2012-COH-A Technical Assistance Report Evaluating Property Tax Policies and Administrative Practices in Hawaii County

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turn can contribute to the allegations of unequal valuation of similar properities. • Lack of use of regional building cost modifiers. While land is valued based on sales and the values therefore reflect location influences, this is less true with regard to building values. Especially for residential property, it is very unlikely that similar buildings in the resort and non-resort areas of the County would either cost or sell for the same amount. Merely adjusting the land values does not produce equitable building values, even if the overall property values are equitable. This is especially problematic since either of the values (land or improvement) is subject to appeal. • Lack of ability to use the income approach to value. There are three recognized approaches to valuing property--cost, sales comparison, and income. All three are important and, for income producing property, such as commercial enterprises, the income approach, in which net operating income is capitalized into value, is considered the approach most likely to reflect the market value of the property. While staff recognizes this, and even prepares valuations based on this method in appeals, the County Code does not allow the method to be used in the initial valuation process. This is a significant impediment. • Limited review of agricultural and other exemptions. While the Code and forms provide for taxpayers who no longer qualify for agricultural land valuation and various exemptions to report such changes, there is no automatic or periodic review of properties granted agricultural use value or homeowner's and other exemptions. The Code also calls for income based qualification requirements with respect to agricultural land, but these, apparently, have not been regularly implemented. While we know of no specific abuses, the underlying system is rife for such and added controls and implementation of requirements already found in the Code are important. • Limited grounds for appeals on equity grounds. Valuation related appeals are based on the taxpayer's interpretation of whether or not the property value reflects market value. While this is intrinsic within any appeals system, there is limited provision for appeals based on inequitable treatment between similarly situated properties. According to the Code, if the subject property were valued at market value, but all the surrounding properties were below market value, the subject property would have no appeal rights. This is not an administrative issue, but should be addressed by revising the Code to bring it into line with decisions by the United States Supreme Court. • Overly complex exemption system making it difficult to understand who benefits and how much they benefit. With minimum taxes and multiple tiers of agricultural and residential valuation and taxation, combining different tax rates with capped values and various exemption criteria, it is at best difficult x