Simplified property taxes

With ten new property tax proposals under consideration in Honolulu, which I highlighted in my post “Tax watch: Honolulu property taxes” (7/16/13), it’s a good time to think about what makes for fair and reasonable property taxes.

It still bothers me that we are forced to pay taxes on property that we already paid taxes on. I have to be realistic and accept that our property taxes pay for city and county programs – even though we pay for many government services through user fees. In Honolulu, real property taxes are expected to generate $834.8 million in fiscal year 2014, almost 40% of the total operating budget.

Three years ago, in a post titled “Sensible property taxes” (8/3/10), I suggested a flat property tax fee based on lot type, lot size, and building square footage. This idea may be too simple and generate too little revenue for lawmakers to accept. But I think that the existing property tax classes and all of the exemptions are too complicated and I wanted to generate some ideas to simplify our property taxes.

First, my approach to laws and taxes is that they should be 1) fair and reasonable, 2) easy to understand, and 3) easy to comply with. With this in mind, here is my property tax proposal for Hawaii:

1. Fair and reasonable property taxes. Limit property taxes to a 2% annual increase (or decrease), with two rates for structures and land. We shouldn’t have to pay soaring property taxes because the “real estate market” is booming; and the city shouldn’t suffer if there is a dramatic drop in home valuations.

2. Easy to understand property taxes. Instead of 8-10 property classes, let’s set 5 property tax classes based on the fundamental land use.

Class 0 – Vacant (unimproved land, fallow agricultural land)
Class 1 – Residential (permanent, transient)
Class 2 – Business (retail, professional, industrial, warehouse)
Class 3 – Agricultural, Preservation, and Conservation
Class 4 – Government, Public Service, and Nonprofit (public schools, hospitals and medical facilities, museums, charities, churches, cemeteries)

3. Easy to comply with property taxes. I suggest keeping a minimum property tax rate for all properties, and reducing the number of exemptions to just two: 1) an exemption for owner-occupied principal residences; and 2) an additional exemption for low-income residents who are age 75 and older, blind, deaf, disabled, or deployed military personnel.

With a simplified property tax plan, could we generate enough revenue to pay for city and county services? Would a commitment to fewer exemptions and less paperwork help the tax department save time and frustration?

Please think about property taxes and how they may affect you and your neighbors, wherever you live. If you feel strongly about an issue, speak out! Talk to your family and friends, let your Honolulu Councilmember know about it, and write letters to the local newspapers.

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