Hawaii’s Tax ‘Imbalance’: Would A New State Property Tax Fix It?

Some House lawmakers have hatched a complex plan to export more of Hawaii’s weighty tax burden to non-residents, but it would require an amendment to the Hawaii state Constitution and a huge leap of faith on the part of the voters.

House Bill 1208 and House Bill 1209, which lawmakers say go “hand in hand,” together propose a tax system overhaul. The first bill asks the voters to amend the constitution to allow the state to impose property taxes.

If that idea wins approval — which is a long shot — HB 1209 would then “suspend” the Hawaii state personal and corporate income taxes.

Underlying the proposal is a sense among some lawmakers that Hawaii’s existing system of taxation is far too generous to out-of-state investors who snap up homes and other property here, and then benefit from the lowest property tax rates in the nation.

Supporters of the bills say they want to boost property taxes on non-owner occupied properties, and then use the extra money to reduce the income tax burden now carried by state residents to zero.

Lawmakers meet in the state House of Representatives. The surge in real estate values during the pandemic has some lawmakers seeking to shift more of the state tax burden to non-resident investors.

Anthony Quintano/Civil Beat

The available evidence suggests that will be a tough sell. The state constitution gives the authority to impose property taxes exclusively to the city and counties, so HB 1208 asks the voters to grant the state a major new taxing power. A similar proposal in 2018 was unpopular with the public.

Still, HB 1208 and HB 1209 won preliminary approval from the state House on Friday, and will now get a hearing in the House Judiciary and Hawaiian Affairs Committee.

What would normally be a wonky debate over tax policy seems to be getting a jolt of political energy this year from the surge in Hawaii real estate prices during the pandemic. House Democratic Majority Leader Della Au Belatti described that price escalation as “stunning.”

“Home prices are still increasing, and why? Because there’s speculation, and there’s out-of-state residents who are now buying at the expense of our local people,” she said.

Now is the time for the state to deal with a longstanding “imbalance” in the existing system of state and local taxes, Belatti said. State government here finances an array of activities that in other states are handled by cities and counties, and are normally financed through property taxes.

That includes public hospitals, ambulance services, jails, and most of all a huge, statewide Hawaii public education system. Lawmakers say the state Department of Education is the only educational system in the nation that is entirely state funded. 

That system allows the city and counties to keep property tax rates exceptionally low, while the state imposes some of the highest income tax…

Read MoreHawaii’s Tax ‘Imbalance’: Would A New State Property Tax Fix It?

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