Column: Ige should approve REITs bill or give real reason for veto

It looks like Gov. David Ige intends to appease Alexander & Baldwin (A&B) and other real estate investment trusts (REITs) at the expense of all other Hawaii businesses and all of its citizens. He put Senate Bill 301 on his intend-to-veto list of bills.

SB 301 would apply Hawaii’s corporate tax to REITs, which are the only corporations exempt from it. Fortunately, he has a few days to change his mind.

We appeal to the governor’s sense of fairness and his obligation to act in the best interests of Hawaii’s people in urging him to sign the bill, or at least to let it become law without his signature.

In commenting on his bills for intended veto, Ige said in regards to SB 301 that he believes “the current process provides for tax equity.” However, the very purpose of this bill is to ensure that we have tax equity.

Hawaii’s current tax law treats REITs differently from all other corporations. In applying Hawaii’s corporate tax to REITs, SB 301 would result in the tax being applied to all corporations, resulting in equitable treatment for all.

REITs are exempt from Hawaii’s corporate tax because Hawaii has voluntarily adopted most of the provisions of the federal Internal Revenue Code. Accordingly, REITs distribute their profits to shareholders, who pay taxes through personal income taxes.

Unfortunately for Hawaii, 99% of the shareholders of REITs live in other states, so 99% of Hawaii REIT earnings are taxed in other states. Even A&B, which describes itself as a local company, is 90%-plus owned by mainlanders.

The federal government gets its tax revenue no matter where in the country shareholders live. SB 301 would allow Hawaii to collect all of the taxes it deserves.

Gov. Ige also said, “The benefits of continuing with this federally established legislation are clear and quantifiable.” REITs had ample opportunity to cite such “clear and quantifiable” benefits when they presented their arguments at various public hearings in opposition to SB 301. It is inexplicable that the REITs would not present them. Ige in his comments also alluded to possible negative effects of SB 301, saying that “there may be impacts to the state’s economic health,” and that the bill “could potentially stifle economic development.”

Of course, we all want a healthy economy. But the governor has apparently succumbed to REIT scare tactics that consist largely of theoretical arguments and hypotheticals. He now harbors a vague fear that SB 301 would stifle the economy. However, actual experience in New Hampshire shows that his fear is unjustified.

New Hampshire passed a law 20 years ago applying its corporate tax to REITs, as SB 301 would do in Hawaii. Today, REIT investment in New Hampshire is stronger than it is in two neighboring states, Vermont and Rhode Island, which do not apply their corporate tax to REITs. Furthermore, New Hampshire’s economy has not suffered because of it.

Actual experience shows that, despite what Hawaii REITs are saying, when REITs make investment decisions, other factors are much more important than whether the state applies its corporate tax to them or not. Hawaii’s corporate tax would be a small expense to them.

It has been said that the three most important factors in determining the desirability of a property are location, location, location. It follows that properties in Hawaii are desirable not because they are exempt from the corporate tax, but because of their location in Hawaii.

Ige promised transparency as one of the guiding principles of his administration. However, the reasons he has given for intending to veto SB 301 just don’t add up.

If he ultimately vetoes SB 301, he should at least tell the people of Hawaii his real reasons for vetoing it.

Keith Webster and Deanna Espinas are members of Faith Action for Community Equity (FACE).