by Bruce Trachtenberg  November 15, 2010 Non Profit Quarterly

If a group of Honolulu city council members has its way, nonprofits that are exempt from paying more than $300 a year in property taxes will see their bills go up. Sparking the push to raise more revenue from nonprofits—as in other municipalities around the country—is an expected $100 million-plus gap in the city's budget.

Proponents of the tax hike say the current system is unfair. For example, as the Star Advertiser notes, Kamehameha Schools, a multibillion dollar charitable trust, which is also the largest private landowner in the state, only pays $300 in property taxes on a 425-acre parcel of land assessed at more than $157 million. Meanwhile, Hawaii Aiki Kwai, a nonprofit aikido organization pays the same $300 annually for a parcel of land less than a quarter-acre in size, and which has an assessed value of $800,000.

Earlier this year the city council tripled the minimum property tax for all landowners to $300, including nonprofits. "I think there can be more fairness injected into the system," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawaii. "If you are a huge nonprofit like Kamehameha Schools, you should be paying something (more) because you are accessing these city services." Nonprofits fear that future increases will hurt. "You would see an increased number of well-intentioned nonprofits collapse because they just couldn't handle the added costs," said John Howell, president of Easter Seals Hawaii.

Nonprofit leaders say a tax hike would be unfair because their organizations are already making substantial contributions to the city's health and welfare by feeding the poor, housing the homeless, sheltering the abused and educating the young, services the city would otherwise have to provide. In a nod to fairness, some proponents favor a tiered system that, among other things, would set tax rates based on organization's ability to pay or income over a certain level.—Bruce Trachtenberg.

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