Tax shocker

LIHUE — Steve Lindsey has lived in Hanalei for the past three decades and seen his share of challenges. 

He rebuilt his home after Hurricane Iniki buffeted the island in 1992 and decided to stay put even as his neighbors moved away and wealthy investors drove up property values by buying homes in his neighborhood. 

But recent increases on his real property tax bill, he worries, could be the straw that breaks the camel’s back. 

When Lindsey opened up his property tax bill on Friday, he noticed that his annual balance for his 9,600-square-foot property increased from $2,442 to $7,590, a 211 percent increase, between the last year and this year. 

“It’ll change my lifestyle completely,” Lindsey said. “Am I going to starve? No. Will I be forced out if the council doesn’t do something? I’ll be forced out of living on Kauai.”

Randall Haraguchi said his 85-year-old grandfather, Tomio, a longtime Hanalei resident, received a similar surprise when he opened up his tax bill and saw a $20,966.29 balance on it — a nearly $15,000 increase from last year.  

Although his family’s property taxes have always been high because of its location along the Hanalei beachfront, Haraguchi said they have never been this high. 

“I mean, we don’t make millions of dollars like some of the other people who live in the same area,” Haraguchi said. “My grandparents don’t make that kind of money. It’s kind of ridiculous — I know we’re not the only ones, but I think we probably got hit the hardest.” 

So why did property taxes for some homeowners, like Lindsey and Haraguchi, increase significantly this year?

It’s a question that does not necessarily have a simple answer, county tax officials say. 

“The reason for the increase varies from property to property, so there isn’t a set answer that fits all of them,” Deputy Finance Director Sally Motta wrote in an email.

Lifting the cap

One of the more common reasons cited by those who have called the county’s Real Property Assessment division, Motta said, was the Kauai County Council’s decision to repeal the county’s annual Permanent Home Use tax credit last year.

The program capped future tax increases for owner-occupied homes at 2 percent, beginning in 2006. 

In exchange for removing the tax credit, County Tax Manager Kim Hester said the County Council also approved higher home use exemptions. 

Under the revised tax laws approved by the County Council last year, basic home use exemptions increased from $48,000 to $160,000, while those for homeowners between 60 to 69 years old rose from $96,000 to $180,000.

Rises in tax exemptions for homeowners who are 70 years old and older, meanwhile, saw the highest increase from $120,000 to $200,000.

When the cap was removed by the County Council in September, county finance officials said the change was needed to ensure equity and fairness among property owners in similar tax classes and provide more tax relief options. 

Use vs. zoning

Another possible factor for the tax increases, Motta said, is a provision in the County Council-approved law that allows tax officials to place properties in certain tax classes based on use rather than zoning.

Among those hit the hardest are property owners who live in their homes but use a portion of it as a vacation rental.

One of them is Hanalei resident Susan McLaughlin, who operates a short-term vacation rental on her property with a valid transient vacation rental permit. 

“I realize that property taxes need to increase over time, however, taxing a whole property 65 percent more from one year to the next just because I have a vacation rental is absurd,” McLaughlin wrote in a letter to county councilmembers on Saturday. “Who can afford this? I was definitely not prepared to pay this amount this year (even though taxes are part of my yearly budget) and am alarmed that I have to write this big, whopping check to the Director of Finance this Tuesday.” 

That’s because tax law changes approved by the County Council last year allow properties with multiple actual uses to “be classified as the use with the highest tax rate.” 

Property owners in the county’s homestead class are currently charged $3.05 per $1,000 in net assessed valuation, while those in the vacation rental class are charged $8.85 per $1,000 in net assessed valuation.

Under county tax laws, vacant properties are classified as they are zoned until an actual use is established. Vacant property previously classified as apartment, meanwhile, are classified in the county’s hotel and resort class until actual use is established.

Balancing the budget, raising taxes

A strong factor that also played a role in real property tax increases for most property owners, Hester said, were rate hikes approved by county councilmembers in May. During this year’s budget session, the seven-member board approved a broad swath of real property tax rate increases for all properties, except for owner-occupied homes with a homestead exemption. 

Real property tax rates for hotel and resort properties jumped from $9 to $10.85 per $1,000 in net assessed valuation, while rates for vacation rental properties increased from $8 to $8.85 per $1,000.

Rates for residential class properties, those that are not owner-occupied, also increased by 30 cents, from $5.75 to $6.05, per $1,000 in net assessed valuation, while commercial and industrial class properties saw a 10-cent jump, from $8 to $8.10, per $1,000.

Councilman Mel Rapozo, who voted against the tax hikes with fellow Councilman Ross Kagawa, said he has been receiving a slew of phone calls from concerned residents and is frustrated by what he predicted would be an inevitable dilemma. 

“We’ve got to remember that we’re dealing with people — we’re dealing with people’s lives and their livelihoods,” Rapozo said.

An uncertain future 

Though he will likely be able to pay his property tax bill, using money that he had saved up judiciously for his golden years, Lindsey said there are others who may not be as fortunate.

“You know, when you plan on retirement, and when you actually retire with Social Security benefits with the income that you’ve provided for yourself, it means that, at any time, you may not be able to afford the taxes on your property,” Lindsey said. 

Haraguchi, meanwhile, said he isn’t sure if his grandparents or his parents will be able to pay their property taxes.

“Right now, it’s up in the air,” Haraguchi said. “There may be enough to make this one payment, but there’s no way to sustain something like this.” 

The first installment of real property taxes for the 2014-2015 tax year is due on August 20.

For more information, visit http://bit.ly/WzNvh8 or call the Assessment Division at 241-4224 during business hours. 

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