Property tax changes coming

HILO — Eliminating the solar water tax credit, reclassifying small agriculture lots to residential and repealing an obsolete program are three ways the county could generate revenue and make its property tax code more equitable, according to a report to be considered next week by the County Council.

In all, the county would see more than $1.3 million in revenue or savings annually by making adjustments to more than 20,000 lots.

The Real Property Tax Review Working Group is making the recommendations in its third report to the council. The administration agrees with the recommendations, said county Real Property Tax Administrator Lisa Miura.

“Real Property Tax does view these changes as bringing consistency, fairness and equitability,” Miura said.

At least one solar equipment installer, John Collins with Kona-based ProSolar Hawaii, doesn’t see it that way, at least as far as the solar credit.

“I don’t understand what they’re trying to do,” Collins said Wednesday. “There’s plenty of people who don’t have solar water; electric bills are going crazy. Why does the county want to take away the incentive?”

The solar program, which started in 2008, offers a one-time, up to $300 credit off property taxes for those installing a solar water heater. It applies only to retrofitting existing homes, as all new buildings have been required to have solar hot water installed as of 2012.

The county will continue not assessing the value of solar water improvements when it applies property taxes, just as it does with photovoltaic cells for electricity, which carry no county tax credit, Miura said.

The group researched the possibility of creating a photovoltaic credit, but decided not to recommend a new tax credit, since photovoltaic improvements are also not assessed for property tax purposes, according to the report.

The solar property tax credit cost the county about $25,000 last year.

A second change will bring in much more.

Reclassifying small agriculture lots of less than 1 acre that aren’t doing agriculture and don’t have a preferential dedicated or non-dedicated ag use, or are in the homeowner class, could bring in an extra $1.3 million this year.

“There are properties under 1 acre of land that have been receiving the agricultural class tax rate when the highest and best use is residential,” Miura said. “Three meetings and a lot of discussion occurred over the agricultural zoning of a huge portion of this island while many of these parcels are clearly utilized as residential and have no intent of doing agriculture.”

Miura said the affected property owners will receive a letter in February and will see their tax classification change from agriculture to the higher residential tax rate this year. The current classifications are not applied consistently, leading to unfairness, she said. The tax office can make the change without a change in county code or council action.

“This is consistent with State Land Use Commission statutes which provide for the construction of single-family dwellings on lots existing before June 4, 1976,” the report states. “There are currently 19,604 parcels which will experience a tax class rate change. 6,665 will experience an increase in taxes with the remaining parcels not anticipated to be impacted by the recommendation.”

Property owners in the agricultural class pay $9.35 in tax for every $1,000 in property value, while those in the residential class pay $11.10 under current property tax rates.

A third recommendation would do away with a tax exemption program known as the “non-speculative residential” program, a move advocated by both the working group and the Real Property Tax Board of Review.

A 2008 law closed the program to new property owners, but those who were grandfathered into the 1958 program may have an unfair advantage over other property owners who can’t participate, Miura said. The program allows property owners to freeze their property value for five or 10 years by dedicating it to their own homestead use. The county’s homeowners property class and a homeowners exemption have taken the place of the program for all but 483 property owners.

Recommended steps include informing all owners currently with parcels in this program of the repeal for tax year 2019, allow all parcels currently in this program to automatically convert these parcels to the homeowner exemption program at the 2019 frozen value and explain the 3 percent cap would then be applied to the tax year 2020.

The impact to the real property tax revenue in tax year 2020 based on the current frozen non spec values would be $23,000 total. In addition, the county will save approximately $4,400 per year in staff time allocated to administering the program.

The working group, made up of property owners and managers, general public and planners, with county staff support, was formed in 2017. Among its goals are to increase fairness, incorporate best practices into tax administration and propose additional tax programs. There is also a committee devoted to agricultural issues.

The council Finance Committee is scheduled to consider the recommendations at its 9:45 a.m. meeting Monday in Hilo, with videoconferencing to the West Hawaii Civic Center, the Waimea and Pahoa council offices, the old Kohala courthouse and the Naalehu state office building.