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

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Executive Summary This report is a review of property tax policies of the County of Hawaii and the administative and assessment practices used to implement these policies. The purpose of this review is to draw conclusions regarding whether the property tax system used in Hawaii County comports with IAAO standards, and standards and best practices elsewhere in the U.S. In cases where the authors believe this not to be true, recommendations are made for achieving such standards and practices. Although this report comments on strengths of the current system as well as weaknesses, recommendations designed to identify and correct weaknesses represent the bulk of the report. This should not be taken to imply overall weakness in the current system, but is intended to focus attention on areas that should be considered for change, given the stated goals of the project. The Hawaii County real property taxation system has the essential underlying features in terms of the Code and general administration that are expected in U.S. county property tax systems. Processes are in place to find and value real property, to update values, to provide for exemptions, to administer appeals, and to collect property taxes. Although final, taxable values may be subject to constraint, for the most part the goal of the valuation system is market value, a desirable feature. Certain quality control procedures, such as ratio studies and internal data queries, are used to check the accuracy of the valuation system and real property transfers are subject to a conveyance tax and disclosure of sales prices—a very positive and important feature. Many of the elements expected to contribute to valuation equity are found in the County assessment system. Further description of these elements is outlined in the table in Appendix I. Another overarching impression is the comparatively low level of real property taxation. As measured by effective property tax rates (property tax obligations as a percentage of property values), residential property taxes in Hawaii County are low from a national perspective. Whereas property taxes on owner-occupied residences typically are about 1.3 percent of property value, property taxes in Hawaii County generally are less than 0.2 percent of property value. The low effective property tax rates for residential properties are the result of several policy measures designed to favor owners of agricultural land, principal residences, and low-rent housing. Under the County's property tax rate classification system, properties in the homeowner class have a nominal (officially adopted) property tax rate of 0.555 percent of net taxable value (estimated market value minus exemptions, etc.), whereas the highest nominal rate is 0.985. Moreover, owner-occupied principal residences are eligible for a home exemption that completely exempts properties valued at $40,000 or less and exempts 20 percent of the value above that threshold to a maximum of $80,000. Taxpayers over sixty years of age are eligible for additional amounts depending on their age bracket. Certain other taxpayers (victims of Hansen's Disease; blind, deaf, or totally disabled persons; and totally disabled veterans, their spouses, and unmarried widows) are eligible for viii