 This is Think Tech Hawaii, Community Matters here. This is Think Tech Hawaii, raising public awareness. Okay, we're back. We're live. It's a 12 o'clock block here on Think Tech. We're talking about Community Matters. That's our show. And we're talking about qualifying for the Hawaii homeowner's exemption for real property tax with Sarah Fairchild, concerned citizen, actually a citizen who's been hurt in the process. Hi, Sarah. Good morning. Hi. So, why don't you tell us your story? Okay, well, a few—I've owned my home since 2010. And at the time we bought the home, I had just had a baby, and my husband was very busy with his job, and we had been through an exhaustive buying process where escrow lasted eight months. There were some issues with the sale. It was just stressful. And then we finally got in the home, and it was very dilapidated, and there was a lot of work to be done. And thankfully at the time, I had a realtor who was really on it. And in amidst all the other paperwork, she had us fill out this homeowner's exemption. Yeah, 150 forms you had to complete. And this is not a form that a realtor is required to have you filled out, but she was good at her job and made it happen. This doesn't happen for everyone in their home sale. So it was something, to be honest, I kind of just forgot about as a layperson. No surprise. I think a lot of people forget about it. Yeah. And our taxes were paid through our mortgage, and everything seemed normal for a few years. And then about four years later, we moved out of state. I didn't think that I had to fill anything out. And what I found out later was the tax office mailed us something, and it was returned to them because we had a forwarding address now in another state. At some point, I may have gotten another form saying it's the regular form that every homeowner gets saying the amount your property is appraised for by the tax office, but this one little line had changed and it had gone from residential to residential A. I didn't see that. Who would know? Who would know? Would anybody know this? It's not a big difference. Residential A is not so good. It means you're not living in the house. Is that what? Right. They figured it out from the mail forwarding. Yes. Yes. And it was true, but I didn't realize there was any change really or the implications of it. And then the following year, after being gone for about 18 months, we moved back to Hoy and back into the house. And a couple months later, we got a huge bill from our mortgage company saying our escrow account that pays your taxes was severely underfunded, and that $600 a month was being added to our mortgage to catch up. $600 a month with a lot of bread. Big chunk. Yeah. And at the time, I had three kids by this point, and my little one, we had to take out a preschool to pay for that. Couldn't afford it, because of the $600 extra charge. Yeah. It was hard on us, but at least I had something I could work with and take out of the budget. But I imagine for a lot of people, that would be... You wouldn't be eating. Yes. Exactly. So at this point, I had to do some sleuthing to figure out what had happened and found out that we were still residential A, and by residential A, we were still considered by the city and county to not be living in the house. So I thought, well, there's got to be a way that I can prove to them that we've now been living in this house, and we should be paying the regular tax of any homeowner who's in the residence. And I went and I made some calls to the city and county. I went online and filed my home exemption, which now you just go on their website and you check some boxes and electronically sign. It takes a minute or two. This is an application for home exemption. Yes. Okay. The problem is, if you do not file for this home exemption by September 30th, you do not get it, even if you actually live in the house. So yes, there was one year we should have had to pay, but the other year we lived in the house the majority of the year and shouldn't have been paying these extra taxes, which in our case equaled almost twice what our normal property tax was. So I filed an appeal. Two years at, what, $600 a month for the extra charge? Yes, basically. Well, we had to refund the account. That's $15,000 right there. Well, what ended up happening was we had to back pay the escrow for the money that we had missed paying and then we had to future fund it for this higher tax rate. Hopefully someday we're going to get some of that money back. It hasn't happened yet. So what happened was we, I went and filed, it was a $25 fee to file an appeal and then you wait some time and then you go to the city and county and they have a board which is comprised of tax professionals and real state professionals who hear your appeal. But not ordinary people. No, not really. They're people that work in the tax or real estate industry. They're in the industry. Yes. And there are 10 cases heard. I understand every week, month, there were 10 cases when I was there. And you have a public hearing, although the results are only disclosed privately. And I was, I heard a lot of repetitive stories, to be honest, when I was in there. I think every single person felt like they shouldn't have had to pay for it. There was one person that day who ran a business, who the business technically owned his home, he was told he was probably not going to be getting the money back. Yeah, if a corporation owns your home, you're not entitled to the home or anything. Understandable. Yeah. The other nine seemed to have pretty, most of them actually did live in the house. There were several people that had just bought for the first time and didn't know they had to fill out the form. And the real, as you said, the realtor is not under an obligation to say anything to them. Exactly. That's their problem. Exactly. Okay. But I mean, it's a hard story to hear. I remember one guy was a first time homeowner, born and raised here, and he was telling them, you know, I worked so hard to buy my first house. Sure. I'm in my 30s. I'm so proud of myself. First house is always the hardest one because you have to scrape together all the money necessary and most people don't have that kind of money. Right. And it's usually already a stretch because you stretch as far as you can. And then he said, I've clearly lived in the house the whole time. I mean, I have all these proofs to show you have been there. It seems unfair that you're just charging me this money. And there were a couple of stories, somewhat similar to that. And then another one was an elderly woman who, she actually wasn't there. She had a family member there for her because she was down to her bed basically. And she had to have a stroke and had moved into another family member's home for a few months. And somehow in the course of that had lost her home exemption. It wasn't that she was renting out the house or using as an investment property or anything like that. She was just sick and didn't understand the tax implications. So it just, it seemed really unfair. Well, but it seems like, although you said the results were not disclosed to the public, every one of these stories, there was a denial. It just sounds like it. Yes. Well, I asked, I had asked one of the clerks that day and I had previously asked on the phone and they, both people had told me almost every single appeal is denied. One person said that in a couple of years working in there, she had only seen two appeals actually granted. Some were granted then. That's interesting. Yeah, but out of thousands. Okay. But you know, it's not entirely mechanical, which means that the border review who considers these appeals does have the ability to hear the facts and determine there's good cause to relief to the taxpayer. Yeah. And certainly they're, they're listening to every individual circumstance and really looking for the reasoning. However, this September 30th deadline is so absolute. And I compare it to the idea, if you file your federal taxes a day late or even six months late, you're charged a penalty, fines, interest, but you're not expecting to pay at a whole different rate. That's a good point, Sarah. And I think, I think there needs to be a change from the city council, a change to the ordinance that says that if you are late, that you can still file. And if you can show proof that you live there, that you'd still get the exemption and the lower tax rates, but that you will pay fines, tax interest, but not double your tax, well in my case double my actual taxes. My recollection is that the, that the tax bills, the two of them, each one for half the year, come starting in January, I think, which means that from September to January, it's like four months. I don't think they can effectively argue they need four months in order to adjust their records one way or the other. And as you say, they could easily apply a fine. And part of this has to be sort of a data processing issue. Everyone knows the status way behind on data processing, although Neil Abercrombie talked about, you know, a new world of data processing for Hawaii. It hasn't happened. They're using machines that are very old. Well, I think that that applies to two parts of this process that could also be changed. Firstly, instead of just getting a normal printout like I received of your estimate of value of your house from the city and county with that little one line that says residential or residential A, I think if you are a new homeowner or someone who owns a home that has recently changed to residential A, you should get maybe an email, a letter would be okay, but an email would be cheaper and faster, saying you're at risk for paying higher taxes. We're happy that you were able to scrape the money together to buy a house in our state. We want to tell you a little about the real property homeowner's tax, homeowner's exemption. That would be nice. Right, in layperson wording, not in tax wording, because you tell someone who's not in taxes. Nobody knows what that means. And you're a residential A, just wanted you to be aware that that means nothing to most people. They're not going to realize the difference they're going to be paying the next year. That's one piece. The other piece is to be more efficient. Instead of having to wait for this board and the process of how long it takes to get them together, how about we grant a little bit more power to the clerks that work in the office. They're smart people and they could at least take the verification of residents and examine the documents just like a person that works at the driver's license office for the city and county is able to examine your residents. If we empowered them to be able to do it, then we don't have to wait for this board and pay for it. And I think that would make the process faster. Well, you know what strikes me? There's a certain absolutism here. It reminds me back in the old days when the development, when they developed the gross excise tax and general excise tax. The idea was to make it absolute, make it cover everything as opposed to other states where it doesn't cover drugs, for example. The rate may be higher, but the things it applies to are fewer and we have a rate that's actually gotten higher because of the rail issue, but it covers everything at every level, essentially. And that's one of the reasons it's so expensive to live here because you pay it for when the good comes in and then when the middle man buys it and then again when you buy it. It's a lower rate for wholesale, I think, but still it applies to everything and that makes it higher than other states which actually have a nominal rate that's higher. And the idea was that the outset, let's be absolute about this. And you know, there's a funny thing about Aloha. Do we have to be so tough about it? Do we have to be so tough knowing that you're going to suffer and other people in similar circumstances? And I just thought I'd mention that because I think it's relevant, we could build that into our tax policy. We don't have to be that hard. We could find a way to give people a break once in a while. Yeah, and I think, I mean, these are really our citizens that are being affected by this. This is a tax for people that generally are living in their home and it's usually their only home and they've worked hard to own it. All their assets are in this home. Yeah, it's not a business that's owning it. It's not someone with a vacation home here. I think that's why the law was created to tax people that are buying investment properties to rent out or that are buying a vacation home that's their second or third home and it's sitting empty most of the year. And that seems fair to me, but for people that are working so hard to have a home here, it seems like an unfair penalty to miss a deadline and then sorry, you're paying higher taxes too bad. Yeah, let's take a short break, Sarah, a fair child and a concerned citizen who's had this experience and will come back and talk about some of the implications when you consider that it affects not only you and the people you saw in the appeals process there in the Board of Review, but a lot of other people as well. Let's talk about the implications of that in terms of home ownership here in Hawaii. We'll be right back. This is Think Tech Hawaii, Raising Public Awareness. I just walked by and I said, what's happening, guys? They told me they were making music. I'm Ethan Allen, host of A Likeable Science on Think Tech Hawaii. Every Friday afternoon at 2 p.m., I hope you'll join me for A Likeable Science, where we'll dig into science, dig into the meat of science, dig into the joy and delight of science. We'll discover why science is indeed fun, why science is interesting, why people should care about science. They care about the research that's being done out there. It's all great, it's all entertaining, it's all educational, so I hope you'll join me for A Likeable Science. Hi, I'm Jay Fidel on Think Tech. This is Community Matters and we're talking about qualifying for the Hawaii Real Property Tax Homeowner's Exemption. It isn't as easy as you thought. It can be kind of tricky. When Sarah Fairchild has been through this and lost some money in the process, so we wanted to explore with that. Are you out of the woods yet, Sarah? You know, I'm still in the appeals process, technically. I've gone to the second level of appeal, which is with a tax court, but I filed it, I don't know, two months ago. Really haven't heard anything back yet and I'm not too optimistic, to be honest, but I made sure I filed it for this year and I've been telling everyone I can make sure you have it done by September 30th. That's good advice, it's a favor. Where else is it gonna come from? But I wanted to, well, I wish you luck in that and I hope you're gonna make a good case for them and show them that the equities should prevail here and that the tax revenues at issue are not really that great. Although there is a drive in government to collect every bloody penny because we need the money for rail and all that. Right, but I mean, that's the funny part to me is, and it's not funny at all, actually, but they're getting all this money from a lot of citizens who own their homes. It's their only home. They can prove that they live there, but it's not enough because they didn't file on September 30th. But yet, I know there are other people in my neighborhood that don't live in the home that are claiming the residential A, whether they're renting it out to bring the renters or using it as- So suppose you are, I'm not living there, and you're renting it. There's an article in the morning paper about Airbnb and how do you get them to actually pay a tax on their receipts for Airbnb? And that's gross exercise. That's not necessarily real property, but real property goes hand in glove because it's a rental property. You don't qualify for the homeowner's exemption. But I guess my question is, suppose I violate the terms of the homeowner exemption and I'm not living there, period. I'm not living there. I moved away and people do that, I know. Yeah. How is it, the tax office found you because the mail, your mail was folded to your address on the mainland. Yeah. But if that hadn't happened, they would not have known. And in the case of people who moved away, move in with their family somewhere else or whatever it is, how they can get away with it, eh? If the tax office does not know the tax office continues to give them the homeowner exemption. In other words, there's really no need for them to confirm, verify, repeat the affirmation year to year or anything like that. There's no mechanism for the tax office, aside from this mail folding issue, there's no way for the tax office to actually check up on a given exemption, a beneficiary. So where have you seen this and how do you become aware of it? Well, actually the day that I went to my appeal out of the other nine people, I actually recognized someone I knew and she's someone who, coincidentally, has become a realtor. And so, you know, these aren't all people that are totally naive to what's going on. And she had bought the house, not knowing, they bought it right around the deadline, I can't recall the exact date, but they didn't realize that they would immediately need to file this form. But she told me, you know, we looked up, the tax records are available online. She said they looked up the people in their neighborhood and they found someone that was getting the homeowner's exemption, one of their neighbors and they knew that the people were renting the house. I don't know how they were doing it, but it seems to me one way would be just to tell your renters that I'm gonna receive some mail here and continue just holding it for me. But that puts the onus really on the homeowner. You can enforce this by having people tattle on each other, but people don't do that. Yeah, people don't wanna do that. So there's really no way. I don't wanna do that to my neighbors, certainly. No way they can verify one way or the other. And so what you have is people in your circumstance, which sounds to me legitimate, getting dinged for the extra tax, which is substantial. And then people who are actually not living there and who may be aware of this, but they're kind of escaping the extra tax by not saying anything about it. That doesn't sound fair, actually. What I think I'd like to talk with you about is the state policy about this whole thing. I mean, we have a state where, and we had a discussion last hour about condos in Kakaako that go for many millions of dollars. This is one sold for $95 million recently. And these are not owned by local residents. You're not in the market for a $95 million condo, are you, Sarah? No, unfortunately not. Nobody I know, actually. But there are people who come into the state and buy that. And they don't think through seconds about homeowner exception. Maybe they do. I wonder if they, I wonder if they do. Do they have a lawyer in the next place? Yeah, maybe their lawyer does for them. Why don't you file for the homeowner exception? And whether they're living there or not, that's hard to show one way or the other as long as nobody else is living there, right? And so if I'm an offshore owner and I use it as a retreat, or I send my friends around, they can use it as a retreat while I'm not there. And I'm not there a lot of the time. I'm an absentee in the fullest extent. It's not clear that I would not be entitled or that I'd not be able to achieve that benefit. And so the policy, at least in that sense, might favor those offshore investments who buy those expensive condos. Yeah, I'd imagine if they could say it was their primary residence, if they got a, there are a couple different potential standards they use. But I know one of them is if you vote in Hawaii, have a Hawaii driver's license, and you could easily do that. But I'm not even sure that those things are even tested. If you file the form. Yeah, true. And unless there's something to the country, I mean, maybe there's more about this and we should talk to the tax office about it. But if they file the form, who's to say? You don't have to send in your voting record, I don't think. No, you're right, no. Or that you prove that you have a, the old standard points of a residence domicile, that you vote, that you have a safe deposit box here, that you register your car here, you have roots and connections with the state. But if you happen to live somewhere else, and you just sort of say that you make this your, then I suppose that opens you to an argument that you may have to pay income tax for another issue. But at least I don't think, I think you could probably get away with it somehow. Probably. So the question is policy. On the other hand, somebody like you who had scraped the money together for the house, who has to work, who has to get it wherever you can. And there are hundreds of thousands of people just like you who have homes here. And it's their main asset is in the home. And as a matter of state policy, we do want to encourage them for the stability of their families, for the stability of the community in general, of our society broadly. We want them to stay in their homes. We don't want them to be stressed and have to leave their homes. We want to encourage them to have a good experience in their homes and a good relationship with the government about their homes. It just seems to me as a matter of policy that we don't want to hurt them. We want to treat them equitably. And if we have a policy about giving them homeowners exemptions, we don't want to nail them just because of a technicality. It just seems to me that that would be a favored policy in order to encourage a better society in Hawaii. So the question that you pointed out to the city council, maybe it's the state legislature, I don't know, somebody might want to look at this. The city council, because it's a city ordinance, so I think it's a council issue that they'd have to take it up and revise it. But I mean, I also think about families that maybe bought their homes 20 or 30 years ago when they were a lot cheaper compared to today and now their houses are one or $2 million value, they weren't expecting these kinds of taxes. Yeah, I mean, like somebody in the neighborhood in a neighborhood near Kakaako, where the values have gone astronomical over the past five years, maybe, they have a higher valuation for tax purposes. And in any neighborhood where it's growing and there are new houses nearby and for one reason or another, values are higher than your taxes are gonna be higher. So if you're sort of a legacy owner back when and you scraped together some money and maybe your house is appreciated in some way, but reality is you don't have the money to afford taxes on that highly appreciated valuation, whether it's your fault or your benefit, I don't know, but so it's really problematic to nail that homeowner and stress out that the economy, the economics of that family. There's a policy point here somewhere. Yeah, I definitely think so, because I think I'm guessing the original intention of this was to tax the people that are investing here that don't live here or the people that are buying vacation homes here but don't live here. Yeah, come on, I know rates. Yes. That's what it amounts to. Exactly. And we gotta preserve that because the disparity between the income of an average middle-class family or a lower middle-class family in Hawaii and one of these investors who comes from offshore. So great. And the tax disparity is also so great. We really don't want local people falling into the characterization of somebody, what do you call it, resident A, but tax. Yes, residential A. Residential A. That's what you don't wanna be. I worry about it because we have homeless and in this show we've examined many people who have been perfectly middle-class and some things happen, maybe a medical issue and before you know it, they can't pay the mortgage and they lose their home and then they're homeless and their families are stressed and their children are stressed and the future of everyone around them is stressed and it's like in many cases, it's like permanent, what happens? We have a growing problem about that. Affordable housing is one solution although it hasn't gone that far actually, but also not to take a nick at them this way with a kind of technicality, I think. Yeah, I mean, I think for a lot of people, this amounts to maybe an entire mortgage payment depending on when you got your mortgage and how small or big it is, but a couple thousand dollars is no small thing for most families. Well, I hope that woman who appealed because she was sick and she had to move out for a while and left the house vacant. I hope she wins that appeal. Not clear that she did or will, but that seems to me a very compelling case and I hope the Board of Review or if not the Board of Review, the Tax Appeal Court has the power and the sensitivity to give her a break. I hope so. And I also hope that you get a break. I hope you succeed in your appeal. Thank you. If nothing else, I hope that what I've learned from it can be a lesson to other people to avoid having to pay this tax and possibly it'll result in some change for the future of this law. Yeah, that's why we call the takeaway, be careful. You should check up and see that you file the right papers in the right way and before the deadline, so what happened to Sarah won't happen to you. And particularly if you're a new homeowner or if you're a homeowner who moved away and had any kind of mail forwarding especially for a short or long period when you come back, make sure you go online with the real property of Honolulu website and file your exemption forms. Yeah, nobody's gonna tell you, but think Tech will. Thank you, Sarah. Thank you. Very child-concerned citizen, aloha. Aloha.