Hawaii News City to finalize tax proposals By Gordon Y.K. Pang Nov. 2, 2014 Mahalo for supporting Honolulu Star-Advertiser. Enjoy this free story! Read more Mahalo for reading the Honolulu Star-Advertiser! You're reading a premium story. Read the full story with our Print & Digital Subscription. Subscribe Now Read this story for free: Watch an ad or complete a survey Log In Already a subscriber? Log in now to continue reading this story. Activate Digital Account Print subscriber but without online access? Activate your Digital Account now. A tiered system of property rates for homeowners in the controversial new Residential A tax classification as well as owners of commercial property are among the more wide-ranging proposals that the city Real Property Tax Advisory Commission is poised to make when it meets for a final time next week. Other recommendations expected in the final report include creating a new tax class for bed and breakfast and transient vacation units, raising the minimum tax on buildings owned by unions and other nonprofits not classified 501(c)3, and eliminating or reducing the tax breaks enjoyed by other entities. Honolulu City Council members have promised to take a hard look at the proposals recommended by the commission, especially given the recent uproar over the steep tax hikes experienced by many homeowners in the new Residential A tax class. The seven-member commission, which began meeting in May, spent much of its time discussing and gathering testimony about the new Residential A tax class, made up of all properties valued at $1 million or more that do not have a homeowner exemption. Those in the Residential A category found themselves paying at a rate of $6 per $1,000 of assessed value this year, compared to $3.50 per $1,000 for those in the common residential tax class. That’s a hike of about 71 percent. Commission Chairman Ray Kamikawa, a former state tax director, said the commission maintains a tiered or graduated rate would allow property owners to see a less drastic sudden increase in their tax rate. "We’re getting away from the cliff effect,"he said. A tiered system "would be more equitable, and (more of the burden) would fall on those with higher valued properties in that class," Kamikawa said. The current system "caused a lot of pain because if you’re $1 above $999,999 in assessed value, you were taxed at a much higher rate — 71 percent higher." As with its other recommendations, the final draft does not offer any suggested rates. Under the same logic, the commission’s draft recommendation calls for creating a tiered system of rates for commercial properties, which are all currently taxed at $12.40 per $1,000 of assessed value. As with its proposal for a tiered Residential A system, the commission draft calls for at least two rates based on the amount of a commercial property’s value. Also sure to garner heated discussion before the Council is the recommendation to create a new tax class for residential properties that are used for bed and breakfast establishments and other transient vacation units. "We want to make sure that we tax these transient rental uses at an appropriate rate because these are different uses," Kamikawa said. Such a rate would likely fall somewhere between the residential rate ($3.50 per $1,000) and the hotel-resort rate ($12.90 per $1,000). Kamikawa said commission members want the rate applied to all properties that fall under the definition of transient rental use, defined as parcels rented for less than six months. Officials estimate there are 810 units with nonconforming user permits and an additional 3,000 to 4,000 units without permits. The commission recognizes that historically a large a number of transient vacation units operate illegally but noted that the city could use the data base the state Department of Taxation uses to track those businesses that need to pay transient accommodations (hotel room) taxes, Kamikawa said. Angie Larson, a board member for the Hawaii Vacation Rental Owners Association, told the Honolulu Star-Advertiser that members of her group are leery of the recommendation. Any move to increase property tax rates on B&Band other TVUproperties could make it infeasible for them to operate. The Council should at least establish a way to license newer operators before considering raising rates on them, Larson said. Other proposals expected to be part of the final recommendation: » Eliminating the "break"in assessed value for property owners who choose to dedicate land for farm use for one year, but keeping the incentive for those who agree to dedicate their lands for five or 10 years. » Reducing the exemption for newly designated historic residential homes to 50 percent of assessed value. » Eliminating full exemptions for credit unions and for-profit child care centers. » Retaining the $300 minimum tax for nonprofits except those classified by the Internal Revenue Service as 501(c)3 organizations, which the commission believes are those entities that most help governmental operations. They include schools and entities that assist the poor and underprivileged; advance religion, education and science; defend human and civil rights; and foster charity, public safety, sports, and the prevention of cruelty to children and animals. » Increasing the minimum tax for all other nonprofits, including unions and cemeteries, to $1,000 from $300. Previous Story Lava stalls 480 feet from Pahoa Village Road Next Story Civil Defense: Lava flow front 'relatively cold'