Hawai‘i County Council may create tax tier for luxury second homes worth more than $4 million

The Hawai‘i County Council has moved forward on a measure that would create a new Tier 3 tax rate for second homes valued at more than $4 million.

During the Finance Committee meeting on Wednesday, members voted 7-1 to bring Bill 128 to the full council. County Council Member Holeka Inaba was the sole dissenting vote and Council Member Matthew Kaneali‘i-Kleinfelder was absent.

This bill comes ahead of county budget discussions that are slated to start in April.

Lisa Miura, Real Property Tax administrator for Hawai‘i County, said the proposed Tier 3 would impact 842 parcels primarily in West Hawai‘i. The parcels have an estimated value of $5.3 billion.

It’s unknown how much the new tax code could generate from these properties because it also is unknown what the new rate would be. New tax rates are not determined until the new budget discussions.

Council Members Jennifer Kagiwada, who introduced the bill with Council Member James Hustace, said the bill is simply creating a third tier for residential tax rates.

The proposed new tier doesn’t include affordable rentals or long-term rentals.

“This ability to have a third tier of homes that are valued over $4 million will give us some flexibility when we’re looking at some hard choices that we have going forward,” Kagiwada said.

The last time the tax code was changed was in 2022, when the council at that time approved a measure creating a Tier 2 residential tax rate of $11.60 per thousand dollars of value for properties or luxury second homes with a value of more than $2 million.

That tax rate increases to $13.60 per thousand dollars of value for homes starting at the first $500,000 beyond the $2 million.

The homeowner tax is $5.95 per thousand dollars in value. Miura said it doesn’t matter the value of the property as long as it’s the owner’s primary residence.

No less than 75% of the property tax revenue collected each year from Tier 2 residential properties is used for county-sponsored programs to address housing and homelessness, which runs through June 30, 2027.

Kagiwada said the bill before the council doesn’t stipulate where the funding from the new Tier 3 tax rate would go.

“I really think that’s going to be up to a combination of this body and the administration as we work through the budget process,” Kagiwada said.

Inaba said he couldn’t support the measure currently because he thinks there is a simpler way the council could adjust the property tax rate in the existing Tier 2.

“That would prevent us from having to run a bunch of additional calculations when we do the budget,” Inaba said.

Council Member Rebecca Villegas was part of the council when the Tier 2 tax rate was created in order to bridge the gap in funding after shortfalls following the COVID-19 pandemic.

At the time that tax rate was passed in 2022, Villegas told the committee on Wednesday the council endured “relentless attacks and quite ridiculous claims by some very wealthy people with numerous homes that they would never come back to Hawaiʻi again. They were not going to buy their furniture here. They were not going to buy their car here.”

“It was quite hilarious, frankly, because they’re all still here,” she said.

Villegas went on to say she feels a moral obligation to support the bill because of what’s being “undone from a national arena.” Her concern was how this tax rate would be executed.

The councilwoman added that the generated funds from the Tier 3 tax code could fill financial gaps when addressing cesspool conversion, wastewater projects and infrastructure improvements.

Seventeen written testimonies and two people who testified at the meeting supported the measure.

Testifier Tanya Yamanaka Aynessazian told committee members the bill continues to shape and form a tax system that’s fairer, more balanced and responsible, an a huge part of a regenerative economy.

“If we do not continue to make these efforts to balance the tax system, the working people, our kupuna, will always be marginalized,” she said.

“It targets the high-value, non-owner-occupied residential properties,” Aynessazian said. “These are the people that we need to get more money from. Bill 128 focuses on those luxury homes, high-end condos, vacant residential land, and speculative properties, which is also another big problem. So thank you very much for hearing this bill, for talking about this, and continuing to advance a fair, livable, and sustainable future for us and our children.”