SB 1218: RELATING TO THE CONVEYANCE TAX.

THE SENATE	S.B. NO.	1218
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to the conveyance tax.

 

 

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

 

     SECTION 1.  The legislature finds that the health, happiness, and well-being of Hawaii's people depends on the State's ability to address the high cost of living, particularly the high cost of housing, that is fueling the homelessness crisis and forcing local families to move out of the State.  The sustainability of the State's unique and irreplaceable natural resources is critical to its residents' quality of life.  To address these problems and secure a prosperous future for the State's children, greater investment into public resources from a sustainable revenue source is needed to reduce the cost of housing for residents, preserve the State's natural resources, and provide solutions for community members experiencing houselessness.

     The legislature also finds that the conveyance tax, a one‑time tax at the time of real property sales, is an appropriate revenue source for affordable housing, land conservation, and homeless services.  Although housing prices in the State have risen dramatically over the past thirteen years, the State's conveyance tax rates have not been updated since Act 59, Session Laws of Hawaii 2009.  Presently, the State's conveyance tax is significantly lower than the rates of other high-cost areas in the country.

     Cities across the country are increasing their conveyance tax rates to fund affordable housing.  San Francisco increased the tax rate to 5.5 per cent on homes valued over $10,000,000 in 2020, and three years ago, Los Angeles increased the real property transfer tax to 4.5 per cent on any residential or commercial property over $5,000,000 in value and six per cent on property sales over $10,000,000 in value.  Smaller cities with high housing costs are also increasing the taxes on real estate sales to mitigate the impacts of housing costs.  Crested Butte and Telluride in Colorado, which attract wealthy buyers due to access to world class ski opportunities, have a tax of three per cent on home sales regardless of price.  Aspen, Colorado, which has the most well-developed workforce housing program in the country where almost forty per cent of the housing total housing stock is reserved as permanently affordable housing for full‑time residents, has largely funded their workforce housing program through a 1.5 per cent tax on property sales that has been in place since 1989.

     Presently, it is common practice to tax property sales as a means to mitigate the impacts of high home costs and the loss of land due to housing development.  Furthermore, a conveyance tax of 0.5 per cent on homes valued at less than $5,000,000, a rate of four per cent on homes valued between $5,000,000 and $10,000,000, and six per cent on homes valued at over $10,000,000, conforms to tax rates that other cities have adopted to fund their various housing programs.

     The legislature recognizes that the increases in housing prices, residential rent, and the homeless population over the past several years has accelerated the urgent need to sustainably fund affordable housing and homeless services in Hawaii.  The 2023 point in time count estimates that there are currently 6,223 individuals living unsheltered in the State, not including the greater number of "hidden homeless" individuals temporarily living with friends or relatives because they cannot afford to live on their own.  Investing in affordable housing and homeless services, including supportive housing, is key to addressing homelessness and ensuring that everyone in the State has an affordable place to live.

     Accordingly, the purpose of this Act is to:

     (1)  Establish the homeless services special fund;

     (2)  Allow counties to apply for matching funds from the affordable homeownership revolving fund for housing projects that are subject to a perpetual affordability requirement;

     (3)  Increase the conveyance tax rates for certain properties;

     (4)  Repeal the separate conveyance tax rates for the sale of a condominium or single family residence for which the purchaser is ineligible for a county homeowner's exemption or property tax and establish conveyance tax rates for multifamily residential properties;

     (5)  Exempt from conveyance taxes the conveyances of real property to:

          (A)  Organizations with certain affordability requirements;

          (B)  Certain nonprofit organizations; and

          (C)  An owner-occupant or renter-occupant of the property; and

     (6)  Allocate collected conveyance taxes to the affordable homeownership revolving fund, homeless services special fund, and general fund and amend allocations to the land conservation fund, and rental housing revolving fund.

     SECTION 2.  Chapter 346, Hawaii Revised Statutes, is amended by adding a new section to part XVII to be appropriately designated and to read as follows:

     "§346-    Homeless services special fund.  (a)  There is established within the state treasury a homeless services special fund, to be administered and managed by the department and into which shall be deposited:

     (1)  Ten per cent of the conveyance tax collected and allocated to the homeless services fund pursuant to section 247-7;

     (2)  Appropriations made by the legislature; and

     (3)  Interest earned upon any moneys in the fund.

     (b)  Moneys from any other private or public source may be deposited in or credited to the fund; provided that any mandates, regulations, or conditions on the funds shall not conflict with the use of the fund under this section.  Moneys received as a deposit or private contribution shall be deposited, used, and accounted for in accordance with the conditions established by the agency or person making the contribution.

     (c)  Moneys in the homeless services special fund shall be used by the department for homeless services and supportive housing, including homeless facilities programs for the homeless authorized by the department.

     (d)  The department shall submit a report to the legislature providing an accounting of the fund no later than twenty days prior to the convening of each regular session.  The report shall include, at minimum:

     (1)  A detailed account of all funds received; and

     (2)  All moneys expended from the homeless services special fund."

     SECTION 3.  Section 201H-206, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§201H-206[]]  Affordable homeownership revolving fund.  (a)  There is established an affordable homeownership revolving fund to be administered by the corporation for the purpose of providing, in whole or in part, loans to nonprofit community development financial institutions and nonprofit housing development organizations for the development of affordable homeownership housing projects.

     (b)  Loans shall be awarded in the following descending order of priority:

     (1)  Projects or units in projects that are funded by programs of the United States Department of Housing and Urban Development, United States Department of Agriculture Rural Development, and United States Department of the Treasury Community Development Financial Institutions Fund, wherein:

          (A)  At least fifty per cent of the available units are reserved for persons and families having incomes at or below eighty per cent of the median family income and of which at least five per cent of the available units are for persons and families having incomes at or below fifty per cent of the median family income; and

          (B)  The remaining units are reserved for persons and families having incomes at or below one hundred twenty per cent of the median family income; and

     (2)  Mixed-income affordable for-sale housing projects or units in a mixed-income affordable for-sale housing project wherein all of the available units are reserved for persons and families having incomes at or below one hundred per cent of the median family income.

     (c)  Moneys in the fund shall be used to provide loans for the development, pre-development, construction, acquisition, preservation, and substantial rehabilitation of affordable for‑sale housing units.  Uses of moneys in the fund may include but are not limited to planning, design, and land acquisition, including the costs of options, agreements of sale, and down payments; equity financing as matching funds for nonprofit community development financial institutions; or other housing development services or activities as provided in rules adopted by the corporation pursuant to chapter 91.  The rules may provide that money from the fund shall be leveraged with other financial resources to the extent possible.

     (d)  The fund may include [sums]:

     (1)  Sums appropriated by the legislature[, private];

     (2)  Private contributions[, proceeds];

     (3)  Proceeds from repayment of loans[, interest,];

     (4)  Interest and other returns[,];

     (5)  Conveyance taxes collected under chapter 247 and allocated to the affordable homeownership revolving fund pursuant to section 247-7; and [moneys]

     (6)  Moneys from other sources.

     (e)  An amount from the fund, to be set by the corporation and authorized by the legislature, may be used for administrative expenses incurred by the corporation in administering the fund; provided that moneys in the fund shall not be used to finance day-to-day administrative expenses of the projects allotted moneys from the fund.

     (f)  The corporation may provide loans under this section as provided in rules adopted by the corporation pursuant to chapter 91.

     (g)  The corporation may contract with nonprofit community development financial institutions to fund loans under this section.  The corporation may contract for the service and custody of its loans.

     (h)  The corporation may establish, revise, charge, and collect a reasonable service fee, as necessary, in connection with its loans, services, and approvals under this part.  The fees shall be deposited into the affordable homeownership revolving fund.

     (i)  Counties may apply for matching funds from the fund; provided that before applying for any matching funds, the counties shall have an approved comprehensive affordable housing plan that:

     (1)  Identifies available lands for affordable housing;

     (2)  Identifies infrastructure needs and availability; and

     (3)  Requires housing projects developed using moneys from the fund to be subject to an affordability clause that keeps the property affordable in perpetuity, also known as a "deed-restricted property";

provided further that costs for the development of or an update to an existing county comprehensive affordable housing plan may, upon application, be paid out of these funds.

     [(i)] (j)  The corporation shall submit a report to the legislature no later than twenty days prior to the convening of each regular session describing the projects funded using moneys from the affordable homeownership revolving fund."

     SECTION 4.  Section 247-2, Hawaii Revised Statutes, is amended to read as follows:

     "§247-2  Basis and rate of tax.  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):

          (A)  [Ten cents per $100 for] For properties with a value of less than $600,000[;]:  10 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[;]:  20 cents per $100;

          (C)  [Thirty cents per $100 for] For properties with a value of at least $1,000,000, but less than $2,000,000[;]:  30 cents per $100;

          (D)  [Fifty cents per $100 for] For properties with a value of at least $2,000,000, but less than $4,000,000[;]:  50 cents per $100;

          (E)  [Seventy cents per $100 for] For properties with a value of at least $4,000,000, but less than $6,000,000[;]:  70 cents per $100;

          (F)  [Ninety cents per $100 for] For properties with a value of at least $6,000,000, but less than $10,000,000[; and]:  $1.10 per $100;

          (G)  [One dollar per $100 for] For properties with a value of at least $10,000,000 [or greater; and], but less than $14,000,000:  $1.40 per $100;

          (H)  For properties with a value of at least $14,000,000, but less than $18,000,000:  $2.00 per $100;

          (I)  For properties with a value of at least $18,000,000, but less than $22,000,000:  $3.00 per $100;

          (J)  For properties with a value of at least $22,000,000, but less than $26,000,000:  $4.00 per $100; and

          (K)  For properties with a value of $26,000,000 or greater:  $6.00 per $100; 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,]

     (2)  For the sale of a multifamily residential property:

          (A)  For properties with a value of less than $600,000:  10 cents per $100;

          (B)  For properties with a value of at least $600,000, but less than $1,000,000:  20 cents per $100;

          (C)  For properties with a value of at least $1,000,000, but less than $2,000,000:  30 cents per $100;

          (D)  For properties with a value of at least $2,000,000, but less than $4,000,000:  50 cents per $100;

          (E)  For properties with a value of at least $4,000,000, but less than $6,000,000:  70 cents per $100;

          (F)  For properties with a value of at least $6,000,000, but less than $10,000,000:  90 cents per $100;

          (G)  For properties with a value of at least $10,000,000, but less than $20,000,000:  $1 per $100;

          (H)  For properties with a value of at least $20,000,000, but less than $50,000,000:  $1.25 per $100;

          (I)  For properties with a value of at least $50,000,000, but less than $100,000,000:  $1.50 per $100; and

          (J)  For properties with a value of $100,000,000 or greater:  $2.00 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 less than $1.

     For the purposes of this section, "multifamily residential property" means a structure that is located within the state urban land use district and divided into five or more dwelling units."

     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;

    (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[.];

    (18)  Any document or instrument conveying real property to an organization that:

          (A)  Has a minimum of thirty years remaining of a price-restricted affordability period; or

          (B)  Places a deed restriction on the property to maintain permanent affordability.

          For purposes of this paragraph:

              "Permanent affordability" means a requirement that a residential real property remain affordable to households with incomes at or below one hundred twenty per cent of the area median income as determined by the United States Department of Housing and Urban Development for the life of the property.

              "Price-restricted affordability period" means the period for which a residential real property is restricted to renter households with incomes at or below one hundred twenty per cent of the area median income as determined by the United States Department of Housing and Urban Development applicable to the location of the real property for the applicable federal fiscal year;

    (19)  Any document or instrument conveying real property to a nonprofit organization that:

          (A)  Is exempt from federal income tax by the Internal Revenue Services; and

          (B)  Will hold the property in an undeveloped state and for conservation purposes in perpetuity through a deed restriction on the property; and

    (20)  Any document or instrument conveying real property to an individual who is an owner-occupant or renter‑occupant of the property; provided that individual does not have a direct or indirect ownership interest in any other real property, including through ownership interest in a trust, partnership, corporation, limited liability company, or other entity."

     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] Forty per cent [or $38,000,000, whichever is less,] shall be paid into the rental housing revolving fund established by section 201H-202[.];

     (3)  Ten per cent shall be paid into the affordable homeownership revolving fund established pursuant to section 201H-206; and

     (4)  Ten per cent shall be paid into the homeless services special fund established pursuant to section 346-  ;

provided that the remaining thirty per cent of funds shall be deposited into the general fund."

     SECTION 7.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 8.  This Act shall take effect upon its approval.

 

INTRODUCED BY:	_____________________________

 

 

 

Report Title:

DHS; Affordable Housing; Conveyance Tax; Rates; Exemption; Homeless Services Fund; Affordable Homeownership Revolving Fund; Land Conservation Fund; Rental Housing Revolving Fund

 

Description:

Establishes the Homeless Services Special Fund.  Allows counties to apply for matching funds from the Affordable Homeownership Revolving Fund for certain housing projects.  Increases the conveyance tax rates for certain properties.  Repeals the separate conveyance tax rates 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 and establishes conveyance tax rates for multifamily residential properties.  Establishes new exemptions to the conveyance tax.  Allocates collected conveyance taxes to the Affordable Homeownership Revolving Fund, Homeless Services Special Fund and general fund.  Amends allocations to the Land Conservation Fund and Rental Housing Revolving Fund.

 

 

 

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