Council members get some pushback on proposed real property tax rates

Maui County Council members heard testimony from about a half-dozen people Monday morning on proposed real property tax rates, mostly from transient vacation rental operators who said they’re being unfairly squeezed with higher tax rates at a time when their future bookings are dropping dramatically.

The timing of raising property tax rates for vacation rentals is “so wrong,” said Kathy Fleming, a transient vacation rental operator since 2019.

With recent publicity about Maui County phasing out thousands of vacation rental units in apartment districts, visitors have gotten the message that they’re not wanted, she said. And, “people have stopped coming to the island.”

She cited a recent report that tourism was down 18%, but it’s “way worse than that,” she said.

According to the Hawaiʻi Department of Business, Economic Development and Tourism, Maui tourism visitors in March were down 25.5% to 206,049 compared with March 2023. Visitor spending declined 24.3% to $469.4 million and Maui’s average daily census was 53,708, off 23.4% from 70,111 visitors in March 2023.

Meanwhile, Fleming said her property tax assessment rose from $700,000 to $1.1 million, and if proposed property tax rates for vacation rentals are approved, then she’ll need to pay more than $16,000.

“Hotels don’t pay their fair share,” she said, maintaining that hotels pay from $4,000 to $10,000 per room per year in property taxes.

The tax increases affect retirees who own vacation rentals and consider money earned from them as “passive income,” she said.

Bed-and-breakfast operator Tom Croly conceded that the Council’s proposed property tax rates will probably be enacted, but he said vacation rental operators are being hard hit.

“My taxation is going up at a much higher rate than other homeowners,” he said.

Because he has a permit to operate a bed-and-breakfast business, Croly’s tax bill will be 63% higher than it was four years ago, he said. If he didn’t have a permit, his bill would be up 24%.

Croly said he has only two reservations pending for the rest of the year, which has never happened before, reflecting on the drop in visitors to the island.

“Maui is in for a very, very rough time with respect to visitors here,” he said. “Visitors have stopped coming.”

Currently, property taxes for transient and short-term rentals are at a rate of $11.85 per thousand dollars of net assessed value. Council members are proposing taxes in three tiers: $12.50 per thousand dollars, or 6.3% more, for properties valued at up to $1,000,000; $13.50 per thousand dollars, or 14.76% more, for properties valued at $1,000,001 to $3,000,000; and $15 per thousand dollars, or 26.58% more, for properties valued higher than $3,000,000.

The Maui County Council’s proposed property taxes for most owner-occupied homes would remain the same or slightly less for properties valued at less than $3 million. However, properties valued at more than $3 million would see their tax rate increase 18.2% from $2.75 to $3.25 per thousand dollars of net assessed value.

Owners of non-owner-occupied housing units would see increases: Up 0.3% to $5.87 per thousand for properties valued up to $1,000,000; up 6.25% to $8.50 per thousand for properties valued from $1,000,001 to $4,500,000; and up 12% to $14 for properties valued at more than $4,500,000.

Apartment, hotel/resort and time-share properties would remain unchanged at $3.50, $11.75 and $14.60, respectively, per thousand dollars of net assessed value.

Long-term rental properties also would not change: $3 per thousand dollars for properties valued at up to $1,000,000; $5 per thousand for those valued at $1,000,001 to $3,000,000; and $8 per thousand for those valued at more than $3,000,000.

There was no public testimony earlier for proposed fuel tax rates and fees, 24 cents per gallon for gasoline and diesel oil, 6 cents per gallon for biodiesel blend and 11.5 cents per gallon for ethanol, methanol and liquefied petroleum gas.

There was also no public testimony for the proposed Maui County vehicle tax of 3.5 cents per pound of net weight for passenger vehicles, trucks and noncommercial vehicles not exceeding 6,500 pounds; and 5.91 cents per pound for all other motor vehicles. This rate is up from the current 5.41 cents per pound.