WAILUKU - Condominium owners turned out Tuesday to oppose legislation that would push thousands of units into a higher property tax classification, saying it would be an unfair burden and could drive more condominium units into foreclosure.
While there are 26,701 condos in Maui County, 3,565 of those would be affected by the tax change, according to property tax officials. But that fraction would be hit hard - condo owners affected by the law change would have paid a cumulative $9.1 million in additional property taxes if the legislation had gone into effect this year.
"That's a lot of money to come out of one class of property owners," said Dave DeLeon, government affairs director of the Realtors Association of Maui.
"I think this is very unfair," said condominium owner Steve Tenney. "It's draconian."
The proposed legislation would require condo owners to pay taxes according to the "highest and best use" of their properties, as other landowners now do.
Under existing law, condominium owners are allowed to declare how they are using their property and pay taxes based on that claim. All other property owners in Maui County automatically pay property taxes according to the highest use allowed under their zoning, regardless of how they actually use the land.
The properties most likely to be affected by the proposed legislation are condos that are being used as part-time homes or long-term rentals in a zoning district that allows for hotel use. Those units are currently paying taxes at the lower "apartment" rate, but would be bumped up to the higher "hotel" rate under the proposal.
County finance officials said they supported the bill, which was proposed by Council Budget Chairman Joe Pontanilla.
"The proposal brings uniformity and fairness," said Real Property Tax Administrator Scott Teruya.
"What we have now is special treatment for condominiumized properties," said Finance Director Kalbert Young.
Under the proposal, condo owners who currently live full time in their units could continue to receive the homeowner tax exemption and would not be affected, Teruya said.
Also, properties' time-share classification would not change, and only properties that have already registered as time shares with the state would pay the time-share rate, the county's highest property tax rate, according to finance officials.
Also, while more than 3,500 properties would be bumped to a higher tax rate under the proposal, 406 units would be reclassified to a lower classification and see their property tax rate go down. An additional 22,730 condo units would not be affected by the change, according to Teruya.
Dozens of condo owners spoke at a meeting of the county council's Budget and Finance Committee Tuesday afternoon to oppose the bill.
Many said the measure would hurt long-term renters.
"This would be an increase of 80 percent on our property taxes that we would have to pass on to our renter," said Sherley Blodgett, who estimated the change would cost her an additional $270 per month.
Carol Reimann, executive director of the Maui Hotel & Lodging Association, said she was concerned the legislation would lead condo owners to convert their units to vacation rentals to try to cover their higher tax bill.
"It would glut the market at a time when the (hotel) industry is still vulnerable," she said.
A number of testifiers noted that condominium properties have been hit hard by foreclosures, and condo associations are already struggling to pay for maintenance and other costs with an increasing number of owners falling behind on their association fees. Forcing those owners into a higher property tax category would only make the problem worse, they said.
Several also said the county should instead look for ways to catch cheaters who are using their condos as vacation rentals but paying taxes at a lower rate.
"That's where you need to go get the money," said testifier Judy Fox.
But Council Member Jo Anne Johnson said the proposal was not about getting more money but about closing a loophole.
"It's about being equitable," she said.
Ilima Loomis can be reached at iloomis@mauinews.com.
