LIHUE — The Kauai County Council unanimously approved on first reading a bill that would shake up the county’s real property tax system.
Draft Bill 2495 proposes a revision on property tax exemptions and caps that would affect resident homeowners, nonprofit organizations, Hawaiian homesteaders, credit unions, senior citizens, transient vacation rental owners and others.
“This really brings to fruition three years of our tax reform efforts,” said Councilman Tim Bynum, who introduced the bill. “This is something that we worked out in cooperation with our staff, myself and the Mayor’s Office.”
If the proposal goes through, even after the Permanent Home Use credit is removed, the majority of homeowners would have their taxes reduced, with only a few seeing a slight increase, he said.
The PHU, which has caused “some difficulties” in the past, would be replaced with a Home Preservation credit, said Bynum, adding the county Real Property Tax Division estimates there will be 100 to 200 applicants for this.
This would bring back the homestead class in to “ad valoreum taxation,” or a calculation based on assessed value, minus exemption, times rate.
“So each citizen will be treated the same,” Bynum said Wednesday.
The bill also increases the homeowners’ exemption. Following meetings with Mayor Bernard Carvalho Jr., Bynum said they agreed to target the exemptions at $3.9 million, which is the current PHU credit.
“This will reduce taxes for the homestead class and bring them more in line with the expectations we had in 2008,” said Bynum.
He added he would like the bill to have more relief, but Carvalho agreed to this level, and there will be opportunity for more discussion on whether to give more or less exemptions as the bill reaches the council’s Finance Committee.
The proposal totally exempts owner-occupied properties that are valued $100,000 or less from taxes. For owner-occupied properties with a value higher than that, the exemption would be $100,000. The current amount for those types of exemption is $48,000.
Homeowners older than age 60 would get a $120,000 exemption; and those older than age 70 would get a $140,000 exemption.
The bill also increases the standard minimum taxes from $25 to $100 next year, and $150 the subsequent year, but everyone in Hawaiian Homelands will be exempted from the minimum tax.
For the first time, credit unions will pay a minimum tax of $1,500, which translates to roughly $187,000 of commercial value, according to Bynum.
“Credit unions have been exempt from all taxation, even though they have business properties and buildings,” he said.
Additionally, anyone who has a transient vacation rental permit will lose a homeowner’s exemption.
“This would say, if you have a commercial use, you’re not longer eligible for a homeowner’s exemption,” Bynum said.
To Councilwoman JoAnn Yukimura, it’s a bill that will help the county move toward restoring equity and fairness in Kauai’s real property tax system.
“I think it’s timely and I look forward to working on it, so we can get a good product for the people of Kauai,” she said.
Vice Chair Nadine Nakamura said it’s a time-sensitive bill. Bynum concurred with Nakamura and encouraged other council members to read the bill thoroughly and prepare amendments if necessary.
“We don’t want to miss the boat in terms of next fiscal year,” he said.
Council Chair Jay Furfaro said he is “90 percent happy” with the bill.
Councilman Ross Kagawa said he would like to see about 10 examples — not disclosing names or tax map keys — of how the proposal would play out in reducing taxes for homesteaders.
The bill is scheduled for a public hearing Aug. 7, and was referred to the council’s Finance Committee.