Proposed new Hawaiʻi County tax rate for luxury second homes passes first reading

The Hawai‘i County Council passed on first reading Wednesday a proposed new tax code that would create a Tier 3 tax rate for luxury second homes worth more than $4 million.

Bill 128 was first presented to the council during its Finance Committee on Feb. 4.

Lisa Miura, Real Property Tax administrator for Hawai‘i County, said during the committee meeting the proposed Tier 3 tax would impact 842 properties, primarily in West Hawai‘i. The parcels have an estimated value of $5.3 billion (an average value of $6.3 million per property).

It is 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.

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.

The final vote on the bill will come before the county budget discussions, which are slated to start in April.

During Wednesday’s council meeting, there was little discussion on the measure and no oral testimony. However, eight written testimonies in favor of the bill’s passage were posted on the Hawai‘i County website.

One testimony from Susan Bambara of Kurtistown said the bill is progressive and protective.

“Most local homeowners are unaffected,” Bambara writes. “Owner-occupied homes with a home exemption are shielded from higher tiers, even as values rise. This bill focuses only on high-value, non-owner-occupied residential properties — luxury homes, high-end condos and speculative residential land — asking those who benefit most from our market to contribute a bit more to the community that sustains them.”

The council voted seven ayes to pass the first reading. Council members Rebecca Villegas and Holeka Inaba were not present for the vote.

Council member and bill introducer Jenn Kagiwada reiterated to the council that the measure creates a third-tier tax class in the residential section, which does not include homeowners’ short-term rentals or long-term rentals.

Bill co-author Council member James Hustace thanked Kagiwada for her work on the bill.

“It’s an opportunity to really look at an equitable approach in our tax structure and finding a balance, particularly on that high-end valuation of properties that are seen as investments in our community and aren’t our homeowner class and community here,” Hustace stated.