In re Tax Appeal of Grace Development Corporation v. Kamikawa (Dissenting Opinion of J. Acoba)

DISSENTING OPINION OF ACOBA, J.

The scope of the tax appeal court's jurisdiction has been defined, over time, as encompassing three areas. First, Hawaii Revised Statutes (HRS) з 232-11 (1993) describes the jurisdiction of the tax appeal court as one to "hear and determine appeals as provided in [HRS] section 232-16 or

232-17."⁽¹⁾ The references in HRS зз 232-13 (1993), -16 (1993), and -17 (1993) to the "assessor" or the "assessment"⁽²⁾ seemingly limit the tax appeal court's jurisdiction to appeals in which assessments have been made. See In re Smart, 54 Haw. 250, 253,

505 P.2d 1179, 1181 (1973) (holding that appeals from real property tax valuations must be brought under HRS з 246-46 and not HRS з 40-35). Second, as a result of the apparently restrictive language in HRS зз 232-13, -16, and -17, jurisdiction over a challenge to the "illegality" of a tax was said to be permitted under the protest payment provisions of HRS з 40-35 (1993). Id. at 252, 505 P.2d at 1181. Finally, where there was neither an assessment nor a protest payment, the Hawaii Supreme Court has found, because of the absence of statutory language to the contrary, tax appeal court jurisdiction to hear "aggrieved taxpayer petitions from adverse rulings by the [t]ax [d]irector." In re Tax Appeal of Aloha Motors, 69 Haw. 515, 520, 750 P.2d 81, 84 (1988).

Thus, as a general matter, subject matter jurisdiction rests in the tax appeal court to hear taxpayer "appeals" from assessments, In re Smart, 54 Haw. at 253, 505 P.2d at 1181; challenges to taxes paid under protest, Id. at 252, 505 P.2d at 1181, HRS з 40-35; and adverse rulings by the [t]ax [d]irector, In re Tax Appeal of Aloha Motors, 69 Haw. at 520, 750 P.2d at 84. There being neither an outstanding assessment nor an adverse ruling by Defendant-Appellee Ray K. Kamikawa, Director of Taxation, State of Hawaii (the Tax Director) in the instant case, the question is whether the protest payment by Plaintiff-Appellant Grace Business Development Corporation (Grace) satisfies the requirements of HRS з 40-35 so as to invoke subject matter jurisdiction of the tax appeal court. I am of the opinion that it does not, and therefore would hold that jurisdiction does not lie in the tax appeal court. I consider the legislative history of HRS з 40-35 as supportive of this conclusion.

As originally enacted, the text of HRS з 40-35 stated in relevant part:

Section 1521A. Moneys representing a claim in favor of the Territory of Hawaii may be paid to a public accountant of the Territory under protest in writing signed by the person making such payment, or by his agent, setting forth the grounds of such protest, in which event the public accountant to whom such payment is made shall hold the money so paid for a period of thirty days from the date of payment.

1907 Haw. Sess. L. Act 45, з 1, at 52. At the time this measure was adopted, a protest payment was seen as a means to resolve "differences of opinion aris[ing] between the Treasurer of the Territory and Citizens in regard to the amount which may be due the Government[.]" Sen. Stand. Com. Rep. No. 72, in 1907 Senate Journal, at 451-52.

However, in 1967, Revised Laws of Hawaii (RLH) з 34-24 (1955) was amended, in part, to add the words "[a]ny disputed portion of" to the first sentence of the relevant text.

According to the Senate committee report, the purpose of the amendment was to ensure that only funds relating "to the issues actually in dispute" may be paid under protest:

Section 34-24, [RLH] 1955, as amended, authorizes the making of monetary payments under protest to the State of Hawaii. Monetary payments made under protest to the State of Hawaii are, after the filing of a suit by the payor, put into and held in a "litigated claims fund" and cannot be withdrawn from said fund until said suit is resolved. The present wording of Section 34-24, however, enables persons involved in litigation with the State of Hawaii to make payments under protest to the State and include in such payments monies owing to the State of Hawaii but which do not relate to the issues actually in dispute. As such, the governmental agency or department involved in a payment under protest may be handicapped by having funds due and owing to it paid under protest and not available for use even if said funds do not relate to the issues actually in dispute in the suit filed against the State of Hawaii.

S.B. No. 949 amends Section 34-24, [RLH] 1955, as amended, so that only monies actually involving issues in dispute may be paid under protest to the State of Hawaii.

Sen. Stand. Com. Rep. No. 542, in 1967 Senate Journal, at 1096 (emphases added).

The House committee report reiterated the statements of the Senate report. See Hse. Stand. Com. Rep. No. 857, in 1967 House Journal, at 813.

The legislature thus expressed concern that funds paid under protest "handicapped" the government because such monies were "not available for use."⁽³⁾ Accordingly, the amendment was intended to ensure that monies paid under protest but not "related to the issues actually in dispute" were to be paid "into the appropriate fund." RLH з 34-24.⁽⁴⁾ As employed in the legislative reports of the 1967 amendment, the word "actually" is the adverb form of the word "actual"; and actual means "existing in act or fact; real . . . existing at present; current, real as of now." Random House College Dictionary 13 (1984). Thus, construed with regard to the legislature's intent, I believe the words "any disputed portion of" must refer to monies as to which an actual dispute exists.

II.

It may be inferred from this legislative history that following the amendment, the gravamen of a protest payment is not merely a "difference[] of opinion" between the taxpayer and the

government, as was said when the statute was first enacted, but some actual dispute which justifies payments to be segregated, and thus removed from governmental use pending judicial resolution of the controversy. In my view, there is no actual dispute within the meaning of HRS з 40-35 as to the monies paid by Grace, for the reasons which follow.

The majority's reversal of the court's order granting summary judgment is based on "[t]he Department[] [of Taxation's] public informational releases, its directive to Grace, its audit of Grace, and the Director's thinly veiled public comments about Grace, all in relation to the subject tax issues, . . . coupled with Grace's payment under protest of the taxes at issue[.]" Majority opinion at 28. As I see the majority's rationale, jurisdiction over Grace's protest payment must rest on whether the other indicia listed amount to an actual dispute. While it may be believed that in all probability the Tax Director will assess the subject taxes against Grace in the future, he has not yet done so. Since the Tax Director has not in fact done so, we cannot say with certainty that he will. Until he does, I believe the dispute is "not real as of now" as is contemplated by HRS з 40-35. In the absence of such a dispute, there would be no tax appeal court jurisdiction.

As indicated above, the public policy implicit in the 1967 amendment precludes the payment of monies under protest unless such monies are the subject of an actual dispute. The text of HRS з 40-35 was amended to ensure that only those monies which are the subject of a real, present dispute may be paid under protest and therefore cognizable in the tax appeal court. This construction of HRS з 40-35 is consistent with and confirmatory of the prohibition in HRS з 632-1 (1993) against judicial jurisdiction over declaratory relief claims "in any controversy with respect to taxes."

Even the majority's definition of "dispute" taken from Black's Law Dictionary is consistent with the foregoing interpretation of HRS з 40-35. Applying that definition to the facts before us, there is, here, no demand on one side, no subject of litigation (unless it is circularly argued that Grace's suit is such litigation), and no "issue joined" ready for suit. The issue would be joined only if and when there is a determination of tax liability on Grace's part by the Tax Director. The effect of reversing the tax appeal court is to grant Grace what HRS з 632-1 prohibits. Under the majority's holding, on remand, Grace will obtain the declaratory ruling it seeks in the absence of an actual, existing, and current dispute required by HRS з 40-35.

III.

I am not unsympathetic to the need of a business organization to plan its future. I cannot, however, agree that we should indulge in "imagin[ing]" what would befall Grace if jurisdiction were denied. Such speculation is unwarranted without facts in the record to verify the majority's concerns.

Neither do I join in the majority's description of the Tax Director's legal position as representing a "purely strategic interest in a coy litigation stance." I see nothing in the record to justify this belief and can conceive of no advantage to be gained by the State of Hawaii in allegedly adopting such a "stance."

Lastly, I cannot attribute, from the record, any purposeful effort by the Director to delay assessment or a "denial of refund" to Grace, as the majority does. The tax department is authorized to conduct an audit as it is presently doing, to determine a taxpayer's liability for general excise taxes, HRS з 237-39 (1993), and for transient accommodation taxes, HRS з 237D-16 (1993). By statute, the Tax Director is allowed three years from the date the annual return was filed to assess such taxes. HRS з 237-40 (1993). Consequently, any dissatisfaction with the period allowed the Tax Director to complete the audit must be addressed to the legislature.

IV.

For the foregoing reasons, I would affirm summary judgment in favor of the Tax Director.

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SIMEON R. ACOBA, JR.

Associate Judge

1. Hawaii Revised Statutes (HRS) з 232-16 (1993) states in pertinent part: "A taxpayer or county, in all cases, may appeal directly to the tax appeal court without appealing to a state board of review, or any equivalent administrative body established by county ordinance[.]"

HRS з 232-17 (1993) states in pertinent part: " An appeal shall lie to the tax appeal court from the decision of a state board of review, or equivalent administrative body established by county ordinance[.]"

2. HRS з 232-13 (1993), governing the procedure before the tax appeal court, states in pertinent part:

Irrespective of which party prevails in proceedings before a state board of review, or any equivalent administrative body established by county ordinance, the assessment as made by the assessor, or if increased by the board, or equivalent county administrative body, the assessment as so increased, shall be deemed prima facie correct.

(Emphases added.)

The relevant portion of HRS з 232-16 states that "[t]he taxpayer or county shall also file a copy of the notice of appeal in the assessor's office or mail a copy to the assessor not later than the date fixed by law for the taking of the appeal." (Emphases added.)

HRS з 232-17 states in pertinent part that "[a]n appeal shall lie to the tax appeal court . . . by the filing, by the taxpayer, the county, or the tax assessor, of a written notice of appeal in the office of the tax appeal court[.]" (Emphasis added.)

3. In discussing the importance of the taxation power, the Territorial Supreme Court of Hawaii stated:

The power to authorize the assessment and collection of taxes is not only a rightful subject of legislation, but it is an indispensable power incident to all forms of civilized government. Taxes are defined as being the enforced proportional contribution of persons and property, levied by the authority of the state for support of the government, and for all public needs. The power of taxation is an incident of sovereignty, and is coextensive with that of which it is incident.

Keola v. Parker, 21 Haw. 597, 600 (1913) (emphasis added; internal quotation marks and citations omitted). In finding that the statute of limitations did not bar a citizen's obligation to pay taxes, the court explained, "[T]he assessment and collection of taxes are of vital importance to the people of these islands. . . . The obligation of the citizen to pay his [or her] taxes is regarded as a continuing public duty which is so discharged only by their payment." Id. (internal quotation marks and citations omitted).

4. The 1967 amendment to Revised Laws of Hawaii з 34-24 (1955), which provided that only disputed portions of the claim in favor of the State of Hawaii (the State) could be paid under protest, also vested in the director of finance the power to make the determination of the amount of the payment actually in dispute. The amended statute stated in pertinent part:

Any disputed portion of moneys representing a claim in favor of the State may be paid to a public accountant of the State under protest in writing signed by the person making the payment, or by his agent, setting forth the grounds of protest, in which event the public accountant to whom payment is made shall hold the money paid under protest for a period of thirty days from the date of payment. The director of finance shall, at the request of the public accountant, make an administrative determination of the amount of the payment which is actually in dispute and the amount which is not in dispute. Upon such determination the public accountant shall deposit amounts not deemed in dispute by the director of finance in the appropriate fund.

Haw. Sess. L. Act 251, з 1, at 374 (emphases added).

In 1981, HRS з 40-35 was amended, authorizing the specific state agency with which a claimant has a dispute to receive the payment under protest and removing the director of finance's power to determine the amount in dispute. The amended version stated in pertinent part:

Any disputed portion of moneys representing a claim in favor of the State may be paid under protest to a public accountant of the department, board, bureau, commission, or other agency of the State with which the claimant has the dispute. The protest shall be in writing, signed by the person making the payment, or by his agent, and shall set forth the grounds of the protest. If any payment, or any portion of any payment, is made under protest, the public accountant to whom the payment is made shall hold that portion of the moneys paid under protest in a trust account in the state treasury for a period of thirty days from the date of payment.

1981 Haw. Sess. L. Act 251, з 1, at 374 (emphases added). By removing the reference to the director of finance and stating that "the public accountant to whom the payment is made shall hold the portion of moneys paid under protest," the legislature apparently implied that the accountant would have the authority to determine what portion of the protested payment was actually in dispute. Id. See Hse. Stand. Com. Rep. No. 53, in 1981 House Journal, at 967-68. The current version of HRS з 40-35 is substantively the same, with only technical amendments.