Piece by piece relief

LIHUE — In two weeks, county taxpayers will have a say in renewed property tax reform efforts. 

The Kauai County Council on Wednesday approved the first step of five separate measures that aim to provide relief to some residents who saw noticeable increases on their real property tax bills for the current fiscal year.

“I think we need to really take a long look at this and not knee-jerk react to every single thing,” Councilman Gary Hooser said. “I also think it serves no useful purpose for us to bicker, blame, or pull comments out of past discussions and blame each other. This is not the time for blame — this is the time for working together and I’m hopeful that we can do that.” 

Though county officials expressed their collective support for that goal, some were divided on how that should happen. 

The bills alone, some officials said, profer individual solutions to address the dramatic increases and decreases that residents saw on their real property tax bills, ranging from extending important tax deadlines and applying exemptions retroactively to offering discounts for qualified homeowners whose increases exceeded $500. 

“This issue isn’t an easy one and requires some complexity so we can protect people … who have been here for a long time, people who are renting their units at affordable rates and people with low incomes while, at the same time, staying on the main course with the purpose of property taxes, which is to provide for the government services of this island,” Councilwoman JoAnn Yukimura said. 

At issue for many councilmembers was a bill that would reinstitute a key tax provision that was repealed last year: the permanent home use credit, which capped future real property tax increases at 2 percent.

To account for this, county councilmembers approved an increase in home use exemptions and established a new tax program, called the Home Preservation Tax Limit, which allows qualified, longtime property owners to pay an amount equal to 3 percent of the gross income of all owners or a $500 minimum tax. 

Councilmen Mel Rapozo and Ross Kagawa, who introduced a bill to reinstitute the permanent home use (PHU) credit, said a return to this system is necessary, at least for now, until county officials and tax experts can determine what tax system works best.

“I think the structure of our tax system is flawed, so as you start tweaking one point, you’re throwing another point off balance, and we can do that all day long,” Rapozo said. “I think it’s dangerous when we start to do these Band-Aid fixes because it’s not going to fix the structure.”

But reverting back to the former system, some officials warned, may have negative consequences, especially for those who received decreases on their real property tax bills, since any reissued statements would reflect similar amounts paid during the 2013-2014 tax year. 

Reinstating the permanent home use credit, Finance Director Steve Hunt said, would result in a tax refund of roughly $3.1 million. Of that amount, nearly half of the relief would go to only 10 percent of those who had tax increases as a result of the lifting of the permanent home use cap. 

Of the 693 properties that were benefiting from the cap, only 132 properties were in the homestead class, Hunt said. The remaining were properties that generated income for the owner, such as those in the county’s residential, vacation rental and commercial tax classes. 

“With the recent changes that were made, half of the taxpayers in the homestead classification had lower taxes, so if we go back to where we were, it would take the savings away from all of those people, and I, for one, cannot do that,” Hooser said. “To go back, we also have to charge people more.”

A public hearing on all five tax proposals are scheduled to be held during the Sept. 24 council meeting, beginning at 2 p.m. in the Historic County Building Council Chambers. The council will have at least two more opportunities to vote on the measures before they become enacted.

Written testimony can also be sent to: counciltestimony@kauai.gov.

Darin Moriki, county government reporter, can be reached at 245-0428 or dmoriki@thegardenisland.com. Follow him on Twitter at @darinmoriki.

Five bills that were introduced and passed by the Kauai County Council on first reading Wednesday profer varying methods to improve or correct current real property tax laws that caused some increases and decreases on real property tax bills this year. Here is a short summary of those five bills:

Bill 2554

• Provide tax credits to taxpayers in the county’s homestead and residential tax classes who received real property tax increases greater than $500, if their property was not sold after Oct. 1, 2013; a second home was not built on the property nor was the living area of the original structure substantially increased; and the property has held a home use exemption during the 2012-2013 and 2013-2014 tax years.

• Discount any tax increase above the county’s allowable $500 threshold by 70 percent.

• Extends the due date for the first half payment of real property taxes from Aug. 20 to Dec. 31 for all property owners who have current home use exemptions.

• Any penalties and interest accumulated during this extended period would also be waived retroactively.

Bill 2556

• Reinstitute the recently repealed permanent home use tax credit, which capped future real property tax increases on owner-occupied homes, with the proper exemptions, at 2 percent beginning in 2004.

Bill 2557

• Create a tax credit for low-income households that may not benefit from current property tax programs.

• To qualify, the gross income for all titleholders must not exceed 50 percent of the Kauai median household income, which ranges from $31,800 for one person to $59,950 for a family of eight.

Bill 2558

• Allow any claim for an exemption applied for in the 2014-2015 tax year, either the long-term affordable rental or home preservation tax limit tax credit, to be applied retroactively to a person’s real property tax bill for the 2013-2014 tax year.

• Permit all property owners to submit a new Use Survey Form to the county’s Department of Finance by Dec. 31 for the 2013-2014 tax year and receive a tax credit for the 2014-2015 tax year. The tax form was sent to some county residents over the last year and allows county tax officials to determine which tax classes properties belong in based on their highest and best use.

Bill 2559

• Allow a property with multiple uses to be classified under each applicable tax classification based on the percentage of property dedicated to each use.

Source: Kauai County Council

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