If the state decides it needs more funds for teachers’ salaries or the city wants increased revenues for the rail system, why should tax hikes on the local community be the inevitable choice? They could instead look at making the existing tax systems more efficient and fair.

Here are two examples of our government failing to design or properly implement systems that tax out-of-state investors equitably but not excessively:

>> State — the REIT loophole. Hawaii’s most notorious loophole allows many of our largest corporations and their nonresident shareholders to avoid state income taxes. It’s called the dividend-paid deduction and applies only to Real Estate Investment Trusts (REITs).

Ala Moana Center, Hilton Hawaiian Village, Pearlridge center, Public Storage, the Hilton Waikoloa, International Market Place, Bishop Square and another 100-plus significant commercial properties and hotels in Hawaii avoid paying state income tax due to this loophole. And they are 99-percent-owned by mainland and foreign shareholders. Hilton Hawaiian Village paid state income taxes for the last 40 years, until it converted to a REIT last year. Now Hilton doesn’t have to pay income taxes to the state of Hawaii anymore.

All other businesses in Hawaii or their owners pay income taxes, but a law that was passed in 1960 gives REITs a free ride. At one time there were relatively few REITs in Hawaii, but now, there is an estimated $17 billion of REIT-owned property here and that number continues to grow. The lost revenue to the state probably exceeds $60 million a year.

With the notable exception of local giant Alexander & Baldwin, REITs typically have all their accounting, legal insurance and other back-office employees on the mainland or abroad, reducing employment opportunities for our residents.

In addition, since the owners of these companies live abroad, REITs generally do not participate in Hawaii charities in a meaningful way. The result is that we have huge businesses here that do not offer high-salary employment opportunities, don’t support local charities, and don’t pay state income taxes. Does this make sense to anyone?

>> County — property valuations. The Honolulu Real Property Assessment office often ignores a property’s most recent sales price when determining its current value. For example, General Growth Properties sold 37.5 percent of Ala Moana Center several years ago for $2 billion, suggesting that the center had a total value at that time greater than $5.3 billion. Yet the current assessed value of the entire center is less than $2 billion. This represents a $40 million per year tax break for the Canadian investment firm that owns Ala Moana Center.

Based on its recent sale, the Hyatt Regency Waikiki is assessed at half of its fee-simple value. Hawaii should follow California’s lead and assess individual properties on their recent sales prices. Is there a better indication of value? Fixing this valuation leak would result in an additional $100 million of revenue annually for the city.

Big businesses and investors seem to have more juice with local politicians than we local business people and small property owners in Hawaii have. Let’s fix the existing tax systems and make them more efficient and equitable before we inflict additional taxes on our local community.

Michael J. Fergus, left, develops and manages commercial real estate in Hawaii. Roger Epstein is a recently retired Honolulu tax attorney, formerly with the Internal Revenue Service.