HB 1918: Conveyance Tax; Controlling Interest Transfer

A BILL FOR AN ACT

RELATING TO TAXATION.

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

     SECTION 1.  The legislature finds that the transfer of ownership of a business entity is comparable to the sale of an interest in real property held by the entity.  The legislature believes that all transfers of possession or use of real property should be subject to the same conveyance tax obligations.

     Accordingly, the purpose of this Act is to impose the conveyance tax on transfers of entity ownership when the transfer of entity ownership is essentially equivalent to the sale of an interest in real property.

     SECTION 2.  Chapter 247, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

     "§247-A  Transfer or acquisition of a controlling interest; applicability.  (a)  Notwithstanding any provision to the contrary, the tax imposed by section 247-1 shall apply to the transfer or acquisition, or a series of transfers or acquisitions, including those combined with otherwise exempt transfers, by any person or entity acting alone or in concert, within any twelve-month period, that result in:

     (1)  The transfer of a controlling interest in an entity with an interest in real property located in the State for valuable consideration; and

     (2)  The transfer of control or ownership of the real property located in the State;

provided that this section shall not apply to any transfer or acquisition that consists of the mere change in identity or form of ownership of an entity where there is no change in the beneficial ownership, including transfers to an entity wholly owned, directly or indirectly, by the same common ownership as the transferor.

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

     (c)  For the purposes of this section with regard to persons acting in concert:

     (1)  All acquisitions of persons acting in concert shall be aggregated for the purpose of determining whether a transfer or acquisition of a controlling interest has taken place;

     (2)  Persons shall be considered 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;

     (3)  Persons shall be considered to be acting in concert only when the unity with which the purchasers negotiate and consummate the transfer of ownership interests supports a finding that the persons are acting as a single entity; and

     (4)  If acquisitions are completely independent and each purchaser purchases without regard to the identity of the other purchasers, then the acquisitions shall be considered separate acquisitions.

     (d)  As used in this section, "controlling interest" means:

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

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

     §247-B  Taxation at the lowest rate.  The tax imposed by section 247-1 shall apply to the following at the lowest rate provided in section 247-2(1), regardless of the value of the real property:

     (1)  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;

     (2)  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 Internal Revenue Code of 1986, as amended, to the constructive ownership of interests in the partnership;

     (3)  Any document or instrument conveying real property to any nonprofit or for-profit organization that has been certified by the Hawaii housing finance and development corporation for low-income housing development; and

     (4)  Any document or instrument conveying real property, or any interest therein, to or from a wholly-owned corporation or limited liability company."

     SECTION 3.  Section 247-1, Hawaii Revised Statutes, is amended to read as follows:

     "§247-1  Imposition of tax.  There is hereby imposed and shall be levied, collected, and paid, a tax as hereinafter provided, on all transfers or conveyances of realty located in the State or any interest therein, by way of deeds, leases, subleases, assignments of lease, agreements of sale, assignments of agreement of sale, instruments, writings, and any other document, whereby any lands, interests in land, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, lessee or lessees, sublessee or sublessees, assignee or assignees, or any other person or persons, by the person's or their direction[.], including a transfer of a controlling interest as the term is defined in section 247-A."

     SECTION 4.  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-A, 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)  As used in this section, "fair market value" means, for purposes of transfers or acquisitions of a controlling interest pursuant to section 247-A, 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 5.  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] before 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; and

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

     SECTION 6.  Section 247-4, Hawaii Revised Statutes, is amended to read as follows:

     "§247-4  Payment and liability of the tax.  (a)  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, or transfer of a controlling interest subject to section 247-1; [except, however,] provided that, 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.

     (b)  In the case of a transfer or acquisition of a controlling interest under section 247-A, if the person or persons who transfer the controlling interest fail to pay the tax imposed by this chapter, the person or persons who acquire the controlling interest and the entity to which the controlling interest is transferred or acquired shall be jointly and severally liable for the tax.

     [(b)] (c)  The tax imposed by this chapter shall be paid at such place or places as the director of taxation may direct and shall be due and payable no later than ninety days after the taxable transaction, and in any event [prior to] before the imprinting of the seal or seals as provided by section 247-5.  Penalties and interest shall be added to and become a part of the tax, when and as provided by section 231-39."

     SECTION 7.  In codifying the new sections added by section 2 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, 3028.

Report Title:

Conveyance Tax; Controlling Interest Transfer

Description:

Imposes conveyance tax on the transfer of a controlling interest of an entity with an interest in real property.  Stipulates that the imposition of the conveyance tax on transfers of entity ownership shall not apply to any transfer of interest or acquisition between entities wholly owned by the same common ownership that results in no change in the beneficial ownership.  Imposes the conveyance tax on certain transfers of real property at the lowest tax rate.  Imposes liability on the transferee in the event that the transferor of the controlling interest does not pay the tax due.  Effective 1/1/3028.  (SD1)

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

A BILL FOR AN ACT

RELATING TO TAXATION.

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

     SECTION 1.  The legislature finds that the transfer of ownership of a business entity is comparable to the sale of an interest in real property held by the entity.  The legislature believes that all transfers of possession or use of real property should be subject to the same conveyance tax obligations.

     The purpose of this Act is to impose the conveyance tax on transfers of entity ownership when the transfer of entity ownership is essentially equivalent to the sale of an interest in real property.

     SECTION 2.  Chapter 247, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

     "§247-A  Transfer or acquisition of a controlling interest; applicability.  (a)  Notwithstanding any provision to the contrary, the tax imposed by section 247-1 shall apply to the transfer or acquisition, or a series of transfers or acquisitions, including those combined with otherwise exempt transfers, by any person or entity acting alone or in concert, within any twelve-month period, that result in:

     (1)  The transfer of a controlling interest in an entity with an interest in real property located in this State for valuable consideration; and

     (2)  The transfer of control or ownership of the real property located in this State;

provided that this section shall not apply to any transfer or acquisition that consists of the mere change in identity or form of ownership of an entity where there is no change in the beneficial ownership, including transfers to an entity wholly owned, directly or indirectly, by the same common ownership as the transferor.

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

     (c)  For the purposes of this section with regard to persons acting in concert:

     (1)  All acquisitions of persons acting in concert shall be aggregated for the purpose of determining whether a transfer or acquisition of a controlling interest has taken place;

     (2)  Persons shall be considered 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;

     (3)  Persons shall be considered to be acting in concert only when the unity with which the purchasers negotiate and consummate the transfer of ownership interests supports a finding that the persons are acting as a single entity; and

     (4)  If acquisitions are completely independent and each purchaser purchases without regard to the identity of the other purchasers, then the acquisitions shall be considered separate acquisitions.

     (d)  As used in this section, "controlling interest" means:

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

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

     §247-B  Taxation at the lowest rate.  The tax imposed by section 247-1 shall apply to the following at the lowest rate provided in section 247-2(1), regardless of the value of the real property:

     (1)  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;

     (2)  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 Internal Revenue Code of 1986, as amended, to the constructive ownership of interests in the partnership;

     (3)  Any document or instrument conveying real property to any nonprofit or for-profit organization that has been certified by the Hawaii housing finance and development corporation for low-income housing development; and

     (4)  Any document or instrument conveying real property, or any interest therein, to or from a wholly-owned corporation or limited liability company."

     SECTION 3.  Section 247-1, Hawaii Revised Statutes, is amended to read as follows:

     "§247-1  Imposition of tax.  There is hereby imposed and shall be levied, collected, and paid, a tax as hereinafter provided, on all transfers or conveyances of realty located in the State or any interest therein, by way of deeds, leases, subleases, assignments of lease, agreements of sale, assignments of agreement of sale, instruments, writings, and any other document, whereby any lands, interests in land, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, lessee or lessees, sublessee or sublessees, assignee or assignees, or any other person or persons, by the person's or their direction[.], including a transfer of a controlling interest as that term is defined in section 247-A."

     SECTION 4.  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-A, 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)  As used in this section, "fair market value" means, for purposes of transfers or acquisitions of a controlling interest pursuant to section 247-A, 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 5.  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 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; and

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

     SECTION 6.  Section 247-4, Hawaii Revised Statutes, is amended to read as follows:

     "§247-4  Payment and liability of the tax.  (a)  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, or transfer of a controlling interest 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.

     (b)  In the case of a transfer or acquisition of a controlling interest under section 247-A, if the person or persons who transfer the controlling interest fail to pay the tax imposed by this chapter, the person or persons who acquire the controlling interest and the entity to which the controlling interest is transferred or acquired shall be jointly and severally liable for the tax.

     [(b)] (c)  The tax imposed by this chapter shall be paid at such place or places as the director of taxation may direct and shall be due and payable no later than ninety days after the taxable transaction, and in any event prior to the imprinting of the seal or seals as provided by section 247-5.  Penalties and interest shall be added to and become a part of the tax, when and as provided by section 231-39."

     SECTION 7.  In codifying the new sections added by section 2 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 July 1, 3000.

Report Title:

Conveyance Tax; Controlling Interest Transfer

Description:

Imposes conveyance tax on the transfer of a controlling interest of an entity with an interest in real property.  Stipulates that the imposition of the conveyance tax on transfers of entity ownership shall not apply to any transfer of interest or acquisition between entities wholly owned by the same common ownership that results in no change in the beneficial ownership.  Imposes the conveyance tax on certain transfers of real property at the lowest tax rate.  Imposes liability on the transferee in the event that the transferor of the controlling interest does not pay the tax due.  Effective 7/1/3000.  (HD1)

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

A BILL FOR AN ACT

relating to Taxation.

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

     SECTION 1.  The legislature finds that the transfer of ownership of a business entity is comparable to the sale of an interest in real property held by the entity.  The legislature believes that all transfers of possession or use of real property should be subject to the same conveyance tax obligations.

     The purpose of this Act is to impose the conveyance tax on transfers of entity ownership when the transfer of entity ownership is essentially equivalent to the sale of an interest in real property.

     SECTION 2.  Chapter 247, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

     "§247-A  Transfer of a controlling interest; applicability.  (a)  Notwithstanding any provision to the contrary, the tax imposed by section 247-1 shall apply to the transfer or acquisition, or a series of transfers or acquisitions, including those combined with otherwise exempt transfers, by any person or entity acting alone or in concert, within any twelve-month period, that result in:

     (1)  The transfer of a controlling interest in an entity with an interest in real property located in this State for valuable consideration; and

     (2)  The transfer of control or ownership of the real property located in this State;

provided that this section shall not apply to any transfer or acquisition that consists of the mere change in identity or form of ownership of an entity where there is no change in the beneficial ownership, including transfers to an entity wholly owned, directly or indirectly, by the same common ownership as the transferor.

     (b)  For the purpose of determining whether, pursuant to the exercise of an option, a controlling interest was transferred or acquired within a twelve-month 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 chapter, the date upon which the option is exercised shall be the date of the transfer or acquisition of the controlling interest.

     (c)  For the purposes of this section with regard to persons acting in concert:

     (1)  All acquisitions of persons acting in concert shall be aggregated for the purpose of determining whether a transfer or acquisition of a controlling interest has taken place;

     (2)  Persons shall be considered 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;

     (3)  Persons shall be considered to be acting in concert only when the unity with which the purchasers negotiate and consummate the transfer of ownership interests supports a finding that the persons are acting as a single entity; and

     (4)  If acquisitions are completely independent and each purchaser purchases without regard to the identity of the other purchasers, then the acquisitions shall be considered separate acquisitions.

     (d)  As used in this section, "controlling interest" means:

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

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

     (e)  The director shall adopt rules pursuant to chapter 91 to implement this section, including rules for determining whether persons are acting in concert for the purpose of transferring or acquiring a controlling interest.

     §247-B  Taxation at the lowest rate.  The tax imposed by section 247-1 shall apply to the following at the lowest rate provided in section 247-2(1), regardless of the value of the real property:

     (1)  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;

     (2)  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 Internal Revenue Code of 1986, as amended, to the constructive ownership of interests in the partnership;

     (3)  Any document or instrument conveying real property to any nonprofit or for-profit organization that has been certified by the Hawaii housing finance and development corporation for low-income housing development; and

     (4)  Any document or instrument conveying real property, or any interest therein, to or from a wholly-owned corporation or limited liability company."

     SECTION 3.  Section 247-1, Hawaii Revised Statutes, is amended to read as follows:

     "§247-1  Imposition of tax.  There is hereby imposed and shall be levied, collected, and paid, a tax as hereinafter provided, on all transfers or conveyances of realty located in the State or any interest therein, by way of deeds, leases, subleases, assignments of lease, agreements of sale, assignments of agreement of sale, instruments, writings, and any other document, whereby any lands, interests in land, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, lessee or lessees, sublessee or sublessees, assignee or assignees, or any other person or persons, by the person's or their direction[.], including a transfer of a controlling interest as that term is defined in section 247-A."

     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 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; and

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

     SECTION 5.  In codifying the new sections added by section 2 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 6.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 7.  This Act shall take effect on July 1, 2026.

Report Title:

Conveyance Tax; Controlling Interest Transfer

Description:

Imposes conveyance tax on the transfer of a controlling interest of an entity with an interest in real property.  Stipulates that the imposition of the conveyance tax on transfers of entity ownership shall not apply to any transfer of interest or acquisition between entities wholly owned by the same common ownership that results in no change in the beneficial ownership.  Imposes the conveyance tax on certain transfers of real property at the lowest tax rate.

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

STAND. COM. REP. NO.  890-26

Honolulu, Hawaii

                , 2026

RE:   H.B. No. 1918

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Madame:

     Your Committee on Finance, to which was referred H.B. No. 1918, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to:

     (1)  Impose the conveyance tax on the transfer or acquisition of a controlling interest of an entity with an interest in real property, with certain exceptions;

     (2)  Establish processes for determining the date when a controlling interest was transferred or acquired pursuant to the exercise of an option and determining when persons are acting in concert;

     (3)  Impose the conveyance tax on certain transfers of real property at the lowest tax rate;

     (4)  Base the rate of the conveyance tax, in the case of a transfer or acquisition of a controlling interest, on the fair market value of the real property at the time the controlling interest is transferred or acquired; and

     (5)  Impose liability on the transferee in the event that the transferor of the controlling interest does not pay the tax due.

     Your Committee received testimony in support of this measure from the Chamber of Sustainable Commerce; Hawaiʻi Children's Action Network Speaks!; Indivisible Hawaiʻi; AARP Hawaiʻi; and seven individuals.  Your Committee received testimony in opposition to this measure from the Grassroot Institute of Hawaii and NAIOP Hawaii.  Your Committee received comments on this measure from the Department of Taxation; Tax Foundation of Hawaii; Hawaiʻi Association of REALTORS; and one individual.

     As affirmed by the record of votes of the members of your Committee on Finance that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1918, H.D. 1, and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Finance,

STAND. COM. REP. NO.  243-26

Honolulu, Hawaii

                , 2026

RE:   H.B. No. 1918

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Madame:

     Your Committee on Water & Land, to which was referred H.B. No. 1918 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to impose the conveyance tax on the transfer of a controlling interest of an entity with an interest in real property.

     Your Committee received testimony in support of this measure from Indivisible Hawaiʻi; AARP Hawaiʻi; and numerous individuals.  Your Committee received testimony in opposition to this measure from the Grassroot Institute of Hawaii and one individual.  Your Committee received comments on this measure from the Department of Taxation; Hawaiʻi Association of REALTORS; Tax Foundation of Hawaii; and one individual.

     Your Committee finds that this measure brings parity between direct real estate transfers and indirect transfers made through business entities by applying the existing conveyance tax to transactions where a person or entity acquires a controlling interest in a business that owns real property, treating these indirect transfers in the same manner as direct transfers of real estate.  Your Committee further finds that this measure supports equitable taxation by closing a long-standing loophole that has allowed sophisticated commercial real estate deals to avoid paying the conveyance tax.  Your Committee also finds that this measure ensures all property transfers are treated fairly, regardless of how the transaction is structured.

     Your Committee has amended this measure by:

     (1)  Providing that the conveyance tax shall be based on the fair market value of the property at the time of the transfer or acquisition of the controlling interest;

     (2)  Imposing liability on the transferee in the event that the transferor of the controlling interest does not pay the tax due;

     (3)  Deleting the proposed requirement for the Director of Taxation to adopt rules pursuant to chapter 91, Hawaii Revised Statutes, including rules for determining whether persons are acting in concert for the purpose of transferring or acquiring a controlling interest;

     (4)  Changing its effective date to July 1, 3000, to encourage further discussion; and

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

     As affirmed by the record of votes of the members of your Committee on Water & Land that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1918, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1918, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Water & Land,