SB766.DOC

SECTION 1. The purpose of this Act is to establish a tax on the value of improvements, surrendered by a lessee to a lessor, without compensation to the lessee, at the expiration of a long-term lease of non-residential real property.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

TAX ON SURRENDERED LEASEHOLD IMPROVEMENTS

§ -1 Purpose. The purpose of this chapter is to establish a tax on the value of improvements on non-residential real property that are constructed or installed by a lessee and surrendered to a lessor, without compensation to the lessee, at the expiration of a long-term lease.

§ -2 Definitions. For the purpose of this chapter:

"Improvement" means any physical improvement to a parcel of real property, including but not limited to a building, other structure, driveway, walkway, infrastructure, and landscaping.

"Lessee" means any person to whom land is leased or subleased under a long-term lease and the lessee's heirs, successors, legal representatives, and assigns.

"Lessor" means any person who leases or subleases land to another under a long-term lease and the lessor's heirs, successors, legal representatives, and assigns.

"Long-term lease" means a conveyance of land or an interest in land by a fee simple owner, as lessor, or by a lessee or sublessee, as sublessor, to any person in consideration of a return of rent or other compensation or renumeration for a term, measured from the initial date of the conveyance, of twenty years or more, including any periods for which the lease may be extended or renewed at the option of the lessee.

"Non-residential real property parcel" means a parcel of real property that is not used for apartment or residential purposes, provided that:

(1) "Apartment or residential purposes" shall not include hotel, resort, transient accommodation, or time share use; and

(2) If the parcel is a mixed use parcel, only that portion of the parcel not used for apartment or residential purposes, as determined by the relevant county, shall be subject to the tax of this chapter.

§ -3 Tax on improvements surrendered to a lessor without compensation to the lessee. (a) There is established a tax on the value of improvements on a non-residential real property parcel that are surrendered by the lessee to the lessor at the expiration of a long-term lease if:

(1) The lessee, without financial or capital assistance from the lessor, constructed or installed the improvements during the period the lessee held the long-term lease to the non-residential real property parcel; and

(2) The lessee did not receive compensation equaling the value of the surrendered improvements at the time of surrender.

(b) Except as provided under subsection (c), the tax shall be levied at a rate of per cent of the value of the improvements surrendered to the lessor. The value of the improvements shall be the same as established by the county for real property tax purposes for the taxable year in which the lease expires.

(c) If the lessor has paid compensation to the lessee for surrendered improvements, but in an amount less than the value of the improvements, then the tax shall be levied on the difference between the total value of the improvements and the compensation paid.

§ -4 Administration. (a) Each county shall administer the tax imposed by this chapter. The county shall establish the deadline for the payment of the tax, which shall not be later than ninety days after expiration of the relevant long-term lease.

(b) To establish the value of improvements on a non‑residential parcel, a county may use the gross value of the improvements as assessed by mass appraisal for real property tax purposes and without reduction for exemptions or appeals. The county shall not be required to prepare an individual appraisal for each non-residential parcel with improvements taxable under this chapter.

§ -5 Enforcement. Each county shall enforce the collection of the tax imposed by this chapter. The county may attach a lien on the land, surrendered improvements, or both, of the real property that was the subject of the long-term non‑residential lease. The county may bring an action in the circuit court to collect any delinquent tax.

§ -6 Appeal. Each county shall establish a process for the administrative appeal by a lessor of the tax imposed by this chapter. The administrative appeal process shall not need to be in conformance with chapter 91.

Each county, upon exhaustion of the administrative appeal process, shall provide for judicial appeal by either the county or lessor to the circuit court.

§ -7 Ordinance or rule. Each county shall establish the administration, enforcement, and appeal provisions by ordinance or rule.

§ -8 Revenue distribution. Revenues collected from the tax imposed by this chapter shall be distributed as follows:

(1) The county that collected the revenues shall retain an amount equaling the cost of collection; and

(2) Of the remainder, the county shall retain fifty per cent and transmit to the State the other fifty per cent, which shall be deposited into the state general fund."

SECTION 3. The tax established under chapter , Hawaii Revised Statutes, shall be imposed on a lessor who receives surrendered improvements upon the expiration of a long-term non‑residential lease from the effective date of this Act, even if the term of the subject long-term lease commenced before that date.

SECTION 4. This Act shall take effect on January 1, 2010.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	766
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII