County to get help catching tax cheats

The Maui News
Monday, May 16, 2005

By MATTHEW BURGER, Staff Writer

WAILUKU – Maui County finance officials soon will be able to check if residents are breaking any property tax rules or whether someone operating a vacation rental is in the appropriate tax category, under a bill that passed the Legislature last week.

Senate Bill 1685, which allows the counties access to state tax information, "really allows us to expand our abilities," said county Managing Director Keith Regan.

The county specifically will look for residents paying the transient accommodations tax (for short-term rentals) and whether they're in the appropriate tax category; whether taxpayers reside in the homes for which they claim a homeowner's exemption; and whether residents really do qualify for the county's circuit breaker tax credit, Deputy Finance Director Wayne Fujita said.

"Most taxpayers may not be intentionally misleading," Fujita said, adding that one of the aims of the bill is to help clear up any discrepancies.

Those involved in the short-term rental industry support the principle behind the measure.

"It's a good idea," said Maynard Torchiana, executive vice president of Destination Resorts Inc., which manages short-term condo rentals.

Torchiana says his company makes its clients fully aware of their tax obligations.

People renting out units are going to feel a lot better knowing that others are paying the appropriate tax, he said.

Mayor Alan Arakawa had urged legislators to allow the state to share tax information with the counties. The bill introduced by Maui Sens. Shan Tsutsui, J. Kalani English and Roz Baker now awaits Gov. Linda Lingle's approval.

"We're encouraging the governor to sign it," said Regan.

In January, Arakawa told lawmakers that it didn't make sense for the state to share tax information with other states and the federal government, but not with the counties.

In its reasoning, the bill says that with access to state tax information, the counties "would be able to follow up on discrepancies with their property tax exemptions and credits."

The bill also specifically cites Maui County's "difficulty determining if real property tax filers claiming apartment or condominium classification should be reclassified as a hotel."

It goes on to say that allowing access to data on the transient accommodations tax, commonly known as the hotel room tax, would help the counties toward that end.

"We wanted to be able to cross-check real property information with the state," said Regan, "and whether people are getting a home exemption, or if they're getting income for that property."

A key is the taxpayer data the state Department of Taxation can provide. Regan notes that there are more than 60,000 tax map key numbers on Maui, and a staff of fewer than 10 real property tax appraisers.

"Before, we had to use our limited manpower to do spot-checks," he said. "Now we can streamline the process."

Regan, who credits Fujita for really pushing the measure forward, makes clear that, for now, the information will be used only for property tax purposes. "We haven't contemplated other uses."

The bill is "about making sure there's tax equity," said Sen. Baker, adding that the complaint has been that "if (a taxpayer) is not paying their taxes, then someone else is picking up the tab."

The Maui Vacation Rental Association supports the idea behind the bill, said President David Dantes.

"It's always been our position that people should contribute their fair share of taxes," he said. But, he added, "No one industry should be singled out for enforcement."

"If people are using their homes for commercial purposes, they should be contributing their fair share," he said.

Regan made clear that the measure is not meant "to target anyone."

"That's not the purpose of this," he said.

If, for instance, someone claiming the homeowner's exemption reports an out-of-state address to the state and appears not to be living on Maui, the county would give the taxpayer "an opportunity to clarify the change," Fujita said.

With the circuit breaker tax credit, the county will compare adjusted gross income figures on residents' state tax returns with those reported to the county, Fujita said.

The tax credit allows a homeowner to limit a property tax bill to 3 percent of the taxpayer's adjusted gross income as reported to the Internal Revenue Service and the state Department of Taxation.

Fujita pointed out that on occasion, the county also has had "problems locating people" because of outdated information, which is another area the new measure should help address.

Regan said that with the new powers, "there may be additional revenues, but it could go either way."

Baker viewed the measure as an effort "to plug the tax leaks."

"If people aren't paying, you're losing revenue you're entitled to," she said.

"Whether or not the tax is fair is another story," Torchiana said. He pointed out that as real estate prices get higher, taxes become more significant and may compel some condo owners to not rent out their units to avoid being bumped into the higher hotel category.

"It may defeat what the county had in mind," he said, pointing out that fewer short-term rentals means fewer people will be paying the 7 percent state hotel room tax.

"You just have to be careful," Torchiana added.

Dantes said the Maui Vacation Rental Association, which claims between 100 and 150 members, already has suggested to the county that single-family dwellings used as vacation rentals be taxed at the hotel rate.

"We would accept them being taxed at the hotel rate," Dantes said, as a way of helping increase funds available for infrastructure and affordable housing.

Jim Worley, principal broker and co-owner of Pali Kai Inc. Realtors, said he can support "anything that levels the playing field."

Worley, whose company manages long-term rentals in addition to selling real estate, points out that "the requirement to pay tax is an obligation of every citizen."

Matt Burger can be reached at mattburger@mauinews.com.

Copyright © 2005 The Maui News

Original article URL: http://www.mauinews.com/print_version.aspx?id=8659

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