STAND. COM. REP. NO. 705

Honolulu, Hawaii

RE:    S.B. No. 600

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fourth State Legislature

Regular Session of 2007

State of Hawaii

Madam:

     Your Committee on Ways and Means, to which was referred S.B. No. 600 entitled:

"A BILL FOR AN ACT RELATING TO LEASEHOLD CONVERSION,"

begs leave to report as follows:

     The purpose of this measure is to exempt from state income taxation, one hundred per cent of the capital gains realized during taxable years 2008-2012, from a sale of the leased fee interest in condominium units to an association of apartment owners or residential cooperative corporations.

     Your Committee received comments in support of this measure from the Hawaii Association of Realtors, Hawaii Independent Condominium & Cooperative Owners, and Monarch Properties, Inc.  Written comments were received from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that in 2004, the City and County of Honolulu's Leasehold Task Group was charged with finding voluntary solutions that would allow apartment owner-occupants to acquire their leased-fee interest.  One of the recommendations of the Task Group was for tax legislation that would motivate lessors to sell their leased-fee interest to lessee owner-occupants.  Exempting the lessor's sale proceeds from the capital gains tax under state law is one such tax legislation that could motivate lessors to sell.

     Your Committee believes that this measure would provide residential lessees with an opportunity to be fee simple homeowners in an increasingly expensive and competitive housing market, and it is the intent of your Committee to support this modest option.  More importantly, exempting these sales from the State's capital gains tax could result in the voluntary conversion of leasehold to fee simple ownership for residential lessees throughout the State, preventing the anticipated displacement of many older residents whose leasehold terms will soon expire.

     As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 600 and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

____________________________

ROSALYN H. BAKER, Chair