Hawaii-2022-SB2547-Introduced

SECTION 1. The legislature finds that, in 2015, the research and economic analysis division of the department of business, economic development, and tourism estimated that the demand for housing would increase by an additional 64,700 to 66,000 housing units during the 2015-2025 period. Unfortunately, Hawaii is not expected to create the necessary units by 2025. Further decreasing the supply of available housing units are off-island foreign investors who purchase second homes in Hawaii and allow them to remain vacant for most of the year. Foreign high-end second home purchases have increased from $500,000,000 per year from 2008 to 2015 to $1,000,000,000 per year for 2016 and 2017. United States investors outside Hawaii purchase an additional $4,000,000,000 to $5,000,000,000 each year in Hawaii's real estate market and also allow many of those homes to remain vacant for most of the year. These vacant units contribute to Honolulu having a long‑term vacancy rate of 5.3 per cent and available vacancy rate of 3.4 per cent, which are among the highest in the nation. This high vacancy rate reduces the amount of available homes for Hawaii residents and significantly contributes to the high rental costs and lack of affordable housing. Additionally, empty homes also deprive local businesses of economic benefits from collateral spending and deprive local and state governments of general excise tax revenue needed to fund public infrastructure that remains available to the homeowners throughout the year.

The legislature finds that imposing a vacancy surcharge will establish a disincentive to maintaining vacant dwellings and facilitate the renting or sale of available housing, all while generating revenue for the State. A report published by the University of California, Los Angeles, Luskin School of Public Affairs, for the Honolulu mayor's office of housing, dated July 2020, indicated that a vacancy tax could raise more than $500,000,000 a year.

The purpose of this Act is to help increase the number of available housing units in the State by imposing a surcharge on vacant units as a disincentive for owners who keep housing units vacant, and create a special fund for the vacancy tax revenues to pay for enforcement and provide rental assistance to local residents.

SECTION 2. Chapter 201, Hawaii Revised Statutes, is amended by adding a new section to part I to be appropriately designated and to read as follows:

"§201- Vacant homes special fund. (a) There is established a vacant homes special fund into which shall be deposited the following moneys:

(1) Appropriations by the legislature;

(2) Gifts, donations, and grants from public agencies and private persons; and

(3) All proceeds collected by the department of taxation pursuant to chapter 237, part .

All interest earned or accrued on moneys deposited in the fund shall become part of the fund. The fund shall be administered by the department; provided that the department may contract with a public or private agency to provide the day‑to‑day management of the fund.

(b) Subject to legislative authorization, moneys from the fund may be appropriated to the counties for:

(1) Enforcement of chapter 237, part ; and

(2) Rental assistance programs."

SECTION 3. Chapter 237, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Vacancy surcharge

§237-A Definitions. For the purposes of this part:

"Individual" means a natural person.

"Residential real property" means fee simple or leasehold real property on which is situated:

(1) At least one dwelling unit; or

(2) A residential condominium or cooperative apartment, the primary use of which is occupancy as a residence;

that is not subject to taxation pursuant to chapter 237D.

§237-B Imposition of surcharge. (a) There is hereby levied and shall be assessed and collected annually, a surcharge against persons licensed pursuant to section 237-9 on account of the person's vacant residential real property in the State. The surcharge shall be measured by the application of rates against the average annual rental value of the residential real property. The surcharge shall be in addition to any other taxes under this chapter, if any.

(b) All surcharges under this part shall be paid by the owner.

(c) Any residential real property dwelling unit that was vacant during the previous year shall be assessed a surcharge of:

(1) per cent of the average annual rental value of the residential real property published pursuant to section 237-D if that residential real property was vacant for one hundred twenty days or more but less than one hundred eighty days during the previous year; or

(2) per cent of the average annual rental value of the residential real property published pursuant to section 237-D if that residential real property was vacant for one hundred eighty days or more during the previous year,

provided that if the residential real property consists of more than one dwelling unit, then the surcharge shall be calculated on the proportional average annual rental value of the vacant dwelling unit published pursuant to section 237-D.

(d) Residential real property shall be considered occupied on any day that the residential real property was:

(1) The primary, legal, or voting residence of any individual;

(2) The temporary residence of a military service member or dependent;

(3) The temporary residence of a student;

(4) Rented to an individual for fair market value pursuant to a long-term or short-term rental agreement; or

(5) Lawfully leased, let, or rented for fair market value and for which taxes were paid under chapter 237D.

§237-C Exemptions. (a) The surcharge imposed by this part shall not apply for the following periods of vacancy:

(1) For a twelve-month period of vacancy following the death of a registered owner;

(2) For a twenty-four-month period of vacancy for residential real property undergoing redevelopment or major renovations that the owner can demonstrate tenancy is untenable;

(3) For a twelve-month period of vacancy during which an owner or lessee resides in a hospital or a long-term or supportive care facility;

(4) For the first six-month period of vacancy during which the owner or lessee is required to live elsewhere to satisfy an employment requirement;

(5) For any period of vacancy necessary to comply with a court order or executive order; or

(6) For any period of vacancy during which the owner or lessee is serving in the military and deployed to another location.

(b) This part shall not apply to any residential real property:

(1) Owned by the United States or for which the United States is a lessee;

(2) Owned by the State and not leased to a private party;

(3) For which the State is the lessee;

(4) Owned by a county and not leased to a private party; or

(5) For which a county is the lessee.

§237-D Average annual rental value; calculation. (a) Before January 15 of each year, the department of business, economic development, and tourism shall publish on its website a list of average annual rental values for residential real property.

(b) The list of average annual rental values shall include values specific to each geographic region, the size of the residential real property, the number of bedrooms, the number of bathrooms, and other characteristics deemed relevant to rental value by the department of business, economic development, and tourism.

(c) Each owner assessed a surcharge pursuant to section 237-B shall calculate the surcharge based upon the applicable average annual rental value divided by three hundred sixty-five days, then multiplied by the total number of days the residential real property was vacant.

(d) The director of business, economic development, and tourism may adopt, amend, or repeal rules pursuant to chapter 91 to carry out this section.

§237-E Return and payments; penalties. (a) On or before February 20 of each year, each owner of residential real property shall file a return with the director of taxation in a form pursuant to subsection (b) and notwithstanding section 237‑30, shall remit the amount of any surcharge required by section 237-B.

(b) The director of taxation shall prescribe the form of the return. The return shall:

(1) State the number of days during the previous year that the residential real property was:

(A) Occupied for any reason specified by section 237‑B(d);

(B) Vacant for any reason specified by section 237‑C(a); and

(2) Require the submission of any documents necessary to support the information submitted pursuant to paragraph (1); and

(3) Include a certification, signed and subject to penalty pursuant to section 710-1063, that the statements made are true and correct to the best of the owner's knowledge, information, and belief.

§237-F Assessment of surcharge upon failure to make return; limitation period; penalty; exceptions; extension by agreement. (a) If any owner of a residential real property fails to make a return as required by this part, fails to obtain a license pursuant to section 237-9, or fails to remit the amount of any surcharge required by this part, the director of taxation shall make an estimate of the surcharge liability of the owner from any information the director of taxation obtains, and according to the estimate so made, assess any surcharges, interest, and penalty due from the owner, give notice of the assessment to the owner, and make demand upon the owner for payment.

(b) The penalty for failure to submit a return and the surcharges under to this section shall be the greater of:

(1) Not more than $ per day for each day after February 20 or a date specified by the director of taxation that the return is not filed; or

(2) An amount equal to the surcharge that would have been imposed under this part.

The penalty imposed shall be in addition to any surcharge and interest owed.

(d) The assessment shall be presumed to be correct until and unless, upon an appeal duly taken as provided in section 237-42, the contrary shall be clearly proved by the owner assessed, and the burden of proof upon that appeal shall be upon the owner assessed to disprove the correctness of assessment.

(e) After a return is filed under this part, the director of taxation shall cause the return to be examined and may make further audits or investigation as the director of taxation considers necessary. If the director of taxation determines that there is a deficiency with respect to the payment of any surcharge due under this part, the director of taxation shall assess the surcharge and interest due, give notice of the assessment to the owner liable, and make demand upon the owner for payment.

(f) Except as otherwise provided by this section, the amount of surcharge, interest, or penalty imposed by this part shall be assessed or levied within three years after the return was filed, or within three years of the due date prescribed for the filing of the return, whichever is later, and no proceeding in court without assessment for the collection of any of the surcharge, interest, or penalty shall begin after the expiration of the period. Where the assessment of the surcharge, interest, or penalty imposed under this part has been made within the period of limitation applicable thereto, the surcharge, interest, or penalty may be collected by levy or by a proceeding in court under chapter 231; provided that the levy is made or the proceeding began within fifteen years after the assessment of the surcharge, interest, or penalty. Notwithstanding any other provision to the contrary in this section, the limitation on collection after assessment in this section shall be suspended for the period:

(1) The owner or lessee agrees to suspend the period;

(2) The assets of the owner or lessee are in control or custody of a court in any proceeding before any court of the United States or any state, and for six months thereafter;

(3) An offer in compromise under section 231-3(10) is pending; and

(4) During which the owner or lessee is outside the State if the period of absence is for a continuous period of at least six months; provided that if at the time of the owner's return to the State the period of limitations on collection after assessment would expire before the expiration of six months from the date of the owner's return, the period shall not expire before the expiration of the six months.

(g) In the case of a false or fraudulent return with intent to evade the surcharge, or of a failure to file the annual return, the surcharge, interest, or penalty may be assessed or levied at any time; provided that the burden of proof with respect to the issues of falsity or fraud and intent to evade surcharge shall be upon the State.

(h) Where, before the expiration of the period prescribed in subsection (f), both the department and the owner have consented in writing to the assessment or levy of the surcharge, interest, or penalty after the date fixed by subsection (f), the surcharge, interest, or penalty may be assessed or levied at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

§237-G Overpayment; refunds. (a) Upon application by an owner, if the director of taxation determines that any surcharge, interest, or penalty has been paid more than once, or has been erroneously or illegally collected or computed, the surcharge, interest, or penalty shall be credited by the director of taxation on any surcharges or taxes then due from the owner under this part. The director of taxation shall refund the balance to the owner or the owner's successors, administrators, executors, or assigns in accordance with section 231-23. No credit or refund shall be allowed for any surcharge, interest, or penalty imposed by this part, unless a claim for a credit or refund is filed as follows:

(1) If a return is timely filed, or is filed within three years after the date prescribed for filing the return, then the credit or refund shall be claimed within three years after the date the return was filed or the date prescribed for filing the return, whichever is later; or

(2) If a return is not filed, or is filed more than three years after the date prescribed for filing the return, a claim for credit or refund shall be filed within:

(A) Three years after the payment of the surcharge; or

(B) Three years after the date prescribed for the filing of the return,

whichever is later.

Paragraphs (1) and (2) are mutually exclusive; provided that this limitation shall not apply to a credit or refund pursuant to an appeal made under section 237-42.

(b) As to all surcharge payments for which a refund or credit is not authorized by this section, including, without prejudice to the generality of the foregoing, cases of unconstitutionality, the remedies provided by appeal or by section 40-35 are exclusive.

§237-H Records to be kept; examination. Every owner of residential real property shall keep in the English language within the State, and preserve for a period of three years, suitable records relating to the surcharge levied and assessed under this part, and other books, records of account, and invoices as may be required by the department, and all those books, records, and invoices shall be open for examination at any time by the department or the Multistate Tax Commission under chapter 255, or the authorized representative thereof.

§237-I Reward. The department may remit a reward of up to twenty-five per cent of collected surcharge, interest, and penalty on a single unreported violation to an individual who provides evidence leading to the determination that a residential real property was vacant for more than one hundred eighty days and for which a surcharge is owed under this part; provided that the person providing the evidence is not the owner, related to the owner, employed by the owner, or employed in a position related to the enforcement of this part or any other tax law.

§237-J Disposition of tax revenues. Notwithstanding section 237‑31, all revenues collected under this part shall be paid into the vacant homes special fund established pursuant to section 201- .

§237-K County disclosure of residential properties not occupied by an owner. No later than January 1 of each year, each county shall provide to the director of taxation a list of residential real properties that are classified as not being occupied by the owner, including residential property classified as "non owner occupied", "residential A", or "residential investor".

§237-L Administration and enforcement; rules. (a) All of the other provisions of chapter 237 not inconsistent with this part and that may appropriately be applied to the taxes, persons, circumstances, and situations involved in this part, including, without prejudice to the generality of the foregoing, provisions as to penalties and interest, and provisions granting administrative powers to the department, and provisions for the assessment, levy, and collection of taxes, shall be applicable to the surcharges imposed by this part as if the surcharges are taxes, and to the assessment, levy, and collection thereof.

(b) The director of taxation may adopt, amend, or repeal rules pursuant to chapter 91 to carry out this part."

SECTION 4. Section 237-9, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Except as provided in this section, any person who has a gross income or gross proceeds of sales or value of products upon which a privilege tax or surcharge is imposed by this chapter, as a condition precedent to engaging or continuing in [~~such~~] the business, or who owns residential real property in the State that is not used as the owner's primary residence, shall in writing apply for and obtain from the department of taxation, upon a one-time payment of the sum of $20, a license to engage in and to conduct [~~such~~] the business, upon condition that the person shall pay the taxes, surcharges, or both, accruing to the State under this chapter, and the person shall thereby be duly licensed to engage in and conduct the business. The license shall not be transferable and shall be valid only for the person in whose name it is issued and for the transaction of business at the place designated therein. The license may be inspected and examined, and shall at all times be conspicuously displayed at the place for which it is issued[.]; provided that any license obtained because the person owns residential real property in the State that is not used as the owner's primary residence shall be displayed as required by the director of taxation by rule."

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2022-2023 for enforcement of the vacancy surcharge established in this Act.

The sum appropriated shall be expended by the department of taxation for the purposes of this Act.

SECTION 6. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2022-2023 to determine average annual residential real property rental values for various geographic regions.

The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 7. Pursuant to article VIII, section 5 of the Hawaii State Constitution, there is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2022-2023 to the counties of the State for the costs of providing to the department of taxation the list of residential real properties that are classified as not being occupied by the owner, as follows:

City and county of Honolulu $

County of Maui $

County of Hawaii $

County of Kauai $

The sum appropriated shall be allotted by the department of taxation and expended by the respective counties for the purposes of this Act.

SECTION 8. In codifying the new sections added by section 3 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2022; provided that section 3 shall take effect on January 1, 2023.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2547
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII