Established by Congress six decades ago, the framework for Real Estate Investment Trusts (REITs) allows small investors to draw benefits from large for-profit developments such as retail centers and resorts. In Hawaii, these include Ala Moana Center and Hilton Hawaiian Village Waikiki Beach Resort, to name but a few.

Scores of REITs own property in the islands, with a collective estimated total value of $17 billion. But unlike other businesses, the trusts in Hawaii — and in nearly every other state — are effectively exempt from state income tax.

REITs are required to distribute at least 90% of their profits to their shareholders each year, and under the federal tax code, are allowed to deduct those distributions to shareholders from their corporate income tax liabilities. Shareholders pay income taxes in the states in which they live.

In Hawaii’s case, while we have more REITs per capita than any other state, a vast majority of the shareholders live elsewhere. The upshot is an inequity in which Hawaii taxpayers are essentially subsidizing costs of government services and infrastructure upkeep that our communities — REITs developments included — depend on.

Senate Bill 2697 aims to set right the matter by eliminating the deduction and requiring REITs to pay state corporate income taxes.

For several years, while REIT critics have made compelling arguments about fairness in shouldering tax burden, the trusts and their backers have warned that imposing the corporate tax would chill investments and dry up availability of already-scarce capital for Hawaii projects. Last year, Gov. David Ige vetoed a bill similar to SB 2697, citing concern about stifling economic development.

This year, state government is rightly seeking to more precisely pinpoint how much tax money is escaping to other states. State officials estimated last year that taxing the trusts would haul in about $9 million. But interim state Tax Director Rona Suzuki said last week that calculation was based on fuzzy assumptions that may be incorrect — resulting in a low-ball estimate.

REITs in Hawaii are required to notify the state how much they claimed as their federal corporate income tax deduction for shareholder distributions, but that requirement has not been enforced. To correct this troubling lapse, officials recently requested additional REITS data for recent tax years.

The bill’s supporters estimate that REITs in Hawaii generate an estimated annual income of $1 billion — and if taxed at the current corporate rate assessed to all other corporations, they would owe $65 million a year in state income taxes. Some groups are already eyeing the potential funding stream to help tackle long-standing state problems.

In written testimony, affordable housing advocates suggest pouring the would-be revenue into the state’s Rental Housing Revolving Fund, which provides “equity gap” low-interest loans to qualified owners and developers constructing affordable housing units.

The Hawaii State Teachers Association suggests reserving it to serve as a dedicated stream to fund “salary adjustments” for veteran teachers and pay differentials for teachers in hard-to-staff positions.” Both proposed bill amendments are worthy of debate.

In 2018, a group of 13 REITs — all based outside of the state — launched a charitable campaign to bolster affordable housing. Among its efforts: issuing two $150,000 grants to Pu‘uhonua o Wai‘anae, which the homeless encampment has applied toward purchase of land and fundraising to build a permanent village of affordable homes.

The REITs campaign is a commendable gesture. But compared to what a corporate tax could do for affordable housing and other pressing state needs, this sort of pitching in is but a tiny drop in an enormous bucket.