How Long Does It Take to Have a Home on Kauai?

by Tom Yamachika, President, Tax Foundation Hawaii

Today, we focus on Kauai real property tax, thanks to an alert reader who has given us a horrifying account of something so commonplace as buying a home there. How long do you think it takes between buying a home on Kauai and having the “home exemption” effective for real property tax there?

Did you guess 21 months? That’s right, the better part of two years.

Suppose a couple getting on in years, tired of the hustle and bustle in New York, or San Francisco, or Silicon Valley, decides to move to Kauai. They buy a house there and move in October 2017.

To have a home exemption recognized for real property tax purposes in Kauai, an application for the exemption needs to be in by September 30th. Darn! The deadline has already passed. So, the form, when filed, will be in the batch due on September 30, 2018. Exemptions applied for in that batch will be effective for the next succeeding fiscal year, and that year would begin on July 1, 2019.

From October 2017 to July 2019 is twenty-one months.

What difference does that make? The most favorable property tax classification on Kauai is “Homestead,” currently with a tax rate of $3.05 per $1,000 of net taxable value. To get that classification, a home exemption must be in place. And, a home that doesn’t qualify for a home exemption and is valued at $2 million or more is classified as “Residential Investor” with a tax rate of $8.05. That’s right, it would be more than two and a half times the property tax of a homestead. (And if the property is valued at less than $2 million, the classification is “Residential” with a tax rate of $6.05, which is a little better but it’s still almost double the rate of Homestead property.)

But wait, there’s more! If the property tax surcharge amendment passes on the November ballot, the State will be authorized to tax that property even more, as it will now fall into the same classification as homes held by evil, nasty, foreign real estate speculators. Although it’s unclear what kinds of “investment real property” would be subject to the surcharge, Residential Investor property would surely be included. We don’t know how much the surcharge is going to be, but in the 2017 legislative session the number that appeared in proposed implementing legislation was $7.50.

The $7.50 would be added to the $8.05, making the total tab $15.55, or $31,100 per year on a $2 million property, as opposed to $6,100 that would be due under the Homestead classification.

If we don’t count the state surcharge, the 21 months result in the County of Kauai pocketing $17,500 in extra tax from the elderly couple who have occupied the Kauai house as their home since they bought it. If the state surcharge were in effect, the $17,500 taken would mushroom to $43,750. Hawaii is supposed to have the lowest property taxes in the nation, but this couple certainly wouldn’t be feeling the love in their situation.

And that doesn’t even include the Conveyance Tax that was paid to the State back in October 2017 when the property changed hands. The rate of tax on a $2 million property is $6.00 per $1,000, so another $12,000 needed to be paid by someone.

All these tax shenanigans are enough to drive folks straight to the airport where they can move to somewhere else with a much better cost of living. Better watch out, because some of our folks are doing just that!

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