USA – HAWAII Law and Practice Contributed by: Jon Pang, Lisa Broulik and Matthew Cohen, Case Lombardi, A Law Corporation
2.10 Taxes Applicable to a Transaction HRS Chapter 247 imposes a conveyance tax on deeds, agreements of sale, leases, subleases and other instruments conveying an interest in real prop - erty, unless expressly exempted. This tax is calculated on the consideration for the transfer of the real prop - erty interest (commonly based on the real property’s purchase price or fair market value) or, in the case of leases, the rental rate over the leased term. The applicable tax rate increases as the consideration for the subject property increases, and the rate can be impacted by the type of property and/or residency status of the grantee. Common exemptions include transfers between spouses, transfers between parents and children, testamentary gifts, transfers to grantor revocable trusts, and correction deeds. While convey - ance taxes are imposed by statute on the transferor, the parties may contractually agree to share or allo - cate this cost between them. A transfer of shares or interests in a company owning Hawaiʻi real property does not trigger the payment of conveyance tax under HRS Chapter 247. 2.11 Legal Restrictions on Foreign Investors Restrictions on Foreign Investors Foreign investors are not prohibited from purchas - ing property in Hawaiʻi, though they and other non- residents may be subject to higher real property tax rates and special withholding requirements upon sale. Specifically, the federal Foreign Investment in Real Property Tax Act (FIRPTA) generally mandates a 15% withholding from the sale price by non-US per - sons, which serves as a prepayment of the federal capital gains tax. The Hawaiʻi Real Property Tax Act (HARPTA – Hawaiʻi’s version of FIRPTA) mandates a 7.25% withholding from the sale price by non-Hawaiʻi resident sellers. This Hawaiʻi-specific withholding can often be avoided or reduced with careful transaction structuring, such as use of a domestic Hawaiʻi cor - porate entity as the title holder, or obtaining a with - holding certificate from the Department of Taxation before closing. FIRRMA Under the Foreign Investment Risk Review Mod - ernization Act of 2018 (FIRRMA), CFIUS jurisdiction has expanded to include “covered real estate trans -
damages. Notably, CERCLA limits the liability of bona fide prospective purchasers who do not “impede the performance of a response action or natural resource restoration”. Hawaiʻi’s version of CERLA is the Hawaiʻi Environ - mental Response Law (HRS Section 128D), which authorises the Hazard Evaluation and Emergency Response (HEER) Office to manage hazardous sub - stance releases. Buyers concerned with potential environmental con - tamination may purchase pollution liability insurance policies to obtain coverage for unknown contamina - tion. 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law State land use law and county zoning regulations (discussed in greater detail in 4.1 Planning and Zon- ing Framework ) provide a framework for buyers to evaluate the permitted uses of a particular parcel of land, the process for obtaining any necessary admin - istrative and discretionary permits and permits and approvals, and the process for changing existing land use classifications and zoning designations. The counties are authorised under HRS Section 46-121 to enter into development agreements with any person having a legal or equitable interest in prop - erty. HRS Section 46-142 also authorises counties to assess, impose and collect necessary impact fees for public facility capital improvements as a condition for approval of a real estate development. Historically, these agreements have not commonly been used. 2.9 Condemnation, Expropriation or Compulsory Purchase The takings clause of the Hawaiʻi Constitution pro - hibits the taking of, or damage to, private property without just compensation. The process by which the state exercises its eminent domain powers has been codified and allows proceedings by the state or the counties, as well as public utilities and certain desig - nated corporations. An action for inverse condemna - tion may also be available to aggrieved property own - ers where a taking has occurred but eminent domain proceedings have not been instituted.
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