Hawaiʻi County Council passes new tier 3 tax rate for second homes worth $4 million plus

Hawai‘i County Council on Wednesday passed a new Tier 3 tax rate for second homes valued at more than $4 million.

The nine-member body passed Bill 128 with five ayes during the general council meeting. Council Chairman Holeka Inaba was the sole dissenting vote, with council members Ashley Kierkiewicz, Matthew Kaneali‘i-Kleinfelder and Rebecca Villegas absent.

“I support their intention of it,” Inaba said. “I just think it’s easier to increase the rate on tier two.”

The bill now goes to Hawai‘i County Mayor Kimo Alameda, who has 10 days to approve or veto the measure. On Wednesday afternoon, the mayor said it is unlikely he would veto it and praised the council for their work in formulating the bill.

“They worked on it to ensure local people are protected,” Alameda said.

Lisa Miura, Real Property Tax administrator for Hawai‘i County, previously stated that the proposed Tier 3 tax 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 tier could generate from these properties because it is also unknown what the new rate would be. New tax rates are not determined until the new budget discussions, which will take place in April.

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

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

During Wednesday’s meeting, Kagiwada said the third tier in the residential tax classes gives the county more flexibility in considering a more “kama’aina-centered” real property tax strategy, adding the properties affected by this new tax include vacant properties, vacation homes, and second, third or fourth homes.

Co-author of the bill, Council Member James Hustace, said the measure gives the county another lever within its revenue-generating sources when looking at the county’s ability to levy property taxes.

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.

The bill doesn’t stipulate where the funding from the new Tier 3 tax rate will go.