Small Business News
June 2005 | Online Edition
What the Conveyance Tax Increase Will Mean
By Walt Harvey (R), East O’ahu Realty, ABR, CRS, GRI, SRES, ePRO, QSC
Two bills that increase the Conveyance Tax survived this Legislative Session; SB179 & HB1308 have been sent to the Governor and will substantially increase the cost of selling real property in Hawaii. Originally intended to defer the costs to the County for processing a transfer of ownership in real property, the conveyance tax is now viewed as another revenue source and a funding mechanism.
Currently, a seller or transferor of real property is assessed $.10 per $100. HB1308 will institute a sliding scale and charge $.20 per $100 on sales of $600,000-$1,000,000 and $.30 per $100 on sales above $1,000,000. In addition, if the purchaser is ineligible for a county homeowner’s exemption on property tax, an additional $.05 per $100 is added for all sales. This includes not only mainland purchasers but local investors as well.
For example, currently a property seller of a $745,000 will pay a $745 conveyance tax, regardless of who purchases the property. Under the new legislation, the seller will pay $1490 if sold to a resident purchaser or $1862.50 if sold to a non-resident purchaser. Will we start to see two different asking prices for property, one price for residents and a higher price for non-residents or local investors?
Proponents of the legislation say the increases will only affect about 8% of the sales. Wrong! The Honolulu Board of Realtors© First Quarter 2005 reports 976 single family home sales on Oahu of which 281 were from $600,000-$1,000,000 and 119 were over $1,000,000. Thatís 41% that would have been affected. This does not take into account sales of condos, apartments, land and for non-resident purchasers which would undoubtedly raise the affected percentage even higher.
The next time you hear your legislator talk about the need for more affordable housing, ask them how they voted on SB179 and HB1308 and how raising the conveyance tax makes housing more affordable.
New Tax Provisions
By Kurt Kawafuchi, State Tax Director
A number of tax measures made it this session and a few have been signed and enacted into law as of the end of April:
HARPTA Withholding. Act 23 clarifies the applicability of withholding requirements under the Hawaii Real Property Tax Act to nonresident single member limited liability companies that have elected not to be taxed as corporations. Act 23 applies to taxable years beginning after December 31, 2004; and
Income Tax Withholding. Act 27 conforms state withholding tax law to federal withholding provisions. It clarifies that employers who have a state withholding tax liability of $40,000 or more per year must file their taxes within three banking days of the close of the payroll period. Act 27 became effective April 25, 2005.
The following tax-related bills were passed by the Legislature and sent to Governor Lingle for consideration but had not yet been enacted into law as of the publication deadline:
Affordable Housing. S.B. 179, S.D. 3, H.D. 2, C.D. 1 – Establishes a general excise tax exemption for developers who set aside half their units as affordable housing;
Tax Appeal. S.B. 460, H.D. 1 – Allows taxpayers to appeal a tax refund claim when the Department of Taxation fails to act on the claim within 180 days after the claim was filed;
Tobacco Permit. S.B. 682, S.D. 2, H.D. 3, C.D. 1 – Requires retailers selling cigarettes and other tobacco products to obtain a retail tobacco permit from the Department of Taxation. It also provides criminal penalties for the retail sale of cigarettes or other tobacco products without a valid retail tobacco permit, and allows seizure and forfeiture of cigarettes and other tobacco products sold, possessed, kept, acquired, distributed, or transported without a valid retail tobacco permit;
Conformity to IRS. S.B. 834, C.D. 1 – Amends Hawaii’s income tax law to conform with changes to the Internal Revenue Code for taxable years beginning after December 31, 2004;
Public Service Company Tax. S.B. 1453, S.D. 2, H.D. 1, C.D. 1 – Imposes the public service company tax on the gross income of a private sewer company;
Rental Motor Vehicle Surcharge Tax. H.B. 390, H.D. 1, S.D. 2, C.D. 1 – Permanently exempts lessors who lease vehicles to lessees whose own vehicles are under repair from the rental motor vehicle surcharge tax;
Conveyance Tax. HB1308, H.D. 1, S.D. 2, C.D. 1 • Increases the conveyance tax for properties $600,000 or more, and all residential properties that are second homes or investments;
Surcharge for Public Transit Systems. H.B. 1309, H.D. 2, S.D. 2, C.D. 1 • Allows counties to add a surcharge of up to 0.5 percent on the State’s 4 percent general excise tax to fund public transportation systems in their respective counties; and
Leasehold Conversion. H.B. 1554, H.D. 2, S.D. 2, C.D. 1 • Excludes from taxable income 50% capital gains realized not to exceed $75,000 in the aggregate for all taxpayers, during taxable year 2006 from sale of leased fee interest in residential house lot or multi-family residential leasehold property to the lessee.
For the full text of the acts and more up-to-date information, go to the Hawaii State Legislature’s website at capitol.hawaii.gov and select “Status & Documents.” In the coming weeks, we will be issuing a series of announcements summarizing each tax measure enacted and post these announcements on our website at www.state.hi.us/tax.
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