You don’t have as much money as either David Murdock, the billionaire who has owned the island of Lanai since 1985, or Larry Ellison, the new billionaire owner of the island in a deal scheduled to close today.
But if you’ve ever sold a home or condo in Hawaii, you probably paid more tax on that sale than the billionaire duo will pay to transfer ownership of 98% of Lanai, a deal reportedly valued at some $600 million.
Most real estate sales in Hawaii are subject to a conveyance tax based on the selling price. The tax rate is a sliding scale, going from as little as one-tenth of 1 percent of the sales price for an owner-occupied home selling under $600,000, all the way up to 1.25 percent for some sales over $10 million.
However, the transfer of ownership of some 88,000 acres on Lanai is apparently set up as a sale of corporate stock in the Murdock-controlled entities that have held title to the land, with control of the land following indirectly.
If the island had been marketed and sold as a typical real estate transaction, the state’s cut via the conveyance tax would have been about $6 million. Conveyance taxes support the Legacy Land Conservation Fund, the state’s rental housing trust fund, and the natural area reserve fund, with the balance to the state’s General Fund.
But because the deal is structured around Lanai Island Holdings LLC purchase of control of several Castle & Cooke subsidiaries which in turn owned Murdock’s Lanai assets, it appears to effectively sidestep the state conveyance tax.
The structure of the sales agreement is described in the preliminary ruling of the Public Utilities Commission made public on Monday. According to the PUC’s Interim Decision & Order 30462:
The Sale Agreement contemplates the purchase and sale of Castle & Cooke Resorts, LLC, Castle & Cooke Lanai Properties, LLC, and Lanai Institute for the Environment. The overall transaction, thus, will include the purchase and sale of all the membership interests of Castle & Cooke Resorts, LLC….
As a result of the overall purchase and sale transaction, the following entities will remain in place without any change in organizational structure: (A) Castle & Cooke Resorts, LLC, and its direct and indirect subsidiaries; (B) Castle & Cooke Lanai Properties, LLC; and (C) Lanai Institute for the Environment. Meanwhile, the ownership entity of Castle & Cooke Resorts, LLC, Castle & Cooke Lanai Properties, LLC, and Lanai Institute for the Environment, will change from Castle & Cooke, Inc. (ultimate parent entity, the David H. Murdock Revocable Trust) to Lanai Island Holdings, LLC (ultimate parent entity, the Lawrence J. Ellison Revocable Trust).^”
Rep. Isaac Choy, a Democrat who represents the Manoa-University area, said other large real estate deals have also avoided conveyance tax, including the sale of Ala Moana Center and the Victoria Ward Centers.
Choy, who is a certified public accountant and chaired the 2005 tax review commission before being elected to the House, sponsored a 2011 bill to close the loophole that allows deals like this to avoid the conveyance tax. House Bill 1180 would have recognized that “the transfer of ownership of a business entity is comparable to the sale of an interest in real property held by the entity,” and would have applied the conveyance tax “when the transfer of entity ownership is essentially equivalent to the sale of an interest in real property.” The bill passed the House, but died in the Senate.
“This isn’t brain surgery,” Choy said. “To avoid conveyance tax, you just put the land in a corporation, then you transfer the stock of the corporation.”
Choy said several other states, including Connecticut and Washington, tax the transfer of controlling interests in business entities involved in similar transactions.
“It’s a fairness thing,” Choy said. “You and I have to pay the conveyance tax. Everybody should have to do the same thing.”
* A special thanks to Kauai journalist and blogger Joan Conrow (KauaiEclectic), who called the conveyance tax issue to my attention early this morning.
The rich gets richer.
Joan catches a lot that others miss.
Both are one percenters who need to pay no taxes, according to GOPers and Teas.
Thanks, Hugh! In the absence of a newsroom, it was so nice to be able to turn to Ian and say, “I’ve got this tip, and I don’t really know how to verify it. Can you run with it?” And he did, and then PBN picked it up!
Actually for Hawai’i Democrats have controlled the House and Senate thus have made all of the laws that systematically favor wealthy over working class and systematically caused the diaspora of Hawaiians.
People cannot blame the Republicans in Hawai’i THIS time. They are not in power thus in control. Democrats are.
perfectly legal.
perfectly ridiculous.
as always!
Give us 20 more guys like Rep Choy and we just might see some rational public policy.
“Imitation is the best form of flattery.” Or so they say, at least.
Pacific Business News, 2:34 p.m.: “Hawaii likely won’t collect conveyance tax from Lanai sale”
http://www.bizjournals.com/pacific/blog/2012/06/hawaii-likely-wont-collect-conveyance.html?ana=e_du_pub&s=article_du&ed=2012-06-27
iLind.net: Published at 12:11 p.m.: “Billionaires likely won’t pay conveyance tax on sale of 88,000 acres on Lanai”
I could of sworn there was a Serf Tax payable when the 3,000 people on Lanai get sold to Larry.
Wait, people have to pay the tax but corporations don’t? So, are corporations people or not?
if corporation were buying the land, it would pay the land tax.
since corporation is buying a corporation, there is no land tax to pay. if person were buying a corporation (and Ellison is the person) there is no land tax to pay. if person sets up a corporation by name to buy a corporation, there is no land tax to pay…….. (and so on)
Americans have talked about serious tax law reforms for decades, but never do them; rich people love democracy, especially when they can use Congress to block change.
even after so-called “tax reform” in the 1980s, US tax laws take up a library. it’s a wonder the Internet is big enough for them.
Ahhh, good one!
But, also isn?t this a discrimination of some sort? As well since corporations are people and we the people are treated differently.
That’s what OWS is all about, it is the rich that are trying to distract people from their main issue, that’s why the rich get richer and the working stiffs have to carry the load.
Why does this not surprise me?
Hmmm… Killed in WAM. Maybe Sen. English should offer some words of explanation?
No doubt they will lock the barn door now that the tax monies have run away.
3/23/2011 S The committee(s) on WAM recommend(s) that the measure be HELD. The votes in WAM were as follows: 11 Aye(s): Senator(s) Ige, Kidani, Chun Oakland, English, Espero, Kahele, Kim, Kouchi, Tokuda, Wakai, Slom; Aye(s) with reservations: none ; 0 No(es): none; and 3 Excused: Senator(s) Dela Cruz, Fukunaga, Ryan.
Well who?s getting other than a legislator ?salary??
This deal was in the works with the extras waiting to be loaded.
Did anyone notice that as soon the deal was done – the PUC approved transfer of utilities to Ellison?
So that means in all probability the undersea cable was part of it and that?s what they were waiting for (the deal to close). Sen. Gabbard, were you privy to this?
Windmills windmills, here they come.
Did you know Ellison owes over $300,000 back taxes to Hawaii?
Maybe this deal is another paper shuffle and he?s not really worth what ?they? say he is.
Thanks for writing about this. I read the sale contract was executed on May 2, 2012 https://docs.google.com/document/d/1aOLz2IEI83TR8j-65Flp0vWP5gk7TNK93hb0s0EDP-M/edit?pli=1 and it looks like their attorneys brokered the deal. They knew what they were doing. Very sad.
As someone mentioned on another blog covering this: was there a Public Notice prior to sale?
Couldn’t have been because they were acting like they didn’t know when it was going down. My guess is they were waiting for the PUC members to give a go-ahead that they’d approve the sale of the utilities.