SB2054

SECTION 1. The legislature finds that insufficient infrastructure is one of the factors contributing to the lack of affordable housing in Hawaii. Forcing developers to fund necessary infrastructure improvements has led to delays in construction and the development only of homes with high price points so that the developers may recover their high construction costs. Most jurisdictions fund infrastructure improvements through real property taxes. However, real property taxes in Hawaii are relatively low, which hinders the ability of the counties to fund infrastructure.

The purpose of this Act is to implement a constitutional amendment to amend the exclusive authority of the counties to tax real property and to provide the legislature with the authority to establish a surcharge on taxation of certain property within an infrastructure improvement district.

More specifically, this measure establishes a mechanism to fund infrastructure improvements by establishing a surcharge on taxation of real property parcels near transit stations, but making the application of the surcharge dependent upon:

(1) An appropriation of funds for infrastructure improvements around the applicable transit station; and

(2) The parcel near that transit station being sold or developed after the appropriation of funds.

Thus, property that does not change ownership will not be subject to the surcharge.

SECTION 2. Chapter 206E, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part . INFRASTRUCTURE IMPROVEMENT districts

§206E-A Definitions. As used in this part:

"Infrastructure improvement district" means the land within two thousand feet of a transit station. The area around each transit station shall be considered a separate infrastructure improvement district.

"Property" shall have the same meaning as in section 248-1.

"Sold" shall not include the transfer of any property to a trust or any transfer through inheritance.

"Transit-oriented development property" means a parcel completely or partially within two thousand feet of a transit station; provided that the entire parcel shall be within one mile of the transit station.

§206E-B Surcharge on transit-oriented development parcels; establishment; purpose. (a) There is established an annual surcharge on real property tax on transit-oriented development properties as provided in this part. The purpose of the surcharge shall be to fund infrastructure improvements within infrastructure improvement districts.

(b) No surcharge established by this part shall be assessed on any transit-oriented development property until:

(1) An act appropriates funds to the corresponding infrastructure improvement district for infrastructure improvements; and

(2) After the effective date of an act in paragraph (1), the transit-oriented development property is sold or developed.

Any transit-oriented development property that does not change ownership shall not be subject to a surcharge established pursuant to this part.

(c) Any act that appropriates funds to an infrastructure improvement district for infrastructure improvements shall state the name of the transit station and the transit-oriented development district for which the appropriated funds shall be expended.

§206E-C Applicability. (a) A corporation, copartnership, company, or other private business entity that owns or operates property shall be subject to any applicable surcharge established by this part. Property of a corporation, copartnership, company, or other private businesses shall be assessed the surcharge under its corporate or firm name.

(b) A person or private business that is a wholly owned subsidiary or acting as an agent or on behalf of a corporation having its principal place of business outside Hawaii shall be subject to any applicable surcharge established by this part.

(c) Every personal representative, trustee, guardian, or other fiduciary shall be responsible for the performance of all acts required by this part with respect to any applicable surcharge on taxation of property in their fiduciary capacity and shall be liable for the payment of a surcharge held in the fiduciary's capacity, but shall not be personally liable and may retain, out of the money or other property that may be obtained in the fiduciary's capacity, so much as may be necessary to pay the surcharge, recoup the payment thereof, or recover the amount paid from the beneficiary to whom property subject to a surcharge pursuant to this part have been distributed.

(d) The penalties provided by section 231-39 for failure to file a tax return shall be imposed on the amount of the applicable surcharge for:

(1) Failure to pay a surcharge;

(2) Failure to file appropriate documentation with regard to a surcharge; or

(3) Failure to correctly report the amount of a surcharge.

§206E-D Amount; levy; assessment. (a) The amount of the surcharge assessed each year shall be $7.50 per $1,000 of net taxable value.

(b) The surcharge shall be imposed on the most recent valuation that is assessed by the county where the property is located for the purpose of determining the annual county property tax liability.

(c) For the purposes of this part, life tenants, personal representatives, trustees, guardians, or other fiduciaries may be, and persons holding government property under an agreement for the conveyance of the same to those persons shall be, considered as owners during the time any property is held or controlled by them, including:

(1) Lessees holding under any government lease during the time any property is held;

(2) Any tenant occupying government land for a period of one year or more;

(3) Persons holding any property under an agreement to purchase the same;

(4) Persons holding any property under a lease for a term to last during the lifetime of the lessee; and

(5) Persons bearing tax liability on the property during the time period for which a surcharge on the property has been assessed.

§206E-E Notice and returns. (a) The department of land and natural resources shall maintain on its website a list of all transit-oriented development parcels and the transit-oriented development zone associated with those parcels.

(b) Within thirty days of the effective date of an act appropriating funds to an infrastructure improvement district for infrastructure improvements, the department of land and natural resources shall indicate which transit-oriented development parcels shall be subject to the surcharge under this part if the parcel is sold or developed after the effective date of the act.

(c) Upon recording a fee or lease conveyance of a parcel, the bureau of conveyances or the office of the assistant registrar of the land court shall determine whether the department of land and natural resources has indicated that the parcel is subject to the surcharge under this part if the parcel is sold or developed pursuant to subsection (b). If the parcel is subject to the surcharge pursuant to the indication of the department of land and natural resources, the bureau of conveyances or the office of the assistant registrar of the land court shall inform the applicable county director of finance.

(d) Notices of the amount of the surcharge shall be transmitted by each county through the United States mail to any property owner subject to the surcharge. Notice of the surcharge amount shall be transmitted no later than October 31 of each calendar year to the owner's last known address or place of business.

(e) Each county shall by ordinance permit an owner to pay the surcharge in the same manner provided for the payment of real property taxes.

(f) Whenever any county director of finance finds that there is not sufficient evidence to form, for assessment purposes, a sound appraisal of the value of the property or properties, it may require an owner to file a return within thirty days of the county's mailing of notice to the owner. Consideration of and liability for a return, including in determining the fair market value of a property or properties, shall be made in the same manner and with the same limitations as for real property tax returns in the county in which the property is located.

(g) All returns made under this section shall be open to inspection by the public and shall be admissible in evidence against the owner making the return, in any state court in any action wherein the value of the property, or portion thereof, may be in dispute.

(h) Failure to file a return required under this section shall render the owner liable for payment of an additional sum equal to the sum defined in and prescribed for failure to file a tax return under section 231-39(b)(1).

(i) If any return is sent by United States registered or certified mail, a record authenticated by the United States Postal Service of the registration or certification shall be considered evidence that the return was delivered to the county director of finance. The date of registration or certification shall be deemed the postmarked date for filing purposes.

(j) Each county director of finance shall make publicly available a form for a return related to the surcharge on property for use in collecting the surcharge.

§206E-F Appeals. (a) Any owner of property who is aggrieved by an assessment used to determine the amount of the surcharge on property for any year or by a refusal to be granted an exemption from the surcharge may appeal the assessment in the manner provided in the case of real property tax appeals.

(b) No owner shall be deemed to be aggrieved by any assessment made upon the owner's property that is based upon the opinion of value set forth in the owner's return unless the owner shows lack of uniformity or inequality as set forth in section 232-3.

(c) Each of the counties shall by ordinance provide for appeal from an assessment used to determine the amount of the surcharge and denial of an exemption in the same manner as provided in the case of real property tax appeals.

(d) Any county decision on an appeal for relief or exemption from the surcharge may be appealed to the tax appeal court as provided in chapter 232.

§206E-G Disposition of proceeds. (a) The surcharge shall be collected by the counties in accordance with this section. All moneys collected by the counties pursuant to the establishment of a surcharge shall be paid into each county's treasury within ten working days after collection and shall be placed by each county's director of finance in special accounts. Out of each $7.50 in revenues generated by the surcharge, the director of finance of each county shall deduct $1.50 from the surcharge to reimburse the county for the costs of assessment, collection, and disposition of the surcharge incurred by the county.

(b) After the deduction pursuant to subsection (a), the director of finance of each county shall, on a quarterly basis, pay the remaining balance of revenue collected under the surcharge to the state director of finance. The quarterly payments shall be made after the surcharge has been paid into the county treasury special accounts and after the disposition of any appeal.

(c) Surcharge payments received by the state director of finance from the counties shall be deposited into the general fund.

§206E-H Exemptions. (a) This part shall not apply to any property while that property is:

(1) Not subject to real property taxation;

(2) Leased, purchased, or otherwise obtained by a lessee, tenant, purchaser, or homesteader under the Hawaiian Homes Commission Act of 1920, or as amended, a lease of land made for a term of nine hundred ninety-nine years under provisions of law that were repealed by section 3 of Joint Resolution 12, Session Laws of 1949, ratified by the Congress of the United States by the Act of September 1, 1950;

(3) Used exclusively for charitable, including property used for church purposes and cemeteries that are maintained by a religious organization;

(4) Used for school purposes including:

(A) Prekindergarten facilities, including any property used to administer the executive office on early learning public prekindergarten program under section 302L-7;

(B) Kindergartens, grade schools, junior high schools, and high schools, which carry on a program of instruction meeting the requirements of compulsory school attendance pursuant to section 302A-1132; and

(5) Owned by a nonprofit corporation to which admission is restricted by corporate charter to members of a labor union or government employees' association, one of the primary purposes of which is to improve employment conditions of its members;

(6) Dedicated to public use by the owner, which dedication has been accepted by the State or any county, reduced to writing, and recorded in the bureau of conveyances;

(7) Set aside for public use; provided that any exemption pursuant to this paragraph shall not be for a period of less than ten years after enactment of Act , Session Laws Hawaii 2020; and

(8) Owned by any entity granted a transient accommodations tax exemption under section 237D-3.

(b) No exemption from this part shall be allowed to any corporation, copartnership, company, or other private business entity, unless otherwise specified by law.

(c) An exemption shall only be granted for property for which every owner or ownership interest qualifies for one or more exemptions provided by this section.

§206E-I Enforcement. (a) The director of taxation shall administer and enforce this part; provided that each county director of finance and the state director of finance, as applicable, shall administer and enforce:

(1) The examinations of books and records of any person or private entity subject to the surcharge on property tax; and

(2) The imposition of penalties upon failure or refusal by a person or private entity to file a return, sworn return, or proper return.

(b) The department of taxation may contract with any state or county department or agency for the purposes of implementing or enforcing this part.

§206E-J Reports. No later than twenty days prior to the convening of each regular session, the department shall submit a report to the legislature containing an accounting of the revenues generated from surcharges imposed pursuant to this part."

SECTION 3. This Act shall take effect upon ratification of the constitutional amendment proposed in S.B. No. , Regular Session of 2020, permitting the legislature to establish a surcharge on taxes on properties to fund infrastructure improvements.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2054
THIRTIETH LEGISLATURE, 2020
STATE OF HAWAII