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Putting Real Relief Into the Property Tax

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By Lowell L. Kalapa

     Apparently all of the county councils are experiencing the “push comes to shove” syndrome as property values plummet forcing local officials to consider raising the property tax rate or finding new sources of funds.

Unfortunately, officials seem to be avoiding the spending side of the ledger, concentrating more so on finding novel ways to raise new revenues. And perhaps this exercise presents a unique opportunity for county officials to reform the way relief is provided to homeowners.

While some homeowners may say the home exemption is “working just fine, thank you,” upon closer examination readers will find that the home exemption provides very little relief to those who really can’t afford to pay the property tax while giving other homeowners tax relief that they really don’t need.

Readers may ask, “who doesn’t really need tax relief?” Certainly, most of us would like “the man behind the tree” to pay our taxes, but in reality, that usually doesn’t happen. However, most of us don’t mind paying our taxes as long as the next fellow is paying his fair share of the tax burden. And that is what homeowner tax relief is all about.

So if the guy next door is bringing home a paycheck that is about the same as your paycheck, then it makes sense that you both should be paying about the same amount in taxes, be it income taxes or property taxes. But let’s say the guy next door to you is a millionaire, you would certainly grumble if the check he sent into the tax collector was in exactly the same amount as the one you sent into the tax collector.

But that is the case in the property tax where there are two identical properties. That’s because the property tax is based on the value of the property. Since both owners live on the property, both are entitled to the basic home exemption of $40,000.

So you sit there and scratch your head and ask yourself why does the millionaire need a $40,000 home exemption that is worth between $120 and $160 in property taxes depending on what your county property tax rate is.

Let’s make the situation even more disturbing. Say the millionaire next door is over 70 years old. Under all county ordinances, he would be entitled to a multiple home exemption equal to $120,000 worth between $360 and nearly $500 in property taxes. Now, wait a minute, you say, here you are struggling to bring home a pay check and you get the plain old $40,000 home exemption and the millionaire next door, who is probably sitting at home collecting dividend checks, is getting a home exemption of $120,000. That doesn’t seem very fair, does it?

Let’s take a look at the house on the other side of your house. The owner decided to rent it out to a single mom who was recently divorced and is holding down two jobs just to make rent and put food on the table. Because the property is not occupied by the owner, there is no home exemption. So the owner pays the full tab for property taxes which he passes on to the single mom as the tenant. The result is that the occupant of the property who is a renter receives no property tax relief because the home exemption does not apply to renters.

The point is that the home exemption is not based on owners’ or renters’ ability to pay those property taxes. The home exemption is granted merely because the person had the ability to own the property on which he lives. However, because each homeowner, regardless of whether or not he needs that home exemption, receives at least the basic $40,000 exemption.

If the counties replaced the home exemption with what is known as a “circuit breaker” which provides tax relief based on the owner’s income, the value of all the home exemptions could be plowed back into the property tax base. By broadening the base, the potential would be there to lower the property tax rate for all homeowners if not for all properties.

The result on an individual basis is that the elderly millionaire would pay the same amount in property taxes as you and the renter may end up paying less in rent.

While some counties, like Honolulu and Maui, have the circuit breaker – some cases on a limited basis, all the counties still retain the home exemption. County officials might want to take a hard look at reforming homeowner tax relief and at the same time, making the property tax a bit more fair.

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