WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of December 23, 2018 Carbon Tax: Will You Fiddle While Paris Burns? By Tom Yamachika, President On November 28, our state Climate Commission, consisting of 22 county and state government officials, issued a press release affirming that it supports a carbon tax “to achieve Hawaii’s ambitious and necessary emissions reduction goals.” The climate commission includes three members of the State Senate and three members of the House, so it’s a pretty good bet that a carbon tax will be considered in this coming legislative session. About a year ago, we wrote about carbon tax because our Hawaii Tax Review Commission also recommended one. The form of tax that was being considered was a charge on all fossil fuels that are either manufactured or imported. If enacted, the carbon tax would be the fifth special tax imposed on fuel. Hawaii already imposes a state tax on liquid fuels and allows the counties to impose a county fuel tax on top of it. These taxes go to the state and county highway funds. They are meant to raise funds from those who use the highways and byways. (Two so far.) Then we have the barrel tax, which is a charge of $1.05 per barrel of imported petroleum product and a similar charge on the BTU equivalent of alternative fuels. A small part of this charge sets up a fund to protect us from an oil spill incident, some goes to protect energy security, agricultural development, and food security, and most of it goes into our general fund. (That’s the third.) Then, of course, we have our general excise tax, which is imposed on just about everything. That tax feeds our general fund. (That’s the fourth.) A carbon tax would in theory compensate for the social costs associated with carbon dioxide emissions into the atmosphere, and it would create a market incentive to use different fuels even among the fossil fuels currently in use; but its impact would have to be considered along with the other four taxes. Source: Carbon Tax Center
Perhaps it’s good for lawmakers to worry about the end of the world as we know it, which perhaps will be staved off by the social change the tax encourages. But their constituents are worried not about the end of the world, but the end of next week. Will their paychecks be enough to pay the rent, keep the lights on, or feed the family? If the cost of simply driving to work from the suburbs is horrible now, just wait until the tax kicks in. If I suggested that there will be rioting in the streets, you would probably chuckle under your breath; but see where French President Emmanuel Macron now finds himself. Hundreds of thousands of French citizens in yellow vests literally made Paris an inferno, and those citizens were up in arms about a proposed carbon tax that would have added about 25 cents per gallon to the cost of fuel there. And if you think the hammer of a carbon tax will fall most heavily on huge, faceless corporations like the electric company, the airlines, or the shippers, think again. Businesses can and will pass on any enhanced costs to their consumers if they hope to continue providing their products or services. That means our already astronomical cost of living will head further up into the stratosphere. Certainly, it may be worth rethinking how we now tax fossil fuel. The patchwork of different state and local taxes all applying at once leads to unclear and inconsistent messages sent to the taxpaying public, which is not good for implementing social policy regardless of what the policy is. Just a reminder that tickets to our 2019 Legislative Breakfast Briefings can be purchased by clicking here! Mahalo & Happy Holidays!
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WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of December 16, 2018 The County Strikes Back (Part 4) By Tom Yamachika, President We continue with our series about a timeshare association suing Maui County seeking to invalidate its “Time Share” property classification, with the county then striking back. This week, we look at whether the property classification challenged was valid. The circuit judge on Maui’s conclusion was that it wasn’t. He concluded that under section 3.48.305 of the Maui County Code, the “County may consider only the actual use of real property when creating a real property tax classification; it has no authority under the MCC to consider anything else.” That code section, however, says that land and buildings are classified upon consideration of the real property’s highest and best use, and then lists some exceptions. It also says that condominium units are classified upon consideration of actual use, and then lists definitions, one of which a definition of the Time Share classification. First, we need to notice that actual use and highest and best use are completely different. Highest and best use primarily depends on zoning and has nothing to do with the current owner is currently doing with the property, which is actual use. So, someone running a farm in the middle of an industrial district would have a “highest and best use” as commercial property but “actual use” as agricultural property. Next, the tax code is riddled with classifications, credits, and exemptions that have nothing to do with actual use. I group all three of these devices together because they all assign financial consequences – an owner or renter pays more tax or less tax – depending on whether certain conditions are met. All counties have such devices that depend on use, and they also have those that don’t. For example, all four counties exempt “kuleana land,” which depends on whether its owner is a lineal descendant of the persons who received original title from the Kingdom of Hawaii. All four counties exempt property owned by disabled veterans, persons affected with leprosy, and persons with impaired sight or hearing or totally disabled, which are not uses of the property but medical conditions of its owner. Of these, the latter three exemptions were carried over from when the State was administering the property tax, before the 1978 Constitutional Convention. This is significant because when the Convention recommended, and the voters approved, transferring the property tax power to the counties, there were constitutional provisions that required all counties to keep the basic structure, rates, and exemptions then in place for eleven years. Those exemptions, therefore, were specifically approved in our constitution – and they didn’t depend on property use. If it were held that differences in real property tax liability must depend only on property to use to be valid, what would happen with the exemptions, credits, and credits on all four counties? And what would happen with the “Residential A” property classification here in Honolulu, which kicks in if a property doesn’t qualify for a homeowner’s exemption and is valued at $1 million or more? Homeowner classification is based on use, but valuation of a parcel clearly isn’t. Ultimately, of course, the higher courts will decide the validity of the Maui real property tax classification system. The job isn’t easy, and the arguments we’ve made here might turn out to be completely wrong. But they will give us things to think about while the parties are considering what to argue and while the courts will be mulling over this case. WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of December 9, 2018 The County Strikes Back (Part 3) By Tom Yamachika, President We continue with our series about a timeshare association suing the county, with the county then back assessing the association for $10 million. Here we examine: “Are back assessments of property tax legal?” In most of our counties, the ordinances say that the assessor is to make a tax assessment list each year by a certain time. The county then sends out bills to the property owners with the numbers off the list. Owners then either pay, or appeal. But what if your property isn’t on the list? This can happen very easily if you have just signed a lease for state lands. The state doesn’t have to pay real property tax because governments generally don’t tax each other, so there is no previous assessment of the land. A lessee of state lands, however, isn’t a government and therefore needs to pay real property tax. But let’s say, for whatever reason, the real property tax bill doesn’t come in the mail for a couple of years. The ordinances call that “omitted property,” and they say that the county can assess the current year, and any back years, whenever the county gets around to doing that. And when they do, if you want to appeal the assessment you need to do it within 30 days – which isn’t much time. If you go to the county and say that the assessment is unfair and illegal, you won’t get much sympathy. “You’ve received fire and police protection, trash pickup, and many other benefits that come with occupying that property,” they’ll say. “Didn’t you think it strange that you were receiving all these valuable benefits for free while everyone else in the county has to pay for them through their property taxes?” As it turns out, there is a court case holding that this type of assessment, called an omitted property assessment, is perfectly legal. In our Maui case, however, the facts were quite different. The plaintiffs were time share associations. The county had assessed the property – but they didn’t assess the intervals or the condominium units, they assessed the master parcel. The county sent the bills to the associations, and the associations paid the assessments in full. “Oho!” the county said. “We didn’t assess the intervals, which are the units of property that are being bought and sold. They are therefore omitted property, and we get to assess them whenever we want!” So, the county back assessed the interval owners, and they assessed a lot more tax because the method they used to assess the master parcel was based on its cost while the method they used to assess the intervals was based on market value. But then they needed to figure out what to do about the payments that already had been made on the property. And they decided to credit each of the interval owners for a proportionate part of the payments that were previously made. Fair, perhaps; but it was also an admission that tax previously had been paid on the property assessed, so the county had no business calling it omitted property. “[I]f the County can retroactively assess already-assessed real property to change the valuation and impose additional taxes, even many years later as it argues it can here,” the Maui judge wrote, “property owners can never have confidence that they have satisfied their tax obligation for any previous years. Potential buyers can never have confidence that a purchased property will not later be burdened by a hefty ‘amended assessment’ for some year long before their purchase.” Well said, Judge; now we’ll see how well his judgment fares in the appellate courts. |
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