Tax Relief

THE STEERMAN: Secret tax break on Maui

In a recent article, we spoke of a decision by the Maui government to expand the class of properties classified as short-term rentals (which happen to be the second-highest property tax class, and even displace hotels and resorts). , just beaten by timeshare). We found the decision to be made at the speed of light and wondered why.

An attentive reader has drawn our attention to a note.

In 2020, the Maui County’s chartered accountant released a report on the county’s financial sustainability and health. It is listed on the district’s website as a self-initiated project.

A paragraph near the end of the report states that “The coronavirus pandemic has challenged the county to make many unprecedented decisions. One of these decisions was to reduce the rated values ​​of hotel and resort properties due to the catastrophic decline in occupancy in this industry. “

What does that mean? Apparently, while the pandemic was still raging, some of the hotels came to the Maui Administration and said, “We can’t do this! We cannot pay your property taxes because people are no longer coming! ”The administration could not change the property tax rates because these are set by ordinance, but they could do something against the appreciation of the hotel properties. And they dropped the ratings.

It seems that this step was done very quietly. It wasn’t big news. But it bothered the auditor so much that he wrote about it.

The downgrading of hotels may well have been legitimate, because one of the traditional indicators of property value is the amount of income it generates. But the pandemic and the resulting government-ordered closings that caused hotel occupancy to go through the floor are (we hope) temporary conditions and should therefore not carry much weight when determining the value of a property taking into account the level of revenue will generate over a long period of time.

The district auditor was also concerned about a bigger problem. Did anyone else have the opportunity to come to the property tax department because of the pandemic and have their property values ​​adjusted immediately? Our Supreme Court in 1996 in Maui County v. KM Hawaii Inc., 81 Haw. 248, 915 P.2d 1349 (1996), accused Maui County of inconsistent and equal assessment methods, thereby violating the clauses of equal protection of the federal constitution and the constitution of Hawaii. Giving some hotels the opportunity to revalue their properties on short notice could not only be unfair to other hotels or other property taxpayers in general, but it could also be unconstitutional.

Nonetheless, with the valuation adjustments made, property tax collections undoubtedly fell sharply – and since the governor shut off the tap on the transitional tax money shared with the districts, the district had to raise some cash pronto. We don’t know for sure, but this fiscal pressure could have motivated the changes to the property tax ordinance that came into force at the end of 2020 at warp speed.

In any case, this episode seems to show that a government is run in the blink of an eye, with lots of back room deals that ordinary people might not have access to. The likelihood of arbitrary application of the law is high. Is this really the government we want?

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Tom Yamachika is President of the Hawaii Tax Foundation.

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