LIHUE — Michael Dyer can tell you a thing or two about real property taxes. He is the broker in charge and partner in Kilauea Real Estate Company and was appointed to serve on a special task force, convened by
LIHUE — Michael Dyer can tell you a thing or two about real property taxes.
He is the broker in charge and partner in Kilauea Real Estate Company and was appointed to serve on a special task force, convened by late Mayor Bryan Baptiste, to come up with property tax reform solutions in 2002.
But keeping up with real property tax changes that have been gradually occurring within the County of Kauai, he admitted, can be challenging.
“It’s really hard to know what’s going on because the county is in the middle of a burst right now in changing all kinds of things, such as creating new (tax) categories,” Dyer said.
So when he missed the deadline to file his paperwork for an annual long-term affordable rental exemption for his property in Kilauea, he wasn’t sure what to expect.
When his tax bill arrived last week, he discovered that it was $3,200 higher than last year, even though the same tenants are still there and the rent is still the same.
“That, to me, seemed like a really big fine for missing a deadline,” Dyer said. “I made a mistake, I missed the deadline, but the punishment is not proportionate to the crime and that’s what bothered me.”
Dyer is one of many Kauai residents who have witnessed increases on their real property tax bills this year that have, in some cases, jumped up hundreds, even thousands of dollars.
Though county tax officials acknowledged that they do not know how many island residents saw increases on their tax bills, some county officials say another look at recent reforms to county tax laws must be taken to find equitable solutions.
Kauai County Council Chair Jay Furfaro said he and fellow Councilman Ross Kagawa are hammering out plans for a public tax workshop that would include county tax officials and other members of Mayor Bernard Carvalho Jr.’s administration.
Furfaro said he and Kagawa are hoping to introduce the proposal during the seven-member board’s Aug. 6 public meeting.
“For the county, it is critical that we have the workshop because the growth in assessments are actually more that what was presented to us,” Furfaro said.
A look back on the roll back
On paper, the plan to reform the county’s real property tax laws and provide more tax relief for island residents seemed straightforward.
If the Kauai County Council had stuck to numbers compiled by county finance and tax officials last year, the annual Permanent Home Use tax credit, created to cap future tax hikes on owner-occupied homes at 2 percent, starting in 2006, would have been lifted.
Home use exemptions, under that same scenario, would have increased and more than half of the 12,340 properties on Kauai with those exemptions, totaling 7,036, would have seen decreases on their real property tax bills this year.
Another 5,293 of them would have seen a higher annual balance on their tax bills, while only 11 parcels would not have witnessed any change at all.
“The cap was so complex because of the other tax relief programs that came in and out of the cap,” County Tax Manager Kim Hester said. “Under the cap, if you had a house and you added another house, we would take last year’s capped taxes and cap it at 2 percent and then we’d add the value of the new house and that wouldn’t be a part of the new cap. And then, we’d start your new tax basis going forward. It’s just a lot of math.”
The condition, however, was this: there could be no change in real property tax rates.
Though the County Council did approve tax law revisions in September that lifted the cap, a majority of them also approved a broad swath of real property tax rate hikes during this year’s budget session that impacted most properties on Kauai, except for those that are owner-occupied and have existing exemptions.
“A lot of assumptions can made that the rates would not go up, but you know what, we didn’t have the budget in front of us,” Furfaro said.
In all, real property taxes collected during the 2014-2015 fiscal year are expected to generate about $104.3 million in revenue, a 17 increase from the previous fiscal year when the county collected $91.2 million.
Of the 36,385 parcels on Kauai, more than 91 percent of them, or 33,370 individual properties, were sent tax assessments, according to county Real Property Assessment Division data.
What is not known, at least for now, is how many of those properties, and their owners, saw increases on their real property tax bills.
“Everything is changing rapidly and it’s going to be extremely difficult for taxpayers to know what the heck’s going on and it makes it really hard to plan, particularly if you’re living on a fixed income,” Dyer said. “It means we’re forcing people out of their houses.”
When the decision was made to lift the permanent housing use tax cap and replace it with higher home use exemptions, Furfaro said he and other council members based their decision on a critical premise: Property taxes, using assumptions from the Honolulu Consumer Price Index, a measure for inflation, weren’t expected to increase more than 17 percent, Furfaro said.
But they did.
Median sales prices for single family homes on Kauai rose 6.5 percent between June 2013 and June 2014 from $502,000 to $535,000, according to Kauai Board of Realtors data. Condominiums, meanwhile, experienced a 5.3 percent increase from $330,000 to $347,000.
Vacant land on Kauai experienced the most significant increase in median price over the past year, jumping from $290,000 to $370,000, a 27.6 percent increase.
“It’s very difficult,” Furfaro said. “It has to be a case-by-case understanding of what happened — some residents have second homes and multiple homes. Between Poipu and North Shore, the value of their permanent homes in those areas accelerated. So, that’s why the workshop is so important.”
A push for relief
Though much attention has been paid to those whose property values have increased, county tax officials say new tax provisions adopted by the County Council last year saved residents some money.
One them, Hester said, brought the minimum property tax amount for Department of Hawaiian Home Lands properties down from $25 to zero.
“We could never collect it, so we could never get paid,” she explained. “It’s actually more expensive than $25 to bill them, assign the penalties and interest and then back it out when we got paid.”
A new tax credit program also approved last year, Hester added, also provides some tax relief for those residents who fall under the “land rich, cash poor” category.
“If you have a house along Hanalei Bay that’s $9 million and it used to be $1 million, you can get a really, really low tax, if your gross income is $100,000 or less and you’ve been there for years and years and had the home exemption,” Hester said.
Qualified property owners who file for the exemption, according to county tax laws, would pay real property taxes at an amount equal to 3 percent of all the owners’ income or $500 — whichever is higher.
The key, however, is getting that message to taxpayers, Furfaro said.
“I don’t think we have done a very good job in communicating to the public what they can qualify for, and it deals with things like income credits,” Furfaro said. “That is very, very concerning to me.”
• 2015: $107.3M
• 2014: $91.2M
• 2013: $78.4M
• 2012: $78.8M
• 2011: $82.7M
• 2010: $91.3M
• 2009: $91.4M
• 2008: $86.2M
• August 20: First half tax payments due
• September 30: Deadline for filing exemption claims, recording ownership documents and applying for additional home exemption based on income
• October 1: Date of assessment for the upcoming tax year
• December 1: Assessment notices mailed
• December 31: Deadline for assessment appeals
• January 20: Second half year tax bills mailed
• February 20: Second half tax year payments due
• March 31: Certified assessment roll sent to the Kauai County Council
• June 20: Tax rate set by the County Council
• July 1: Tax year commences and deadline for filing dedication petitions
