Column: Double taxing REITs sends wrong message about Hawaii

As a longtime developer of housing projects throughout Hawaii, I cannot stress enough how important real estate investment trusts (REITs) are to our state’s financial well-being and resiliency.

REITs have invested billions of dollars here — increasing our supply of affordable housing, improving neighborhood shopping centers and upgrading hotels to ensure Hawaii remains a premier travel destination.

REITs contribute to improved infrastructure — new roads, expanded water, sewer and telecom- munications systems, bike lanes and parks, and funding for essential public services.

And let’s be clear, REITs generate hundreds of millions in dollars in tax revenue annually for Hawaii’s benefit.

Investment in Hawaii raises overall quality of life. While my company is not a REIT, I don’t consider REITs my competition. I see REITs as partners in making Hawaii’s communities better.

If Senate Bill 301 becomes law and Hawaii effectively doubles down on its taxation of REITs, we are telling REITs to invest in other, more business-friendly states. Every state, except one, honors the structure Congress established for REITs so that ordinary citizens could invest in real estate.

The repercussions of SB 301’s double taxation of REITS and how this would negatively impact future investment here and further damage our state’s business reputation has not been thought through.

If the state singles out REITs with this new form of double taxation, one can reasonably wonder why a similar tax would not be imposed on Limited Liability Corporations (LLCs) and Sub Chapter S Corporations. Like REITs, these corporate entities invest in Hawaii and pass on revenue and income tax responsibilities to shareholders.

Numerous Hawaii REITs have stated they will be reluctant to follow through on large-scale projects already on the drawing board. Our communities will be impacted if REIT investment is lost. There will be fewer jobs in construction, design and architecture, at hotels and in retail. There will be less investment in facilities residents use.

Ala Moana Center’s redevelopment, construction of the Moanalua Hillside affordable rental project, Hale Mahana UH student housing, and Hale Pawaa medical building are a few examples of REIT projects enriching Hawaii’s quality of life.

During the Legislature and in a May 23 Star-Advertiser column (“Public interest should prevail over special interests on REITs,” Island Voices), SB 301’s supporters made unsubstantiated claims the new law would raise $50 million to $120 million in state tax revenue.

In contrast, the state Department of Taxation stated SB 301 might produce $2 million the first year and, at most, $10 million annually thereafter. Moreover, DoTAX officials noted changes in tax planning by REITs would lower these figures further.

So how does SB 301 truly serve the public interest?

SB 301 would drive investments by REITs away from Hawaii. The loss of construction activity will lead to a decrease in tax revenue for the state and counties — i.e., general excise tax, property taxes, payroll taxes — and a loss in jobs and income for families statewide.

Furthermore, residents statewide — especially retirees and those planning for retirement — will be affected by SB 301. REITs are a valuable commodity for shareholders of mutual funds and retirement portfolios in Hawaii, including the state’s Employees’ Retirement System. The more REITs are driven from Hawaii, the more the impact will be felt by residents.

All this comes at a time when indications point to a slowing of Hawaii’s economy.

REITs are strong contributors to Hawaii’s economic health. REITs hold properties for the long-term, maintaining and improving them rather than flipping them for a quick profit. REITs support community causes.

A healthy state, fostering proper growth, benefits everyone living in Hawaii. REITs are responsible, sizeable investors and are important to moving Hawaii forward.

SB 301 is now with Gov. David Ige for review. Join me in telling him that a veto of SB 301 is in Hawaii’s public interest.

Stanford Carr heads Stanford Carr Development, LLC.