I pay Hawaii corporate income taxes, so you should, too.

That was an argument made Thursday at the state Legislature as a collection of mainly local real estate investment companies railed against what they call a tax loophole benefiting big, mainly mainland companies that own some of the most valuable commercial properties in Hawaii.

On the flip side, the mainland companies, which include the owners of Ala Moana Center, Hilton Hawaiian Village and International Market Place, contend the tax exemption at issue is a fair one that was created by Congress and would subject them to double taxation if eliminated.

The debate, which was filled with impassioned pleas and oftentimes confusing discussions of economic forces, is focused on a special class of companies called real estate investment trusts, or REITs, and was heard by the House Committee on Housing considering House Bill 1012.

It is the fourth year in a row that local critics of REITs are trying to persuade lawmakers to abolish a more than 50-year-old tax exemption in Hawaii.

“It’s outrageous,” said Mike Fergus, a principal with local real estate investment firm Fergus & Co. who fostered the idea in HB 1012 to make REITs pay Hawaii income taxes. “It kind of infuriates me.”

The tax exemption is part of federal rules governing REITs that Congress established in 1960.

REITs are allowed to avoid state corporate income taxes as long as they distribute at least 90 percent of their income to shareholders. The premise for the REIT setup was to allow small investors to own stakes in big income-producing properties through shares of REIT stock.

Federal law governing REITs allows the companies to take what is called a “dividends paid deduction” for income they pass to shareholders. In turn, it is the shareholders who must pay income tax on their cut of a REIT’s income, and they owe this tax to the state in which they live.

The only state that doesn’t allow the REIT tax deduction is New Hampshire.

Local opponents of the deduction say Hawaii needs to follow New Hampshire because relatively few REIT shareholders live here while more and more REITs are snapping up Hawaii real estate and diverting income taxes from these properties to states where shareholders live.

“This is one of the biggest tax rip-offs for a small state like us,” said local real estate investor Peter Savio.

The state Department of Business, Economic Development and Tourism published a report last year that estimated REITs saved $36 million by not having to pay Hawaii corporate income taxes in 2014. That calculation was based on 33 REITs.

REITs with Hawaii property include CNL Lifestyle Properties Inc. (Wet’n’Wild Hawaii), Taubman Centers (International Market Place), Forest City Realty Trust (Kapolei Lofts), Glimcher Realty Trust (Pearlridge Center) and General Growth Properties Inc. (Ala Moana Center, Whalers Village and Prince Kuhio Plaza). Others own hotels, public storage facilities, medical centers, office buildings, a college dormitory and mortgages.

DBEDT, which produced its report in response to a 2014 directive from lawmakers, said Hawaii corporate income tax savings by REITs in earlier years ranged from $300,000 in 2009 to $10 million in 2013.

Fergus said that since 2014 even more REITs entered Hawaii, such as Park Hotels & Resorts, which Hilton Worldwide Holdings Inc. formed in January to take ownership of hotels including Hilton Hawaiian Village and Hilton Waikoloa Village.

On top of that, one of Hawaii’s largest landowners, Alexander & Baldwin Inc., is evaluating a conversion to a REIT.

The new REIT additions, Fergus said, put Hawaii’s forgone corporate income taxes at between $50 million and $60 million.

However, Mark Yee, an administrative specialist with the state Tax Department, cautioned that eliminating the REIT tax deduction might not pump much money into state coffers because REITs could have other deductions they can take to minimize state corporate income taxes.

“The Legislature may be under a mistaken impression that there will be a lot of money to be gained by (eliminating the REIT) deduction,” he said. “I think the Legislature may find that the revenue gain … may be actually zero or very nominal.”

Paul Brewbaker, a local economist who produced a 41-page economic impact study on the tax issue for the REIT industry last year, agreed that little revenue would be gained by killing the deduction. He added that if REITs sell their Hawaii property, they could be replaced by tax-exempt institutions such as pension plans and foundations. He also said it’s not fair to tax a corporation on income that the corporation can’t keep and then tax it again after it’s passed to shareholders.

“Double taxation is never a good idea,” he told the committee.

Representatives of Ala Moana Center and a company called Douglas Emmett Inc., which owns Oahu office towers and apartment properties, touted how much property taxes they pay, how many people they employ, how much general excise tax revenue they generate and how much money they spend improving their properties.

“If not for REIT money, we wouldn’t have Shirokiya Japan Walk (at Ala Moana Center) and all the wonderful things that drive (general excise tax) spending and fill the coffers of the state,” said Brooke Wilson, who testified against HB 1012 for the Hawaii Regional Council of Carpenters. “Hawaii has developed a reputation for not being a good place for business, and it’s bills like this that drive that reputation.”

Bill supporters scoffed as such claims, saying that non-REIT companies do the same things — and pay corporate income taxes.

“I am disappointed that (REITs) constantly talk about all they do and the help they give,” Savio said. “I find it offensive as a taxpayer that the state would support a (policy) that allows companies to come to Hawaii with the promise of not paying taxes. This bill should move forward. It should become law.”

Rep. Tom Brower, Housing Committee chairman and a sponsor of the bill, said a decision would be made on the bill next week.