Bills seek to boost tax on house sales
By Andrew Gomes
Advertiser Staff Writer
Some Hawai'i lawmakers are taking aim at housing speculators, second-home buyers and purchasers of pricey homes by proposing higher taxes on such transactions to help pay for affordable housing.
Several housing tax bills introduced in the House and Senate could raise $10 million to $20 million a year in additional taxes, according to rough estimates.
But the bills have drawn opposition from state tax officials and real estate industry representatives. They say that while more money for affordable housing is welcome, paying for it by taxing buyers and sellers of homes could increase prices further and discourage investment that fuels economic growth.
Several of the bills would raise the conveyance tax, a levy paid each time a property is sold. The conveyance tax is 10 cents per $100 of a property's sale price, or $500 on a $500,000 home.
Under HB1303, a housing omnibus bill that recently passed two House committee hearings, the conveyance tax for primary residences would double for sales over $600,000 and triple for sales over $1 million.
Tax on a $1.2 million home sale, for example, would rise from $1,200 to $3,600 under the proposed increase.
If a home is bought not as a primary residence, the rate would double for sales under $600,000, triple for sales between $600,000 and $1 million, and quadruple for sales over $1 million.
The last time the conveyance tax rose was 1993 when it was doubled to help raise money for two funds: one to promote affordable rental housing and another to support natural area reserves. The two programs split conveyance tax proceeds with the state's general fund.
Some supporters of the proposed increases, which are more focused in a Senate bill (SB1010) that doubles rates for all home sales over $600,000, and triples them for sales over $1 million, say the higher taxes won't create hardship for buyers who enjoy one of the lowest conveyance tax rates in the country.
If applied last year, double and triple tax rates for homes sold over $600,000 would have boosted the $15 million in conveyance tax collections by another $17 million, according to one estimate.
"We support this bill to provide for a progressive conveyance tax of properties," Marvin Awaya, executive director of Pacific Housing Assistance Corp. and a member of the state's affordable housing task force, said in written testimony on SB1010.
Other supporters of the bill include the City Department of Community Services and the Hawai'i Government Employees Association.
But detractors of the measures said higher taxes would lead to even higher home prices. "Such an increase will only be an additional burden to the already high cost of living in Hawai'i," the Hawaii Association of Realtors said in written testimony.
The Tax Foundation of Hawaii said a conveyance tax increase "perpetuates the concept that Hawai'i is a tax hell."
The state Tax Department, in its opposition to SB1010, noted that the proposed increase in conveyance tax revenue would go to a new affordable housing finance fund, while reducing proceeds to the general fund, natural area fund and rental housing fund by a total of $3 million to $4 million a year.
SB1010 is scheduled for its first hearing before the Senate Commerce, Consumer Protection & Housing Committee today.
Another bill scheduled to be heard during the same meeting is one that targets speculators who buy and quickly sell property. That bill, SB1858, would impose a 60 percent capital gains tax for anyone buying and selling a property within six months. The penalty would decrease to 30 percent of any gain from property held for six to 12 months, and be 15 percent of profit on property held for 12 to 24 months.
The state's current maximum short-term capital gains tax is 8.25 percent, and applies to property held for less than one year.
The state Tax Department opposes the bill because it would divert department resources and create new and complex tax forms that could frustrate taxpayers. It estimated that revenue from the bill would be about $18 million a year for the rental housing trust fund.
Other opponents, including the Chamber of Commerce of Hawaii and Tax Foundation of Hawaii, argue that the anti-speculation measure would discourage sales of homes and lead to higher prices.
Of the housing tax bills introduced, perhaps the one with the stiffest penalty has already been held after its first hearing and is not likely to be revived.
That bill, SB1181 proposed a 25 percent "luxury tax" on sales of homes not used as a primary residence or rented if the price was above an amount that had yet to be determined. Proceeds would have benefitted a state housing fund.
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
