Nearly a year and a half ago, a commission appointed by the Honolulu City Council to study some of the inequities in the real property tax ordinance dropped its findings on the desks of councilmembers. The study either went into the circular file or was promptly put on a shelf, where it has been collecting dust ever since.
Who can blame council members for ignoring the findings and recommendations? After all, many of the recommendations were controversial, largely because the commission took an unbiased look at some of the preferences in the real property tax law either continued from the time the state administered the tax or added since the counties took over. While these exemptions may have seemed appropriate at the time, many have been broadened or extended. In other cases, some of these preferences, viewed as encouraging a certain type of activity, were enacted without fully understanding the impact of the exemption and shifting the tax burden.
Policymakers of long ago were sympathetic to the needs of the aged and the disabled. The older one becomes, the larger the home exemption offered. In the case of the disabled, the amount of the additional exemptions depends on whether one is blind, deaf, has other disabilities, or is a disabled veteran. These exemptions are blind to the financial needs of the elderly or disabled homeowner.
Likewise, the real property ordinances provide total exemptions to charities and nonprofit organizations be they providers of social services, health care or education or places of worship. A recent addition provides a full exemption for historic residences and partial exemption for historic commercial properties.
Another exemption added after the counties took over the real property tax is extended to credit unions. While credit unions enjoy exemptions from the net income and sales taxes on the purchases of tangible personal property, as a result of being chartered by federal law, they are not generally exempt from local real property taxes. As a result, the counties enacted a specific exemption.
After the counties took over, they also extended an exemption to “kuleana” lands. These properties were given to beneficiaries of the division of lands under the Great Mahele under King Kamehameha III. Ownership of these lands must have remained in the same family since that time in either residential or agricultural use. Those who advocated for this exemption argue the beneficiary families have owned these lands and have used them in the required residential or agricultural use and have not benefited from the appreciation of the lands surrounding them that may have been put into a higher and better use.
The problem with all of the foregoing exemptions is that though the real property is owned or used by certain people or organizations, this does not mean they cannot pay for the county services they enjoy. These include some basic services that ensure the health and safety of the community, such as police and fire protection, sanitation, and parks and beaches. All these basic services are crucial to the health and safety of the county’s citizens, so they should be provided to and paid for by taxpayers. If those who have exemptions from the real property tax don’t pay their fair share, then the burden is shifted to real property owners who don’t enjoy similar exemptions.
Advocates argue that because of their condition — aged, disabled or nonprofit — they should not have to pay taxes. The corollary is that they should not use county services. On the other hand, such an argument to retain the exemptions ignores that some have the ability to pay despite their inclusion in these general categories.
The best example is seeing a Jaguar parked in a metered stall with that blue disabled tag dangling from the rearview mirror, with the parking meter flashing a bright red violation sign because the driver did not have to put a quarter in the meter. Is that fair to other drivers?
Lowell L. Kalapa is president of the Tax Foundation of Hawaii.