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Public discussion on issues of importance should always be based on facts. It is therefore disappointing that misleading information and innuendo continues to be spread about real estate investment trusts in Hawaii.

A recent example is the Community Voice column from Faith Action for Community Equity President Ikaika Hussey on March 16, a piece that lacks evidence and is sprinkled with exaggeration.

Mr. Hussey says “the state is losing tens of millions of dollars because it is not collecting a corporate tax on REITs” — without offering any facts to support his position.

These unfounded claims are not new. FACE has made many promises of revenue that would be generated – $120 million, $64 million, $40 million have been alleged previously – if the state Legislature would remove the dividends-paid deduction for REITs that Congress enacted in 1960.

If that were to occur, Hawaii would become only the second state in the nation to take this action and prevent average citizens from being able to support their pensions and retirement portfolios by investing in the state’s real estate through REITs.

The false promises of FACE have never been substantiated and have always been based on an unrealistic expectation that “tens of millions of dollars” in tax revenue will be realized by applying the state’s corporate income tax rate to REITs’ gross income.

FACE has two major problems undercutting its position.

First, the state Department of Taxation reported to the Legislature and media in 2019 that applying a corporate tax on REITs might bring in $2.2 million the first year and, in theory, possibly $10 million annually after that.

But DoTax also noted that changing REITs’ tax status and assessing a state corporate tax would induce REITs to utilize tax deductions and credits — like all Hawaii corporations — and, in the end, likely pay little, if any, corporate income tax.

This goes to the second problem undercutting FACE’s arguments. DoTax records show that in 2018 two-thirds of all Hawaii corporations didn’t pay any state corporate income tax while the tax liability for the remainder was reduced by one-half due to offsetting tax credits.

Facts, Please

The total corporate income tax collected by the state in FY 2019 was $164 million, which compares to the $3.5 billion generated by the general excise tax ($8.3 billion in total tax revenue was collected).

Mr. Hussey may not be aware that REITs, like all entities, pay the GET. In some cases, like for hotel REITs, multiples of GET are paid specifically because of their business structure, as required by REIT regulations.

Thus, if FACE gets its way on the corporate tax issue, REITs would be incentivized to restructure and allocate future investments to other states. Rather than seeing tax revenue increase, Hawaii would experience a significant decline and loss in job opportunities.

Another unfortunate statement made by Mr. Hussey is that a reporting requirements bill before the legislature is needed so that “we can have an honest and accurate conversation about the impact of REITs’ taxation to Hawaii’s economy.” In fact, DoTax’s instructions on the corporation income tax return form already require REITs to file the information being proposed in this bill.

Additionally, for Mr. Hussey to suggest that public companies don’t report complete and accurate information with their tax filings is inflammatory and illogical considering the penalty for perjury when signing a tax return.

Mr. Hussey tries to undermine the paying of GET and real property taxes by REITs, stating “it’s important to note that Hawaii’s property tax rate is the lowest in the country.” This is misleading.

While this may be true for residential single-family homes, REITs in Hawaii own medical buildings, shopping centers, workforce rental apartments, commercial and industrial facilities, and hotel and resort properties, all of which have higher tax rates.

REITs occupy a valuable place in Hawaii’s economy, paying hundreds of millions of dollars in state and county taxes and supporting thousands of jobs. But, like all businesses, the COVID-19 pandemic has been devastating to REITs, particularly in the hospitality and retail sectors.

REITs are good corporate community citizens and committed to supporting Hawaii.

Regardless, REITs have maintained their commitment to supporting affordable housing projects, donating $585,000 over the past year to help build homes in Eleele, Waianae, Puna, Papakolea, and Waimanalo.

REITs have also provided much-needed support to help families cope and communities to recover during the pandemic, including:

Donating hundreds of thousands of dollars to nonprofits to feed the hungry, provide medical care, and prevent homelessness.

Donating thousands of meals to feed kupuna, homebound residents, and families in need.

Forgiving, abating and deferring rent of small businesses, particularly restaurants and retail outlets.

REITs are good corporate community citizens and committed to supporting Hawaii for the long haul, regardless of how the economy is doing. REITs operate honestly, ethically, and with the well-being of our communities, families and future in mind.