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A state Senate panel has watered down a bill that sought to remove a long-standing income tax break for certain real estate companies that own more than $13 billion worth of property in Hawaii.

The Senate Ways and Means Committee voted Wednesday to amend Senate Bill 118 to ask the state to simply study the issue and report back to the Legislature in December.

The measure would have forced real estate investment trusts to pay corporate income taxes in Hawaii. Currently, the trusts don’t have to pay income taxes as long as they distribute their earnings to shareholders.

In mostly written testimony, more than six dozen people had urged lawmakers to remove the tax exemption that benefits companies such as General Growth Properties, which owns Ala Moana Shopping Center.

But it was a typical outcome for Hawaii lawmakers who have earned a reputation for being cautious and risk-averse.

Chairwoman Jill Tokuda said during Wednesday’s hearing that lawmakers don’t have enough information about the potential consequences of the bill.

“We have an opportunity to do this right,” Tokuda said. “We’ve had this same bill every year with the same anecdotal arguments.”

That’s largely because the state Department of Taxation has little to offer in terms of the bill’s potential impact.

“Our market is so strong, so dynamic, so restrictive that they will continue to invest.” — Peter Savio, a local real estate investor, speaking in favor of the bill

The agency couldn’t give a definitive answer as to how much revenue the state might receive from the change, nor how many Hawaii residents may be invested in local real estate investment trusts.

Instead, the tax department’s testimony largely mimicked the arguments of the National Association of Real Estate Investment Trusts, a Washington, D.C.-based organization that contended the bill would discourage investment in Hawaii.

“The department is only concerned that if you pull this particular tax benefit they may not invest in Hawaii,” Mark Yee, an administrative rules specialist at the tax department, told the panel. He also noted that the trusts could shift their investments to cheaper tax jurisdictions offshore.

“Just because you impose an income tax doesn’t mean that they will pay income tax,” Yee said.

Meanwhile, NAREIT emphasized that 20 widely held real estate investments trusts have so far invested $6 billion in Hawaii’s economy.

“If Hawaii were to enact SB 118 it would not be viewed as an attractive place for real estate investment capital,” said Dara Bernstein, an attorney with NAREIT, who flew to Hawaii from Washington, D.C., to urge rejection of the measure.

The national lobbying group also enlisted public relations help from the local firm Stryker Weiner & Yokota and hired experienced local lobbyists from Ashford and Wriston.

Several local organizations and companies also opposed the measure, including the Hawaii Association of Realtors; Building Industry Association; Pacific Resource Partnership; Land Use Research Foundation; and numerous companies that operate in Hawaii as real estate investment trusts or do business with them.

Although the Legislature has considered similar proposals before, this is the first year that the bill has received significant support.

More than 75 people submitted testimony in favor of the measure, including business owners such as Steven Sofos of Sofos Realty Corporation; Colbert Matsumoto of Island Insurance; and real estate developer Peter Savio of The Savio Group.

Savio was one of the few supporters who showed up in person to testify at the hearing. “Stop giving our tax revenue to mainland states,” he said, noting that many shareholders in real estate investment trusts don’t live in Hawaii.

“We have an opportunity to do this right. We’ve had this same bill every year with the same anecdotal arguments.” — Chairwoman Jill Tokuda, Senate Ways and Means Committee

Numerous unions also advocated for the measure, including the Hawaii Government Employees Association; the Hawaii State Teachers Association; Unite Here Local 5, which represents service workers; and Hawaii State AFL-CIO, a consortium of unions.

Bernstein from NAREIT said after the hearing she was pleased with the result.

“We think it’s definitely a positive step for Hawaii to take a look at the issue in more detail,” she said.

Michael Fergus was less happy. The local real estate investor was the lone voice advocating for a similar bill last year, and this time around he spent weeks marshaling support for the proposal.

“I think we’ve made our case and I think they should have passed it,” Fergus said. “But having said that, at least they didn’t kill it.”

He said he hoped the proposed state study would “take an enlightened look” at the issue.

The measure now goes to the full Senate for a vote. If it passes, it will be sent to the House for consideration.