Property tax reform bill proposed

Mayor Bryan Baptiste on Friday submitted a bill to Kaua‘i County Council that would amend the current real property tax system.

Tax rates and classifications would be changed under the proposal, which eliminates the 2 percent tax cap on owner-occupied homes while increasing the current $48,000 homeowner exemption to $300,000.

The council has called on the administration to produce a comprehensive reform package for some time.

“We’re all anxious that this bill is coming to us finally,” Councilman Jay Furfaro said yesterday. “The work isn’t done yet. We still need some general dialog on finding the right balance during this time of economic turmoil, of which we’re just seeing the beginning.”

Baptiste is pushing for a reduction in tax rate classes from the current eight to four with a focus on use as opposed to zoning.

The mayor said his proposal aims to encourage housing availability, agriculture and alternative energy production as well as preserve the island’s rural character.

“With input from a number of stakeholder groups, we’ve come up with a proposed real property tax system that is fair, systematic, as well as easy to implement and administer,” he said in a news release.

There are four components to the bill’s real property tax system: land value, building value, tax rates and classifications.

Furfaro said the council needs to “really study these four categories.”

Under the new system, the methods used to assess land and building values would remain unchanged. Land values would be market-based, while building values would be calculated by taking the current cost to build minus depreciation.

Councilman Tim Bynum said local taxes started spiraling out of control several years ago because of a rapid runup of assessed values.

The council at the time reacted by passing legislation that has provided some $13 million of tax relief for the past three years, Furfaro said. These measures included a 2 percent cap on owner-occupied homes, a 6 percent cap for residents who put their second homes into long-term rentals and a circuit breaker bill.

The mayor’s proposal replaces these pieces, which Bynum said were a good temporary move at the time but not the long-term solution.

He said the administration’s “pretty progressive” proposal “addresses a whole myriad of concerns.”

“It’s essential and critical that we get it done this year,” Bynum said.

“Every day inequities grow with the current tax cap. This will put everybody on equal footing and simplify the tax rules.”

Some specifics of the bill include:

• An increase in the home exemption of $300,000 for those under age 60, $325,000 for those in their 60s, and $350,000 for those over 70.

• Homeowners who provide affordable long-term rentals would qualify for resident tax rates, although no additional home exemption would be allowed for such properties.

• Farmstead valuation at $5,000 per acre for all agricultural land used for food, fuel and/or fiber production with annual adjustments by Consumer Price Index for Urban areas.

• The validity of a farmstead would be based on whether 75 percent of land is engaged in a qualifying farm use; or

• Owners who respond to annual questionnaire from the finance director showing submission of schedule F, income tax returns, general excise tax and proof of qualification for the county’s agricultural water rates. Certain parcels within urban district would be required to meet an annual gross income per-acre requirement.

• Inspection by agricultural inspector.

• Evidence of qualifying farm use may include: grazing livestock, signs of recent grazing, fences, artificial or natural windbreaks, water facilities, irrigation systems, or crops. Also weed control, pruning, plowing, fertilizing, or pest, insect or disease control, etc.

• Includes conservation-zoned lands with no density — flat valuation of $5,000 per acre, annually adjusted by CPI-U.

• Homesites on resource lands would be assessed uniformly with residential or agricultural parcel assessments.

• General — includes commercial; industrial; improved residential and agriculture; apartment vacant lands; residential vacant lands; conservation with density; vacant agricultural lands; and all other uses not specifically classified.

• Improved resort — all properties that are subject to the transient accommodations tax; zoning not a factor.

Under the proposed system, land tax rates would be relatively low compared to building tax rates.

An estimated three to one ratio would generally apply to buildings versus land, which reflects the fact that buildings require more county services than land, such as fire, police, rubbish and parks.

The proposed rates would have minimal impact on the county’s overall projected revenues, officials said.

When broken down according to tax rate class, properties in the improved resort class would shoulder a significant increase, although businesses on average would experience a reduction in taxation.

Those in the residential and resource lands classes would be offered tax relief, a reduction of approximately 33 percent and 5 percent, respectively.

The minimum tax would double from $25 to $50, with an annual adjustment for CPI-U to cover the cost of administration of such assessment and billing. This tax rate would also apply to kuleana lands where current use is deed defined.

Under the proposed system, a new exemption would be created for alternative energy production facilities.

The proposed bill would also provide for enhanced tax collection and prevention of abuse in claims for exemptions.

“In developing the proposed taxation system, a collaborative process was used, with representation from real property tax appraisers and the administration,” Baptiste said. “I believe that by following this course, a real property tax system was created that’s fair, clear and simple, and is consistent with the overall policies of the county.”

• Nathan Eagle, staff writer, can be reached at 245-3681 (ext. 224) or neagle@kauaipubco.com