HEI earnings to take a $24 million hit
By Sean Hao
Advertiser Staff Writer
Hawaiian Electric Industries Inc. said yesterday that it would take a $24 million charge against earnings this quarter because of a dispute with the state over taxes it owes going back to 1999.
The announcement came after the Hawai'i Tax Appeals Court earlier this week sided with the state over the company's treatment of dividends from a real-estate investment trust, or REIT, formed in 1998.
HEI has paid the state most of the money in question, but recorded it as a deposit. That deposit will be written off this month and American Savings Bank, a subsidiary of HEI, will expense the required bank franchise taxes against earnings in the future, the company said. American Savings plans to appeal the ruling.
"We continue to believe our position is correct and proper," said American Savings spokesman Craig Togami.
For Hawaiian Electric Industries, the $24 million hit to earnings would be significant. In the first quarter ended March 31 the company, which is the Honolulu-based parent of Hawaiian Electric Co. and American Savings Bank, earned $30.9 million, or 80 cents per diluted share. Analysts had expected HEI to earn 79 cents a share in the current second quarter ending this month, according to Nelson Information.
Shares of Hawaiian Electric Industries closed down 31 cents at $48.95 yesterday in advance of the announcement.
If upheld on appeal, HEI's payment will be a boost to state coffers. The money in question has been set aside into a special litigated fund, rather than the state's general fund.
At issue in the American Savings situation is whether Hawaiian Electric Industries can deduct income from the bank's REIT, ASB Realty Corp., at both the subsidiary level and the holding level, according to the state Department of Taxation.
REITs, which have most of their assets in real estate, don't pay taxes on income. Instead, taxes are paid when profits are passed on to shareholders as dividends. Under federal law, subsidiaries can deduct REIT dividends from income, but not holding corporations.
Central Pacific Bank also is engaged in a dispute with the state over taxes amounting to $6.1 million, on grounds similar to HEI's. Unlike HEI, Central Pacific has accounted for that tax bill against earnings, according to the company.
Whether the decision in the American Savings case sets a precedent for Central Pacific's case remains to be seen. However, state Tax Director Kurt Kawafuchi said, "We view the issues as being identical between the two cases."
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
