Vacant Homes Tax?

by Tom Yamachika, President Tax Foundation Hawaii

Recently, the Honolulu City Council has taken up the idea of imposing a different tax rate for residences that are vacant.

The idea is contained in Bill 76 (2020), a bill that started off last year, was referred to the Council Budget Committee, and was postponed by the committee in November 2020 after a couple of public hearings with only a couple of members of the public weighing in. 

Now, KHON2 is reporting that there is new momentum for the bill following some discussion by the city’s Real Property Tax Advisory Commission. “The idea is to get folks who have vacant homes to rent them out, or the sell them, hopefully to other local people,” Honolulu City Council chair Tommy Waters is quoted as saying.

The concept of a vacant homes tax is not new. State lawmakers tried to attach the idea to the conveyance tax, but the bill to do that, SB 2216 (2020), passed the Senate but ran into a brick wall in the House.

The devil, of course, is likely to be in the details. How does some bureaucrat sitting in the real property tax office have any idea whether a property is vacant? Maybe the official can pull down some data from the water or electric utilities and send a proposed assessment when the numbers are low. Maybe the official can take an idea from TV shows by sticking a business card in the front door and returning after a few days to see if the card is still there.

And, once the tax office has concluded that the property was vacant and is subject to the new tax, how is a property owner who in fact lived in the property to prove that fact? Let’s listen to a conversation with a typical (?) property owner.

Watch Doggie: I was living in that house.

Tax Official: Prove it.

W: I barked at the neighbors.

T: Where’s your documentation of that?

W: The neighbors called the police so there must be a police report.

T: Do you have a copy of it?

W: No…

T: Pfft. What other “proof” do you have?

W: Here’s my electric bill. Isn’t it high for a vacant property?

T: So you forgot to turn off the fridge. Doesn’t show anything. Next!

W: Here’s my state ID card listing my address.

T: You got that ID six years ago. But even if you got it yesterday, it doesn’t show that you actually live there. Next!

W: I have receipts from my neighborhood grocery store.

T: But you still could have been living somewhere else. Next!

W: Grrr! I’m going to bite you on the schnozz!

T: You do that, you’ll be in the hoosegow, and there’ll be no doubt that you aren’t living in the property we’ve assessed!

Another interesting problem is that the rates for the vacant home classification are subject to be determined. That’s nothing new because usually rates are set in the annual budget ordinance. But until then, we won’t know how high they are thinking of raising the rates. KHON2 reported that they were thinking about a tax between 1% and 7% … which translates into a bump from the current residential rate of $3.50 per $1000 of value to anywhere between $13.50 and $73.50 per $1000. Which translates to an increase of between a 286% and 2000% from the current rate. Yeow!

This is an issue certainly worth watching in the months ahead.