The city never intended to nearly double the real property tax rate for owner-occupants of expensive homes. The point of carving out a separate Residential A tax class was to allow the municipal government to charge investors a higher property-tax rate on second homes worth $1 million or more, while protecting homeowner-occupants whose primary residences are worth that much.
Most owner-occupants have an existing exemption that automatically excludes them from the new, higher tax class. But not everyone who qualifies for the exemption applied for it, and some were therefore shifted over to the Residential A class. Now that the city realizes this, it should approve the limited relief contained in Resolution 14-179, which will be heard by the City Council on Aug. 13.
The resolution is designed to assist only those homeowners who would have qualified for the exemption but failed to apply for it by Sept. 30, 2013, the deadline to impact current tax bills. It would allow the Department of Budget and Fiscal Services to consider tax compromises on a case-by-case basis, meaning that owner-occupants who were shifted to the higher tax bracket because they did not file for the exemption in time would have the responsibility of applying for relief.
The timeline here is important. The city created the Residential A tax class in September 2013, but did not send out notices about it to affected homeowners until December 2013 — after the Sept. 30 deadline to apply for an exemption had passed. Moreover, the notices did not state that the Residential A class would carry a higher tax rate — the rate was not even set until June 2014. Property tax bills were mailed out in July, and the outcry intensified.
The fact that notices about the creation of the Residential A class did not go out to affected homeowners until nearly two months after the deadline to apply for an owner-occupant’s exemption had passed should be enough to fuel Council support for this resolution, despite the reservations of some city budget officials.
Those who oppose the resolution emphasize that other strapped homeowners lack such a tax-relief plan, even though their properties are worth far less and they may earn less money. But the point isn’t to decide which among needy taxpayers are worthy of attention. It’s simply to recognize that a tax policy that took many months to finalize is harming owner-occupants that it never intended to target. The plan was to raise property taxes on investment properties, not primary residences, and the city should do all it can to achieve that stated goal.
City budget officials insist that most qualified owner-occupants already hold the exemption that excludes them from the Residential A rate, which at $6 per $1,000 of assessed value is 71 percent higher than the standard residential property tax rate of $3.50 per $1,000 of assessed value.
The assertion that very few owner-occupants need the relief is all the more reason to approve the resolution, which would correct an unintended consequence of the new tax class without posing an undue burden on city coffers. Moreover, absent any relief, the extra money flowing in from these homeowners marks a one-time influx: They won’t miss the owner-occupant exemption again next year.
With the median price of a single-family home on Oahu hitting a record $700,000 in June, it’s fair to say that there are plenty of homes worth $1 million on this island that are not mansions, owned by people who don’t qualify as rich.
Homeowners, of course, must keep track of the changing tax landscape, and should apply for all exemptions for which they qualify. The city, though, has the responsibility of giving full and timely notice of changes such as the creation of an entirely new, higher tax class. On balance here, we believe the onus is on the city to provide this limited relief.
