What is the difference between fee simple and leasehold properties?
Leasehold vs. Fee Simple:
The best way to describe Fee Simple is to say that it is the type of ownership that most of you are accustomed to. You purchase property, receive title and its yours or your heirs forever, or until such time that the property is disposed. Leasehold, conversely, is property to which title remains yours for a specified period of time, at the end of which the property reverts to the party that holds title in Fee Simple.
The most common use of Leasehold title is to convey land upon which improvements have been or are to be made, such as a condominium or a single-family residence. The lease is usually for a period of time in excess of fifty years during which time you may exercise the rights of ownership as if you held title in fee.
Your probable immediate negative reaction to this type of purchase may be erased by a little insight into the reasons for and benefits of conveying this type of title to you.
The first reason is that the Fee holder wishes the property to remain in his estate but would like to derive some income from the property. Secondly and predominately, it makes the property affordable. Lets take for example a three-acre parcel of land, oceanfront, and zoned apartment. The market price for the land alone is $4 million. The developer constructs forty condominium apartments of equal size and sells them Leasehold on a seventy-five year lease. The lease payments are fixed for a term of thirty years at which time the lease is renegotiated. The fixed payments are $200 for the first ten years, $250 for the second ten years and $300 for the third ten years.
Now compare these monthly payments to the payment that you would make if you had purchased the apartment fee simple. The price would be $100,000 more for each apartment. Your down payment would be at least $20,000 more and you would be financing an additional $80,000, representing an additional monthly payment of over $1,000 depending on the interest rate. This higher down payment and monthly payment could well take the property out of an affordable price range for you.
There are tax benefits in purchasing Leasehold properties. However, taxes are unique to the individual and it is suggested that you consult a tax expert.
In lieu of a sales tax, the State of Hawaii imposes a General Excise Tax, or GET, on all business activity in the State. The GET is charged at a rate of 4% for most businesses and 0.5% for wholesalers. The tax is imposed on all business entities, so in essence, the tax is collected at every level of production (material supplier to manufacturer to wholesaler to retailer) producing a "cascade effect" effectively adding 16-18% to the price of consumables purchased at retail. The GET is also charged on all business service activity such as real estate agent commissions, lawyer fees and the like. With Hawaii's industry heavily dependant on tourism and tourist spending, the State regularly raises nearly half its government revenues through the imposition of the General Excise Tax.
FAQs - General Excise Tax Information
Q: I am licensed to do business in Hawaii and want to prepare my General Excise Tax Returns. Is there a list of forms and instructions?
Q: What is the fee for a general excise tax license?
A: A one-time $20 fee.
Q: How can I apply for a general excise license?
A: The State of Hawaii Basic Business Application, BB-1 Packet, must be completed and submitted with the one-time $20 license fee. It is recommended that the application be mailed in; however, it can also be applied for in person at any of the district offices. The application form is available on the website.
Q: Where do I mail the application for the general excise tax license to?
All Districts (Hawaii Department of Taxation)
General Excise License Applications
P.O. Box 1425 Honolulu, HI 96806-1425
Q: Can I apply for a general excise tax license online?
A: Yes, Hawaii Business Express is the quick and easy way to start a business in the state of Hawaii. One simple interface covers all the forms with all the state agencies and partners. For more information, please see the Hawaii Business Express website.
Q: Where else can I obtain a general excise tax license?
A: One other location where you can apply for a general excise license is at the Business Action Center which is located at 1130 N. Nimitz Highway, Suite A-220. Office hours are 7:45 a.m. to 4:30 p.m., Mondays through Fridays (except State holidays); telephone number is 586-2545.
Q: What is Hawaii's sales tax rate?
A: Hawaii does not have a sales tax; instead, we have the general excise tax, which is assessed on all business activities. The tax rate is .15% for Insurance Commission, .50% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others. For differences between the general excise tax and sales tax, please see Tax Facts 96-1, General Excise vs. Sales Tax.
If your business activity is taxed at the 4% rate and is conducting business on Oahu, you are also subject to the .50% Oahu County Surcharge Tax. For more information regarding the Oahu County Surcharge Tax, see County Surcharge - FAQ's.
Q: I have misplaced my general excise license. How can I replace it? Is there an additional fee?
A: If you have paid the one-time $20 license fee, there will be no additional charge. Duplicate licenses can be issued by calling our Taxpayer Services Branch at (808)587-4242, or toll-free at 1-800-222-3229. E-mail requests will also be accepted by Taxpayer Services, provided that current information is provided, including a telephone number, if there are any questions.
Where can I file for the General Excise and Transient Accomodations Tax licenses?
The transient accommodations tax commonly called the "TAT", is a tax imposed on certain rental activity in the Hawaii Like the general excise tax, it is a tax levied on gross income. However, it is imposed only on gross rental income derived from the furnishing of accommodations occupied by a transient for less than 180 consecutive days. The tax rate is 9.25%.
Can you explain the HARPTA and FIRPTA tax withholdings?
For Sellers who do not live in the State of Hawaii and/or in the United States ...
The Governments want you to pay your Capital Gains Taxes and the
State of Hawaii wants you to pay your GET and TAT Taxes.
Though the Law makes the Buyer carry the burden of withholding the taxes (as an employer does) and pay them to the governments, as a practical matter the Escrow Company does it on behalf of the Buyer.
So the following are the applicable provisions that you will see in any standard sales contract which in Hawaii is called a DROA for short.
TRANSACTIONS INVOLVING FOREIGN OR NON-RESIDENT BUYER AND SELLER
C-38 HARPTA Withholding Required if Seller is a Non-Resident of the State of Hawaii. Under Hawaii law, if Seller is a non-resident person or entity (corporation, partnership, trust, or estate) of the State of Hawaii, Buyer must withhold a specified percentage of the "amount realized" by Seller on the sale of the Property and forward the amount with the appropriate form to the State Department of Taxation. Such withholding may not be required if Seller obtains and provides Buyer with an authorized exemption or waiver from withholding. If Seller does not provide Buyer with a certificate of exemption or waiver from HARPTA within fourteen (14) days of the Acceptance Date, Escrow is hereby authorized and instructed to withhold/collect from Seller the required amount at closing and forward it to the State Department of Taxation.
TRANSACTIONS INVOLVING FOREIGN OR NON-RESIDENT BUYER AND SELLER
C-39 FIRPTA Withholding Required if Seller is a Foreign Person. Under the Internal Revenue Code, if Seller is a foreign person or entity (non-resident alien, corporation, partnership, trust, or estate), Buyer must generally withhold a specified percentage of the "amount realized" by Seller on the sale of the Property and forward this amount with the appropriate Internal Revenue Service ("IRS") form. Such withholding may not be required if Seller obtains and provides Buyer with an authorized exemption or waiver from withholding. If Seller does not provide Buyer with a certificate of exemption or waiver from FIRPTA within fourteen (14) days of Acceptance Date, Escrow is hereby authorized and instructed to withhold/collect from Seller the required amount at closing and forward it to the IRS. C-40 Additional Disclosures Required by Foreign Buyers and Sellers. Buyer and Seller understand that under statutes and ordinances such as the Agricultural Foreign Investment Disclosure Act of 1978, the International Investment and Trade in Services Survey Act, and the revised Ordinances of the City and County of Honolulu, among others, disclosures are required by foreign Buyers and/or Sellers under certain conditions.
What do I have to do to be able to bring my pet to Hawaii?
Inspection hours for dog and cats at Honolulu International Airport (HNL) are between the hours of 8:00 a.m. to 5:00 p.m. daily, including weekends and holidays. This information is particularly important for those who are qualifying their pets for direct release at Honolulu International Airport.
Pet owners should be sure to arrange for their flights to arrive by 3:30 p.m. because it may take up to one hour for the airlines to transport a pet to the Airport Animal Quarantine Holding Facility and animals not arriving at the facility by 4:30 p.m. will not be released at the airport that day.
Pets arriving in the late afternoon and evening will be held overnight until inspections are completed the following morning. Pets qualified for direct airport release that are held overnight for release in the morning at the Airport Animal Quarantine Holding Facility must be picked up by 10:00 a.m. or an additional $59 will be charged. Pet owners who are arriving in Honolulu and connecting to neighboring islands should pay particular attention to the inspection hours.
Animal Quarantine Station phone: (808) 483-7151 begin_of_the_skype_highlighting(808) 483-7151end_of_the_skype_highlighting (Due to the large volume of calls, the best way to contact the Animal Quarantine Station is via the e-mail address above.)
► Hawai'i's Animal Quarantine Law
Hawai`i is rabies-free. Hawai`i's quarantine law is designed to protect residents and pets from potentially serious health problems associated with the introduction and spread of rabies. All dogs and cats, regardless of age (puppies and kittens included) or purpose, must comply with Hawai`i?s dog and cat import requirements.
Chapter 4-29 Hawai`i Administrative Rules, governs the importation of dogs, cats and other carnivores into Hawai`i. This law states that dogs and cats meeting specific pre- and post-arrival requirements may qualify for 5-day?or-less quarantine program, which has a provision for direct release at Honolulu International Airport after inspection.
Furthermore, the law requires dogs and cats that do not meet all of the specific 5-Day-Or-Less program requirements to be quarantined for up to 120 days upon arrival in Hawai`i. Please read thoroughly the following documents containing details on the rabies quarantine programs for importing dogs and cats.
Prohibited Animals: The regulation of animal breeds and species that are permitted to enter Hawaii is under Plant Quarantine Branch jurisdiction and administrative rules. Non-domestic dogs and cats and hybrids such as wolf, wolf cross, Dingo, Bengal, Savannah, etc are prohibited under Plant Quarantine (PQ) law. Refer to Plant Quarantine's animal guidelines for importation.
Puppies and Kittens: Due to the minimum amount of time needed to prepare a puppy or kitten to meet the requirements of the 5-Day-Or-Less program, a puppy or kitten will be about 10 months of age by the time the preparations are completed. Puppies and kittens not able to meet all of the requirements for the 5-Day-Or-Less program will be quarantined for 120 days.
Hawaii Resident Pets: Owners wishing to leave Hawai`i with their pets and return without extended quarantine must meet all requirements listed on the ?Checklist Only For Resident Dogs And Cats Originating From Hawai`i And Returning For The 5-Day-Or-Less Program." The length of the waiting period after a successful rabies blood test is modified and must be completed before leaving Hawai`i.
Re-Entry Fee Requirements: For pets re-entering Hawaii after completing a Hawai`i rabies quarantine program, click here for requirements when a reduced "Re-entry" fee for Direct Airport Release or 5-Day Or-Less quarantine applies.
Direct Release on Neighbor Islands: Pets may now qualify for direct release at Kona Airport (Big Island), Kahului Airport (Maui) and Lihue Airport (Kaua`i).
Note for Guam: See FORMS section below for the Affidavit for Export from Guam to Hawai`i.
► Information and FAQs
Hawai`i Rabies Quarantine Information Brochure [aqsbrochure.pdf, Rev. 10/09] This brochure contains important information about pre-arrival requirements, quarantine station location and contacts, procedures, policies, rules, operations and fees.
IMPORTANT! Pet owners are responsible for transporting all pets released from the Airport Animal Quarantine Holding Facility (AAQHF) to their vehicles or the Interisland terminal. Airport security regulations do not permit animals to be let out of the transport crate on airport property. Pets must be picked up and loaded into a vehicle or onto a baggage cart in their transport crate. Therefore, vehicles must be large enough to accommodate the intact crate with the pet inside. There are no baggage carts or porters in the immediate vicinity of the AAQHF.
Due to limitations in inter-island service on the weekend, pets arriving on Thursday or Friday may not be transferred to satellite quarantine stations and approved hospitals on the neighbor islands until the following Monday.
Dog and Cat Import Form [AQS-278.pdf, Rev. 11/11]- One completed form per pet is required to be submitted along with all pre-arrival documents (Two Rabies Vaccination Certificates, Health Certificate, Pre-payments) NO LESS THAN 10 DAYS BEFORE PET ARRIVES IN HAWAI`I TO QUALIFY FOR 5-DAY-OR-LESS or AIRPORT RELEASE. If the health certificate cannot be sent 10 days before arriving with the rest of the documents, the original must be given to the inspector upon arrival in Hawai`i.
Intermediate Handlers [Rev. 4/12] List of registered private individuals or organizations that may be contracted with for fee as intermediate handlers to assist in the interstate and inter-island shipping of pets.
Summary For Veterinarians [AQS-39.pdf, Rev. 11/09] Summary for veterinarians of health certification, microchip, rabies vaccination intervals, OIE-FAVN test and waiting periods requirements of the 5-Day-Or-Less program.
OIE-FAVN Testing Forms - All posted laboratory fees and documents are subject to change by the laboratory without notice.
Kansas State University FAVN-OIE Testing information:
Pets owners do not need to present a hardcopy of test results to the Rabies Quarantine Branch, as KSU and DOD will send results directly if ?Hawaii? is listed as the destination on the lab submission form. Owners can obtain pre-arrival OIE- FAVN test results from the veterinarian that submitted the sample or on the Hawai`i Department of Agriculture website (see below). Please do not call laboratories directly for test results!
For those qualifying for the direct release or 5-day-or-less you can now check online for your pre-test results and the 120-day date after KSU or DOD received your pet?s sample. Click HERE for more information.
Guide & Service Dogs
For information on requirements for allowing guide dogs and service dogs to enter Hawai`i without Quarantine clickHERE.
If you have questions after reviewing our brochure and forms, please contact us at:
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