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Residential A-style homes statewide could face an average $21,005 in extra taxes a year

HONOLULU, Sept. 25, 2018 >> A proposed state “surcharge” on so-called investment real property to fund public education could result in county property taxes statewide going up by an average of $21,005 per Residential A-style home or condominium, according to calculations by the Grassroot Institute of Hawaii.

The proposed state constitutional amendment does not define the term “investment real property,” but its main proponent, the Hawaii State Teachers Association, has said that the proposed tax would be restricted to non-owner-occupied second or third homes and condos valued at over $1 million, similar to Honolulu’s Residential A tax category.

In fiscal 2019, that category netted $129.4 million for Honolulu County. Yet the HSTA, as stated on its Schools Our Keiki Deserve PAC website, has said it hopes to raise $400 million a year from the “surcharge,” should it be approved by Hawaii voters on Nov. 6.

In fiscal 2018, all categories of county property taxes statewide totaled $2.02 billion, so $400 million extra would require about a 20 percent increase in property taxes overall. If that were to be collected from only homes or condominiums valued at $1 million or more that are lacking owner-occupied exemptions, the state would need to impose a tax increase of $21,005 per affected home or condo, on average.*

That would equal $256 million in extra revenues from Oahu, $59 million from Maui, $31 million from Kauai, and $54 million from Hawaii Island.

The HSTA has said the state would need to impose an average property tax rate of $13 per $1,000 of valuation on $1 million homes lacking owner-occupied exemptions. However, it is more likely that the rate would have to be $16 per $1,000 of valuation, if the goal were to collect $400 million a year.**

That would increase the tax in Honolulu by 256 percent for the Residential A Tier I category, which is assessed on the first $1 million of value for those homes. For Oahu homes in the Honolulu Residential A Tier II category, which is assessed on the value of those homes over $1 million, the tax increase would be 78 percent.

On Maui, the $16 rate would equal a 190 percent increase; on Hawaii Island, 44 percent; and on Kauai, 164 percent.

County Current tax rate New tax rate Percent increase
Honolulu Tier I 4.5 16 255.56%
Honolulu Tier II 9 16 77.78%
Maui 5.52 16 189.86%
Hawaii 11.1 16 44.14%
Kauai 6.05 16 164.46%

Meanwhile, there is nothing in the “education tax” proposal that would prevent it from also imposing a “surcharge” on other “investment real property” categories, such as hotels, malls, businesses or even all homes.

Specifically, the proposed amendment (page 3) reads: “Shall the legislature be authorized to establish, as provided by law, a surcharge on investment real property to be used to support public education?”

Keli‘i Akina, Ph.D., president and CEO of the Grassroot Institute of Hawaii, said, “Not only is the wording confusing, since the word ‘tax’ is not even mentioned on the ballot question, it’s also vague about what is being taxed. A future tax could be levied on all types of property, including businesses, hotels and local homes of any value.”

“The proposal could cost certain residents tens of thousands of dollars extra a year in taxes, which, of course, would likely be passed on to renters, and this would raise the cost of living for everyone in Hawaii — including the teachers and the families of the keiki it is meant to help.”

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* Grassroot Institute calculations using data from Title Guaranty Hawaii, which show a total of 19,043 homes or condominiums statewide valued at over $1 million or more, identified as having “owner occupied” exemptions. $400 million ÷ 19,043 properties = $21,005 average tax increase.

** A $16 surcharge would be needed to generate $400 million, according to estimates from the Tax Foundation of Hawaii and the Honolulu Star-Advertiser.

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For more information or to arrange an interview with Keli‘i Akina, Ph.D., contact Josh Mason, Grassroot Institute of Hawaii communications director, at (918) 261-8444 or jmason@grassrootinstitute.org.

The Grassroot Institute of Hawaii is an independent, 501(c)(3) nonprofit research and educational institution devoted to promoting individual liberty, economic freedom and accountable government.