Act 105, Session Laws of Hawaii, 2011 – suspends various excise tax deductions and exemptions, including deductions available to sublessors of real estate and deductions available to contractors.
From July 1, 2011 through June 30, 2013, sublessors will not be able to deduct amounts paid to a lessor from rental income received from a sublessee. Since many subleases allow excise taxes to be passed through to the sublessee, this law will effectively increase the taxes paid by many sublessees.
Similarly, during the same time period, contractors may not deduct from their gross income amounts paid to subcontractors.
However, under Act 105, sublessors and contractors may continue to take the forgoing deductions if their gross income is received pursuant to a binding sublease or contract entered into before July 1, 2011, that does not allow the passing on of increased rates of taxes. This provision also may allow parties to avoid application of the new law, by amending existing subleases or construction contracts to preclude the pass-through of increased taxes.
By Steve Torkildson, svt@torkildson.com, 523-6000
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