Monday, July 15, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, February 16, 2020
The Flippin’ Surcharge and Other Housing Solutions
By Tom Yamachika @ 4:00 AM :: 4099 Views :: Tax Credits, Taxes, Cost of Living

The Flippin’ Surcharge and Other Housing Solutions

by Tom Yamachika, President, Tax Foundation Hawaii

This year’s Legislature has produced some unique proposed solutions to deal with our housing crisis.

Senate Bill 2216, introduced by Sen. Stanley Chang, chair of the Senate Housing Committee, proposes an “empty homes tax.“  If you own residential  real property in Hawaii and you can’t swear that you lived in it, then you get charged a tax. The annual amount of the tax is 5% of the assessed value of the property. 

So, for example, if you owned a vacation home in Honolulu worth $1 million and you didn’t live in it, your Honolulu real property tax at the Residential A property classification would be $4,500 per year. The empty homes tax, which you would pay to the State rather than the City, would be $50,000 per year. 

Even the Department of Taxation, in its testimony on the bill, had reservations. It pointed out that there were some instances of a unit being empty that should be considered for exemption, such as where the unit is being advertised to be rented (or sold), the unit is being renovated, or the unit can’t be lived in because of damage or other conditions.

Finally, there was a more fundamental problem: the tax is triggered by a use of real property (or lack of use), it’s levied against the real property owner, and is based on the value of the real property involved. It looks, walks, and quacks like a real property tax. But under our state constitution, at least the way it reads now, only the counties have the authority to impose real property tax. Bzzzt! The State can’t do this. (But note that there are different proposals in the hopper to change the state constitution, as we wrote about last week.)

This measure was heard in the Senate Housing Committee (which happens to be chaired by the bill’s sponsor) and was passed.

Another innovative approach, which happens to be sponsored by the same Senator, is a “flipping surcharge” set forth in Senate Bill 2040. This bill imposes a tax of 25% of the net proceeds from the sale of residential property if (1) the property was sold within 5 years after it was bought, and (2) the owner isn’t eligible for a county homeowner’s exemption.

This bill was heard by the Senate Ways and Means Committee. During the hearing, senators went through some interesting examples. If a home was bought for $1 million cash and it sold for $1 million, the tax would be around $250,000 (in addition to the income tax on capital gains), assuming negligible closing costs. If a home was bought for $1 million with bank financing and it sold for $1 million, with $800,000 going to the mortgagee, the tax would be $50,000. If an owner bought a home for $1 million and spent $500,000 improving it, and it then sold at no gain for $1.5 million, the tax would be $375,000.

The Hawaii Association of Realtors also pointed out that the tax would apply if an owner invested in a dilapidated property, fixed it up so it was habitable again, and then sold it, even as an affordable unit.

We at the Foundation pointed out that there would be situations where imposing the tax might not be appropriate. Suppose a person is given a long-term job assignment (or military station) here and moves here with family in tow but does not want to give up primary residency. A few years later, the assignment ends, and the person is assigned to state B. The house here is sold to buy one in state B. Wham! The tax applies.

By the end of the hearing, some senators had reached the end of their rope. The committee chair decided to hold the bill.

What other solutions are going to be thrown at us this year? Lots of things can happen before the end of our legislative session.


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


Aloha Pregnancy Care Center


Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii


Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together


Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii


OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii