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EITs—large real‑estate investment trusts that own hotels, malls, apartments, and industrial parks—benefit from a federal tax rule that lets them deduct all dividends paid to shareholders if they distribute at least 90 % of earnings. This dividends‑paid deduction (DPD) means REITs pay almost no corporate income tax at the federal level. Hawaii’s tax code mirrors federal law, so REITs operating there also claim the DPD and owe negligible state corporate tax.
Most REIT shareholders in Hawaii are non‑residents. The Department of Business, Economic Development & Tourism reports that 95–99 % of shareholders holding shares in REITs that own Hawaiian properties live outside the state, while only 0.5–3 % of resident taxpayers own such shares. Thus, profits generated on Hawaiian land, infrastructure, and labor flow out of state untaxed. A state study estimated that REITs with Hawaiian holdings shield about $720 million of income each year, translating to tens of millions of dollars in lost revenue that could fund affordable housing, school repairs, and public health.
The DPD also fuels speculative land acquisition. Because REITs enjoy a tax advantage unavailable to local businesses, they can bid higher for properties, driving up prices, accelerating gentrification, and displacing residents. Wealth is extracted from Hawaii and concentrated in distant investors, while locals face higher costs and fewer services.
The loophole persists largely because of political influence. The national REIT trade association, Nareit, spends heavily on lobbying, public messaging, and consultant campaigns to portray taxing REITs as a deterrent to investment. REIT‑linked entities have donated roughly $133,750 to Hawaiian campaigns between 2018 and 2024, a modest sum that still grants access and shapes narratives in a small state. This systemic imbalance lets organized capital outvote public interests.
Ending the DPD at the state level would level the playing field. REITs use Hawaiian roads, employ local workers, and profit from community resources; they should contribute to the public systems that support them. Restoring $30–50 million in annual revenue would allow investment in housing, school meals, and climate resilience without raising regressive taxes. It would also curb speculative land grabs and keep more wealth circulating locally.
This is not an anti‑business stance but a pro‑community one. Fair taxation ensures that the benefits of economic activity are shared, not siphoned away. Hawaii’s choice is between allowing the DPD to continue and perpetuating extraction, or ending it to promote fairness, stability, and sovereignty.
