THE SENATE	S.B. NO.	2044
THIRTY-SECOND LEGISLATURE, 2024		S.D. 2
STATE OF HAWAII		H.D. 1

A BILL FOR AN ACT

RELATING TO THE CONTROLLING INTEREST TRANSFER TAX.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Chapter 247, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§247-A Definitions. As used in this chapter, unless the context otherwise requires:

"Controlling interest" means:

(1) For a for-profit corporation, either fifty per cent or more of the total combined voting power of all classes of stock of the for-profit corporation entitled to vote, or fifty per cent of the capital, profits, or beneficial interest in the voting stock of the for-profit corporation; and

(2) For any other corporation or a partnership, association, trust, or entity, fifty per cent or more of the capital, profits, or beneficial interest in the corporation, partnership, association, trust, or other entity.

"Transfers or conveyances" includes the transfer or acquisition within any thirty-six-month period of a controlling interest in any entity with an interest in real property located in this State for valuable consideration.

§247-B Transfers or acquisitions of controlling interests in entities; applicability of chapter. (a) The transfer of a controlling interest in an entity shall be considered a taxable transaction of the entity's real property for the purposes of this chapter; provided that:

(1) The transfer or acquisition of the controlling interest occurs within any thirty-six-month period;

(2) The controlling interest was transferred in a single transaction or a series of transactions by a single person or acquired by a single person or a group of persons acting in concert;

(3) The entity has an interest in real property located in the State;

(4) The transfer is not otherwise exempt under section 247-3; and

(5) The transfer was made for valuable consideration.

(b) For the sole purpose of determining whether a transfer or acquisition pursuant to the exercise of an option occurred within the thirty-six-month taxable transfer period, the date that the option agreement was executed shall be the date on which the transfer or acquisition of the controlling interest is deemed to occur. For all other purposes under this section, the date the option is exercised shall be the date of the transfer or acquisition of the controlling interest.

(c) For purposes of this subsection, all acquisitions of persons acting in concert shall be aggregated for purposes of determining whether a transfer or acquisition of a controlling interest has taken place. The department of taxation shall adopt rules pursuant to chapter 91 to determine when persons are acting in concert, which shall consider the following:

(1) Persons shall be treated as acting in concert when they have a relationship with each other such that one person influences or controls the actions of another through common ownership; and

(2) When persons are not commonly owned or controlled, they shall be treated as acting in concert only when the unity with which the purchasers have negotiated and will consummate the transfer of ownership interests supports a finding that they are acting as a single entity; provided that if the acquisitions are completely independent and each purchaser buys without regard to the identity of the other purchasers, the acquisitions shall be considered separate acquisitions.

(d) The department of taxation may, at the director's option, enforce the obligation of the seller under this chapter as follows:

(1) In the transfer or acquisition of a controlling interest of a for-profit corporation, the director may enforce the obligation against:

(A) The corporation in which a controlling interest is transferred or acquired;

(B) The person or persons who acquired the controlling interest in the corporation; or

(C) When the corporation is not a publicly traded company, against the person or persons who transferred the controlling interest in the corporation; and

(2) In the transfer or acquisition of a controlling interest of any other corporation, partnership, association, trust, or other entity, the director may enforce the obligation against either:

(A) The entity in which a controlling interest is transferred or acquired; or

(B) The person or persons who transferred or acquired the controlling interest in the entity.

(e) All taxes collected pursuant to this section shall be deposited in accordance with section 247-7."

SECTION 2. Section 201H-191, Hawaii Revised Statutes, is amended to read as follows:

"§201H-191 Dwelling unit revolving fund. (a) There is created a dwelling unit revolving fund. The [funds appropriated for the purpose of the dwelling unit revolving fund and all moneys received or collected by the corporation for the purpose of the revolving fund] following shall be deposited in the revolving fund[.]:

(1) Funds appropriated for the purpose of the dwelling unit revolving fund;

(2) A portion of conveyance taxes pursuant to section 247-7(3); and

(3) All moneys received or collected by the corporation for the purpose of the revolving fund.

(b) The proceeds in the revolving fund shall be used to reimburse the general fund to pay the interest on general obligation bonds issued for the purposes of the revolving fund, for the necessary expenses in administering housing development programs and regional state infrastructure programs, and for carrying out the purposes of housing development programs and regional state infrastructure programs, including but not limited to the expansion of community facilities and regional state infrastructure constructed in conjunction with housing and mixed-use transit-oriented development projects, permanent primary or secondary financing, and supplementing building costs, federal guarantees required for operational losses, and all things required by any federal agency in the construction and receipt of federal funds or low‑income housing tax credits for housing projects.

[(b)] (c) Subject to the requirements of subsection [(a),] (b), proceeds in the revolving fund may be used to establish and operate regional state infrastructure subaccounts pursuant to section 201H-191.5."

SECTION 3. Section 247-2, Hawaii Revised Statutes, is amended to read as follows:

"§247-2 Basis and rate of tax. (a) The tax imposed by section 247-1 shall be based on the actual and full consideration (whether cash or otherwise, including any promise, act, forbearance, property interest, value, gain, advantage, benefit, or profit), paid or to be paid for all transfers or conveyance of realty or any interest therein, or in the case of a transfer or acquisition of a controlling interest pursuant to section 247-B, the fair market value of the real property owned by the entity at the time the controlling interest is transferred or acquired, that shall include any liens or encumbrances thereon at the time of sale, lease, sublease, assignment, transfer, or conveyance, and shall be at the following rates:

(1) Except as provided in paragraph (2):

(A) Ten cents per $100 for properties with a value of less than $600,000;

(B) Twenty cents per $100 for properties with a value of at least $600,000, but less than $1,000,000;

(C) Thirty cents per $100 for properties with a value of at least $1,000,000, but less than $2,000,000;

(D) Fifty cents per $100 for properties with a value of at least $2,000,000, but less than $4,000,000;

(E) Seventy cents per $100 for properties with a value of at least $4,000,000, but less than $6,000,000;

(F) Ninety cents per $100 for properties with a value of at least $6,000,000, but less than $10,000,000; and

(G) One dollar per $100 for properties with a value of $10,000,000 or greater; and

(2) For the sale of a condominium or single family residence for which the purchaser is ineligible for a county homeowner's exemption on property tax:

(A) Fifteen cents per $100 for properties with a value of less than $600,000;

(B) Twenty-five cents per $100 for properties with a value of at least $600,000, but less than $1,000,000;

(C) Forty cents per $100 for properties with a value of at least $1,000,000, but less than $2,000,000;

(D) Sixty cents per $100 for properties with a value of at least $2,000,000, but less than $4,000,000;

(E) Eighty-five cents per $100 for properties with a value of at least $4,000,000, but less than $6,000,000;

(F) One dollar and ten cents per $100 for properties with a value of at least $6,000,000, but less than $10,000,000; and

(G) One dollar and twenty-five cents per $100 for properties with a value of $10,000,000 or greater,

of [such] the actual and full consideration; provided that in the case of a lease or sublease, this chapter shall apply only to a lease or sublease whose full unexpired term is for a period of five years or more, and in those cases, including (where appropriate) those cases where the lease has been extended or amended, the tax in this chapter shall be based on the cash value of the lease rentals discounted to present day value and capitalized at the rate of six per cent, plus the actual and full consideration paid or to be paid for any and all improvements, if any, that shall include on-site as well as off‑site improvements, applicable to the leased premises; and provided further that the tax imposed for each transaction shall be not less than $1.

(b) For purposes of this section, "fair market value" means, for purposes of transfers or acquisitions of a controlling interest pursuant to section 247-B, the value of real property, as stated on the most recent real property assessment issued by the county in which the real property is located."

SECTION 4. Section 247-3, Hawaii Revised Statutes, is amended to read as follows:

"§247-3 Exemptions. The tax imposed by section 247-1 shall not apply to:

(1) Any document or instrument that is executed prior to January 1, 1967;

(2) Any document or instrument that is given to secure a debt or obligation;

(3) Any document or instrument that only confirms or corrects a deed, lease, sublease, assignment, transfer, or conveyance previously recorded or filed;

(4) Any document or instrument between husband and wife, reciprocal beneficiaries, or parent and child, in which only a nominal consideration is paid;

(5) Any document or instrument in which there is a consideration of $100 or less paid or to be paid;

(6) Any document or instrument conveying real property that is executed pursuant to an agreement of sale, and where applicable, any assignment of the agreement of sale, or assignments thereof; provided that the taxes under this chapter have been fully paid upon the agreement of sale, and where applicable, upon [such] the assignment or assignments of agreements of sale;

(7) Any deed, lease, sublease, assignment of lease, agreement of sale, assignment of agreement of sale, instrument or writing in which the United States or any agency or instrumentality thereof or the State or any agency, instrumentality, or governmental or political subdivision thereof are the only parties thereto;

(8) Any document or instrument executed pursuant to a tax sale conducted by the United States or any agency or instrumentality thereof or the State or any agency, instrumentality, or governmental or political subdivision thereof for delinquent taxes or assessments;

(9) Any document or instrument conveying real property to the United States or any agency or instrumentality thereof or the State or any agency, instrumentality, or governmental or political subdivision thereof pursuant to the threat of the exercise or the exercise of the power of eminent domain;

(10) Any document or instrument that solely conveys or grants an easement or easements;

(11) Any document or instrument whereby owners partition their property, whether by mutual agreement or judicial action; provided that the value of each owner's interest in the property after partition is equal in value to that owner's interest before partition;

(12) Any document or instrument between marital partners or reciprocal beneficiaries who are parties to a divorce action or termination of reciprocal beneficiary relationship that is executed pursuant to an order of the court in the divorce action or termination of reciprocal beneficiary relationship;

(13) Any document or instrument conveying real property from a testamentary trust to a beneficiary under the trust;

(14) Any document or instrument conveying real property from a grantor to the grantor's revocable living trust, or from a grantor's revocable living trust to the grantor as beneficiary of the trust;

[(15) Any document or instrument conveying real property, or any interest therein, from an entity that is a party to a merger or consolidation under chapter 414, 414D, 415A, 421, 421C, 425, 425E, or 428 to the surviving or new entity;

(16)] (15) Any document or instrument conveying real property, or any interest therein, from a dissolving limited partnership to its corporate general partner that owns, directly or indirectly, at least a ninety per cent interest in the partnership, determined by applying section 318 (with respect to constructive ownership of stock) of the federal Internal Revenue Code of 1986, as amended, to the constructive ownership of interests in the partnership; and

[[(17)]] (16) Any document or instrument that conforms to the transfer on death deed as authorized under chapter 527."

SECTION 5. Section 247-4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) [The] Except as provided in section 247-B, the tax imposed by this chapter shall be paid by the grantor, lessor, sublessor, assignor, transferor, seller, conveyor, or any other person conveying realty, or any interest therein, by a document or instrument subject to section 247-1; except, however, in the case where the United States or any agency or instrumentality thereof or the State or any agency, instrumentality, or governmental or political subdivision thereof is the grantor, lessor, sublessor, assignor, transferor, seller, or conveyor, the tax shall be paid by the grantee, lessee, sublessee, assignee, transferee, purchaser, or conveyee, as the case may be."

SECTION 6. 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 $5,100,000, 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) Ten per cent shall be paid into the dwelling unit revolving fund established pursuant to section 201H-191 for the purposes of funding infrastructure programs in transit-oriented development areas."

SECTION 7. In codifying the new sections added by section 1 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

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

SECTION 9. This Act shall take effect on January 1, 3000.

Report Title:

DOTAX; Conveyance Tax; Controlling Interest Transfers; Dwelling Unit Revolving Fund; Land Conservation Fund; Rental Housing Revolving Fund; Infrastructure Programs

Description:

Establishes that the transfer or acquisition of a controlling interest in an entity that owns real property in the State shall be subject to the conveyance tax. Eliminates the dollar cap amounts of conveyance tax collections paid into the Land Conservation Fund and Rental Housing Revolving Fund. Deposits ten per cent of conveyance tax collections into the Dwelling Unit Revolving Fund for purposes of funding infrastructure programs for transit-oriented development. Effective 1/1/3000. (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.