Under Resolution 2011-143, FD1, the Honolulu City Council established a Real Property Tax Advisory Commission comprised of seven citizens. According to Council Chair Martin, “Seeing that the Hawaii State Constitution was amended in 1978 to establish a Tax Review Commission, I felt that Oahu taxpayers should also have the same benefit of a periodic review of the City’s tax policy.” The role of the commission is purely advisory and its recommendations are sent to the council for review and legislative action.
The commission’s 2014 recommendations included:
Minimum Tax: Exemptions shall not reduce the tax below $300 for organizations holding Internal Revenue Code 501(c)(3) charitable status.
Exemptions on historical residential dedication changed to 50% of assessed value, repeal exemption on for-profit entities and credit unions.
Residential A classification for second homes and investors: Adopt a graduated tax rate, where the assessed value of the classified property up to $1 million would be taxed at $3.50 and assessed value over that threshold taxed at a second rate.
Commercial Class: Consider a two-rate graduated tax rate structure for commercial properties.
Transient-Use Class: Consider a third residential class based upon transient, short-term use.
City Council will hear bills related to the commission’s recommendations Wed., April 22.
Included in the package of bills related to the Real Property Tax Advisory Commission is Bill 32 (15) related to ordinance amendment to determination of the rate for properties in the “Residential A” real property tax classification. The report notes, “The commission primarily focused on this classification due to fairness concerns about how the increased tax is structured. Currently, there is a $1M assessed value cliff, wherein the affected properties are taxed at a higher $6.00 rate on the entire assessed value. When this new class was adopted, affected property owners did not appreciate at the time of the assessments in 2013 to scrutinize and possibly appeal any assessment at or above $1 million. In addition, property owners who were otherwise eligible for homeowner exemptions did not appreciate the importance of qualifying and filing for the exemption on a timely basis to fall outside of this new class. This situation has caused much concern in the community and has prompted Mayor Caldwell to ask the Real Property Assessment Division to examine this issue with the commission. The "cliff” at $1M causes properties assessed just above to pay $2,500 more than a comparable property assessed just below in the identical use and zoning category. The proposed two-rate structure will solve this problem and distribute the tax increase to higher-value parcels rather than those in the $1M to $1.5M range. This change will reduce the need for tax appeals by owners whose properties are near the cliff."