Council weighs tax reforms

LIHU‘E — Three years after a failed attempt to overhaul the county property tax code, Kaua‘i County Council members are trying again to push through some significant reforms.

The Finance Committee is considering three bills that would among other things increase exemptions for local homeowners, change tax classifications and push dates forward for appeals, assessments and filings. If approved, residents could start seeing changes as soon as next July.

The latest set of property tax proposals, Bills 2416 and 2417, were introduced Wednesday by Councilman Tim Bynum at the administration’s request. Both were deferred to allow fine tuning.

Bynum praised the administration for proposing the bills, but had some criticism to share.

“Your proposal does not address who pays what,” Bynum told county Real Property Officer Steve Hunt. “It also does not address timeshares.”

In the last three years people who live and work on Kaua‘i saw their property taxes increase 20 percent, Bynum said, while those who own property on the island and live somewhere else had a 13 percent decrease.

Another problem brought up by Bynum relates to a 2 percent cap imposed years ago on resident homeowners. The cap protected homeowners from an over-inflating real estate market. But as real property values keep falling, property taxes continue to grow 2 percent a year for resident owners.

By the same token, homeowners who missed the boat and failed to apply timely for a homeowner exemption are likely paying much higher taxes than those who applied when the market was still down.

As the market swelled several years ago, homeowners who applied during or near the peak of the real estate boom had their tax assessments set at a high value, Bynum said. Although going forward they are likely paying less each year as market values decrease, they still pay considerably higher taxes than those who locked their tax assessments at lower values.

Adding to the tax discrepancies, when someone purchases a property, the taxes are set up according to the current tax assessment, he said. So new homeowners are likely going to pay higher taxes than their neighbors who may have a similarly valued property.

Bill 2408

Bynum on May 18 introduced legislation to provide tax relief to more than 12,200 resident homeowners on Kaua‘i. Bill 2408 proposes increasing the homeowners real property tax exemption to $68,000 from $48,000.

The current law doubles the tax exemption when a homeowner reaches 60 years old; the exemption then is $96,000. When a homeowner turns 70 years old, the exemption is 2.5 times higher than the regular one, $120,000.

Although those numbers may seem forgiving for the island’s senior population, Maui’s tax exemptions leave Kaua‘i’s benefits looking meager by contrast. On Maui the tax exemption is $300,000, for all homeowners regardless of age. Beyond that, Maui’s resident owners pay $2.50 per $1,000 of assessed value; resident homeowners on Kaua‘i pay $3.85 per $1,000 of assessed value.

The bill unanimously passed first reading and on June 29 went to the Finance Committee, where it remains.

Bynum said he originally introduced the bill to become effective for the current fiscal year, which started July 1. But since he was unable to beat the deadline, he pulled the bill to work with the administration on a tax data analysis. Bynum said he will likely propose a much higher exemption for Fiscal Year 2013, which starts July 1, 2012.

Bill 2416

Draft Bill 2416 would:

• Increase income exemption threshold for resident homeowners;

• Repeal the Circuit Breaker Credit;

• Change the Permanent Home Use tax structure;

• Advance the calendar for assessment notices and appeal filings;

• Standardize time-frames for corrections to the assessment list; and

• Increase threshold for county finance director and county attorney to compromise assessments to same level of authority given to county attorney for claim settlement.

Bill 2417

Draft Bill 2417 would:

• Advance the assessment date of value from Jan. 1 to Oct. 1;

• Advance other requirements for exemptions and dedications commensurately;

• Clarify council involvement in the tax rate process (council to set rates for all classes annually);

• Change tax classification for properties from zoning to actual use once improvements are erected;

• Create single value for assessments;

• Reduce appeal threshold to benefit taxpayers;

• Increase current $10 appeal fee amount to $25 for owner-occupants and $75 for other properties;

• Remove apartment tax class and add vacation rental tax class; and

• Reduce qualifying rent limits for long-term affordable rentals from 100 percent to 80 percent of the Kaua‘i Median Household Income and extend PHU tax cap and homestead tax rates to qualifying properties.

Kaua‘i has the highest number of visitors per capita in the state, yet hotel and resorts here have the lowest property tax rate. Bynum said even though their taxes were proposed to increase 25 percent under Bill 2274, no one in the visitor industry came forward to complain.

Visit www.kauai.gov for more information.