Out of the 1978 “Home Rule” State Constitutional Convention Kauai succeeded to the state real property tax regimen with the condition that the county could impose no other major tax. The tax is the principal source of revenue for our county government generating more than 60 percent of county income. The tax system was cumbersome and flawed when obtained and after almost 40 years of tinkering with it by the county, it is no better. The system has major defects and critically needs overhaul and reform.
In its pure form, an ad valorem real property tax system is one where the amount of annual tax for a given property is found by multiplying the determined value of the property by the tax rate set for that property. Under the Kauai law, the value of property is fixed by an annual assessment ostensibly based on the fair market value of the property at that time. These assessments are now better than they have been, but their accuracy remains imperfect.
Historically, our government has kept rates largely unchanged and relied on increases in assessments to generate the ever-increasing revenues our county budgets demand. Our government officials then proudly proclaim, falsely, that as rates are unchanged, owner taxes have not been increased.
Along with budgets, tax revenues in recent years have sharply escalated. I believe that it would be clearly fairer to taxpayers if, at least in the cases of resident-occupied properties, value was set for the term of ownership by the acquisition price paid. Resident-occupied parcels comprise about two-thirds of all taxable properties. The frequently contentious annual valuations would be avoided as would the cost of making the required appraisals. If greater revenues are needed, our tax officials could simply raise rates.
All states have real property taxes. Illustrative of its deficiencies, the inherited system provided for eight different classifications of property, each of which could have its own rate. Many state laws provide that all properties are to be in one class. As a result of Kauai’s nearly two decades of governmental groping, our system has grown to 10 classifications. Simpler is always better. There is no reason why all of Kauai’s properties could not be in one class with special provisions to handle adjustments for some types of property, e.g. resident owned or occupied. Having all properties in one class could enable our council to take each year only one action — to set a rate applicable to all properties.
Most of the fiddling that our tax officials have done to the real property tax law has been regarding its provisions dealing with property occupied by residents. Elsewhere in most cases, a property tax is proportional to the value of the property. If you own a $600,000 property, the tax is twice what it is for a $300,000 property.
On Kauai, there has been concerted effort to have the property tax emulate progressive income taxes. For example, with a $200,000 exemption, the tax on a $600,000 value property is four times what it is for a $300,000 value property. And low income and circuit breaker enactments have been made, which in some cases make the property tax determined by the taxpayer’s income as found under Kauai accounting standards some of which vary materially from how income is determined by private enterprises and by our state and federal governments. Whether these enactments to alter traditional property tax terms are valid has not been tested judicially.
A thoughtful examination of our current real property tax law is long overdue. In my view, the council should appoint a blue ribbon task force composed of both knowledgeable taxpayers and tax officials to review the terms and objectives of the real property tax law. It would be a grave mistake if the task force did not include both taxpayers and tax authorities as similar reform efforts in the past have foundered because they failed to incorporate all the views needed to achieve sound reformations.
In the ultimate analysis, it is up to you, dear citizens, to give your views to our council. If you are content to allow our tax law to continue in its defective condition and simply remain silent, rest assured that our council is not going to act unless it believes that an adequate segment of our population cares wants corrective steps to be taken. As always, with apathy, people get the government (and the taxes) they deserve.
Walter Lewis is a retired attorney who lives on Kauai and writes a regular column for The Garden Island.