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How Maui's property tax system could serve as a model for other islands this budget season

Houses in a neighborhood near Kahoea and Kaulua streets in Mililani in central Oʻahu.
Tony Webster
Houses in a neighborhood near Kahoea and Kaulua streets in Mililani in central Oʻahu.

County councils are tweaking upcoming fiscal year budgets across the state. With higher tax revenues this year, lawmakers are looking for ways to pass along the benefits to residents.

One way to do that: changing real property taxes.

Jonathan Helton, a policy researcher with the Grassroot Institute of Hawaiʻi, recently researched how local county laws could provide property tax relief.

"It's helpful for you to have tax classes where you can specifically benefit homeowners, which is something every county does, every county has this thing called the home exemption," Helton explained.

Counties have the ability to decide their own real property tax rates and tiers. As property assessments and value increase, so does a homeowner’s tax bill. Councils across the state have been trying to balance that by expanding existing exemptions or segmenting tiers.

"In Honolulu, it's $100,000 off your assessed value. So this last year, if your home is valued at $1 million, and you have the home exemption, it's taxed as if it's worth $900,000," Helton explained. "Maui's homeowners' exemption for this next year is going to be $300,000. And the reason they're able to make it so large is because they've structured their property tax system in a way where homeowners are not paying the bulk of the property taxes."

Helton said Maui has one of the better property tax systems that could be applied elsewhere throughout the state.

"They do have everything segmented out, so if they want to give relief to homeowners or people who own commercial property or long-term rentals, they can adjust their tax class to do that," Helton said.

On Maui this budget season, lawmakers are looking to reduce real property tax rates on homes valued at more than $3 million.

On Kauaʻi, council members looking at drastically decreasing homestead and residential rates. Mayor Derek Kawakami proposed this earlier this year because most of the incoming funds from real property taxes come from hotel and vacation rentals.

In Honolulu, lawmakers have been discussing Bill 14. The measure would provide a one-time $300 credit against the taxes owed for a homeowner’s residence for the upcoming tax year.

Finding ways to provide relief was a theme during the legislative session. Statewide, lawmakers passed the Green Affordability Plan. Gov. Josh Green proposed the bill as a sweeping tax change for the middle class.

"What he proposed was increases in several tax credits, including, you know, teachers credit and some broad base income tax relief for all of us. So, as the bill went through the House and Senate, it got kind of carved up in the house," Tax Foundation of Hawaiʻi’s Tom Yamachika said.

But those plans got derailed.

"The part with the broad-based tax relief and the inflation adjustments for the tax brackets, that kind of was taken out of the bill," Yamachika said. "What was left was increases in three credits that are commonly claimed by people on the lower end of the income spectrum, but the relief that lasts only for five years, everything drops dead."

Sabrina Bodon was Hawaiʻi Public Radio's government reporter.
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