Hawaii Tax Changes - October 2024

Week Of 10.07.2024

Hawaii Property Tax—Hawaii County adopts agricultural and tax classification ordinances.

Hawaii County has adopted ordinances 24-72 (Bill No. 188) and 24-73 (Bill No. 189), effective 10/02/2024, changing the   sunset date of the nondedicated agricultural use program from January 1, 2028, to January 1, 2029. The time for property owners to apply for an alternative program is extended from September 1, 2025, to September 1, 2026. The definition of "community food sustainability use" is clarified to include pasture for food production, and "diversified agriculture" to mean a blend of agricultural activities while transitioning from one category to the other during the term of the dedication or on a continuous and regular basis. Properties under the community food sustainability use assessment and short-term agricultural use dedication, which are also used as an owner's primary residence, are added to the homeowner tax classification.

Hawaii Property Tax—Hawaii County adopts housing ordinance.

Hawaii County has adopted ordinance 24-70 (Bill No. 123), effective 09/30/2024, to repeal the definition of "Ohana dwelling" and add a new definition of "accessory dwelling unit," which means a structure or portion thereof designed and used for single-family residential purposes as permitted, and which can be detached from or attached to an existing residence, to be used for single family occupancy and containing one kitchen. Accessory dwelling units are eligible for a one-time property tax credit, of up to $1,000, for installation of a solar water heater.

Hawaii Property Tax—Hawaii County adopts ordinance creating long-term rental property classification.

Hawaii County has adopted ordinance 24-69 (Bill No. 104), effective 01/01/2026, providing a voluntary tax incentive to increase available housing in the rental market by creating a new long-term rental real property tax classification. "Long-term rental" means property occupied under a signed lease for six consecutive months or more to the same tenant(s). No long-term rental classification will be granted unless the claimant annually files with the Department of Finance, and each claim must include a signed lease or excise tax return, or both. Claims will be accepted from January 1 through December 31 for the next applicable tax year. Failure of the property owner to maintain a lease for at least six consecutive months to the same tenant will breach the classification, as will any use of the property as a vacation rental. Upon breach of the classification, the tax assessment will be canceled retroactive to the date of classification, but not for more than the current year. All difference in taxes paid, and those that would have been due in the higher classification, will be payable with a 10% penalty.

Hawaii Property Tax—Kauai County in Hawaii amends ordinance on real property classification.

Kauai County has enacted Ordinance No. 1162 (Bill No. 2925), effective July 31, 2024 (released October 2024), which provides that the "owner-occupied class" for real property tax rate classifications includes residential leases of state-owned property. The beneficial tax rate and assessment cap currently applied to property used for long-term affordable housing will be applicable to residential leases of state-owned property. Residential leases of state-owned property means leases or revocable permits issued by the State of Hawaii for a residential dwelling occupied as a principal home.

Hawaii Sales & Use Taxes—Hawaii Supreme Court allows airline to proceed with excise tax refund request.

The Hawaii Supreme Court remanded a case to tax court after determining that a notice of proposed assessment constitutes a "formal administrative decision," permitting the taxpayer's general excise tax (GET) refund request to proceed. The airline taxpayer was contractually obligated to indemnify its manufacturer on the sale of maintenance parts, which the manufacturer believed to be tax exempt under an aircraft maintenance exemption. The manufacturer's auditor disagreed via email, and issued a notice of proposed assessment, which the taxpayer paid under protest. The intermediate court affirmed the tax court's dismissal of the case holding that the email between the Department and the manufacturer did not constitute "adverse ruling" or a "final agency decision" to create an actual dispute as required for a payment under protest, while not considering the assessment. The court held that a notice of proposed assessment is a formal administrative decision that constitutes a tax assessment; therefore, the taxpayer's refund request may proceed. (Hawaiian Airlines, Inc. v. Dept. of Taxation, Hawaii S. Ct., Dkt. No. SCWC-22-0000349, 10/07/2024.)

‍