Neither Age nor Disability is an Indication of Financial Need

by Lowell L. Kalapa, Tax Foundation of Hawaii

Nearly a year and a half ago, a commission appointed by the Honolulu City Council to study some of the inequities in the real property tax ordinance dropped its findings on the desks of Council members and it seems that either the study went into the circular file or was promptly put on the shelf with other studies to collect dust.

Then again, who can blame Council members for ignoring the findings and recommendations as many of the recommendations tended to be controversial largely because the commission took an unbiased look at some of the preferences in the real property tax law that were either carried over from the time the state administered the tax or have been added since the counties took on the responsibility for the tax. While many of these exemptions may have seemed appropriate at the time, many have been broadened or extended to other taxpayers who may have similar characteristics as the original grouping of favored real property owners. In other cases, some of these tax preferences may have been viewed as encouragement of a certain type of activity without fully understanding the impact of the exemption and the shifting of the tax burden that pays for the county services that are also enjoyed by the same real property owners who benefit from some sort of exemption.

Indeed, one can understand how policymakers of long ago were sympathetic to the needs of the aged and the disabled. For the elderly, the older one becomes, the larger the home exemption offered as the basic home exemption is increased in multiples. Or in the case of the disabled, the amount of the additional exemptions depends on whether one is blind, deaf, or somehow disabled or is a disabled veteran. These exemptions are blind to the financial needs of the elderly or disabled homeowner.

Likewise, the real property ordinances provide total exemptions to charities and nonprofit organizations be they providers of social services, health care, education or are places of worship. One of the more recent exemptions is for historic residential and commercial properties although a full exemption applies only to historic residential properties while commercial historic properties only get a partial exemption.

Another exemption that was added after the counties took over the responsibility for the real property tax is that extended to credit unions. While credit unions enjoy exemptions from the net income tax and sales tax on the purchases of tangible personal property as a result of being chartered by federal law, credit unions are not generally exempt from local real property taxes. As a result, the counties enacted a specific exemption.

Another exemption that was added after the counties took over the responsibility for the real property tax is the exemption that is extended to “kuleana” lands. These are lands that were given to beneficiaries of the division of lands under the Great Mahele under King Kamehameha III. Ownership of these lands must have remained in the same family since that time in either residential or agricultural use. Those who advocated for this exemption argue that the beneficiary families have owned these lands and have used them in the required residential or agricultural use and have not benefitted from the appreciation of the lands surrounding them which may have been put into a higher and better use.

The problem with all of the foregoing exemptions is that just because the real property is owned or used by a type of person, or organization, does not mean they cannot pay for the county services they enjoy. This includes some of the basic services that insure the health and safety of the community like police and fire protection, sanitation, and parks and beaches. Since all of these basic county services are crucial to the health and safety of the county’s citizens, they have to be provided and paid for by taxpayers. If those who have exemptions from the real property tax don’t pay their fair share for these county services, then the burden is shifted to those real property owners who don’t enjoy similar exemptions.

While advocates may argue that because of their condition, be it that they are aged, disabled or a nonprofit, they should not have to pay taxes. The corollary to that is that then they should not use county services. On the other hand, such an argument to retain the exemptions ignores that some have the ability to pay despite their inclusion in a general category like disabled or nonprofit.

The best example is seeing a Jaguar parked in a metered stall with that blue disabled tag dangling from the rear-view mirror and with the parking meter flashing a bright red violation sign because the driver did not have to put a quarter in the meter. Now is that fair to other drivers?

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