SB3101

PART I

SECTION 1. The legislature finds that the lack of sufficient affordable housing is one of the most pressing problems facing the State. The legislature also finds that after one accounts for the cost of living, Hawaii has the highest housing costs and the lowest wages in the nation. As rent costs and home prices increase at rates that outpace increases in wages, the State must adopt new means of ensuring the availability of affordable housing and residents' access to sufficient resources to afford housing.

The legislature believes that amending the state tax code could help low-income wage earners afford housing, without having a significant negative impact on the State's fiscal status. First, increasing the existing refundable income tax credit for low-income household renters and converting the state earned income tax credit into a refundable tax credit could provide low- to moderate-income working families with immediate access to additional funds that may be used to help pay their rent. Second, the distribution of conveyance tax revenues could be amended to provide a dedicated source of funding for the rental assistance revolving fund to provide assistance to low-income residents. Finally, the manner in which real estate investment trusts are taxed could be amended to more efficiently collect income taxes from out-of-state shareholders. This would result in increased tax revenues, which could be used to fund rental assistance programs and the tax credits augmented by this Act.

The purpose of this Act is to:

(1) Allocate a portion of the conveyance tax revenues to the rental assistance revolving fund to be used to subsidize rents for persons who meet certain income requirements;

(2) Authorize moneys in the rental assistance revolving fund to be used to finance the completion of environmental assessments and environmental impact statements for eligible affordable housing projects that may be required under chapter 343, Hawaii Revised Statutes;

(3) Increase the availability of the income tax credit for low-income household renters, and make adjustments to that credit annually based on inflation;

(4) Convert the state earned income tax credit into a refundable tax credit and change the amount of the credit to an unspecified percentage of the federal earned income tax credit; and

(5) Require real estate investment trusts to file returns reporting their shareholders' pro rata shares of net income attributable to this State, and withhold and remit income taxes for those shareholders who do not agree to file returns or pay tax on their pro rata share of net income attributable to this State.

PART II

SECTION 2. This Act shall be known as the Housing Affordability Act of 2018.

PART III

SECTION 3. Section 201H-123, Hawaii Revised Statutes, is amended to read as follows:

"[[]§201H-123[]] Rental assistance revolving fund. (a) There is created a rental assistance revolving fund to be administered by the corporation.

(b) The rental assistance revolving fund may include sums made available from [~~any~~]:

(1) Any government program or grant[~~, from private~~];

(2) Private grants or contributions[~~, from the~~];

(3) The proceeds of any bond issue[,];

(4) Conveyance tax revenues pursuant to section 247-7(3); or [~~from appropriations~~]

(5) Appropriations to the fund.

(c) The aggregate principal in the rental assistance revolving fund shall be invested by the corporation in a manner that [~~will maximize~~] maximizes the rate of return on investment of the fund; provided that any investment made shall be consistent with section 201H-77 but need not comply with section 36-21.

[~~(c) The~~] (d) Subject to the requirements of subsections (e) through (g), the corporation may use, as needed, the aggregate principal sum and the accumulated earnings in the rental assistance revolving fund [to] for the following purposes relating to eligible projects developed under this part:

(1) To make payments under rental assistance contracts [~~or to~~];

(2) To subsidize tenants' rents [~~in eligible projects developed under this part; provided that the~~]; or

(3) To finance the costs of environmental assessments and environmental impact statements that are required under chapter 343.

(e) The corporation shall use up to $25,000,000 plus any bond proceeds to provide interim construction financing to:

(1) Qualified sponsors who are private nonprofit or for-profit entities; or

(2) The corporation, for the development of affordable rental housing[;

~~provided further that the~~].

(f) The corporation, in allotting interim construction financing moneys pursuant to this subpart, shall give preference to rental housing projects developed by qualified sponsors who are private nonprofit or for-profit entities.

(g) Conveyance tax revenues deposited into the rental assistance revolving fund pursuant to section 247-7(3) may only be used to subsidize rents for individuals or families whose income does not exceed thirty per cent of the area median income as determined by the United States Department of Housing and Urban Development."

SECTION 4. Section 247-7, Hawaii Revised Statutes, is amended to read as follows:

"§247-7 Disposition of taxes. All taxes collected under this chapter shall be paid into the state treasury to the credit of the general fund of the State, to be used and expended for the purposes for which the general fund was created and exists by law; provided that of the taxes collected each fiscal year:

(1) Ten per cent or $6,800,000, whichever is less, shall be paid into the land conservation fund established pursuant to section 173A-5; [~~and~~]

(2) Fifty per cent or $38,000,000, whichever is less, shall be paid into the rental housing revolving fund established by section 201H-202[.]; and

(3) per cent or , whichever is less, shall be paid into the rental assistance revolving fund established by section 201H-123."

PART IV

SECTION 5. Section 235-55.7, Hawaii Revised Statutes, is amended to read as follows:

"§235-55.7 Income tax credit for low-income household renters. (a) As used in this section:

[~~(1)~~] "Adjusted gross income" is defined by section 235-1.

"Consumer price index" means the consumer price index for all urban consumers (CPI-U) for the Honolulu area, as published by the United States Department of Labor, Bureau of Labor Statistics, or a successor index.

[~~(2)~~] "Qualified exemption" includes those exemptions permitted under this chapter; provided that a person for whom exemption is claimed has physically resided in the State for more than nine months during the taxable year; and provided further that multiple exemption shall not be granted because of deficiencies in vision, hearing, or other disability.

[~~(3)~~] "Rent" means the amount paid in cash in any taxable year for the occupancy of a dwelling place [~~which~~] that is used by a resident taxpayer or the resident taxpayer's immediate family as the principal residence in this State. Rent is limited to the amount paid for the occupancy of the dwelling place only, and is exclusive of charges for utilities, parking stalls, storage of goods, yard services, furniture, furnishings, and the like. Rent shall not include any rental claimed as a deduction from gross income or adjusted gross income for income tax purposes, any ground rental paid for use of land only, [~~and~~] or any rent allowance or subsidies received.

(b) Each resident taxpayer who occupies and pays rent for real property within the State as the resident taxpayer's residence or the residence of the resident taxpayer's immediate family [~~which~~] that is not partially or wholly exempted from real property tax, who is not eligible to be claimed as a dependent for federal or state income taxes by another, and who files an individual net income tax return for a taxable year, may claim a tax credit under this section against the resident taxpayer's Hawaii state individual net income tax.

(c) Each taxpayer [~~with an adjusted gross income of less than $30,000~~] who has paid more than $1,000 in rent during the taxable year for which the credit is claimed may claim a tax credit [~~of $50~~] multiplied by the number of qualified exemptions to which the taxpayer is entitled[;] in accordance with the tables below; provided that each taxpayer sixty-five years of age or over may claim double the tax credit; and provided further that a resident individual who has no income or no income taxable under this chapter may also claim the tax credit as set forth in this section.

Adjusted gross income

for a taxpayer filing

a single return or a

married person filing

separately Credit per exemption

Not over $18,750 $150

Over $18,750 but

not over $28,125 $100

Over $28,125 but

not over $37,500 $ 50

Over $37,500 $ 0.

Adjusted gross income

for a taxpayer filing as

a head of a household Credit per exemption

Not over $28,125 $150

Over $28,125 but

not over $42,188 $100

Over $42,188 but

not over $56,250 $ 50

Over $56,250 $ 0.

Adjusted gross income

for a taxpayer filing a

joint return under section

235-93 or a surviving

spouse Credit per exemption

Not over $37,500 $150

Over $37,500 but

not over $56,250 $100

Over $56,250 but

not over $75,000 $ 50

Over $75,000 $ 0.

(d) For each taxable year beginning after December 31, 2019, each dollar amount listed in subsection (c) shall be increased by an amount equal to that dollar amount multiplied by the percentage, if any, by which the consumer price index for the preceding calendar year exceeds the consumer price index for the second preceding calendar year.

[~~(d)~~] (e) If a rental unit is occupied by two or more individuals, and more than one individual is able to qualify as a claimant, the claim for credit shall be based upon a pro rata share of the rent paid.

[~~(e)~~] (f) The tax credits shall be deductible from the taxpayer's individual net income tax for the tax year in which the credits are properly claimed; provided that a husband and wife filing separate returns for a taxable year for which a joint return could have been made by them shall claim only the tax credits to which they would have been entitled had a joint return been filed. In the event the allowed tax credits exceed the amount of the income tax payments due from the taxpayer, the excess of credits over payments due shall be refunded to the taxpayer; provided that allowed tax credits properly claimed by an individual who has no income tax liability shall be paid to the individual; and provided further that no refunds or payments on account of the tax credits allowed by this section shall be made for amounts less than $1.

[~~(f)~~] (g) The director of taxation shall prepare and prescribe the appropriate form or forms to be used herein, may require proof of the claim for tax credits, and may adopt rules pursuant to chapter 91.

[~~(g)~~] (h) All of the provisions relating to assessments and refunds under this chapter and under section 231-23(c)(1) shall apply to the tax credits hereunder.

[~~(h)~~] (i) Claims for tax credits under this section, including any amended claims thereof, shall be filed on or before the end of the twelfth month following the taxable year for which the credit may be claimed."

PART V

SECTION 6. Section 235-55.75, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) Each qualifying individual taxpayer may claim a [~~nonrefundable~~] refundable earned income tax credit. The tax credit, for the appropriate taxable year, shall be [~~twenty~~] per cent of the federal earned income tax credit allowed and properly claimed under section 32 of the Internal Revenue Code and reported as such on the individual's federal income tax return."

2. By amending subsection (d) to read:

"(d) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the tax credit over liability [~~may be used as a credit against the taxpayer's net income tax liability in subsequent years until exhausted.~~] shall be refunded to the taxpayer; provided that the tax credit claimed by a taxpayer who has no income tax liability shall be paid to the taxpayer; and provided that no refunds or payment on account of the tax credit allowed by this section shall be made for amounts less than $1. All claims, including amended claims, for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit."

PART VI

SECTION 7. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

"§235- Real estate investment trust returns; shareholder agreements; mandatory payments. (a) Each real estate investment trust shareholder receiving a dividend from the real estate investment trust shall take into account for purposes of this chapter a pro rata share of income attributable to the State and the pro rata share of income not attributable to the State, to the extent modified under this chapter, under rules similar to those regarding section 235-122(c). The percentage of the dividend attributable to the State shall be the same as the real estate investment trust's overall percentage of income attributable to the State.

Each real estate investment trust shall make a return for each taxable year, stating specifically:

(1) The items of its gross income and the deductions allowable by this chapter;

(2) The name, address, and social security or federal identification number of each person owning stock in the real estate investment trust at any time during the taxable year;

(3) The number of shares of stock owned by each shareholder at all times during the taxable year;

(4) The income attributable to the State and income not attributable to the State with respect to each shareholder as determined under this chapter;

(5) Any modifications required under this chapter;

(6) The amount of money and other property distributed by the real estate investment trust during the taxable year to each shareholder;

(7) The amount of each distribution constituting a dividend or capital gain dividend; and

(8) Any other information that the department, by form or rule, may prescribe.

The real estate investment trust, on or before the day on which its return is filed, shall furnish to each person who was a shareholder during the year a copy of the information shown on the return as the department may prescribe by form or rule. Any return filed pursuant to this section, for purposes of sections 235-111 and 235-112, shall be treated as a return filed by the real estate investment trust under section 235-92.

(b) The department shall permit any real estate investment trust to file composite returns and to make composite payments of tax on behalf of some or all of its nonresident shareholders. The department may permit composite returns and payments to be made on behalf of resident shareholders.

(c) A real estate investment trust shall file with the department, in the form prescribed by the department, the agreement of each nonresident shareholder of the real estate investment trust to:

(1) File a return and make timely payment of all taxes imposed by this State on the shareholder with respect to the income of the real estate investment trust; and

(2) Be subject to personal jurisdiction in this State for purposes of the collection of unpaid income tax, together with related interest and penalties.

If the real estate investment trust fails to timely file the agreements required by paragraphs (1) and (2) on behalf of each of its nonresident shareholders, then the real estate investment trust, at the times set forth in subsection (d), shall pay to this State on behalf of each nonresident shareholder in respect of whom an agreement has not been timely filed an amount equal to the highest marginal tax rate in effect under section 235-71 (if the shareholder is a corporation) or 235-51 (for any other shareholder), multiplied by the amount of the shareholder's pro rata share of the income attributable to the State as reflected on the real estate investment trust's return for the taxable period. A real estate investment trust shall be entitled to recover a payment made pursuant to the preceding sentence from the shareholder on whose behalf the payment was made.

(d) The agreements required to be filed pursuant to subsection (c) shall be filed at the following times:

(1) At the time the annual return is required to be filed for the first taxable period for which the real estate investment trust became subject to this chapter; and

(2) At the time the annual return is required to be filed for any taxable period in which the real estate investment trust had a nonresident shareholder on whose behalf such an agreement has not been previously filed.

(e) Any amount paid by the real estate investment trust to this State pursuant to subsection (b) or (c) shall be considered to be a payment by the shareholder on account of the income tax imposed on the shareholder for the taxable period.

(f) Any officer of any real estate investment trust who wilfully fails to provide any information, file any return or agreement, or make any payment as required by this section or by section 231-15.6 shall be guilty of a misdemeanor.

(g) As used in this section, a "real estate investment trust" means a corporation for which a valid election under section 856 of the Internal Revenue Code, as amended, is in effect."

PART VII

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9 This Act shall take effect upon its approval; provided that:

(1) Part III shall take effect on July 1, 2018;

(2) Parts IV and V shall apply to taxable years beginning after December 31, 2017; and

(3) Part VI shall apply to taxable years beginning after December 31, 2018.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	3101
TWENTY-NINTH LEGISLATURE, 2018
STATE OF HAWAII