STAND. COM. REP. NO. 3280

Honolulu, Hawaii

RE: H.B. No. 916

H.D. 1

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

Your Committees on Housing and Economic Development and Tourism, to which was referred H.B. No. 916, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO THE LOW-INCOME HOUSING TAX CREDIT,"

beg leave to report as follows:

The purpose and intent of this measure is to:

(1) Allow tax credits claimed under the State Low-Income Housing Tax Credit Program to be used to offset taxes imposed by the State transient accommodations tax law;

(2) Specify that tax credit amounts applied to state transient accommodations taxes be limited to state transient accommodations taxes imposed in the same county in which the qualified low-income building is located; and

(3) Make permanent Act 129, Session Laws of Hawaii 2016.

Your Committees received testimony in support of this measure from the Hawaii Housing Finance and Development Corporation and Mark Development, Inc.

Your Committees received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

Your Committees find that one of the most significant challenges in advancing affordable housing development in the State is attracting sufficient investor capital, which is often achieved by the issuance of tax credits. Under existing law, state Low-Income Housing Tax Credits can only be used to offset state income tax liability. By allowing Low-Income Housing Tax Credits to also offset transient accommodations tax liability, this measure broadens the pool of eligible investors and improves developers' ability to raise the equity necessary for financially feasible projects.

Your Committees note, however, the testimony of the Department of Taxation, which describes several challenges that this measure would create. Specifically, this measure would impose significant administrative burdens, including changes to the transient accommodations tax reporting and payments system; make verification of credits difficult, as individuals or investors using the credit will have different identifying information than the accounts that initially earned the credit; and impose difficulties in tracking the county in which the qualified low-income structure is located. Your Committees also note that this measure raises important concerns regarding consumer protection because consumers would pay the transient accommodations tax while the owners of an accommodation would get a tax credit. Finally, your Committees note that the State receives sixty cents on the dollar for the Low-Income Housing Tax Credit, and it would be more fiscally efficient to replace the tax credit with a direct appropriation of funds. Given the limitations of this tax credit and the challenges it may generate in its current form, your Committees suggest that alternatives, such as a refundable tax credit, be considered as this measure moves through the legislative process.

Your Committees have amended this measure by:

(1) Inserting language to clarify that the tax credits used to offset transient accommodations taxes shall not be subject to personal liability for key individuals and shall be deemed fully compliant if applied in accordance the provisions of this measure;

(2) Making the tax credit applicable to taxable years beginning after December 31, 2027; and

(3) Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

As affirmed by the records of votes of the members of your Committees on Housing and Economic Development and Tourism that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 916, H.D. 1, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 916, H.D. 1, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Housing and Economic Development and Tourism,

________________________________ LYNN DECOITE, Chair

________________________________ STANLEY CHANG, Chair