SECTION 1. Section 235-71, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) In the case of a real estate investment trust:

(1) [~~there~~] There is imposed on the taxable income, computed as provided in sections 857 and 858 of the Internal Revenue Code but with the changes and adjustments made by this chapter (without prejudice to the generality of the foregoing, the deduction for dividends paid is limited to such amount of dividends as is attributable to income taxable under this chapter), a tax consisting in the sum of the following: 4.4 per cent if the taxable income is not over $25,000, 5.4 per cent if over $25,000 but not over $100,000, and on all over $100,000, 6.4 per cent. In addition to any other penalty provided by law any real estate investment trust whose tax liability for any taxable year is deemed to be increased pursuant to section 859(b)(2)(A) or 860(c)(1)(A) after December 31, 1978, (relating to interest and additions to tax determined with respect to the amount of the deduction for deficiency dividends allowed) of the Internal Revenue Code shall pay a penalty in an amount equal to the amount of interest for which such trust is liable that is attributable solely to such increase. The penalty payable under this subsection with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 859(a), or 860(a) after December 31, 1978, of the Internal Revenue Code for such taxable year[.];

(2) A taxpayer shall make an affirmative election to be taxed as a real estate investment trust, and as a requirement of such election, shall provide pertinent data as may be required by the department of business, economic development, and tourism solely for the purposes of producing any report mandated by the legislature. Failure to meet the requirements of this subsection shall invalidate the election to be taxed as a real estate investment trust. Such information at a minimum shall include:

(A) The total number of investors in that real estate investment trust and the total amount of dividends paid to those investors;

(B) The number of Hawaii taxpayers who are direct investors in that real estate trust and the total amount of dividends paid to those investors; and

(C) Whether such real estate investment trust is a captive real estate investment trust. For purposes of this paragraph, a "captive real estate investment trust" means a real estate investment trust that is not regularly traded on an established securities market, and where fifty per cent or more of the voting stock is owned or controlled, directly or indirectly, by a single entity treated as an association taxable as a corporation under the Internal Revenue Code that is not exempt from the federal income tax and is itself not a real estate investment trust; and

(3) Notwithstanding any other law to the contrary, the department may share the name and taxpayer identification number of a taxpayer who has elected to be taxed in accordance with this subsection with the department of business, economic development, and tourism, solely for the purpose of determining whether such taxpayer has complied with the provisions of this subsection. Any tax information submitted in compliance with this subsection shall be treated and afforded with the same confidentiality as a return filed under section 235-116."

SECTION 2. (a) The department of business, economic development, and tourism, with the assistance of the department of taxation, shall study the impact of real estate investment trusts in Hawaii and the possible effect of repealing the dividends paid deduction for real estate investment trusts. The study shall address the following:

(1) The total number of real estate investment trusts that operate in Hawaii;

(2) Of that total in paragraph (1), the number that are Hawaii-based;

(3) The number of Hawaii taxpayers who are investors in real estate investment trusts that operate in Hawaii;

(4) The number of Hawaii taxpayers who are investors in Hawaii-based real estate investment trusts that operate in Hawaii;

(5) A breakdown of Hawaii taxpayers who are investors in Hawaii-based real estate investment trusts that operate in Hawaii, by filing status and income;

(6) The direct and indirect impacts of real estate investment trusts on the Hawaii economy, especially in real estate development and operation;

(7) A comprehensive examination of captive real estate investment trusts for companies operating in Hawaii;

(8) An examination of the argument that real estate investment trusts provide opportunities for small investors to pool funds with others and invest in real estate developments, similar to investments through mutual funds invested in company stocks;

(9) An examination of the possible transfer pricing if the dividend paid income tax deduction for real estate investment trusts is repealed;

(10) An examination of the equity and efficiency of the dividends paid income tax deduction for real estate investment trusts;

(11) The projected tax revenue impact to the State if the dividends paid income tax deduction for real estate investment trusts is repealed;

(12) The impact on the real estate development market and capacity if the dividends paid income tax deduction for real estate investment trusts is repealed; and

(13) The impact on the economy of the State if the dividends paid income tax deduction for real estate investment trusts is repealed.

(b) The department of business, economic development, and tourism shall submit its findings and recommendations, including any proposed legislation, to the legislature not later than twenty days prior to the convening of the regular session of 2016.

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2015-2016 for the study on real estate investment trusts required under section 2 of this Act.

The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 4. This Act shall take effect upon approval; provided that section 3 shall take effect on July 1, 2015.

THE SENATE	S.B. NO.	118
TWENTY-EIGHTH LEGISLATURE, 2015		S.D. 1
STATE OF HAWAII		H.D. 1