There is a way for the state to get more money to fund early childhood education, improve services at our public hospitals, and address its obligations to the Employee Retirement System.

It will come from an uptapped revenue source with the potential to generate millions of dollars a year in perpetuity for the state of Hawaii.

A loophole in our state income tax law that came from the 1960s allows mainland corporations to take the net income that they earn in Hawaii out of state, tax free.

These corporations, which own and operate the major shopping centers in Hawaii, most of the Class A office buildings downtown, major industrial tracts like Mapunapuna, and many of the hotels in Waikiki and on the neighbor islands, are called Real Estate Investment Trusts (REITs). They pay no Hawaii corporate income tax.

There are about 25 major corporations operating profitably as REITs in Hawaii and they are all headquartered on the mainland.

Further, their senior management and 99.5 percent of their shareholders live on the mainland and they pay taxes on their REIT dividends in the states where they reside.

So other states are receiving the tax revenue earned in Hawaii even while our residents and local businesses foot the bill for the infrastructure, emergency and social services required to support the commercial properties owned by these REITs.

It’s time to close the REIT income tax loophole.

Currently, around $14 billion of Hawaii property is owned by REITs. These companies are earning an estimated $700 million to $1 billion every year in Hawaii, but they pay zero income tax. That is a loss of between $30 to $60 million annually in taxes for Hawaii.

Then there’s the capital gains tax on the sale of these properties, which is also not being taxed in Hawaii.

If a REIT sells one of its trophy shopping centers in Hawaii for a $100 million gain, the taxes on the gain are paid to the mainland states where its shareholders live. Hawaii gets nothing.

If a local corporation sold a property for a $100 million gain, the state of Hawaii would collect $4 million in capital gains tax.

REITs may pay general excise tax, conveyance tax and real property taxes in Hawaii, but in the case of the retail, office and industrial properties, 100 percent of those taxes are passed on to the REITs’ overburdened local tenants; so, again, these REITs effectively pay no taxes in Hawaii.

Why should we give out-of-state investors a tax break that we don’t give to our own local citizen-investors who are paying state income taxes ranging from 6 percent to 11 percent?

There is more REIT-owned property in Hawaii per capita than any other state in the nation, and by a wide margin.

The REITs argue that if we tax them and make them pay their fair share of taxes, they will no longer invest here. That is simply not true. The state of New Hampshire has taxed REITs for years and still has more REIT-owned property per capita than the median U.S. state.

All we are asking is that they pay 6.4 percent of the income earned in Hawaii to the state to support our community like the rest of us do.

There is no reason why any investor in Hawaii should be operating tax-free when our state is struggling to pay for our children’s education, services for our elderly, and to deliver promised benefits to its retirees.

REITs don’t pay sufficient taxes to support Hawaii’s infrastructure and don’t support our local charities in a meaningful way, then they ship our money out of state, tax free.

There are plenty of local and foreign tax-paying investors here, such as Alexander & Baldwin, Castle & Cooke, Watumull Properties, private equity funds, hedge funds and mainland institutional investors.

We should level the playing field and tax REITs the same way as other real-estate investors.

We need to protect our tax base for the benefit of our community.