Taking a Homeowner’s Exemption for a Home You Can’t Live In

by Tom Yamachika, President, Tax Foundation of Hawaii

At the end of March this year, this space featured a bill that was then being considered by our Legislature relating to the real property tax homeowner’s exemption. As we will see, the right people took action at lighting speed. Now those who are affected need to get their act together pronto if they haven’t already done so.

We talked about a hypothetical situation where a person was unable to live at home because he or she needed some basic living assistance and thus needed to be at a care facility. The hypothetical Honolulu property assessor took a look at that situation and said that no one was living in the house so a homeowner’s exemption could not be allowed, and, since the assessed value of the property was over $1 million, the property would be reclassified to “Residential A,” with a tax bill more than 70% higher. The property owner or a relative apparently went to the Legislature and asked for the definition of the homeowner’s exemption, which appears to be in HRS chapter 246, to be changed. The Legislature heard the bill and moved it along, which we questioned because real property tax is now administered by the counties, and HRS chapter 246, which used to be necessary when the State administered the tax, has had no effect for at least 25 years.

Apparently this situation wasn’t that hypothetical. On April 13 this year, Bill 36 was introduced in the Honolulu City Council. It was designed to change the real culprit, the Honolulu ordinance defining its homeowner’s exemption. That bill sailed through and became law (ordinance No. 15-33) effective July 23. Within a month, the Real Property Assessment Division released a new form that homeowners who were absent from their properties for this reason, and did not rent the property out, could use to claim continuation of the property tax exemption.

Now here’s the catch.

If you are eligible under this ordinance for continuation of the exemption, you need to get your form in no later than September 30 in the year before the exemption applies. So if you want an exemption in 2016 and the information in this article is news to you, you’re already too late. But if you have a case, you might want to try contacting your City Council member rather than simply throwing in the towel. When the “Residential A” rate classification was originally passed on Oahu, there were a few people who hadn’t filed for the homeowner’s exemption and hadn’t really paid attention to it because the financial impact to them wasn’t substantial. But they woke up when they found out that the lack of exemption threw them into Residential A and earned them a tax bill 70% higher. They contacted their council members. The council was able to pass some relief measures to take care of these folks. Similar relief can and should be given to deserving taxpayers here as well.

Make no mistake about it, taxation is a tough business. Lines need to be drawn and when they are, situations often come to light that the original drafters of the tax legislation hadn’t anticipated. Although it’s always possible to look in hindsight and adopt amendments to fix the law, it would be better if lawmakers either anticipate this type of situation when the law is originally drafted, or give administrators discretion to deal with hardships that meet defined criteria. With any tax system that relies upon taxpayers to self-report their facts to establish a tax benefit or exemption, time is needed for the taxpayers to find out about any new law or policy. If that time isn’t given, deserving or well-meaning taxpayers may be hurt through no fault of their own.

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