HB 2134: GET; Exemption; Small Businesses; Real Property; Lease

HOUSE OF REPRESENTATIVES	H.B. NO.	2134
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to general excise tax.

 

 

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

 

     SECTION 1.  The legislature finds that small businesses are a critical foundation of Hawaii’s economy, providing employment opportunities, essential goods and services, and contributing to the vitality and character of local communities.  Small businesses are disproportionately impacted by Hawaii’s high cost of doing business, particularly the cost of leasing commercial real property.

     The legislature further finds that Hawaii’s general excise tax is a broad-based tax that is frequently passed through to small business tenants as an additional cost embedded in commercial rent or common area maintenance charges.  This tax burden increases monthly operating expenses for small businesses, reduces cash flow, and limits their ability to hire employees, invest in growth, or remain in operation. 

     The legislature recognizes that commercial rent is a fixed and unavoidable expense for most small businesses, and that relief from general excise tax on rent can provide immediate, predictable, and meaningful financial support.  Reducing this tax burden can improve the survivability of small businesses, particularly locally owned enterprises that lack the market power to absorb rising costs.

     The legislature further finds that providing targeted tax relief to small businesses leasing real property is consistent with the State’s economic development goals and supports entrepreneurship, job creation, and long-term economic resilience.  Ensuring that tax policy does not disproportionately disadvantage small businesses is essential to maintaining a diverse and competitive local economy. 

     Accordingly, the purpose of this Act is to exempt gross income from real property leases from the general excise tax when the lessee is a small business, in order to reduce operating costs, promote economic stability, and support the continue operation and growth of small businesses throughout the State. 

     SECTION 2.  Section 237-24.75, Hawaii Revised Statutes, is amended to read as follows:

     "§237-24.75  Additional exemptions.  In addition to the amounts exempt under section 237-24, this chapter shall not apply to:

     (1)  Amounts received as a beverage container deposit collected under chapter 342G, part VIII;

     (2)  Amounts received by the operator of the Hawaii convention center for reimbursement of costs or advances made pursuant to a contract with the Hawaii tourism authority under section 201B-7; [and]

     (3)  Amounts received by a professional employer organization that is registered with the department of labor and industrial relations pursuant to chapter 373L, from a client company equal to amounts that are disbursed by the professional employer organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to covered employees at a client company; provided that this exemption shall not apply to amounts received by a professional employer organization after:

          (A)  Notification from the department of labor and industrial relations that the professional employer organization has not fulfilled or maintained the registration requirements under this chapter; or

          (B)  A determination by the department that the professional employer organization has failed to pay any tax withholding for covered employees or any federal or state taxes for which the professional employer organization is responsible[.];

          As used in this paragraph, "professional employer organization", "client company", and "covered employee" shall have the meanings provided in section 373L-1[.]; and

     (4)  Amounts received in the business of leasing real property to another, provided that the lessee is a small business.

          As used in this paragraph, "small business" means a business that:

          (A)  Has gross receipts of $3,000,000 or less in the aggregate during the preceding taxable year;

          (B)  Employs twenty-five or fewer full time equivalent employees in the State;

          (C)  Is independently owned and operated and is not a subsidiary, affiliate, or division of another business entity;

          (D)  Is not owned or controlled, directly or indirectly, by a person or entity that owns or controls one or more businesses that, in the aggregate, exceed the gross receipts or employee thresholds of this section; and

          (E)  Is not a franchisee, licensee, or operator of a business operating under a national or international brand with more than fifty locations globally.

          For purposes of this paragraph, gross receipts and employee counts shall be aggregated across all commonly owned or controlled business entities."

     SECTION 3.  Section 237-16.5, Hawaii Revised Statutes, is amended to read as follows:

     "§237-16.5  Tax on written real property leases; deduction allowed.  (a)  This section relates to the leasing of real property by a lessor to a lessee.  There is hereby levied, and shall be assessed and collected annually, a privilege tax against persons engaging or continuing within the State in the business of leasing real property to another, equal to four per cent of the gross proceeds or gross income received or derived from the leasing, except as otherwise provided in section 237-24.75; provided that where real property is subleased by a lessee to a sublessee, the lessee, as provided in this section, shall be allowed a deduction from the amount of gross proceeds or gross income received from its sublease of the real property.  The deduction shall be in the amount allowed under this section.

     All deductions under this section and the name and general excise tax number of the lessee's lessor shall be reported on the general excise tax return.  Any deduction allowed under this section shall only be allowed with respect to leases and subleases in writing and relating to the same real property.

     (b)  The lessee shall obtain from its lessor a certificate, in the form as the department shall prescribe, certifying that the lessor is subject to tax under this chapter on the gross proceeds or gross income received from the lessee.  The absence of the certificate in itself shall give rise to the presumption that the lessee is not allowed the deduction under this section.

     (c)  If various real property or space leased to the lessee have different rental values, then the total monetary gross proceeds or gross income paid to a lessor for all real property or space shall first be allocated to the fair rental value for each real property or space.  If the lessee leases less than one hundred per cent of real property or space that was leased from the lessor to a sublessee, then the total monetary gross proceeds or gross income paid by the lessee for that real property or space to its lessor shall be allocated.  The percentage of real property or space subleased shall be multiplied by the monetary gross proceeds or gross income paid for the real property or space by the lessee to its lessor.  The product of the preceding multiplication shall be deducted from the monetary gross proceeds or gross income received for real property or space by the lessee.

     Once the allocations are made, the appropriate deduction under subsection (g) shall be made.

     (d)  The lessor shall make allocations under this section at the time the sublease is entered into and the allocations shall not be changed during the term of the sublease.  There shall be a reasonable basis for the allocations, taking into consideration the size, quality, and location of the real property or space subleased.  In no event shall the total amount allocated to all subleases exceed the total monetary gross proceeds paid by the lessee to its lessor.  The director may redetermine the amount of the deduction under this section if the director finds that the basis for allocation is not reasonable or that redetermination is necessary to prevent the avoidance of taxes.

     (e)  As used in this section:

     "Lease" means the rental of real property under an instrument in writing by which one conveys real property for a specified term and for a specified consideration, and includes the written extension or renegotiation of a lease, and any holdover tenancy.

     "Lessee" means one who holds real property under lease, and includes a sublessee.

     "Lessor" means one who conveys real property by lease, and includes a sublessor.

     "Real property or space" means the area actually rented and used by the lessee, and includes common elements as defined in section 514B-3.

     "Sublease" includes the rental of real property which is held under a lease and is made in a written document by which one conveys real property for a specified term and for a specified consideration.  A sublease includes the written extension or renegotiation of a sublease and any holdover tenancy under the written sublease.

     "Sublessee" means one who holds real property under a sublease.

     "Sublessor" means one who conveys real property by sublease.

     (f)  This section shall not cause the tax upon a lessor, with respect to any item of the lessor's gross proceeds or gross income, to exceed four per cent.

     (g)  After allocation under subsection (c), if necessary, the deduction under this section shall be allowed from the gross proceeds or gross income of the lessee received from its sublease in an amount calculated by multiplying the gross proceeds or gross income paid by the lessee to its lessor for the lease of the real property by .875.

     The amount calculated shall be deducted by the lessee from the lessee's total reported gross proceeds or gross income.  The deduction allowed by this subsection may be taken by the fiscal and calendar year lessees."

     SECTION 4.  Section 237-30.5, Hawaii Revised Statutes, is amended to read as follows:

     "§237-30.5  Collection of rental by third party; filing with department; statement required.  (a)  Every person authorized under an agreement by the owner of real property located within this State to collect rent on behalf of the owner shall be subject to this section.

     (b)  Every written rental collection agreement shall have on the first page of the agreement the name, address, social security number, and, if available, the general excise tax number of the owner of the real property being rented, the address of the property being rented, and the following statement that shall be set forth in bold print and in ten-point type size:

 

"HAWAII GENERAL EXCISE TAXES MUST BE PAID ON THE GROSS RENTS COLLECTED BY ANY PERSON RENTING REAL PROPERTY IN THE STATE OF HAWAII.  A COPY OF THE FIRST PAGE OF THIS AGREEMENT, OR OF FEDERAL INTERNAL REVENUE FORM 1099 STATING THE AMOUNT OF RENTS COLLECTED, SHALL BE FILED WITH THE HAWAII DEPARTMENT OF TAXATION."

 

     Every person entering an oral rental collection agreement shall furnish the department of taxation the information required under this subsection and shall give the owner of the property a copy of the notice required by this subsection.

     (c)  Every person authorized to collect rent for another person shall file a copy of the first page of the rental collection agreement with the department of taxation within thirty days after entering into the agreement, or shall file a copy of federal Internal Revenue form 1099, the property owner's social security number, and, if available, the general excise tax license number of the owner of the property being rented with the department of taxation at the same time that the forms must be filed with the Internal Revenue Service.

     (d)  Every person authorized under an agreement by the owner of real property located within this State to collect rent on behalf of the owner within ninety days after the effective date of this section shall furnish the department of taxation with the information required in subsection (b) and in the case of federal form 1099 the form for the taxable year 1983.  The person also shall notify the owner that the information is being furnished and give the owner a copy of the notice required by subsection (b).

     (e)  Failure to comply with any provision of this section shall be unlawful, except as otherwise exempted by section 237-24.75.  The department of taxation may issue a citation to any person who fails to comply with any provision of this section.  A citation issued pursuant to this subsection shall include a monetary fine of no more than $500 per violation.  Any fine assessed under this subsection shall be due and payable thirty days after issuance, subject to appeal rights provided under this subsection.  Citations may be appealed to the director or the director's designee, and the determination of the director may be appealed to the circuit court pursuant to chapter 91."

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect on July 1, 2026.

 

INTRODUCED BY:	_____________________________

 

 

Report Title:

GET; Exemption; Small Businesses; Real Property; Lease

 

Description:

Exempts gross income from real property leases from the general excise tax when the lessee is a small business.  Makes conforming amendments.

 

 

 

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