Is our current tax system being applied fairly?
Under current law, a conveyance tax applies whenever real property is sold or changes hands. However, in Hawai‘i, major landholdings often change hands when investors purchase the company that owns the land instead of the property itself.
In this case, no deed is recorded, so no conveyance tax is paid. This is known as a controlling interest transfer.
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This is not a rare technicality; it is a well-established practice in large corporate transactions. Major landholdings can change hands through entity sales, where the economic reality mirrors a traditional property sale, but the tax does not apply.
The result is a system where local buyers pay the conveyance tax, while large, often out-of-state investors can legally structure around it.
A prime example is Larry Ellison’s Lanai Island Holding’s acquisition of Castle & Cooke Resorts and related subsidiaries from David Murdock for more than $300 million.
The conveyance tax loophole is well illustrated by Larry Ellison’s business transactions on Lānaʻi, seen from Kāʻanapali Beach in Lahaina. (Matthew Leonard/Civil Beat/2023)
By transferring ownership of the companies that held the land, rather than transferring the land titles directly, the transaction bypassed the Hawai‘i conveyance tax entirely. This transaction cost the state over $5 million in conveyance revenue.
This session, I sponsored House Bill 1918, which advanced through the House Water and Land Committee but died in the Ways and Means Committee when it got to the Senate. The bill treats the transfer of a controlling interest in an entity that owns real property as a taxable event. When ownership of the entity effectively transfers control of the land, the conveyance tax would apply — just as it would for you and me in a direct sale.
The bill is carefully drawn so it does not apply to internal reorganizations where ownership does not meaningfully change. It focuses only on transactions where control — and the economic benefit of the property — actually shifts from one party to another.
This is not about creating a new tax. It is about equally applying an existing law consistently whenever there is a change in ownership. When two transactions lead to the same outcome, they should be treated the same under the tax code.
Closing this loophole will not solve Hawai‘i’s tax challenges on its own, but it is a necessary step toward a more equitable system where large landowners contribute their share before additional burdens are placed on local residents.
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