Hawaii County may take a page from Honolulu’s playbook and tack an extra property tax on multi-million dollar residences.
Both County Council Chairman Aaron Chung and Mayor Harry Kim said Thursday they’re considering an additional tax for residences where the building plus land is valued at more than $1.5 million or $2 million. The extra tax, of another $1-$2 in tax for each $1,000 of value, would be levied against second homes, not those in the homeowner class.
Chung, who represents Hilo, estimated the change would raise an additional $6 million to $7 million in taxes. He said the new tax “would take some thought,” and he wants to run it by his council colleagues and the administration.
He’d originally thought the money could be used for affordable housing and homeless projects, but with the budget holes coming from business and tourism shutdowns because of the coronavirus, it may have to be used in the short-term to shore up the budget.
“I think people who know me, know that I’m not a person that’s fond of taking from the rich and giving to the poor, because it’s already built into our system,” Chung said. “The wealthy and middle class are subsidizing the less fortunate. … I just don’t think that what I’m proposing would be too onerous to those persons who are going to be affected. We have to look, after all, at the greater good.”
The idea doesn’t sit well with Kailua-Kona Realtor Gretchen Osgood, especially with West Hawaii already paying 70% of the property taxes on the island. She said owners of second homes are “low-impact” to the county as they use few county services during their usually short stays on the island.
“People that bring their cash from the mainland to buy retirement and second homes shouldn’t be penalized for bringing cash to our island,” Osgood said. “They eat in our restaurants, they shop in our stores, they buy our cars, they do the things that generate income for people who live in our community.”
She said the county should differentiate between those who buy second homes for their own use and those who rent them out, which is a commercial use.
Kim said the new tax may be part of the proposed budget he’s required to present to the council by May 5.
“We’re trying to see how short we are,” Kim said. “Tax increases of any kind are frowned upon, for sure. … If there is going to be an increase, it’s because we can’t balance it any other way.”
The residential class already pays a tax rate of $11.10 per thousand, compared to the homeowner rate of $6.15.
Property taxes, originally projected to be $343.5 million next year, account for the bulk of Kim’s preliminary proposed $625.9 million operating budget, released Feb. 29.
Currently, property owners face a 3.9% increase in property taxes based on an increase in property values with no additional taxes levied. The council has until June 19 to adopt property tax rates.
Chung said he’s been kicking around the idea of the extra tax class, which Honolulu calls “Residential A,” after Honolulu won an appeal of the tax in 2017. Chung said former Puna Councilmen Greggor Ilagan and Danny Paleka had wanted to pursue this avenue, but he cautioned them it was best to wait until the Honolulu case made its way through the court system.
In the Honolulu case, two property owners had appealed the designation in First Circuit Court, saying it’s unconstitutional because it’s discriminatory and classifies property based on value rather than use. In addition, the property owners said, it results in disparate treatment of similarly situated property owners.
A Honolulu judge at first ruled in the property owners’ favor, but then reversed that decision after further arguments from the city.
