STAND. COM. REP. NO. 415

Honolulu, Hawaii

, 2005

RE: H.B. No. 1554

H.D. 2

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Consumer Protection & Commerce, to which was referred H.B. No. 1554, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO LEASEHOLD CONVERSION,"

begs leave to report as follows:

The purpose of this bill is to encourage leasehold fee owners to voluntarily sell their fee interest in their properties by providing an incentive. Specifically, this bill will allow fee owners to exclude, for a limited time, 75 percent of the income derived from the sale of a leased fee interest in a multi-family residential leasehold property to the lessee of the property.

Your Committee received testimony supporting this measure, with amendments, from the Hawaii Council of Associations of Apartment Owners, and Hawaii Independent Condominium & Cooperative Owners. Testimony in opposition was received from the Department of Taxation. The Hawaii Association of Realtors requested amendments.

Your Committee finds that this measure will benefit both lessors and lessees. Lessors will be encouraged to sell their land to lessees by receiving a generous tax exemption. Lessees, who have paid mortgages, property taxes, and maintenance fees on the leased property will have the opportunity to purchase the land. Furthermore, this measure helps to address and mitigate

 

 

the effect of the repeal of the City's Chapter 38, Revised Ordinances of Honolulu, which permitted the city to force landowners to sell to qualified condominium owners the fee interest in leased land under their units.

Your Committee further finds that the tax exemption may appropriately benefit other groups such as apartment owner associations and owners of residential leasehold house lots, since most sales in the housing market happen within associations.

Your Committee recognizes that there is pending legislation in House Bill No. 1523, House Draft 1 (H.B. No. 1523, H.D. 1), which would repeal the Land Reform Act for single family leasehold homes. If the bill is passed, it would be appropriate to allow fee owners who sell their fee interest in residential house lots to benefit from the tax exemption.

Accordingly, your Committee has amended this bill by:

(1) Extending the income tax exemption for the sale of leased fee interest in a multi-family residential leasehold property, to include a sale of the leased fee interest in a residential house lot;

(2) Providing that the leased fee interest for multi-family residential leasehold properties may be sold to an association of apartment owners and still qualify for the tax exemption; and

(3) Including an effective date of July 1, 2099, to promote further discussion regarding:

(a) The effect this measure will have on the Department of Taxation's Executive Biennium Budget; and

(b) The effect of further developments with regard to H.B. No. 1523, H.D. 1.

Technical, nonsubstantive amendments were also made for purposes of clarity, consistency, and style.

 

As affirmed by the record of votes of the members of your Committee on Consumer Protection & Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1554, H.D. 1, as amended herein, and recommends that it be referred to the Committee on Finance in the form attached hereto as H.B. No. 1554, H.D. 2.

 

Respectfully submitted on behalf of the members of the Committee on Consumer Protection & Commerce,

 

____________________________

KENNETH HIRAKI, Chair