Owners of vacant land in agricultural zones would get a break on their property taxes even if they’re not actively farming the land, under a bill to be considered Tuesday by the County Council Finance Committee.
Bill 126 is a remake of a bill considered earlier this year after it was proposed by a task force charged with recommending changes to the county’s property tax code. While the new provision adds a benefit for vacant land, the bill also tries to curb fraud and abuse by requiring farmers and ranchers to make a commitment of at least three years in order to qualify for a tax break and submit documents proving they’re commercial farmers.
At a Finance Committee hearing in May, some County Council members balked at an attempt to close the loopholes for those claiming generous tax breaks for agricultural use of their property.
Among the many members of the public testifying were farmers who worried losing their tax breaks would force them out of business.
The issue is especially important in West Hawaii, where market values of property tend to be higher than on the rest of the island.
Kohala Councilwoman Margaret Wille, chairwoman of the task force and bill sponsor, said she’s taken the comments to heart, and her new bill would give those who commit to hold land in agricultural districts vacant for 10 years a 30 percent reduction of the market value of their property for tax purposes.
“The exemptions are intended to promote agriculture, not to force people to develop their land,” Wille said Wednesday.
At the same time, she added, those taking the current agricultural exemptions who don’t qualify are costing taxpayers millions.
“It’s not free money,” she said. “It means everybody else is making up the difference.”
Wille said she hopes closing the loopholes could result in lower property tax rates in other categories.
The county administration, however, isn’t keen on the measure. Finance Director Deanna Sako said Wednesday that Wille had met with her a few months ago on the bill, but she is concerned about the vacant land provision because it would cost the county about $3 million more in lost taxes.
“We don’t support it at this time,” Sako said. “We have a lot of fixed cost increases coming up.”
Sako said the administration will consider changes that aren’t so expensive, because “We are supportive of agriculture and farmers, just not the bill as it currently stands.”
The committee is scheduled to meet at 2:15 p.m. Tuesday in council chambers in Hilo. The public can testify at the start of the meeting there, or by videoconference from the Kona and Waimea council offices, Kamehameha Park in Kapaau, the state office building in Naalehu or the Pahoa neighborhood facility.
The bill would phase out the so-called “nondedicated” agricultural exemption, and require commitment to a three-year period to qualify for reduced property values. The current 10-year dedication program, which has more generous tax breaks, will continue as before.
As of Jan. 1, 2018, those parcels not in the three-year or 10-year dedicated agricultural use programs or in the agriculturally zoned vacant land program would be assessed at market value.
Some warned that requiring farmers to show revenue in order to claim the exemption could force them to sell their land to developers, defeating the purpose of allowing the exemptions in the first place. Some products, such as coffee, don’t show a profit right away.
“We want to promote open space, but we want to tax them on a fair rate,” Puna Councilman Greggor Ilagan said at the time, suggesting a tax rate in between farming and residential.
Currently, property owners taking the agricultural exemption pay taxes based on a set property valuation countywide, regardless of the market value of the land. For example, land used growing feed crops is valued for tax purposes at $1,000 an acre, while pastureland is valued from $28 to $420 an acre, depending on whether it’s poor, average or good pasture. Land growing truck crops is valued at $4,000 an acre.
Property owners who commit to keeping the land in agriculture at least 10 years — the so-called “dedicated exemption” — pay taxes based on half those values. There are an estimated 10,000 farmers in the nondedicated part of the program, compared to only 500 in the dedicated.
Those who don’t keep their land dedicated the required period are subject to rollback taxes.
The nondedicated program cost Hawaii County government about $28 million a year, while the 10-year dedicated program accounts for approximately $2 million more in lost revenue.