LIHU‘E — The Kaua‘i County Council passed a bill Wednesday that introducers view as a step toward equity and balance within the Kaua‘i property tax system.
Bill No. 2872 divides vacation rentals and residential investment properties into three tiers: those valued at up to $1 million; those valued between $1 million and $3 million dollars; and those valued at more than $3 million.
The bill does not set tax rates for the new tiers — that will be addressed in the fiscal year budgeting process next year — but, it sets the stage for the council to tax higher value properties more significantly than less expensive properties.
Councilmember Luke Evslin introduced the bill with Council Vice Chair Mason Chock. He said the legislation could help ensure high-value properties potentially owned by off-island mainland investors are “paying their fair share.”
“We have low property tax rates compared to the mainland, so it incentivizes mainland investors to park their money in Kaua‘i real estate and make lots of money over appreciated value while paying minimal money in property taxes,” said Evslin at Wednesday’s council meeting. “It’s a contributor to our housing crisis.”
Using current assessed values, there are a total of 549 parcels that would qualify for the tier three tax rate, according to the county Finance Department. Of these, 309 are Residential Investor properties and 240 are vacation rentals. A majority of these properties (332) are located north of Moloa‘a.
Introducers hope that the bill will incentivize some of these property owners to turn vacant homes and transient vacation rentals into long-term rentals, alleviating the housing crisis.
The 2020 U.S. Census found that there were 5,445 vacant homes on Kaua’i, accounting for nearly one in five homes on the island.
Kaua‘i is the last county in the state to institute some form of tiered taxes.
On Maui, non-owner-occupied properties are taxed at $5.85 per $1,000 of assessed value if worth less than $1 million; $8 if worth between $1 and $4.5 million; and $12.50 if more than $4.5 million.
On O‘ahu, residential properties without a home exemption have two tiers — those valued at less than $1 million and greater than $1 million — taxed at $4.50 and $10.5 per $1,000 of assessed value respectively.
Proponents of the measure also hope it could be used to reduce a sharp bump in tax rates for properties passing the current $1.3 million threshold for residential investors.
Rather than a dramatic increase for properties valued above the $1.3 million threshold, the first million dollars of a property will now be taxed at one rate, the next two million at another rate, and any value above that at a third rate.
Councilmember Felicia Cowden voiced concerns about potential fallout from the bill, comparing the bill to a gun, and the new property tax rates to bullets.
“It like that sharp bump out if someone hits the threshold,” said Cowden on Wednesday. “But I am really cautious that this will be used for what is intended to be a good purpose that might end up having people fall through the cracks.”
The bill was approved in a 5-0 vote, with Council Chair Arryl Kaneshiro and Councilmember Billy DeCosta absent.
