THE SENATE

S.B. NO.

3028

THIRTY-THIRD LEGISLATURE, 2026

S.D. 2

STATE OF HAWAII

H.D. 1

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO PROPERTY CONVEYANCE.

 

 

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

 

PART I

     SECTION 1.  The legislature finds that the Hawaii transit-oriented development strategic plan highlights a lack of infrastructure necessary to support affordable housing and mixed-use development near transit.  Furthermore, the transit-oriented development infrastructure and finance delivery strategy (2023), developed by the office of planning and sustainable development, identifies the current fragmented infrastructure funding process as a source of inequitable outcomes.  The first recommendation of the report is to increase the conveyance tax on high-value, non-owner-occupied homes and allocate a portion of the revenue to finance infrastructure in transit-oriented development zones.

     The legislature also finds that the conveyance tax, a one-time tax levied at the time of a property conveyance, is identified as an appropriate revenue source for affordable housing, infrastructure, land conservation, and homeless services.  Despite dramatic increases in housing prices over the past thirteen years, the conveyance tax rates have not been updated since Act 59, Session Laws of Hawaii 2009.  In fact, Hawaii's conveyance tax remains significantly lower than comparable high-cost areas in the nation.

     The legislature recognizes that without reform, the current conveyance tax rate structure could disproportionately affect affordable multifamily housing, as high total property values for these complexes do not reflect the lower per-unit costs.  High conveyance taxes on these properties could be passed on to renters.  Moreover, the current rate structure may create market inequities, where even small increases in property value could result in disproportionate tax burdens.  Because the property values upon which the conveyance tax is imposed are not tied to inflation, rising home prices will eventually push moderately priced homes into higher tax brackets, compounding the issue.

     The legislature further finds that the department of Hawaiian home lands requires dedicated, predictable annual funding to support multi-year planning, procurement, and sequencing of infrastructure and housing so that homes can be delivered to all beneficiaries.  Consistent revenue is not only operationally necessary, but also fiscally efficient because department dollars leverage other public and private capital.  Deployments through Act 279, Session Laws of Hawaii 2022, have unlocked billions in projected vertical development, and recent low-income housing tax credit transactions show more than five times leverage on department investments.  Establishing dedicated conveyance tax funding for the department of Hawaiian home lands, including a maximum of $60,000,000 annually, is therefore warranted and is a core recommendation of the 2025 Act 279 Working Group's interim report.

     Accordingly, the purpose of this Act is to:

     (1)  Restructure the conveyance tax to a marginal rate system for the sale of properties with residential use, applying higher rates only to property values exceeding specified thresholds;

     (2)  Adjust the conveyance tax for multifamily properties to reflect value on a per-unit basis;

     (3)  Tie conveyance tax rates to a cost-of-living adjustment to maintain equity over time;

     (4)  Allocate a portion of conveyance tax revenues to the dwelling unit revolving fund to fund infrastructure programs in areas that meet transit-supportive density requirements;

     (5)  Establish a dedicated conveyance tax allocation to the department of Hawaiian home lands to provide predictable funding for multi-year planning and infrastructure and to leverage additional public and private capital for beneficiary housing;

     (6)  Allocate a portion of conveyance tax revenues to the special land and development fund for land acquisition for the Na Ala Hele program; and

     (7)  Establish and appropriate funds out of the Hawaiian home lands infrastructure and housing special fund.

PART II

     SECTION 2.  Section 171-19, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  There is created in the department a special fund to be designated as the "special land and development fund".  Subject to the Hawaiian Homes Commission Act of 1920, as amended, and section 5(f) of the Admission Act of 1959, all proceeds of sale of public lands, including interest on deferred payments; all moneys collected under section 171-58 for mineral and water rights; all rents from leases, licenses, and permits derived from public lands; all moneys collected from lessees of public lands within industrial parks; all fees, fines, and other administrative charges collected under this chapter and chapter 183C; a portion of the highway fuel tax collected under chapter 243; a portion of the transient accommodations tax under chapter 237D; a portion of the conveyance tax collected under chapter 247; all moneys collected by the department for the commercial use of public trails and trail accesses under the jurisdiction of the department; and private contributions for the management, maintenance, and development of trails and accesses shall be set apart in the fund and shall be used only as authorized by the legislature for the following purposes:

     (1)  To reimburse the general fund of the State for advances made that are required to be reimbursed from the proceeds derived from sales, leases, licenses, or permits of public lands;

     (2)  For the planning, development, management, operations, or maintenance of all lands and improvements under the control and management of the board pursuant to title 12, including but not limited to permanent or temporary staff positions who may be appointed without regard to chapter 76;

     (3)  To repurchase any land, including improvements, in the exercise by the board of any right of repurchase specifically reserved in any patent, deed, lease, or other documents or as provided by law;

     (4)  For the payment of all appraisal fees; provided that all fees reimbursed to the board shall be deposited in the fund;

     (5)  For the payment of publication notices as required under this chapter; provided that all or a portion of the expenditures may be charged to the purchaser or lessee of public lands or any interest therein under rules adopted by the board;

     (6)  For the management, maintenance, land acquisition, and development of trails and trail accesses under the jurisdiction of the department;

     (7)  For the payment to private land developers who have contracted with the board for development of public lands under section 171-60;

     (8)  For the payment of debt service on revenue bonds issued by the department, including revenue bonds issued for the purposes of section 237D-6.5(b)(4), and the establishment of debt service and other reserves deemed necessary by the board;

     (9)  To reimburse the general fund for debt service on general obligation bonds issued to finance departmental projects, including projects under section 237D-6.5(b)(4), where the bonds are designated to be reimbursed from the special land and development fund;

    (10)  For the protection, planning, management, and regulation of water resources under chapter 174C;

    (11)  For the purposes of section 237D-6.5(b)(4); and

    (12)  For other purposes of this chapter."

     SECTION 3.  Section 198D-2, Hawaii Revised Statutes, is amended as follows:

     1.   By amending subsection (b) to read:

     "(b)  The trail and access program shall use funding for the management, maintenance, land acquisition, and development of trails and trail accesses under the jurisdiction of the department from the following sources:

     (1)  A portion of the highway fuel taxes collected under chapter 243;

     (2)  Federal government grants;

     (3)  Private contributions; [and]

     (4)  Fees, established pursuant to administrative rules and charged by the department for the commercial and other use of trails and trail accesses under the jurisdiction of the department[.]; and

     (5)  A portion of the conveyance tax collected pursuant to section 247-7(5)."

     2.   By amending subsection (d) to read:

     "(d)  The moneys specified in subsection (b)(1), (3), [and] (4), and (5) shall be deposited in the special land and development fund under section 171-19 for the management, maintenance, land acquisition, and development of trails and trail accesses under the jurisdiction of the department."

     SECTION 4.  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, conveyance taxes received pursuant to section 247-7(4), and all moneys received or collected by the corporation for the purpose of the revolving fund shall be deposited in the revolving fund.  The proceeds in the revolving fund shall be used:

     (1)  To reimburse the general fund to pay the interest on general obligation bonds issued for the purposes of the revolving fund;

     (2)  For necessary expenses in administering housing development programs, regional state infrastructure programs, and the government employee housing program pursuant to part V; [and]

     (3)  To carry out the purposes of housing development programs, regional state infrastructure programs, and the government employee housing program pursuant to part V, 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[,] and federal guarantees required for operational losses[, and all];

     (4)  To fund infrastructure programs in areas that meet transit-supportive density requirements; provided that proceeds from the conveyance tax deposited pursuant to section 247-7(4) shall only be used for the purposes of this paragraph; and

     (5)  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)  Subject to the requirements of subsection (a), proceeds in the revolving fund may be used to:

     (1)  Establish and operate regional state infrastructure subaccounts pursuant to section 201H-191.5; and

     (2)  Administer, implement, and finance the government employee housing program pursuant [[]to[]] part V.

     (c)  For purposes of this section, "transit-supportive density" has the same meaning as in section 206E-246."

     SECTION 5.  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, 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):] For the sale of a property with a residential dwelling unit for which the purchaser is eligible for a county homeowner's exemption from property tax:

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

          (B)  [Twenty cents per $100 for] For properties with a value of at least $600,000, but less than $1,000,000[;]:  $           plus      cents per $100 of excess over $600,000;

          (C)  [Thirty cents per $100 for] For properties with a value of at least $1,000,000, but less than $2,000,000[;]:  $           plus      cents per $100 of excess over $1,000,000;

          (D)  [Fifty cents per $100 for] For properties with a value of at least $2,000,000, but less than $4,000,000[;]:  $           plus $           per $100 of excess over $2,000,000;

          (E)  [Seventy cents per $100 for] For properties with a value of at least $4,000,000, but less than $6,000,000[;]:  $           plus $           per $100 of excess over $4,000,000;

          (F)  [Ninety cents per $100 for] For properties with a value of at least $6,000,000, but less than $10,000,000[; and]:  $           plus $           per $100 of excess over $6,000,000; and

          (G)  [One dollar per $100 for] For properties with a value of at least $10,000,000 [or greater; and]: $           plus $           per $100 of excess over $10,000,000;

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

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

          (B)  [Twenty-five cents per $100 for] For properties with a value of at least $600,000, but less than $1,000,000[;]:  $           plus      cents per $100 of excess over $600,000;

          (C)  [Forty cents per $100 for] For properties with a value of at least $1,000,000, but less than $2,000,000[;]:  $           plus      cents per $100 of excess over $1,000,000;

          (D)  [Sixty cents per $100 for] For properties with a value of at least $2,000,000, but less than $4,000,000[;]:  $           plus $           per $100 of excess over $2,000,000;

          (E)  [Eighty-five cents per $100 for] For properties with a value of at least $4,000,000, but less than $6,000,000[;]:  $           plus $           per $100 of excess over $4,000,000;

          (F)  [One dollar and ten cents per $100 for] For properties with a value of at least $6,000,000, but less than $10,000,000[; and]:  $           plus $           per $100 of excess over $6,000,000; and

          (G)  [One dollar and twenty-five cents per $100 for] For properties with a value of at least $10,000,000 [or greater,]:  $           plus $           per $100 of excess over $10,000,000;

     (3)  For the sale, lease, sublease, or assignment of any property with no residential dwelling unit:

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

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

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

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

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

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

          (G)  For properties with a value of at least $10,000,000:  $           per $100,

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]; provided further that if a 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] no less than $1.  For the purposes of this section, any conveyance of property that is used for transient accommodations, as defined in section 237D-1, for any period during the two years before the date of conveyance shall be taxed at the rates under paragraph (2), regardless of whether the purchaser is eligible for a county homeowner's exemption on property tax.

     The rates in this section shall apply to the transfer or conveyance of a multifamily residential property; provided that "value", for purposes of determining the applicable rate, shall be an amount calculated by dividing the actual and full consideration for the transfer or conveyance of realty or any interest therein by the number of residential dwelling units in the property.

     As used in this subsection, "multifamily residential property" means a structure that is located within the state urban land use district and divided into five or more dwelling units.

     (b)  For each taxable year beginning after December 31, 2026, the director of taxation, no later than December 15 of the preceding calendar year, shall recompute the "value" in subsections (a)(1), (2), and (3) by multiplying the dollar amounts for the preceding taxable year by a cost-of-living adjustment factor, if the cost-of-living adjustment factor is greater than 1.0, and rounding off the resulting product to the nearest $1; provided that if the cost-of-living adjustment factor is less than or equal to 1.0 in a given year, then no adjustment shall occur in the following year.

     As used in this subsection, "cost-of-living adjustment factor" means a factor calculated by adding 1.0 to the quotient of the percentage change in the Urban Hawaii Consumer Price Index for all items divided by one hundred, as published by the United States Department of Labor, from July of the preceding calendar year to July of the current calendar year; provided that if the Urban Hawaii Consumer Price Index is discontinued, the Chained Consumer Price Index for All Urban Consumers, as published by the United States Department of Labor, shall be used to calculate the cost-of-living adjustment factor.

     (c)  Notwithstanding subsection (a), the total conveyance tax imposed on the transfer or conveyance of a parcel shall not exceed:

     (1)  Four per cent of the actual and full consideration for the conveyance, if the purchaser is eligible for a county homeowner's exemption from property tax with respect to that parcel; or

     (2)  Six per cent of the actual and full consideration for the conveyance, if the purchaser is ineligible for a county homeowner's exemption from property tax with respect to that parcel.

For the conveyance of a multifamily residential property as defined in subsection (a), the cap under this subsection shall be applied on a per-unit basis, calculated by dividing the actual and full consideration by the number of residential dwelling units; and the total tax imposed on the conveyance shall not exceed the applicable per-unit cap multiplied by the number of residential dwelling units."

     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[.];

     (3)       per cent or $          , whichever is less, shall be paid into the Hawaiian home lands infrastructure and housing special fund established pursuant to section 26-   ;

     (4)       per cent or $          , whichever is less, shall be paid into the dwelling unit revolving fund established pursuant to section 201H-191; and

     (5)       per cent or $          , whichever is less, shall be paid into the special land and development fund established pursuant to section 171-19, for land acquisition for trails pursuant to section 198D-2."

PART III

SECTION 7.  Chapter 26, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§26-     Hawaiian home lands infrastructure and housing special fund.  (a)  There is established within the department of Hawaiian home lands a special fund to be known as the Hawaiian home lands infrastructure and housing special fund.  The fund shall be administered by the department of Hawaiian home lands.

     (b)  The following shall be deposited into the special fund:

     (1)  Conveyance tax revenues allocated pursuant to section 247-7(3); and

     (2)  Funds appropriated by the legislature or otherwise made available for the purposes of this section.

     (c)  Moneys in the special fund shall be expended by the department of Hawaiian home lands for:

     (1)  Multi-year planning, procurement, and sequencing of infrastructure and housing to deliver homes to beneficiaries of the Hawaiian home lands program; and

     (2)  Leveraging additional public and private capital for the purposes of paragraph (1)."

     SECTION 8.  There is appropriated out of the Hawaiian home lands infrastructure and housing special fund the sum of $           or so much thereof as may be necessary for fiscal year 2026-2027 for the purposes of the special fund.

     The sum appropriated shall be expended by the department of Hawaiian home lands for the purposes of this Act.

PART IV

     SECTION 9.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 10.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 11.  This Act shall take effect on July 1, 3000.

 

Report Title:

Conveyance Tax; Dwelling Unit Revolving Fund; Infrastructure Funding; County-Designated Transit-Oriented Development; Hawaiian Home Lands Infrastructure and Housing Special Fund; Special Land and Development Fund; Land Acquisition; Trails; Appropriation

 

Description:

Restructures the conveyance tax to a marginal rate system for the sale of properties with residential use, adjusts the tax for multifamily properties to reflect value on a per-unit basis, and applies a cost-of-living adjustment to conveyance tax rates.  Allocates a portion of conveyance tax collections to the Dwelling Unit Revolving Fund, Hawaiian Home Lands Infrastructure and Housing Special Fund, and Special Land and Development Fund.  Establishes and appropriates funds out of the Hawaiian Home Lands Infrastructure and Housing Special Fund.  Effective 7/1/3000.  (HD1)

 

 

 

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