The flippin’ surcharge and other housing solutions
This year’s Legislature has produced some unique proposed solutions to deal with our housing crisis.
Senate Bill 2216, introduced by Sen. Stanley Chang, chair of the Senate Housing Committee, proposes an “empty homes tax.” If you own residential real property in Hawai‘i and you can’t swear that you lived in it, then you get charged a tax. The annual amount of the tax is 5% of the assessed value of the property.
So, for example, if you owned a vacation home in Honolulu worth $1 million and you didn’t live in it, your Honolulu real property tax at the Residential A property classification would be $4,500 per year.
The empty homes tax, which you would pay to the state rather than the city, would be $50,000 per year.
Even the state Department of Taxation, in its testimony on the bill, had reservations.
It pointed out that there were some instances of a unit being empty that should be considered for exemption, such as where the unit is being advertised to be rented (or sold), the unit is being renovated, or the unit can’t be lived in because of damage or other conditions.
Finally, there was a more fundamental problem: the tax is triggered by a use of real property (or lack of use), it’s levied against the real property owner, and is based on the value of the real property involved.
It looks, walks and quacks like a real property tax.
But under our state constitution, at least the way it reads now, only the counties have the authority to impose real property tax.
Bzzzt! The state can’t do this. (But note that there are different proposals in the hopper to change the state constitution, as we wrote about last week.)
This measure was heard in the Senate Housing Committee (which happens to be chaired by the bill’s sponsor) and was passed.
Another innovative approach, which happens to be sponsored by the same senator, is a “flipping surcharge” set forth in Senate Bill 2040.
This bill imposes a tax of 25% of the net proceeds from the sale of residential property if (1) the property was sold within five years after it was bought, and (2) the owner isn’t eligible for a county homeowner’s exemption.
This bill was heard by the Senate Ways and Means Committee. During the hearing, senators went through some interesting examples.
If a home was bought for $1 million cash and it sold for $1 million, the tax would be around $250,000 (in addition to the income tax on capital gains), assuming negligible closing costs.
If a home was bought for $1 million with bank financing and it sold for $1 million, with $800,000 going to the mortgagee, the tax would be $50,000.
If an owner bought a home for $1 million and spent $500,000 improving it, and it then sold at no gain for $1.5 million, the tax would be $375,000.
The Hawai‘i Association of Realtors also pointed out that the tax would apply if an owner invested in a dilapidated property, fixed it up so it was habitable again, and then sold it, even as an affordable unit.
We at the foundation pointed out that there would be situations where imposing the tax might not be appropriate.
Suppose a person is given a long-term job assignment (or military station) here and moves here with family in tow but does not want to give up primary residency.
A few years later, the assignment ends, and the person is assigned to state B. The house here is sold to buy one in state B. Wham! The tax applies.
By the end of the hearing, some senators had reached the end of their rope. The committee chair decided to hold the bill.
What other solutions are going to be thrown at us this year? Lots of things can happen before the end of our legislative session.
Tom Yamachika is president of the Tax Foundation of Hawaii.
You forgot to mention one of the more important provisions of the proposals: the tax will be applied to those with certain lighter skin colors more than others.
A proposal to tax you ~500% more for NOT “living” in your owned property. Isn’t it a recurring theme that there are too many people on these islands? Aren’t the people who only occupy their residences part time already doing the state a favor by paying more in property taxes and requiring fewer govt services? Why not just take the property at gunpoint and give it to the poor if that is your ultimate goal?
What other unconstitutional communist “solutions” will these voted-in clowns think of next? Unreal.
These taxes are criminal. A 25% state tax is outrageous. You still have to pay capital gains to the fed on top of a state tax!! This will make investment into the islands impossible. The long term effect of this will damage the housing market and leave an inventory of dilapidated homes.
Typical democrat lawmakers seeking to just tax more instead of budget better.
Does anybody really think that unoccupied million dollar homes are the cause of the “housing crisis”?
Want to save some money when you sell your flip? Take out the biggest loan possible! Want to buy a starter home? You think the bank is going to lend you money if you don’t put more than 25% down when they know you will walk away if you sell before 5 years is up? How does this plan help first time home buyers?
Why does this state CONTINUALLY vote into office those least likely to find their way out of a wet paper bag?
You are being generous when you say these are “unique solutions”.
since all government workers, as basically paid by tax dollars, and a tax liability….why not require all government workers, ie: politicians included…..to house at least one homeless or less fortunate person in their home…sorta of a way for tax dollars to help with the housing crisis…and practice what you preach approach…
why do we keep voting the same way and expect a different policy outcome ???
Some get help, others don’t. What an unfair way of handling things. Always a victim. Always someone more deserving.
Totally corrupt, totally unfair, totally unAmerican.