The Maui County Council began considering a tiered tax rate system back in 2018. The tiered scheme for property taxes was initially proposed to increase income from second homes and investment properties, which many have said aggravates Maui County’s housing crisis. There was much media coverage and hearings over the next two years, ultimately passing two resolutions in December of 2019. A subsequent resolution provides a tax exemption for property owners with long-term rentals.
However, it was not until property owners started receiving their revised tax bills in March that many questions were raised.
Change to tax classifications
Previously, the classifications were: residential, apartment, hotel and resort, time share, commercial, industrial, agricultural, conservation, homeowner, commercialized residential and short-term rental. The new changes created additional categories of: owner-occupied, non-owner-occupied.
Establishment of tiers
The changes establish “three equivalent or ascending tiers of tax rates.” These apply to the classifications for owner-occupied, non-owner-occupied, short-term rental, commercial and industrial. The tiered rates apply to three corresponding ascending or equal ranges of property values. The rates, tiers and value ranges are set in the annual budget.
The 2020 tax rates approved by the County of Maui Council are as follows.
What the Changes Mean for Short Term Rentals
According to Shannon S. Sheldon of Maui law firm McKeon Sheldon Mehling, the County is taking the position that condominiums that are permitted under County zoning laws to rent short term are classified as short-term rental and shall pay taxes for this classification, even if they are not rented at all. However, an owner that rents to a tenant for a term of at least six consecutive months will not be classified as short-term rental. The County has explained that this tax law change is an effort to address the County’s housing shortage by creating real property tax incentives to encourage property owners to rent long term to residents.
Long-term Rental Property Tax Exemption
A measure intended to ease the housing crisis on Maui, Bill 129, enables owners of real property to apply for a long-term rental exemption, and if qualified, will receive a $200,000 reduction to the property’s tax assessment and be moved from the non-owner occupied classification to the new long-term rental classification.
Starting January 1, 2022, the condominium classification is being rescinded all together and is being replaced with a long-term rental exemption program. Attached is the information for owners to apply to obtain the long-term rental exemption on their properties. The deadline is December 31, 2021. Owners of multiple real property may apply for a long-term rental exemption on each property that contains a long-term rental.
Real property owners that qualify for both a homeowner exemption and a long-term rental exemption on the same property will receive a $300,000 reduction to their tax assessment and remain in the owner-occupied class.
Collection of long-term rental exemption applications will begin in April 2021, and qualifying property exemptions will be applied to property tax assessments for 2022, when the program is set to commence. See the flyer at the end of this document for instructions on how to apply. Contact the Real Property Division for more information at 808-270-7297.
For 2021, there are two bills moving through the State Legislature, House Bill 1208 and House Bill 1314, which is proposed legislation that may be approved by the State Legislature and Governor.
HB1208 repeals the exclusive authority of the counties to exercise the functions, powers, and duties of real property taxation, and thereby authorizing the State to also exercise those powers. You can follow the progress of HB1208 here.
HB1314 proposes that one, the transient accommodations tax revenues currently allocated to the counties should be taken away from the counties. This would be done to incentivize counties to increase property taxes. To protect local residents the existing homeowner exemptions for residents would be increased to offset the increase in property taxes.
Second, it is proposed that income tax rates for Hawaii residents should be simplified and over time and completely eliminated by reducing income tax rates and replacing the lost tax revenue with real property tax revenues. You can follow the progress of HB1314 here.
On the County level, taxpayers can take part in rate deliberations this month by providing testimony to the County Council. Here is a link for the County Council members’ emails and phone numbers: https://www.mauicounty.gov/Directory.aspx?did=377