Fixing Hawaii’s property tax system

Since August, the Real Property Tax Advisory Commission has been working on ways to make the Honolulu property tax system fair – while generating more revenue for the city. The Honolulu Star-Advertiser reported that one of their solutions involves eliminating some of the over 40 property tax exemptions (“Property tax exemptions in peril as panel tries to make system fair,”11/14/11).

Before this independent panel makes its recommendations to the City Council, let me bring up three issues that may not have been discussed:

1. A trash pick-up fee for homeowners. The one advantage that homeowners have over condominium owners is free weekly trash pick-up. But if we separate that service from “property taxes,” and charge a separate fee for trash pick-up, it would be fair to everyone – without having to raise property taxes for anyone.

2. Should there be a real estate property tax at all? Property owners already paid taxes on the money used to buy the property; we also pay fees when we buy the property and taxes when the property is sold. Does government have to authority to continually tax something that has already been paid for and taxed?

3. Can we eliminate property taxes altogether? The whole idea of “property taxes” is a misnomer – it’s a tax to pay for city services, not a tax on your home or office. I hate to propose any new tax, but why not replace property taxes with a flat residency tax? There would be a direct link between taxpayers and city services; it would put homeowners/landlords and renters/tenants on equal footing; and the tax would be based on the number of months living or doing business in Hawaii.

I don’t expect much support for a residency tax; with government’s appetite for taxes, we would end up with both property taxes and a residency tax! So with the reluctant realization that if we want to stay in our homes, property taxes are here to stay, here is my common-sense solution for fair and reasonable property taxes:

* Property values should be based on the square footage of usable space (such as homes, offices, buildings, garages, parking lots, walkways, paved areas, and enclosed or covered areas) – not fair market value, which is subjective, unreliable, and unfair to people who have no plans to sell their property.

* Property categories should be 1) Residential, 2) Commercial, 3) Industrial/Warehouse, 4) Agricultural, 5) Non-Profit (including churches, schools, charities, homeowners association common areas, hospitals/clinics), 6) Vacant/unimproved land, and 7) Public lands (federal, state, preservation, and conservation land). I won’t even attempt to suggest rates for these categories!

* Tax credits/exemptions or lower rates should be limited to 1) Disabled persons, 2) Elderly/retired persons ages 65+, 3) Persons with low-income (we could limit the credit to five years), and 4) Low-income rentals. Vacant/unimproved land could be assessed a minimum fee based on the total square footage of the property; or the current $300 minimum could be tied to the rate of inflation.

I think that the most critical reform is breaking the link between “fair market value” and property taxes – and creating a link between taxes and government services. What are your fair and reasonable suggestions to fix Honolulu’s property tax system?

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One Comment on “Fixing Hawaii’s property tax system”

  1. Scott Says:

    As regards vacant or unimproved land, I’d be for a fairly high rate if it were unavailable for any purpose (kept unavailable for sale or rent) and even more so if it were fenced or posted. There could be exemptions for places where an obvious danger existed, for example a fragile lava patch or a cliff face, but uninhabited land between the road and the sea deserves at least an occasional right of way.

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