Owners of about 8,000 condominiums on Oahu face a Sept. 1 deadline to tell the city whether their property should be taxed at a residential rate or much higher commercial rate as part of a property tax reform initiative.

The city plans to mail letters out Friday explaining the situation to all owners of condos that permit flexible use as residences or hotel rentals or even office space.

If owners do nothing, their property will automatically be put into the highest allowable tax category, mainly hotel/resort, where the tax rate is nearly four times higher than residential.

Affected properties are mostly in Waikiki, and include the Aloha Surf Hotel, Ilikai, Ritz-Carlton Residences, Trump International Hotel Waikiki, Beach Villas at Ko Olina, Ocean Villas at Turtle Bay, Harbor Court, Kapiolani Manor, Uraku Tower, Foster Towers, Century Center, Executive Centre and about 30 other properties.

The action is a result of the City Council passing Bill 8 in April at the behest of the city’s Real Property Assessment Division, which sought to overhaul a process that has been burdensome and problematic for the city and mixed-use condo owners.

The new system, according to division Administrator Steven Takara, should instill more fairness in property tax bills and deter cheating.

“It’s making the system more equitable,” Takara said.

In the past, there was much abuse and relatively little policing. The old system required a property owner to fill out a one-time form declaring whether a condo would be used as a residence, which includes being occupied by the owner or rented for minimum 30-day terms, or for transient accommodations or some other commercial use. If the use changed, it was up to the owner to inform the city.

“That was part of the problem,” Takara said. “There was no monitoring or followup.”

Property tax officials did receive a regular trickle of complaints about condo owners improperly paying the residential rate, and these complaints — usually from owners in the same building — often resulted in compliance checks and changes to the applied rate.

However, the old rules didn’t allow for penalizing owners for falsely paying the residential rate. And reacting to complaints was consuming significant manpower but not correcting more widespread problem.

“We said we got to do something (because) this is getting out of control,” Takara recalled.

That something was a 2015 audit of 4,000 mixed-use condos declared for residential use. The audit found that 40 percent, or about 1,600 units, should have been paying a higher rate. Changing those 1,600 condos to the higher rate generated about $6 million for the city in one year, Takara said.

The residential rate is $3.50 per $1,000 of value while the hotel/resort rate is $12.90 per $1,000 of value. So on a $400,000 condo, the annual tax bill would be $1,400 at the lower rate and $5,160 at the higher rate.

Because of the audit and resulting reclassifications, Takara doesn’t expect the new process to have a significant change on tax revenue. But it should better guard against owners improperly paying the residential rate.

Under the new process, owners will fill out a form designating the property tax class for five-year terms that automatically renew, and a penalty of 10 percent plus one past year of correct tax will be imposed if the use changes and the city isn’t notified. Also, selling such condos will require a new owner to file a new form after the current five-year term ends.

Takara also said he plans to increase his compliance staff to check several hundred properties for proper tax class every year. “Just to let everybody know someone is watching,” he said.