A developer owns a large parcel of land in Honolulu that includes a portion designated as ceded lands held in trust by the State of Hawaii. The developer has entered into a long-term ground lease with the state for the ceded land portion and has constructed improvements on it. Which statement most accurately describes the property tax treatment of this situation under Hawaii law?
Correct Answer
D) The developer's leasehold interest and improvements on the ceded land are generally subject to county real property tax, while the state's underlying land interest may be exempt
Under Hawaii law, government-owned land (including ceded lands held in trust by the state) is generally exempt from real property taxation. However, when a private party holds a leasehold interest in government-owned land and has constructed improvements, the lessee's taxable interest — including the leasehold interest and the improvements — is generally subject to county real property tax. The state's underlying fee interest in the land remains exempt, but the private developer's possessory and improvement interests are taxable. This mirrors the treatment of other leasehold situations in Hawaii where the lessee pays taxes on their interest even though the underlying land is owned by a tax-exempt entity.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.
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