The 1978 Constitutional Convention authorized and empowered the Hawaiian counties to handle real property taxation in their areas. The property tax now generates about $85 million annually in revenue for Kauai County, and provides the bulk of the income of
The 1978 Constitutional Convention authorized and empowered the Hawaiian counties to handle real property taxation in their areas. The property tax now generates about $85 million annually in revenue for Kauai County, and provides the bulk of the income of the county.
Property taxation requires government officials to set a value of the properties being taxed. The Kauai Real Property Tax office has five persons who are engaged in assessing each year the value of about 34,000 properties on the tax rolls. Assessment of market value is not an exact science and the value assessed is essentially an estimate. Frequently when sales occur they disclose a value significantly different from the assessment.
Since the turn of the century the valuation by the assessors of Kaua‘i real property has more than tripled and now stands at about $20 billion. These increases in recent years have allowed tax rates to remain relatively constant while generating large tax increases.
However, the assessments have, in general, lagged market value as measured by actual transactions. With the soft housing market now prevailing in our country it is quite likely that the present valuations may become greater than justified.
The Director of the Real Property Tax Assessment division on Kaua‘i is John Herring, a capable and conscientious man who is dogmatic and combative. When a taxpayer considers himself or herself aggrieved by an assessment the usual recourse is an appeal to the county’s five-person Board of Review. (Taxpayers may appeal to the state tax court but few do.) This year there was a significant escalation in the number of taxpayers who chose to challenge the county assessment. However, as will be discussed, recourse to the Board of Review is a slippery slope.
Assessors sometimes make dramatic changes in methodology. For many years the Kaua‘i Assessment division relied on advice from the Honolulu tax office as to changes in building costs when valuing improvements on residential properties. In 2005 Herring decided that the results arising from such adjustments were below actual market and he decreed that all single family residence assessments were to be increased 25 percent. The Kauai Tax Code provides that assessments are to be made “systematically,” and following a consistent practice would seem to be systematic, and jumping to an arbitrary adjustment would not. While Herring’s gambit was upheld, it can be questioned whether this aberration was justified.
On a personal note, the assessment as of Jan. 1, 2007, of the land of our residential property was increased by 42 percent over that at the earlier year and focusing on persistent reports, both locally and nationally, of real estate sales slowdowns and some decline in prices. I collected data as to sales of property in our area and found no 2006 or earlier transaction that would support the valuation increase made for our property. With some misgivings I appealed the assessment to the Board of Review.
One hurdle I did not have to face was the Kauai Code requirement that to appeal, the new assessment must be more than 20 percent higher than “the real property tax base” which means basically the prior years assessment. 42 percent is more than 20 percent.
After I filed my appeal I wrote to Herring requesting the data he would rely on to support his assessment. In contested civil matters in Hawai‘i’s courts and agencies the parties are required to submit factual materials they intend to use before trial to the other party. Herring refused my request and so the Board of Review hearing was held without any opportunity for the taxpayer to have a prior review of the justification for Herring’s appraisal. This kind of sandbagging is not the fair play that citizens should be entitled to.
Over 300 Kauai taxpayers appealed the 2007 assessment made for their properties. The Board of Review sustains the position of the property tax office in nearly 100 percent of the matters heard. It is not in the best interests of either the county or its taxpayers that there is a forum established to resolve taxpayer disputes where the taxpayer expects fair treatment but is foreordained to lose. Such a condition simply exacerbates the prospects of having amicable relationships between the county and its citizens who pay property taxes.
There needs to be a revision in the law governing the rights of taxpayers who believe they are aggrieved by tax assessments on their properties. A good way would be to require an informal settlement conference between the taxpayer and a tax office representative so that there can be an unstructured discussion of the dispute.
Prior disclosure of data to be used at the conference is essential. Such an arrangement would enable the parties to hear each other’s position in a climate that would eliminate the rigidity necessary in a formal proceeding and would encourage a negotiated resolution. This change should dispose of most of the appeals. If a resolution does not occur, then, in my view, the matter should be submitted for binding arbitration.
I would also suggest a change in the requirement that limits appeals to cases where the claimed overassessment is at least 20 percent. It is an unreasonable restriction when markets are not escalating.
While it is important to protect the county’s revenue, it is also mandatory that taxpayers be fairly treated. That is not occurring under present conditions.
• Walter Lewis is a resident of Princeville and writes a bi-weekly column for The Garden Island.
