were provided, there is no documented debate history to show formal support or opposition. The bill text itself suggests a policy choice favoring tax parity between REITs and other corporations, which may appeal to lawmakers concerned about preferential tax treatment. At the same time, REITs and real estate industry stakeholders would likely view the change as a tax increase and a reduction in the incentive structure that supports real estate investment vehicles. The main point of contention is whether REITs should continue to receive a deduction that reduces entity-level taxation, or whether they should be treated more like ordinary corporations for state tax purposes. Supporters would likely argue the bill closes a special tax preference and broadens the tax base, while opponents would likely argue it could raise costs for real estate capital formation, affect investment returns, and potentially be passed through to tenants, property owners, or shareholders. With no recorded hearing or vote history, the overall sentiment cannot be measured from legislative discussion, but the bill’s framing indicates a revenue-raising and tax-equity rationale.

Impact

HB947 would amend Hawaii Revised Statutes section 235-2.3 to make Internal Revenue Code section 857(b)(2)(B) inoperative for Hawaii tax purposes, thereby disallowing the dividends-paid deduction for real estate investment trusts. This would change the state tax treatment of REIT dividends, subjecting them to the same general corporate dividend taxation rules rather than the current REIT-specific deduction. The change would apply prospectively to taxable years beginning after December 31, 2025, affecting REITs, their shareholders, and potentially state tax revenues.

Sentiment

There is no committee transcript or voting record provided, so there is no direct evidence of debate, amendments, or formal support/opposition. Based on the bill text, the measure appears to be presented as a tax conformity and equity change rather than a controversial policy overhaul. The likely general sentiment is neutral-to-supportive among those favoring tax base broadening, while affected real estate and investment stakeholders would likely be cautious or opposed because the bill removes a tax preference.

Contention

The central contention is whether Hawaii should continue to grant REITs a dividends-paid deduction that lowers their state tax burden. Supporters of the bill would likely argue that REITs should not receive a special deduction unavailable to other corporations and that the change improves fairness and state revenue. Opponents would likely argue that REITs are structured to avoid double taxation and that eliminating the deduction could reduce investment in real estate, increase financing costs, and weaken the attractiveness of Hawaii’s real estate market. No specific stakeholder testimony or recorded vote is available, so these positions are inferred from the bill’s policy effect rather than documented debate.