‘Work-arounds’ possible with property taxes

So just what can the County Council do anyway? Increasingly, this is the question I am getting from friends and neighbors. Frequently it is preceded by “I know they are responsible for balancing the budget, for setting property-tax rates, and that they regulate land use, but what does that mean and what can they actually do?”

These three areas of responsibility (and others) are granted to the county via the state constitution.

The short answer is the County Council can do the basics and live essentially within the status quo, or they can think “outside the box” (but within their constitutionally-granted authority) in pursuit of solving the problems and challenges facing our community.

A responsible council ideally will do a little bit of both.

Balancing the budget means establishing priorities. For example, historically the county has provided far-more support for the tourism industry than they have for agriculture. The purchasing choices made by the county also are essentially public-policy decisions with significant potential implications.

Regulating land use means the county has the authority to determine just about EVERYTHING when it comes to what specific parcels of land may be used for (hotel, residential, agriculture, commercial, etc). This power includes what exactly may be constructed on the land, where it may be constructed (setbacks, etc.), and more.

Today and in future columns, I will explore a collection of “out-of-the-box” alternatives to setting public policy utilizing these three areas that the county clearly has the legal authority over. I will start with power of the county to regulate property taxes.

The primary source of funding for the county comes via the property tax. The council sets the tax rates and the overall structure governing the collection of property taxes. With some small exceptions, the state retains all other taxing authority. For example, the county cannot implement an income tax, sales tax, airline tax, car-rental tax, or a hotel-room tax, etc.

However, there are “work-arounds” if the council, with support of the mayor, was inclined to expand the scope of their taxing authority.

For example, while the county does not have the authority to implement a hotel-room tax, the county could significantly increase the property tax on hotels/resorts and achieve a similar outcome. The hotel/resort will pass on all tax increases to the visitor, so the net result would be similar — the arriving tourist is taxed more.

Similarly, the county does not have the legal authority to tax rental cars directly. However, it does have the authority to tax the land upon which these cars are parked and/or rented out from. An increase in property taxes on these lands would also be passed on to the renters of these cars, thus effectively simulating a tax on rental cars when it is actually a tax on the property upon which the rental cars sit.

Since the county taxes owner-occupied residential property at a preferred rate, it is reasonable to believe that they could tax locally-owned businesses also at a lower rate. And since the county also takes into consideration the income of some property owners when calculating the taxes owed, it is also reasonable that the county could do the same with business, commercial and industrial property.

In other words, the county has the legal authority and taxing mechanisms in place to establish a tax structure that benefits small, locally-owned business while shifting the burden to large, offshore-owned corporate enterprises (think Walmart and other large companies).

Yes, there are “work-arounds.” If done thoughtfully, the county budget could benefit substantially from very-targeted tax increases. In addition, such action could create and support other positive societal impacts, like reducing the number of rental cars on the road and supporting locally-owned small businesses.

There are many variables used to determine the amount of property taxes ultimately due by a property owner. An owner-occupied home, a market-based residential rental, a residential property used for commercial purposes, all pay a different amount. Resorts, vacation rentals, industrial and commercial properties also have varying tax rates. Similarly-situated agricultural lands, depending on many factors including what they grow or do not grow, will pay different amounts.

Most importantly, the existing county property-tax structure utilizes a property’s use as a primary factor in determining the appropriate tax rates and classification for individual properties. This element of use could be structured in any number of ways to achieve budget objectives, to incentivize or dis-incentivize various uses and activities, and to ensure a progressive property-tax structure.

Those who live here full time, those who choose to rent their properties at affordable rates, and those whose businesses are based here and whose profits remain here, should pay the least. Those who have more should pay more.

While at first glance it may seem that the fundraising capacity and county regulatory authority is limited, remember, there are always “work-arounds.”

•••

Gary Hooser formerly served in the state Senate, where he was majority leader. He also served for eight years on the Kaua‘i County Council, and was the former director of the state Office of Environmental Quality Control. He serves presently in a volunteer capacity as board president of the Hawai‘i Alliance for Progressive Action and is executive director of the Pono Hawai‘i Initiative.

5 Comments
  1. Jake September 23, 2020 2:33 am Reply

    The difference between a child and a parent….the child wants to find a way to keep spending, and the parent (aka an Adult) is looking for ways to cut expenses and stay within a budget.

    The hotels and rental car companies don’t vote. It is so very easy for our Council to increase these taxes vice increase the property taxes to regular voters, I mean taxpayers.

    The hotels and rental car companies will just pass the tax on to the consumer. They really don’t care, and they represent no votes.

    Hey Kauai County Council!!…….Ah, instead of doing the EASY thing, try doing the HARD thing and cut the fat from our bloated expenses. Cut hiring. Slash, slash, slash. Oh wait, your constituents won’t like that in the short term, better known as your next election cycle. SMH.


  2. RG DeSoto September 23, 2020 7:31 am Reply

    “Regulating land use means the county has the authority to determine just about EVERYTHING when it comes to what specific parcels of land may be used for (hotel, residential, agriculture, commercial, etc). This power includes what exactly may be constructed on the land, where it may be constructed (setbacks, etc.), and more.”
    And therein lies the problem…too much regulation and control = too little building of affordable housing. But never mind, Hooser loves everything big government and suffocating regulator control. That’s the essence of the progressive mindset—the state is everything and the individual must bow down and be subservient.
    Good way to go Gary…you still collect your legislators’ perpetual income scraped off the backs of working people so have no interest in the real benefactor of prosperity–a freely functioning market system.
    RG DeSoto


  3. manawai September 23, 2020 9:26 am Reply

    What I find interesting and logically unfair is that the County assesses (legally permitted) vacation rentals a resort-rate property tax based on use when it has made that use illegal during this pandemic. Not sure this would stand up in court. In fairness, the County should give a temporary reduction in vacation rental rates down to the long term rental rate then raise it again when they choose to permit the use on which they are calculating the tax.


  4. Doug September 23, 2020 11:36 am Reply

    I would be all for raising property taxes on the tourist industry (rental car properties, hotels) because they would indeed pass that on to their guests. But to do that you would have to do it fairly, as in raise the property taxes on all large companies (Gary mentions Walmart). But that’s where the issue lies, you raise the taxes on Walmart and Costco, and their prices go up to compensate. And who shops at Walmart and Costco? Residents. More money out of our pockets……..


  5. Taxnut September 24, 2020 4:28 am Reply

    Before proceeding with Mr. Hooser’s “work-arounds”, I suggest that Kauai County Councilmembers and Mr. Hooser familiarize themselves with the Commerce Clause contained in Article 1 Section 8 of the U.S. Constitution. State and local taxation may not discriminate based on the location of the owners of a business. For example, if Kauai County opts to increase property taxes on retail operations, taxes will go up not just for Costco but also for ABC Stores.


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