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Committee backs higher taxes on short-term rentals, second homes

Council members wrapping up review of $1 billion budget proposal

A Maui County Council committee is supporting higher taxes for short-term rentals and second homes and lower rates for residents who live in their own homes.

On Thursday, the Budget, Finance and Economic Development Committee stuck with the draft real property tax rate proposals it discussed earlier this week, recommending them for approval before the full council.

The full council will decide on the rates on May 13, following a recessed public hearing on the rates at 11 a.m.

The final rates would go into effect on July 1, which is the start of fiscal year 2023.

On Wednesday evening, the full council held an initial public hearing on the rates that drew nearly 20 testifiers, with a mix of support and opposition for keeping rates higher for visitor accommodations and non-owner-occupied properties.

They also voiced support for keeping rates for the agriculture land classifications low.

Tax proposals by the committee and the mayor differed on short-term rentals and hotel and resort rates.

Under the committee’s proposal, all short-term rentals could see a higher property tax rate at $11.85. (Rates are per $1,000 of net taxable assessed valuation.)

Victorino proposed keeping rates the same as the current year, which includes $11.11 for Tier 1 properties valued up to $800,000; $11.15 for Tier 2 properties valued between $800,001 to $1.5 million; and $11.20 for Tier 3 properties valued at more than $1.5 million.

Hotels and resorts under the committee’s proposal would see rates kept flat at $11.75, while Victorino proposed a reduction to $10.40. The committee and Victorino were both in agreement in keeping timeshare tax rates at the current rate of $14.60.

Council members and the mayor also want to increase taxes for owners who don’t live in their homes.

Under Victorino’s proposal, non-owner-occupied properties in Tier 1 that are valued up to $800,000 would see a $6 rate, up from the current rate of $5.45. Properties in Tier 2 valued between $800,001 to $1.5 million would go from $6.05 to $6.50. Properties in Tier 3 valued at more than $1.5 million would go from $8 to $12.50.

Under the committee’s proposal, the Tier 1 threshold would be expanded to $1 million and have a $5.85 rate. Tier 2 would be expanded to $1,000,001 to $4.5 million with a rate of $8. And, Tier 3 would be for properties valued over $4.5 million, with a $12.50 rate.

Representatives from the hotel, resort and timeshare industry advocating for lower or flat rates for visitor accommodations reminded council members that the county now has its own new transient accommodations tax, which charges three percent per room night, in addition to state taxes.

With the new TAT surcharge, the county is estimated to bring in $60 million, said Lisa Paulson, executive director of the Maui Hotel & Lodging Association, which represents more than 170 properties and allied business members in Maui County.

Paulson advocated that council members reduce the property tax rates for hotels and resorts to Victorino’s proposed $10.40 per $1,000 of net taxable assessed valuation. She said that among all the counties, Maui County’s visitor industry provides the largest chunk of the county’s real property taxes, at nearly 55 percent, compared to Kauai at 40.4 percent, Honolulu City and County at 14 percent and Hawaii County at 3.3 percent.

Others supported higher taxes for the visitor industry.

Makena resident Pat Borge urged the council to tax short-term rentals “at a higher rate,” noting that people who use those rentals also “use everything the locals use” such as county pools, which he says are “choke with tourists.”

“Don’t be afraid to raise the taxes,” he said.

“There is no reason why we don’t have affordable housing over here, if we tax these people the right way we should,” Borge added.

Testifier Fran Heath said, “As a local Native Hawaiian, I just need to say you are doing the right thing.”

She said there is not enough inventory of homes and local people cannot compete with outside investors and their money.

“We cannot compete against this as locals. How can we stop this? We stop it and tax it,” Heath said.

She supported increasing rates for the non-owner-occupied category but also asked to keep rates down for agricultural properties for our local businesses.

Testifier Tom Croly of Kihei said, “I’m not asking for anyone’s taxes to be raised or lowered in my testimony. I’m just saying that you need to take a closer look at how great the disparities are with the actual bills across these different classifications and whether or not it is sustainable for us to continue to get so much of our revenue from the visitors when we have kinda said we don’t want to expand the visitor industry.”

Croly questioned how the county would pay for things, especially in instances where residents may need more county services.

“We have to pay for it some way, but the money is coming from one place,” he said.

While recommending higher rates for non-owner-occupied homes, both Victorino and the committee recommended lower tax rates for residents who live in their own homes.

Under Victorino’s proposal, owner-occupied properties in Tier 1 valued up to $800,000 would go from a current rate of $2.41 to $2.30. Properties in Tier 2 valued between $800,001 to $1.5 million would go from $2.51 to $2.40, and properties in Tier 3 valued over $1.5 million would stay at the same rate of $2.71.

The committee, meanwhile, wants to raise the threshold for all tiers to take into account the rising values of homes. Under the proposal, the Tier 1 threshold would be expanded to $1 million and have a tax rate of $2. Tier 2 would be expanded to $1,000,001 to $3 million with a rate of $2.10. And, Tier 3 would include properties valued over $3 million with a tax rate of $2.71.

The committee on Thursday afternoon also recommended approval of several budget bills to be taken up next month by the full council. Details are expected today.

* Melissa Tanji can be reached at mtanji@mauinews.com.

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