Council to vote on creating new tax class for $1M homes

The City Council will vote today on a proposal to establish a new tax classification for houses and condominiums valued at $1 million or more, allowing the city to tax them at a higher rate than other residential parcels.

Bill 42, however, would shift into a new "Residential A" class only those properties that do not have home exemptions.

Council Budget Chairwoman Ann Koba­ya­shi said she and her colleagues do not want to charge a higher rate to property owners for homes they occupy.

The $1 million threshold, which was first proposed by the Caldwell administration, works because residences valued at less $1 million "may be rented out to our local people, and we didn’t want their rents to increase," Koba­ya­shi said.

A previous attempt to split owner-occupants from nonoccupant owners proved to be too much of a burden on lower-income renters because property owners passed on the increase to their renters, Koba­­y­a­shi said.

There have been minimal public objections to the bill.

Lowell Kalapa, president of the Tax Foundation of Hawaii, submitted written testimony questioning the fairness of assigning a higher tax rate to properties valued at $1 million or more "when the kind and amount of demand for city services is or will be the same." Kalapa said the bill could also discourage developers from creating homes in that category when the profits from the sale of those properties are sometimes used to help subsidize affordable units.

Mayor Kirk Caldwell has indicated he supports the bill.

Also up for a final vote today is Bill 40, which would repeal multiple exemptions for homeowners 65 or older that increase as they get older. Supporters say the city already has a "circuit breaker" mechanism in place that allows homeowners with less than $50,000 annual income to pay no more than 4 percent of their income toward property taxes and those older than 75 to pay no more than 3 percent.

Bills 40 and 42 were the only ones among 10 measures introduced by the administration designed to either curb property exemptions or create or tinker with tax classifications that would make it easier for the Council to raise rates on targeted groups of owners.

A bill that would have lumped bed-and-breakfast establishments and transient vacation units into the hotel and resort classification, which typically pays at a rate higher than residential classifications, was shelved, as was a bill that would have created a new tax classification just for time-share properties.