Ask City Council to preserve nonprofit tax exemption

Honolulu City Council Chair Ernest Martin accepted a report from the Tax Advisory Commission that recommends nonprofits pay real property tax but asked the commission to keep the record open and to accept public testimony for 30 days, Dec. 9 through Jan. 9. The commission, a citizen advisory group created by the Honolulu City Council through a resolution passed in June, reviewed real property tax exemptions and submitted its draft recommendations to the council.

Regarding nonprofits, the commission recommended: “… those entities which currently are totally exempt because they tend to be nonprofit in nature be subject to a levy of the real property tax albeit at a percentage less than full market value in recognition of the community benefit they provide. Such impost should be based on a percentage of the fair market value utilized for the exempt activities.”

However, the draft report includes a section reflecting the views of commission member Lisa Maruyama, HANO president and CEO, who was the only commissioner who supported no change to the current tax rate, which is a $300 minimum tax for 501(c)(3) entities. Her concerns were:

• Nonprofit 501(c)(3) organizations require tax exemption on real property because they provide necessary programs and services that the government sector is not willing or able to provide.
• The amounts being charged through increased taxation end up being a small contribution to local government budget but with adverse impact to the nonprofit budget. Nonprofits must cut seriously to pay this bill. The ownership of real property does not reflect an organization’s ability to pay the real property tax. If these programs and services cease to exist because of increased taxation, those in need will either not receive the service or will turn to government agencies to provide these services. It will be more costly for government to provide these services.
• The public wants their charitable contributions to nonprofits to go toward community services, not taxes. Taxing these organizations has the effect of discouraging giving and volunteering. Our community needs more of what these organizations and volunteers do, not less.
• Increasing the real property tax rate for nonprofit 501(c)(3) organizations fundamentally undermines the ability of nonprofit organizations to deliver on their charitable missions and challenges their IRS tax-exempt status.

Written comments received by close of business on Jan. 9 will be included as an addendum to the Commission’s report, according to a statement by Martin. The public may submit written comments by mail or email to cclbc@honolulu.gov.

Click here to view the complete draft report submitted by the advisory group. To view public comments already submitted, click here.