Property tax program could cost city $1.2M

The city’s property tax take this fiscal year could drop by $1.2 million or more because of a program adopted last month by the Honolulu City Council designed to give revised, lower tax bills to Oahu residents who were shifted into the higher-taxed Residential A class despite living in the homes that they own.

As of Tuesday, the city Real Property Tax Division had received 311 applications from homeowners in the Residential A class who feel they deserve a lower "compromise" tax bill since the class was intended to include only those residential properties that have assessed values of $1 million or more and are not owner-occupied.

Under Council Resolution 14-179, approved in August, those homeowners are eligible to apply for the compromise, which essentially would entitle them to pay at last year’s tax rate. They must also have owned and been living in their homes as of Oct. 1, 2013.

If they are all granted lower bills, the city would collect about $1.245 million less than the $33 million originally projected, Deputy Budget Director Gary Kurokawa said.

"We’re still reviewing them all,"Kurokawa said of the applications.

The deadline to file for the one-time tax compromise is Tuesday. Kurokawa emphasized that one of the criteria for receiving the tax compromise is to obtain a homeowner exemption for the coming year. The deadline to file for a new homeowner exemption is also Tuesday.

Council Budget Chairwoman Ann Kobayashi said city budget officials should be able to manage a $1 million-plus shortfall caused by the tax compromise program.

"We didn’t realize it was going to be that much," Kobayashi said. "I think when we first talked about it, it was going to be less than a million. But I’m glad we’re helping that many people, and I think we can find that money in the budget."

Caldwell administration officials, who did not oppose the program when it was adopted by the Council in August, estimated only 10 homeowners would be able to benefit from the tax compromise program because they did not think there were many owner-occupants who did not receive a homeowner exemption.

Kobayashi noted that neither Mayor Kirk Caldwell nor Council members had intended to affect owner-occupants when it created the Residential A class in 2013.

The Council created the new category and raised rates on those properties to $6 per $1,000 of assessed value from the $3.50 per $1,000 rate used to calculate taxes for properties in the standard residential category.

Council members said they did not intend for those living in their homes to be hit with higher taxes, and were targeting only those who own investment properties.

But that’s what happened. Significantly higher assessments in 2013-14 for some Oahu neighborhoods — along with a 71 percent rate increase — led to bills as high as triple those of the previous year.

Kurokawa said a number of the applicants for tax compromises sent incomplete forms and had to be contacted. One common but critical omission has been Schedule E of an applicant’s federal income tax returns, which would show if they derived rental income from the properties for which they are seeking a compromise, he said.

Residential property

owners with homeowner exemptions are renewed automatically and need not reapply. Roughly 150,000 to 155,000 of Oahu’s approximately 250,000 residential properties receive homeowner exemptions, according to city officials.

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