RELATING TO TAXATION OF REAL ESTATE INVESTMENT TRUSTS.

HB1273

HOUSE OF REPRESENTATIVES

H.B. NO.

1273

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating to taxation of real estate investment trusts.

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

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SECTION
1
.
�
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);

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(27)
�
Subchapter G (sections 531 to 565) (with
respect to corporations used to avoid income tax on shareholders);

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(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);

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(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 dividends paid deduction for real estate
investment trusts);

��
[
(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), except for section 1341 (with
respect to computation of tax where taxpayer restores substantial amount held
under claim of right);

��
[
(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); and

��
[
(50)
]

(51)
�
Section 1400U-3 (with respect to recovery
zone facility bonds).
"

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SECTION
2
.
�
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,
for
taxable years beginning before January 1, 2026,
the deduction for dividends
paid is limited to [
such
]
the
amount of dividends as is
attributable to income taxable under this chapter[
),
]
and, for
taxable years beginning after December 31, 2025, no deductions 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 the trust is liable that
is attributable solely to the 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 the taxable year.

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Notwithstanding
the foregoing, beginning January 1, 2022, the department shall require a real
estate investment trust subject to this chapter to:

����
(1)
�
Notify the department, in the manner
prescribed by the department, of its operation as a real estate investment
trust in the State no later than fifteen days from the first day of operation
in the State; provided that, for real estate investment trusts operating in the
State as of July 1, 2021, the department shall be notified no later than
January 15, 2022;

����
(2)
�
Properly designate on its tax return that it
is a real estate investment trust, as required by the department;

����
(3)
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Complete its tax return in the specific manner
required by the department, including following line-by-line instructions; and

����
(4)
�
Submit a copy of the real estate investment
trust's federal tax return covering the same period with each state tax return
that the real estate investment trust files with the department under this
chapter.

Any real estate investment trust that fails to comply with these
requirements shall be assessed a penalty of $50 per day.
"

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SECTION
3.
�
Statutory material to be repealed is
bracketed and stricken.
�
New statutory
material is underscored.

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SECTION 4.
�
This Act, upon its approval, shall apply to
taxable years beginning after December 31, 2025.

INTRODUCED BY:

_____________________________

Report Title:

Taxation; Real Estate Investment Trusts; Dividends Paid
Deduction

Description:

Disallows the dividends-paid deduction for real estate
investment trusts.
�
Applies to taxable
years beginning after 12/31/2025.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.