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What About Tax Relief for Homeowners?

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By Lowell L. Kalapa

Last week the issue was setting a single tax rate for all classes of real property which in most counties will mean that the rate on residential properties will have to rise while rates for nonresidential properties will fall.

That being the case, then homeowners will feel a direct hit in the pocket book unless county policymakers decide to reduce spending. That latter thought is wishful thinking given the recent track record of all counties.

If property tax burdens on homeowners rise, there will no doubt be cries for tax relief from those who believe that they cannot afford to pay their new property tax liability. Demands for increases in the home exemption will materialize and lawmakers will be hard pressed to find some way to react to constituent demands. But is an increase in the home exemption the appropriate means for alleviating the burden of property taxpayers who truly cannot afford to pay the property tax on their shelter?

The current $40,000 basic home exemption or the multiple home exemption that is available to those in their senior years have little relevancy to a person’s check book and that taxpayer’s ability to pay the semi- annual bill. The home exemption is taken off the assessed value of the home and is only as generous as the tax rate that is applicable for homesteads in that particular county. So for example, if the tax rate is $3 per thousand, the $40,000 home exemption is worth $120 in savings. Where the tax rate is $5 per thousand, the tax savings is $200.

But if the value of the home after the exemption is subtracted times the tax rate adopted by the council produces a tax bill that the taxpayer still cannot afford to pay, then the taxpayer can truly argue that he or she is being taxed out of their home. In some counties, the policy is to impose a substantially lower rate on properties which are owner occupied as opposed to a single rate for all improved residential property.

While this might give a break to some homeowners, it still does not address the situation where the homeowner cannot afford the tax bill even with the lower rate.

So how can the system take care of those homeowners who cannot afford to pay their tax bills despite the home exemption or the multiple exemption? Or for that matter, how can council members address the complaint that taxpayers are being “taxed out of their homes?”

Two of the four counties already have a mechanism in place which recognizes the homeowner’s ability to pay the property tax. Both Maui and to a limited degree Honolulu have a “circuit breaker” in place. The circuit breaker mechanism acts just as an electrical circuit breaker works. When an overload in tax burden occurs, the circuit breaker trips and stops the excessive burden.

For example, where the council decides that no homeowner should pay more than 5% of the household’s income and 5% of Joe Taxpayer’s income is $1,000, any property tax amount in excess of $1,000 is forgiven or waived. On Maui, the circuit breaker is available to all homeowners. In Honolulu, the circuit breaker is available only to the elderly and is limited to households with incomes of $20,000 or less and the maximum amount of tax relief is limited to $500.

Unlike the standard home exemption which every homeowner is entitled to, the circuit breaker measures the homeowner’s ability to pay. If the homeowner has the means to pay the property tax bill due on his shelter, then the circuit breaker cannot be claimed. On the other hand, if a homeowner truly cannot afford the property tax bill due on his home, the circuit breaker recognizes that fact and “forgives” that amount over and above what the council has determined to be a reasonable amount for that particular homeowner to pay.

While some county officials note the difficulty in administering the circuit breaker because the county does not have access to income tax returns of the applicants, others note the additional work to take the applications and verify the information. True, the circuit breaker mechanism means perhaps extra work to apply and administer, but in the long run, it will truly grant relief to those homeowners who cannot afford to pay the property tax on their shelter.

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