Hawaiʻi is losing tens of millions of dollars every year to one of the most powerful and least understood corporate tax loopholes in the country: the dividends paid deduction, or DPD, for real estate investment trusts.

REITs are investment vehicles — often billion-dollar corporations — that own and manage real estate such as hotels, shopping centers, apartment complexes, and industrial parks.

They enjoy a special tax privilege: under federal law, REITs can deduct from their taxable income all dividends they pay to shareholders, as long as they distribute at least 90% of their profits.

This deduction, the DPD, means that REITs pay little or no corporate income tax on the money they earn.

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At the federal level, those dividends are then taxed when shareholders receive them. But in Hawaiʻi, most REIT shareholders live elsewhere.

According to DBEDT, between 95% and 99% of REIT shareholders with Hawaiʻi property holdings are nonresidents. Only 0.5% to 3% of Hawaiʻi resident taxpayers reported owning shares in REITs with Hawaiʻi-based properties.

So while the profits are generated here — through our land, infrastructure, workforce and visitors — the taxable income flows out of state, untaxed by Hawaiʻi.

Because Hawaiʻi’s tax code conforms to federal law, it automatically adopts this deduction. That means REITs operating in Hawaiʻi — owning properties like Waikīkī Beach Walk, Hilton Hawaiian Village, and major shopping centers — can claim the DPD and pay virtually no state corporate income tax.

A state study found that REITs with Hawaiʻi properties were shielding roughly $720 million in income each year — translating to tens of millions of dollars in lost revenue annually. These are dollars that could fund affordable housing, repair schools and strengthen public health systems.

This loophole does more than drain revenue — it fuels speculation. Because REITs enjoy a tax advantage unavailable to local businesses, they can bid up property prices and acquire more land, accelerating gentrification and displacement. The result is a system where wealth is extracted from Hawaiʻi and concentrated in the hands of distant investors, while local residents shoulder higher costs and fewer services.

Why The Loophole Persists

Hawaiʻi’s REIT carve-out is not inevitable — it’s political. The national REIT trade association, Nareit, spends heavily to preserve the DPD. Through lobbying, public messaging and consultant-driven campaigns, they warn that taxing REITs would deter investment. Yet REITs operate profitably in other states that impose entity-level taxes or limit the deduction.

Another factor is the steady stream of campaign contributions from REIT-linked entities that reinforce the status quo. Between 2018 and 2024, such donations totaled roughly $133,750, spread across multiple election cycles and targeted toward influential committees and policymakers.

In a small state like Hawaiʻi, even modest contributions can secure access, shape narratives and slow reform — not through corruption per se, but through systemic imbalance, where organized capital speaks louder than the public.

This is how structural power operates: not through a single bad actor, but through a web of incentives, habits and fears that privilege outside investors over local needs.

The Path Forward

Ending the DPD at the state level would simply put REITs on the same footing as every other business operating in Hawaiʻi. They use our roads, rely on our workers and profit from our communities; they should contribute to the public systems that make those profits possible.

Restoring this lost revenue — $30 million to $50 million a year — would allow us to build housing, expand school meals and invest in climate resilience without raising regressive taxes. It would slow speculative land grabs and keep more wealth circulating locally.

The taxable income flows out of state, untaxed by Hawaiʻi.

This is not anti-business — it’s pro-community. Fair taxation ensures that the benefits of economic activity are shared, not siphoned away.

Hawaiʻi’s REIT loophole is a choice, not a law of nature. We can choose fairness over extraction, stability over speculation, and sovereignty over subservience to distant shareholders.

The question isn’t whether REITs can afford to pay — they can. The question is whether Hawaiʻi can afford not to make them.

CORRECTION: An earlier version of this essay referred incorrectly to the tax status of Ward Village.