Gov. David Ige plans to veto two of the most controversial tax bills passed by the Legislature this session.

Bills proposing a corporate tax on real estate investment trusts and additional taxes on short-term vacation rentals are among 20 bills that Ige is considering vetoing. The two tax measures are likely to be vetoed, Ige said during a Monday news conference in his fifth floor office at the State Capitol.

Lawmakers projected that the REIT tax could generate $10 million in additional annual revenue, while the tax on vacation rentals like Airbnb could generate some $46 million for the state. The trusts own some of Hawaii’s premiere real estate, including Ala Moana Shopping Center, Hilton Hawaiian Village and the International Market Place.

Ige worried that the tax on REITs proposed by Senate Bill 301 might discourage businesses from investing in Hawaii.

Governor David Ige during veto presser.
Gov. David Ige talks to the media in a news conference Monday at the State Capitol. Cory Lum/Civil Beat

“Hawaii needs to be a place that is able to attract investment capital in order to create jobs and a sustainable economy,” he said.

There’s also the worry that divestment by REITs in the state could mean less tax overall coming into Hawaii.

“REITs’ investment in community infrastructure needs, such as affordable housing projects and shopping centers, is instrumental to supporting Hawaii’s quality of life,” said Dara Bernstein, senior vice president for Nareit.

Nareit, or the National Association of Real Estate Investment Trusts, topped lobbying expenses this legislative session, spending over $300,000, much of which went to advertising.

Not A Big Surprise To Lawmakers

Sen. Donovan Dela Cruz, who sponsored SB 301, said he wasn’t surprised to see the bill on the governor’s veto list. In the last days of the session, state Department of Business Economic Development and Tourism Director Mike McCartney circulated a letter in the Legislature outlining concerns with the proposal.

Senate Bill 1292 would allow vacation rental hosting platforms, such as Airbnb and HomeAway, to act as tax collectors on behalf of the state.

Ige said that the Honolulu City Council’s passage of Bill 89, which seeks to reduce the amount of short term vacation rentals on Oahu to around 1,700, could also reduce potential revenue from a tax on those rentals.

“It would have been more helpful if the city had taken on this issue much sooner,” Dela Cruz said.

Senator Donovan Dela Cruz makes comments before the 13-12 vote. SB1292 passed by 1 vote.
Sen. Donovan Dela Cruz makes comments before a vote in April on SB 1292, the tax on real estate investment trusts. Cory Lum/Civil Beat

He was a major proponent of the bill, hoping to pull in additional revenue for the state. SB 1292 ended up being a headache for the Senate in the waning days of the session.

With the bill locked on the senate floor, Dela Cruz told the Senate that various funding measures may not come to fruition if SB 1292 did not pass.

But that was before the Hawaii Council of Revenues projected that an additional $115 million would be pumped into state coffers before June 30, the end of the fiscal year.

Honolulu Mayor Kirk Caldwell’s indication that he would sign a city measure that passed last week to crack down on illegal vacation rentals, and the new state budget projection effectively rendered the purpose of the bill moot.

Vacation Rental Companies Split On Tax Bill

Still, Airbnb said in a written statement that the company still wants the governor to sign the vacation rental tax.

“SB 1292 preserves the right of county governments to establish and enforce short-term rental regulations while delivering an estimated $46 million annually for vital state services. State leaders passed this law to require vacation rental platforms to collect taxes so Hawaii can receive this much-needed revenue,” the company wrote.

Meanwhile, the Expedia Group, which operates HomeAway and VRBO, said that while it supports the tax collection section of the bill, it opposed any requirements that the hosting platform turn over identifiable information on property owners to the state.

“We hope a veto will provide us all an opportunity to come together and work with the Governor and state legislators to develop holistic policies that can be enforced while upholding the law to protect our customers.” 

That was a sticking point for members of the Senate, who were deadlocked on the bill in the final days of the Legislature. Some raised concerns that the current draft of SB 1292 would hide the location of vacation rentals.

Without the potential revenue from the two bills, Ige said that he may consider withholding funding for certain state programs if the state can’t afford them. He did not say what those programs might be.

“We may not be able to proceed with all the appropriations made by the Legislature,” Ige said during the press conference.

Ige Will Likely Veto Asset Forfeiture Bill

House Bill 748, which would prohibit civil asset forfeiture of property unless the owner is convicted of a felony, is also on Ige’s veto list.

When asked why he intends to veto the bill, Ige said he’s “proud of our law enforcement. We don’t see the kind of abuse that occurs in other states.”

Hawaii’s current property seizure law allows the government to sell private property without a court proceeding. A 2018 audit found that 26% of asset forfeiture cases in 2015 were closed with no criminal charges.

Members of the public / potential bidders view some of the jewelry and other valuables in covered containers before the AG offices' auction of forfeited property held at Neal Blaisdell Exhibition Hall. 9 april 2016.
Potential bidders scope out merchandise at a 2016 asset forfeiture auction put on by the Hawaii Attorney General’s office. Cory Lum/Civil Beat

In 4% of cases, property was forfeited even if charges were dismissed.

“As part of due process, we should at least prove that the property owner is guilty,” Mandy Fernandes, policy director at the American Civil Liberties Union of Hawaii, said.

Fernandes said that the ACLU and the Drug Policy Forum of Hawaii have been trying to get a meeting with Ige to get him to change course.

Some county prosecutors and police departments want Ige to veto the bill. In 2017, law enforcement agencies across the state seized $661,000 worth of property, according to a state report.

Rep. Joy San Buenaventura, who sponsored HB 748, told Civil Beat in May that the current asset forfeiture program, in some cases, amounts to theft by police. She said it’s a problem in her district on the Big Island.

Not Everything Went Up In Smoke

Ige could still change his mind on any of the bills on the veto list. He has until July 9 to either sign or veto bills, or else they become law without his signature.

Bills proposing all-mail elections statewide, automatic recounts in tight races, a statewide prison oversight commission and funds for a new stadium are among the bills that will eventually go into law.  

Among those bills is House Bill 1383, which calls for decriminalizing possession of three grams or less of cannabis. Though Ige has opposed a similar bill in the past, it wasn’t on his list of possible vetoes. 

HB 1383, which would decriminalize 3 grams or less of cannabis, was not one of the bills on Ige’s veto list. Anthony Quintano/Civil Beat/2018

Ige said he went back and forth on deciding whether to veto the measure. “It was a very tough call,” he told reporters. “There’s many items in that bill that I don’t like.”

One of those items is the small amount of marijuana that would be decriminalized. Possession of three grams of weed, which makes about three to five joints, is treated as a misdemeanor in Hawaii. The bill would just replace that with a monetary fine. Ige said he also wanted extra protections for minors included in the bill, as well as options for drug treatment for minors caught with weed.

But These Bills Might Get Axed

Another marijuana measure is also on the chopping block. House Bill 290 would have allowed qualified medical cannabis patients to transport their prescriptions between islands. Ige said he wanted to veto that bill because of potential conflicts with the federal law.

He also plans to veto a bill that would establish a program to allow terminally ill inmates to be released. Ige said in a prepared statement that a medical release program already exists in the state Department of Public Safety.

A bill that caused some last-minute fireworks in the House also might not make it. HB 702 proposed a prohibition on the sale of location data generated by devices like mobile phones to third parties.

“This measure attempts to regulate a complex national industry without sufficient and appropriate wording to ensure consistent compliance and enforcement,” Ige said in a statement.

Ige also plans to veto a bill that would increase the cap for tax credits to the film industry from $35 million a year to $50 million a year. Ige said he still supports raising the cap, but disagreed with the bill because of a provision that required the University of Hawaii to lease some West Oahu lands to the Hawaii Technology Development Corporation.

Condo associations may not gain more power without SB 551, a measure that Ige plans to veto over constitutional concerns. The bill would allow condo associations to conduct non-judicial foreclosures even if their governing documents don’t explicitly state that they have that power.

The full intent to veto list is on the governor’s website.

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