This paper describes and evaluates the merits of Kauai County’s use of the property tax to capture rents from tourism and provide property tax relief to local homeowners. Because tourist accommodations are more capital intensive than other real estate, Kauai’s proposal to split the standard uniform rate into two separate rates—one on land and the another higher rate on improvements—results in heavier tax burdens for the tourist industry relative to other sectors of the local economy. We conclude that such an approach works well for Kauai and communities that desire slower and lower density development but may not work as well for others that wish to encourage tourism investment.
