Property tax panel proposes changes for fairness

The Oahu Real Property Tax Advisory Commission on Thursday passed its final report to the Honolulu City Council, recommending a host of changes aimed at making the tax burden more equitable among the island’s property owners.

Among the recommendations were to include lots zoned for country and preservation use among the properties that may fall into the Residential A tax classification and to expand the definition of “low-income rental housing” to provide more incentive for developers to build affordable housing.

Commission Chairman Dennis Oshiro said issues tied to the city’s fledgling Residential A tax category were among the most highly discussed by the seven-member panel that began meeting in July at the request of the Council.

Residential A is the tax class that consists of all residential properties valued at $1 million or more that do not carry a homeowner exemption. Residential A property owners, beginning this year, pay $4.50 per $1,000 on the first $1 million of value and $9 per $1,000 on any additional value. Standard residential property owners have been paying $3.50 per $1,000 for years.

Critics say the Residential A category treats homeowners in the classification unfairly.

But the commission recommended against Bills 41 and 48 — measures before the Council that would repeal the Residential A category. (Bill 48 additionally would replace Residential A with a luxury apartment unit class.) The commission report concluded, “Although the Residential A program is not a perfect system, the benefits outweigh the burdens.”

Instead, the commission took the advice of the city Real Property Assessment Division and recommended that the Council force properties zoned for country or preservation to be placed in Residential A if they are valued at more than $1 million and there are not farm dwellings or other structures occupied by owners. Currently, some country and preservation parcels are being used for residential use and have a value exceeding $1 million, city officials said.

City tax officials estimated the change would affect about 300 property owners and yield an additional $1 million for the city annually.

To provide incentive for developers to construct affordable rental housing, the commission called on the Council to change the definition of “low-income rental housing” to include units aimed at those making up to 80 percent of Honolulu area median income, up from 50 percent.

The commission’s proposal would provide more incentive for property owners to dedicate units as low-income rentals in exchange for paying at a lower tax rate. Currently, for instance, those who agree to dedicate renting units to those making 50 percent or less for five years get a break. The proposal calls for those who promise to rent to those making up to 80 percent or less for between one and five years to get a break.

Among the other recommendations:

>> Pass bills now before the Council creating new property tax classifications for lots near rail stations, or what are known as Transit Oriented Development zones, and for properties used for bed-and-breakfast establishments and other short-term vacation rentals.

>> Reject a proposed repeal of an ordinance that now provides exemptions for property owners in the Central Kakaako Industrial Zone after those affected testified against an appeal.

>> Reject proposals now before the Council calling for exemptions for organic farms, “ocean-friendly” restaurants, “buy local” restaurants, active military and honorably discharged veterans.

>> Pass a proposal currently before the Council upping the minimum tax paid on homes designated as historic residences to $1,000, up from $300.

For more on the report, go to 808ne.ws/PropTaxReport.