LIHUE — A proposal to add more changes to the county’s real property tax system — which has been significantly revamped in the last three years — cleared the Kauai County Council’s Finance Committee Wednesday, though with a few tweaks.
“This bill … is about fairness,” Finance Director Steve Hunt said. “It goes back to the principle of ad valorem taxes and is based on the value of the property.”
The committee spent only two sessions on a bill that will bring significant tax adjustments.
Most committee members felt rushed to pass the proposal so the changes would be effective next tax year, and the bill squeezed out of committee by a 3-2 vote.
The seven members of the full council will pick up Bill 2495 next Wednesday for second and final reading. If everyone sticks to their vote, all the proposal needs to pass is one additional vote.
Hunt said the administration looked at how properties assessed relatively at the same value have been paying different rates.
Among other things, the bill eliminates a property tax cap, which has protected some resident homeowners from climbing real estate values a few years ago but has also created “winners and losers,” according to Hunt. The elimination of the cap will be offset by a spike in tax exemptions.
“This is the culmination of three years of tax reform,” said Finance Committee chair Tim Bynum, who introduced the bill by request of the administration.
The bill approved by the committee Wednesday changed a few points in the draft that had been deferred two weeks ago.
The bill originally proposed a $100,000 tax exemption for resident homeowners, which are taxed $3.05 per $1,000 of assessed value. Those between 60 and 69 years old would get a $120,000 exemption, which would increase to $140,000 at age 70.
The amended bill now increases those exemptions to $160,000, $180,000 and $200,000 respectively.
Owners of transient vacation rentals, which are taxed $8 per $1,000 of assessed value, will still get the resident homeowners’ exemption, as long as they live in the house for six months or more per year.
A change in the law this year divided taxpayer classes by use rather than zoning. Despite notices sent by the county to each property, some taxpayers were caught by surprise when they saw their homestead rates, at $3.05, become commercial rates, at $8.
An amendment to the bill will allow homes that have day-care centers operated by licensed providers to still qualify for the cheaper homestead rates.
Credit unions, as nonprofit organizations, currently pay the minimum $25 annual tax. The original bill proposed an across-the-board $1,500 tax for credit unions, but the amended version sets their share as 10 percent of the value of their property.
The bill eliminates all property taxes for Hawaiian homesteaders, who currently pay $25. Hunt said part of the rationale is that the county has very large uncollected amounts — as do other counties — and efforts to collect taxes from the Department of Hawaiian Homelands have been cumbersome. Yet, the tax imposed on this group is minimal to begin with, he said.
The $25 minimum tax for others who qualify for a complete exemption will increase to $100 in 2014, and to $150 in 2015. Those who have an additional low-income exemption will qualify to pay only half of the minimum tax.
The current amount for the minimum tax has been in place for a long time, and is certainly not a measure of where the administration needs to be to cover basic services, Hunt said.
Kauai has 34,300 taxable parcels, according to Hunt. The county has a $760,000 contract with the Kauai Humane Society, and the money comes from property taxes — a little more than $22 per parcel, he said.
But earlier in the day, KHS officials said the actual cost for the nonprofit to provide services for stray dogs and cats is $1.1 million. Hunt said if the county is to provide all this funding to KHS, it would cost $32 per parcel.
“Never mind police service, never mind fire service and the cost of processing, and the cost of the assessors, and collection office — no services other than just the Humane Society’s service,” he said.
Committee members Mel Rapozo and Ross Kagawa voted against the bill. They said they felt rushed to pass the bill. There were six amendments Wednesday, and it was the second time the committee reviewed the bill.
Kagawa said he would be a fool to not want to be fair.
“But we don’t need to rush an important decision,” he said.
Rapozo said he supports a tax reform. Years ago, he said, there was a tax task force but the council didn’t act on it.
“It doesn’t mean we can’t do it again,” he said.
Committee member Gary Hooser said he too felt rushed, and wasn’t “really comfortable” with that. He had concerns that some taxpayers will have large tax increases, and that some are paying a higher commercial tax rate for their entire property even though they are using a small portion of their home for a business.
“I too am concerned about the two different uses on the same property, one getting taxed higher than the other,” Committee member Nadine Nakamura said. The current system cannot make a differentiation unless a property is subdivided, and this is something the council needs to take a look at, she said.
Bynum said he worked hard with the administration on these issues and has put proposals before the council in the last three years.
“There is no perfect tax bill, and I applaud the questioning today and the commitment that I heard from the council members to address future issues,” he said.
During “budget time” next year, the council will have time to analyze and look at a potential bill to adjust rates to make it less burdensome for those who had increases, Bynum said.