History of the Residential Property Tax Exemption
RESIDENTIAL TAX INFORMATION
Minimum Property Tax Increase Affects Historic Residential Exemption
Hawaii’s four County governments—Honolulu, Kaua‘i, Maui and Hawai‘i—offer tax incentives to preserve historic owner-occupied residences that are designated on the State Register of Historic Places.
The tax relief programs, which are similar in all four jurisdictions, provide that residences that are dedicated for historic preservation are exempt from property taxes, except for the payment of the annual minimum real property tax. The City & County of Honolulu recently raised the minimum property tax from $100 to $300 per year. Ordinance 10-9 went into effect on July 1, 2010. Click here to view Ordinance 10-9.
Historic properties are not the only class of property tax exemption to be affected by the increase. Exemptions are also provided to tax-exempt organizations, such as churches, schools and non-profit organizations, as well as kuleana land holders.
The economic incentive for preserving historic properties is a cost-effective and proven mechanism for enhancing community character, providing an alternative to sprawl, creating jobs, providing affordable housing, encouraging heritage tourism and generally spurring economic development in older neighborhoods and commercial districts. These benefits accrue to the public generally and society at large, but the costs are born primarily by private individuals and businesses that own, manage and maintain the historic properties.
In recognition that a public benefit is achieved, over 22 states have provided for some form of property tax relief for owners of historic properties. In addition, both the federal government and at least 29 states also offer tax credits for rehabilitation of historic properties.
Although the City has increased the minimum real property tax to address its budget issues, the program remains an important tool for historic preservation.
ORDINANCE 10—9, RELATING TO THE MINIMUM REAL PROPERTY TAX.
BE IT ORDAINED by the People of the City and County of Honolulu:
SECTION 1. Purpose. The purpose of this ordinance is to adjust the minimum real property tax.
SECTION 2. Section 8-1 1 .1, Revised Ordinances of Honolulu 1990 (“Real property tax—Determination of rates”), is amended by amending subsection (g) to read as follows:
“(g) Notwithstanding any provision to the contrary, there shall be levied upon each individual parcel of real property taxable under this chapter a minimum real property tax of [$100.00] $300.00 a year, except for properties exempt under Section 8-1 0.27 and except as provided in Section 8-10.28(b)(2).”
SECTION 3. Section 8-3.1, Revised Ordinances of Honolulu 1990 (“Tax rolls—Tax bills”), is amended by amending subsection (a) to read as follows:
“(a) The director shall prepare tax rolls from the assessment lists provided for by Section 8-2.2, showing thereon, in each case, names and addresses of the assessed and the amount of taxes which shall be not less than [$100.00 as provided] the minimum tax amount required in Section 8-11.1(g).”
SECTION 4. Ordinance material to be repealed is bracketed. New ordinance material is underscored. When revising, compiling or printing this ordinance for inclusion in the Revised Ordinances of Honolulu, the revisor of ordinances need not include the brackets, bracketed material, or the underscoring.
Revised Ordinance of Honolulu Sec. 8-10.22 Exemption–Historic residential real property dedicated for preservation.
(a) Portions of residential real property which are dedicated and approved by the director of budget and fiscal services as provided for by this section, shall be exempt from real property taxation except as provided by Section 8-9.1. The owners shall assure reasonable visual access to the public.
(b) An owner of taxable real property, that is the site of a historic residential property that has been placed on the Hawaii Register of Historic Places after January 1, 1977, desiring to dedicate a portion or portions thereof for historic preservation, shall petition the director of budget and fiscal services.
(c) The director of budget and fiscal services shall review the petition and determine what portion or portions of the real property shall be exempted from real property taxes. The director shall consult with the state historic preservation office in making this determination. The director may take into consideration whether the current level of taxation is a material factor which threatens the continued existence of the historic property, and may determine the total area or areas of real property that shall be exempted.
(d) The approval of the petition by the director shall constitute a forfeiture on the part of the owner of any right to change the use of the owner’s exempted property for a minimum period of 10 years, automatically renewable indefinitely, subject to cancellation by either the owner or the director upon five years’ notice at any time after the end of the fifth year.
(e) Failure of the owner to observe the restrictions of subsection (d) of this section shall cancel the tax exemption and privilege retroactive to the date of the dedication, and all differences in the amount of taxes that were paid and those that would have been due but for the exemption allowed by this section shall be payable together with interest at 12 percent per annum from the respective dates that these payments would have been due, provided the provision in this subsection shall not preclude the county from pursuing any other remedy to enforce the covenant on the use of the land.
(f) Any person who becomes an owner of real property that is permitted an exemption under this section shall be subject to the restrictions and duties imposed under this section.
(g) The director shall prescribe the form of the petition. The petition shall be filed with the director by September 1st of any calendar year and shall be approved or disapproved by October 31st of such year. The exemption provided for by this section shall be effective October 1st of the same calendar year.
(h) An owner applicant may appeal any determination as in the case of an appeal from an assessment.
(i) Subject to HRS Chapter 91, the director shall adopt rules and regulations decreed necessary to accomplish the foregoing.
(j) The owner of a historic residential property that has received an exemption from real property taxation pursuant to this section shall place and maintain on that property a sign or plaque that has been approved by the director and the state historic preservation officer. Subject to HRS Chapter 91, the director shall adopt rules prescribing the requirements for such a sign or plaque.
(Sec. 8-10.22, R.O. 1978 (1987 Supp. to 1983 Ed.); Am. Ord. 96-15, 01-23)
Additional Resources
Honolulu Residential Tax Exemption Forms
Maui Residential Tax Exemption Ordinance
COMMERCIAL TAX INFORMATION
Getting the Tax Exemption for Historic Commercial Buildings in Honolulu
Frequently Asked Questions
What is the historic commercial property tax exemption
In 2004, Honolulu City Council approved a bill that enables a property tax rebate of 50% on designated historic sites that are used for commercial purposes, except for hotel, resort or industrial uses (Honolulu Municipal Code Sec. 8-10.30).
What is the timeframe for applying for the historic tax exemption?
Petitions for the exemption need to be filed with the Director of Budget and Fiscal Services Department by September 1 of any calendar year. The Director approves or denies the petitions by December 15 of the same year for an effective date of July 15 of the immediately following tax year.
What are the benefits of participating in the program?
After acceptance into the program, 50 percent of the value of the real property designated as historic is exempt from real property taxes. The program was approved to provide an incentive for property owners to maintain and preserve their historic buildings. The intention is to use the property tax savings to supplement capital maintenance and improvements to the buildings. For the property owner, the benefit is a tax savings and program for reinvesting in the capital needs of the buildings. For the community, the benefit is revitalization of older commercial areas, keeping them vibrant and active, and preservation of historic buildings. For the City and County, the benefit is active commercial districts that generate opportunities for employment, services and economic development (such as from tenant activity or construction work).
Which properties are eligible for the historic tax exemption?
Properties in the City and County of Honolulu that are listed on the National or Hawai‘i State Register of Historic Places are eligible. Contributing structures in a designated historic district are eligible if they have an individual Tax Map Key number. Contributing buildings are those that are at least 50 years old and that retain the historic features that are significant to the era in which they were built. The City maintains a list of contributing structures in the Chinatown and Merchant Street historic districts for easy reference. Non-contributing structures located in a historic district are not eligible.
What are the conditions of the historic tax exemption?
The property owner determines a plan to maintain the historically-significant features of the building following established preservation standards. The preservation maintenance plan is reviewed by the Department of Planning and Permitting, the State Historic Preservation Division and a preservation non-profit organization for concurrence before being sent to the City’s Department of Budget and Fiscal Management for final decision. The City determines whether to grant or deny the tax exemption. The property owners and the City sign a contractually-binding agreement that obligates the property owners to follow the preservation maintenance plan for a period of ten years. A short form of the agreement is recorded against the property. The maintenance agreement is monitored by the City to ensure that the terms are met.
What are the consequences of non-compliance with the conditions of the tax exemption?
If the monitor determines that the property owner has failed to comply with the terms of the maintenance agreement, the owner is given the opportunity to meet the conditions and make corrections. If that is unsuccessful, the Director of Budget and Fiscal Services Department may cancel the exemption retroactive to the initial date. The property owner is required to pay back the taxes that were exempted, along with 12% annual interest.
What is the term of the property tax exemption?
The initial tax exemption period is ten years. It is automatically renewable for an unlimited number of additional ten year periods.
What are the elements of the maintenance agreement?
The maintenance agreement is determined on a case-by-case basis for each property in the program and is tailored to the individual building. The intention is to determine an appropriate maintenance plan that will preserve the historic building and keep it in active use, while being flexible enough to allow for changing circumstances. The foundation of the preservation maintenance plan is a description of the historically-significant elements of the building, the appropriate maintenance or repair treatment, and a timeline for the treatments. The maintenance agreement includes a commitment to carry out maintenance and any capital improvements according to the Secretary of the Interior’s Standards for Historic Properties, which is the industry standard for rehabilitation, restoration and preservation work. The maintenance agreement will also specify that the public will be provided reasonable visual access to the historic property.