Taxes paid on real estate sales in Hawaii could become a lot higher for multimillion-dollar properties to fund development of Hawaiian homesteads and housing infrastructure near transit hubs.
Two competing bills pending at the state Legislature propose restructuring Hawaii’s conveyance tax, which gets applied when real estate, including homes, is sold.
Of the two measures, a bill
originating in the House of Representatives aimed to generate much more additional revenue — $167 million a year initially on top of about $100 million in current annual proceeds — compared with a Senate bill proposing smaller tax rate increases for higher-value properties.
Recent drafts of both bills would leave the tax rate unchanged on homes sold for less than $600,000 and reduce the rate on homes sold for between $600,000 and a little over $1 million when buyers intend to occupy the property.
The bills also would adjust tax brackets with inflation so that lower-value homes would not get pushed into higher brackets as housing prices rise over time.
Rep. Luke Evslin, who chairs the House Committee on Housing and led the introduction of House Bill 2049 with 16 other colleagues, said his goal is to reduce conveyance taxes on homes that sell for around the median price or less while also collecting more taxes on higher-end homes often bought by investors or vacationers who drive up the cost of housing in Hawaii for everyone.
“At its heart, it’s shifting our current conveyance tax structure to a marginal structure, which is just a more fair structure,” Evslin (D, Wailua-Lihue) told colleagues
in a March 10 speech on the
House chamber floor before the 51-member House voted 43-7 with one absence to send the bill to the Senate for consideration.
HB 2049 proposed channeling up to $60 million annually from additional tax revenue to the state Department of Hawaiian Home Lands to develop homesteads for beneficiaries.
Also, up to $40 million a year
of projected new revenue under the bill’s original intent would
help finance state-backed, affordable-housing development projects, including costs for infrastructure supporting projects in
transit-oriented development areas under the Hawaii Housing Finance and Development Corp.
Two other state programs currently receiving portions of conveyance tax proceeds, a land conservation fund and a fund financing affordable rental housing, likely would see relatively little change in their share of proceeds under the proposed restructuring.
Seven tax brackets exist for real estate sales in Hawaii, and the top five would see higher rates under a recent version of HB 2049 and result in often dramatically higher tax bills, which get paid by property sellers.
For instance, the existing rate for a home bought by an owner-occupant at a price between $1 million and
$2 million is 30 cents per $100, which amounts to a $6,000 tax on a $2 million home sale.
HB 2049 proposed changing the rate to $2,000 plus 60 cents per $100 in value over $1 million, which would more than double the tax to $14,000 on a $2 million home sale.
The top current rate for a home bought by an owner-occupant is $1 per $100 in value for sales at or over
$10 million, which amounts to taxes of $100,000 on a $10 million home, $150,000 on a
$15 million home and $200,000 on a $20 million home.
HB 2049 proposed a new rate of $378,000 plus $6.25 per $100 in value over
$10 million capped at no more than 4% of total value. That would make the tax $378,000 on a $10 million home, $600,000 on a $15 million home and $800,000 on a $20 million home.
Rates also would change for homes sold to buyers who aren’t eligible for the owner-occupant class, and for commercial properties.
Evslin said 75% of homes sold in Hawaii would have a reduced or unchanged conveyance tax bill under the version of HB 2049 sent to the Senate.
HB 2049 has drawn a mix of public support and
opposition at multiple committee hearings in February and March.
Will Caron, an affordable-housing advocate, said in written testimony that conveyance tax rates in Hawaii representing 0.5% to 1.25% of a purchase price are much lower than some other markets where real
estate prices are high, such as 2% to 7% in Seattle and San Francisco.
The shift in rates under HB 2049, Caron said, would result in savings for middle-class households selling their homes while having sellers of high-end homes pay more.
“It is a targeted ask for those who have profited most from our islands’ scarcity,” he said.
Kali Watson, director of DHHL, told the committee led by Evslin during a Feb. 6 hearing, “This is the most important bill for us at the Legislature.”
DHHL received a historic $600 million appropriation from the Legislature in 2022 largely to produce more homestead lots for roughly 30,000 Native Hawaiian beneficiaries on a waitlist. The funding is expected to help produce around 2,500 lots, and DHHL has unsuccessfully tried to obtain more funding from lawmakers since 2022.
Evan Oue, representing the Hawaii chapter of the National Association of Industrial and Office Properties, told the committee that the organization appreciates the intent of HB 2049 but
opposes the bill.
“We have always held that the conveyance tax was never supposed to be a revenue generating (tax),” he said. “It’s supposed to be an administrative fee to cover the cost of the transactions for the (state Bureau of
Conveyances).”
The Hawaii Association of Realtors also opposed the bill.
The nonprofit Tax Foundation of Hawaii said in
written testimony that the conveyance tax shouldn’t become an expanded tool to fund state agencies even if they have needs tied to housing.
“If the Legislature deems the programs and purposes funded by this fund to be a high priority, then it should maintain the accountability for these funds by appropriating the funds as it does with other programs,” the foundation said. “Earmarking revenues merely absolves elected officials from setting priorities.”
Restructuring of the conveyance tax by the Legislature may take significant compromise between House and Senate leaders.
Sen. Chris Lee (D, Kailua-Waimanalo-Hawaii Kai) introduced Senate Bill 3028 with some similar aims to HB 2049 along with differences that include unspecified shares of proceeds going to a land conservation fund, an affordable rental housing development fund, a land acquisition fund and an affordable-housing development fund that could be used for infrastructure supporting projects in transit-oriented development
areas.
SB 3028, as initially drafted and passed unanimously by the 25-member Senate on March 10, would not provide funding for DHHL. It also raises tax rates on higher-value properties less than the competing House bill.
On March 18, the House Committee on Housing led by Evslin amended SB 3028 to include a mix of elements from both bills but without new rates specified.
Then on March 25,
two Senate committees amended HB 2049 to make rate changes unspecified and to incorporate a mix of elements from both bills that include providing up to $40 million for DHHL, up to $15 million for an agricultural development fund and up to $15 million for a land development fund.
The Senate Committee on Ways and Means is slated to take action on HB 2049 on Monday, and the House
Finance Committee is slated to take action on SB 3028 on Tuesday.
Evslin is promoting revised rates somewhat lower than what were in HB 2049 earlier in an effort to reach agreement with members of the Senate and pass one of the bills in a compromise draft.
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