In re Tax Appeal of Priceline.com, Inc. v. Director of Taxation.

***FOR PUBLICATION IN WEST’S HAWAII REPORTS AND PACIFIC REPORTER***

Electronically Filed
Supreme Court
SCAP-XX-XXXXXXX
04-MAR-2019
09:14 AM

IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

---o0o---

IN THE MATTER OF THE TAX APPEAL OF PRICELINE.COM, INC., ET AL.,
Petitioners/Taxpayers-Appellants-Appellees-Cross-Appellants,

vs.

DIRECTOR OF TAXATION, STATE OF HAWAIʻI,
Petitioner/Appellee-Appellant-Cross-Appellee.

SCAP-XX-XXXXXXX

APPEAL FROM THE TAX APPEAL COURT
(T.X. NO. 13-1-0269 AND CONSOLIDATED CASES:
13-1-0261 through 13-1-0270, 14-1-0001 through 14-1-0010,
and 14-1-0243 through 14-1-0251)

MARCH 4, 2019

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

OPINION OF THE COURT BY POLLACK, J.

This case is a consolidated appeal from twenty-nine

General Excise Tax assessments levied by the Director of

Taxation of the State of Hawaii against five online travel

companies based on car rental transactions that took place in

Hawaii between January 1, 2000, and December 31, 2013. The
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online travel companies contend that the majority of the

assessments are barred because they have already litigated their

General Excise Tax liability for the years in question to final

judgment in a previous case. They further argue that the rental

car transactions should qualify for a reduced General Excise Tax

rate that is calculated based only on the portion of the

proceeds that they retain because rental cars are “tourism

related services” within the meaning of a statutory income-

reducing provision. The Director of Taxation of the State of

Hawai‘i responds that the State cannot be estopped from

collecting taxes it is legally owed based on a previous

litigation and that the rental car transactions must be taxed at

the full rate because no income-reducing provision applies.

We hold on review that, because our precedent does not

permit the actions of a specific government official to impede

the fundamental sovereign power of taxation, the assessments are

not barred and may be considered on the merits. We further hold

that rental cars are tourism related services and the assessed

transactions qualify for the reduced General Excise Tax rate

based only on the portion of the proceeds that the online travel

companies retained.

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I. BACKGROUND

A. The OTCs’ Business Model

The taxpayers in this case are five online travel

companies1 (the “OTCs”) that provide services similar to those of

a traditional travel agent through their respective public

websites.2 The OTCs maintain databases of up-to-date information

about travel-related services offered by third-party providers,

including airline flights and car and hotel rentals. Travelers

accessing the websites can view availability and price data for

services associated with a destination and make reservations

through the OTCs rather than contacting service providers

directly. The OTCs negotiate and contract with service

providers to secure reduced pricing in exchange for providing

1
The parties to this appeal and cross-appeal include
Priceline.com, Inc. (n/k/a The Priceline Group, Inc.); Expedia, Inc.;
Hotwire, Inc.; Orbitz, LLC; and Trip Network, Inc. (d/b/a Cheaptickets.com).
Before the tax court, the consolidated tax appeal also included Hotels.com,
L.P.; Internetwork Publishing Corp. (d/b/a Lodging.com); Travelweb LLC;
Travelocity.com LP (n/k/a TVL LP); and Site59.com, LLC. The tax assessments
levied against Travelocity.com LP (n/k/a TVL LP) and Site59.com, LLC were
resolved out of court, and the appeal was dismissed with prejudice by
stipulation on November 29, 2016. The tax court entered judgment in favor of
Hotels.com, L.P.; Internetwork Publishing Corp. (d/b/a Lodging.com); and
Travelweb LLC in the stipulated final judgment filed April 25, 2017, and no
party has appealed this portion of the ruling.

No OTC that was a party to any stage of the proceedings in this
case was headquartered or had a principal place of business in the State of
Hawaii.
2
Some of the OTCs also operate call centers and process
transactions over the telephone using a substantially identical business
model.

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global marketing and supplying a mechanism for connecting

customers with excess inventory.

In the transactions at issue in this case, the OTCs

utilized a business method called the “merchant model.”3 In a

merchant model transaction, a customer makes a single payment to

an OTC for all purchased services at the time of the

reservation--typically as a credit card charge processed through

the OTC’s website. The OTC appears as the merchant of record

for the credit card transaction. This payment--called the

“gross income” or “gross receipts”--includes at least two

components: the base price for services set by contract between

the OTCs and service providers,4 which the OTCs remit to the

service providers, and an amount that the OTCs retain as

compensation for facilitating the transaction.5 See Hawaii

3
The OTCs also employ the “agency” or “retail” model of
transaction, in which customers make reservations through the OTCs’ websites
and make payment directly to the service provider at the time of service.
The service provider then forwards a portion of the proceeds to the OTC as a
commission for facilitating the transaction. The Director of Taxation of the
State of Hawai‘i has issued separate tax assessments to the OTCs based on
their agency-model transactions in the tax years at issue in this case, but
the OTCs are not challenging these assessments in this appeal.
4
The briefs refer to this base price of the service as the “net
rate.” Because “net” may alternatively refer to the amount the OTCs retain
after all expenses, see Net, Black’s Law Dictionary (10th ed. 2014), this
opinion instead uses the term “base rate.”
5
The briefs alternatively refer to this amount as a “service fee,”
“facilitation fee,” “mark-up,” and “margin,” and sometimes characterize it as
representing separate charges for facilitating the initial transaction and
for providing ongoing customer service related to the reservation. Any
distinction in the compensation retained by the OTCs is not relevant to this
appeal, and this Opinion refers to the full amount collectively.

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Revised Statutes (HRS) § 237-3 (2017) (defining “gross income”).

Some of the transactions at issue in this case also included a

“tax recovery” charge representing the estimated amount of taxes

the service providers would pay on the transaction, which the

OTCs also forwarded to the service providers.6 No component of

the gross income is explicitly designated to satisfy the OTCs’

own tax obligations.

The OTCs do not disclose the total amount of gross

income collected in each transaction to service providers and do

not inform customers of the separate cost of each component of

the payment. Consequently, only the OTCs know how much money

they retain in each merchant model transaction.

With respect to vehicle rentals, merchant model

transactions are further divided into package and stand-alone

transactions. In package transactions, customers purchase

multiple travel-related services simultaneously through the OTCs

for a single payment. A customer may reserve an airline ticket

or hotel room at the same time as a rental vehicle, for

instance. The OTCs separate the base rate for each included

service and forward that amount to the appropriate service

provider. A stand-alone transaction, by contrast, involves only

6
In those transactions that did not include a tax recovery fee,
customers typically paid applicable taxes, fees, and surcharges directly to
the service provider at the time of the service.

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a rental vehicle reservation from a single service provider.

All of the OTCs engaged in package transactions during the years

at issue in this case, but only Priceline.com, Inc. and Hotwire,

Inc. also offered stand-alone car rentals as a standard business

practice.7

B. The 2015 Travelocity Case

Prior to 2011, the OTCs filed no tax returns with and

paid no taxes to the State of Hawaii on merchant-model

transactions that resulted in the purchase of services rendered

within the State. See Travelocity.com, L.P. v. Dir. of

Taxation, 135 Hawaii 88, 95-96, 346 P.3d 157, 164-65 (2015). In

2011 and 2012, the Director of Taxation of the State of Hawaii

(the Director) issued two sets of “Notice[s] of Final Assessment

of Additional General Excise And/Or Use Tax” to each OTC.8 See

id. at 93, 346 P.3d at 162. The Director retroactively assessed

the OTCs for unpaid General Excise Tax (GET)9 on the gross income

7
Although a majority of the OTCs generally do not offer stand-
alone car rentals, the evidence indicates that stand-alone transactions
accounted for approximately two-thirds of bookings in all assessed merchant
car rentals by revenue and volume.
8
The final assessment represents the culmination of an
administrative procedure in which a taxpayer is first informed of a proposed
assessment and given an opportunity to file an administrative protest before
the assessment is finalized. See generally Matter of Simpson Manor, Inc., 57
Haw. 1, 7, 548 P.2d 246, 250 (1976) (describing the procedure as it relates
to due process).
9
As discussed in greater detail below, the GET is a tax assessed
“based on the privilege or activity of doing business within the State and

(continued . . .)
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from transactions from 1999 to 2011 that resulted in hotel room

rentals within the State of Hawaii, as well as interest and

penalties for failing to file and non-payment.10 Id. at 92, 346

P.3d at 161.

The OTCs appealed the assessments to the tax court,

arguing, inter alia, that they were not subject to GET because

their business activities did not take place in Hawaii as the

authorizing statute required. Id. at 98-99, 116, 346 P.3d at

168-69, 185 (citing HRS § 237-13 (Supp. 1999)11). On August 15,

(. . . continued)

not on the fact of domicile.” Travelocity, 135 Hawaii at 103, 346 P.3d at
172 (quoting Matter of Grayco Land Escrow, Ltd., 57 Haw. 436, 447, 559 P.2d
264, 272 (1977)). It is imposed on gross income derived from, inter alia,
“any service business” within the State that is not exempted or otherwise
provided for in the authorizing statute. Id. at 97, 346 P.3d at 166 (quoting
HRS § 237-13 (Supp. 1999)). The “inherent pervasiveness” of the tax is
mitigated by a number of income-reducing provisions specifying that certain
classes of transactions are untaxed or taxed on a value less than the gross
income derived from the transaction. Id. at 106, 346 P.3d at 175 (quoting
Matter of Tax Appeal of Cent. Union Church--Arcadia Ret. Residence, 63 Haw.
199, 202, 624 P.2d 1346, 1349 (1981)).
10
The Director also assessed Travel Accommodations Tax (TAT) and
associated interest and penalties on the transactions. Travelocity, 135
Hawaii at 93, 346 P.3d at 162. The TAT is a tax imposed on the gross rental
proceeds derived by “operators” of short-term “transient accommodations”
including hotels. Id. at 119-20, 346 P.3d at 188-89 (citing HRS § 237–2
(Supp. 1998)). The OTCs appealed the assessments, and the tax court found
that the OTCs were not “operators” subject to TAT under the authorizing
statute. Id. at 127, 346 P.3d at 196. On review, this court agreed. Id.
11
HRS § 237-13 provides in relevant part:

There is hereby levied and shall be assessed and collected
annually privilege taxes against persons on account of
their business and other activities in the State measured
by the application of rates against values of products,
gross proceeds of sales, or gross income, whichever is
specified, as follows:

(continued . . .)
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2013, the tax court entered final judgment finding the OTCs

liable for the full amount of the assessed GET. Id. at 92, 346

P.3d at 161. The Director and OTCs filed cross appeals, and

this court granted transfer. Order, Travelocity.com, LP v. Dir.

of Taxation, No. SCAP-XX-XXXXXXX, 2013 WL 6822079 (Haw. Dec. 24,

2013).

On March 17, 2015, this court issued an opinion

affirming in part and vacating in part the tax court’s final

judgment. Travelocity, 135 Hawaii at 127, 346 P.3d at 196. The

court first determined that the OTCs’ merchant hotel room

transactions constituted “sufficient ‘business and other

activities in the State’ to impose the GET” because the OTCs

actively solicited and contracted with Hawaii hotels and Hawaii

consumers to profit from the sale of occupancy rights that were

wholly exercised in Hawaii. Id. at 105, 346 P.3d at 174

(quoting HRS § 237-13).

(. . . continued)

. . . .

(6) Tax on service business.

(A) Upon every person engaging or continuing within
the State in any service business or calling including
professional services not otherwise specifically taxed
under this chapter, there is likewise hereby levied and
shall be assessed and collected a tax equal to four per
cent of the gross income of the business . . . .

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The court went on to hold, however, that the assessed

transactions qualified for GET apportionment under a related

statutory provision because the rented hotel rooms were

“transient accommodations . . . furnished through arrangements

made by a travel agency . . . at noncommissioned negotiated

contract rates” for which the “gross income [was] divided

between the operator of transient accommodations . . . and the

travel agency.” Id. at 106, 113, 346 P.3d at 175, 182 (quoting

HRS § 237-18(g) (1993) (emphasis omitted)).12 Accordingly, the

court held that the OTCs were liable for GET and associated

interest and penalties based on only the amounts they retained

from the assessed transactions and not the gross income. Id. at

113, 346 P.3d at 182.

The court therefore remanded the case to the tax court

to make a final determination of each OTC’s GET liability under

the ruling. Id. at 127, 346 P.3d at 196. The tax court entered

12
HRS § 237-18(g) provides in full:

Where transient accommodations are furnished through
arrangements made by a travel agency or tour packager at
noncommissioned negotiated contract rates and the gross
income is divided between the operator of transient
accommodations on the one hand and the travel agency or
tour packager on the other hand, the tax imposed by this
chapter shall apply to each such person with respect to
such person’s respective portion of the proceeds, and no
more.

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a set of Stipulated Final Judgments on Remand on September 21,

2015, establishing each OTC’s GET liability.

C. The Present Case

On December 9, 2013, while the cross-appeals of the

tax court’s initial judgment in Travelocity were pending, the

Director issued a new set of “Notice[s] of Final Assessment of

Additional General Excise And/Or Use Tax” based on the gross

income from the OTCs’ merchant rental car transactions from 2000

to 2012.13 This was followed on July 18, 2014, by an additional

set of GET assessments based on the gross income from the OTCs’

2013 merchant rental car transactions.14

1. The Tax Court Proceedings

Upon receiving the merchant rental car GET

assessments, the OTCs filed timely notices of appeal to the tax

court. The appeals were consolidated, and prior to trial the

Director and OTCs filed cross-motions for partial summary

judgment.

13
The OTCs filed timely administrative protests for all of the
assessments at issue in this case.
14
The 2013 assessments also included GET and TAT on the OTCs’
merchant hotel room rental transactions. Following this court’s decision in
Travelocity, 135 Hawaii at 127, 346 P.3d at 196, the TAT assessments were
canceled by stipulation. The 2013 merchant hotel room rentals’ GET
assessments are also not at issue in this appeal.

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a. The Director’s Motion for Partial Summary Judgment

On May 9, 2016, the Director filed a motion seeking a

ruling that the OTCs were liable for GET on the gross income

from all merchant rental car transactions in the State of Hawaii

from 2000 to 2013, as well as interest and penalties for failing

to file and non-payment. The Director first contended that,

under our precedents, the assessment of taxes, penalties, and

interest are presumed correct, making it the OTCs’ burden to

disprove the accuracy of the challenged assessments. (Citing

Travelocity, 135 Hawaii at 114-15, 346 P.3d at 183-84.) The

Director then argued that Travelocity was dispositive as to the

GET’s applicability to the OTCs’ merchant rental car

transactions because the rentals constituted business and other

activities in Hawaii under HRS § 237-13 in the same manner as

the OTCs’ merchant hotel room rentals. (Citing 135 Hawaii at

103-05, 346 P.3d at 172-74.)

Anticipating the OTCs’ counter-argument based on their

earlier administrative protests, the Director asserted that no

income-reducing provision applied to the merchant rental car

transactions. Specifically, the Director argued that “the

income-reducing provision in HRS § 237-18(f)15 that applies to

15
HRS § 237-18(f) provides in full as follows:

(continued . . .)
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‘tourism related services’ simply does not encompass” the

merchant rental car transactions based on legislative history

and principles of statutory construction.

Lastly, the Director argued that the OTCs are subject

to penalties under HRS § 231-39(b)16 for their undisputed failure

(. . . continued)

Where tourism related services are furnished through
arrangements made by a travel agency or tour packager and
the gross income is divided between the provider of the
services and the travel agency or tour packager, the tax
imposed by this chapter shall apply to each such person
with respect to such person’s respective portion of the
proceeds, and no more.

As used in this subsection “tourism related services” means
catamaran cruises, canoe rides, dinner cruises, lei
greetings, transportation included in a tour package,
sightseeing tours not subject to chapter 239, admissions to
luaus, dinner shows, extravaganzas, cultural and
educational facilities, and other services rendered
directly to the customer or tourist, but only if the
providers of the services other than air transportation are
subject to a four per cent tax under this chapter or
chapter 239.
16
HRS § 231-39(b) (2017) provides in relevant part as follows:

(b) There shall be added to and become a part of the tax
imposed by such tax or revenue law, and collected as such:

(1) Failure to file tax return. In case of failure
to file any tax return required to be filed on the
date prescribed therefor (determined with regard to
any extension of time for filing), unless it is shown
that the failure is due to reasonable cause and not
due to neglect, there shall be added to the amount
required to be shown as tax on the return five per
cent of the amount of the tax if the failure is for
not more than one month, with an additional five per
cent for each additional month or fraction thereof
during which the failure continues, not exceeding
twenty-five per cent in the aggregate. . . .

(2) Failure to pay tax.

(continued . . .)
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to file returns or pay GET on their merchant rental car

transactions because they had not demonstrated the failure was

“due to reasonable cause and not due to neglect.” (Citing

Travelocity, 135 Hawaii at 113, 346 P.3d at 182.)

On July 26, 2016, the OTCs filed an opposition to the

Director’s motion for partial summary judgment. Directing the

court to their own cross-motion for partial summary judgment,

discussed below, the OTCs argued that the assessments for tax

years 2000 to 2011 were barred under the doctrine of res

judicata due to GET liability for those years having been

litigated to final judgment in Travelocity.

The OTCs then contended that the Director had

misapprehended this court’s statements in Travelocity about the

presumption of a tax assessment’s correctness; only the

calculation of the amount of tax owed is presumed correct, the

OTCs asserted, and questions of law regarding application of a

tax are reviewed de novo. (Citing 135 Hawaii at 114, 346 P.3d at

183.) The OTCs pointed out that our precedents indicate tax

(. . . continued)

(A) If any part of any underpayment is due to
negligence or intentional disregard of rules
(but without intent to defraud), there shall be
added to the tax an amount up to twenty-five
per cent of the underpayment as determined by
the director.

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statutes should be interpreted strictly with ambiguity resolved

in favor of the taxpayer. (Citing In re Fasi, 63 Haw. 624, 629,

634 P.2d 98, 103 (1981).)

The OTCs then argued that the assessments should be

vacated because they failed to apply the GET apportioning

provision for “tourism related services” under HRS § 237-18(f).

The OTCs asserted that vehicle rentals fall squarely within the

conventional conception of tourism related services and disputed

the Director’s interpretation of legislative history and

application of statutory construction principles. Lastly, the

OTCs argued that genuine issues of material fact existed as to

which OTCs filed or paid GET during the years in question, and

the determination of penalties should therefore be deferred

until after the resolution of the partial summary judgment

motions.

b. The OTCs’ Cross-Motion for Partial Summary Judgment

On July 7, 2016, the OTCs filed a motion seeking a

judgment that the GET assessments covering 2000 through 2011

were barred by res judicata because the Director had previously

assessed and litigated the OTCs’ GET liability for those years

to final judgment in Travelocity.17 Relying on a range of

17
The OTCs also contended that the assessments should be vacated
for failing to apply GET apportionment, utilizing arguments substantially

(continued . . .)
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federal cases, the OTCs argued that established “hornbook

principles” of law make clear that a taxpayer’s liability for a

single type of tax during a single tax year gives rise to a

single cause of action. The OTCs contended the doctrine of res

judicata should therefore bar all claims or defenses that were

brought or could have been brought in the previous proceeding to

establish their GET liability.

The OTCs further argued that the Director was aware of

and could have included the merchant car rental transactions in

the first action, pointing to the assessed hotel room

transactions in Travelocity that also included a car rental as

part of the purchased package. Public policy also weighed in

favor of applying res judicata, the OTCs concluded, because the

doctrine serves to promote finality, relieve parties of the cost

of multiple lawsuits, conserve judicial resources, and encourage

reliance by preventing inconsistent decisions.

On July 26, 2016, the Director filed an opposition to

the OTCs’ cross-motion for partial summary judgment. The

Director argued that the OTCs’ res judicata argument fails

because the OTCs did not file GET returns and Hawaii tax

(. . . continued)

identical to those included in the OTCs’ opposition to the Director’s motion
for partial summary judgment.

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statutes treat non-filers in “a different and more punitive

manner than taxpayers who file returns.” Applying res judicata

would encourage tax fraud, the Director continued, by requiring

the Director to guess what undisclosed business activities a

non-filer has conducted in Hawaii. The Director further pointed

out that article VII, section 1 of the Hawaii Constitution

prohibits the surrender or suspension of the taxing power, and

that this court has held that estoppel defenses do not apply to

the fundamental sovereign power of taxation. (Citing Dir. Of

Taxation v. Med. Underwriters of Cal., 115 Hawaii 180, 194, 166

P.3d 353, 367 (2007).)

Additionally, the Director asserted that no Hawaii

court had ever recognized res judicata as a defense to taxation

and that the OTCs had not met the technical requirements of the

doctrine as applied by Hawaii courts in any event. Lastly, the

Director argued that even if res judicata was an available

defense under the circumstances, summary judgment was

inappropriate because genuine issues of material fact existed as

to whether the Director knew about the OTCs’ merchant rental car

transactions at the time of Travelocity and thus could have

included them in the prior proceeding.

The Director’s opposition also included a number of

additional arguments that the merchant rental car transactions

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did not qualify as “tourism related services” for GET

apportionment under HRS § 237-18(f). Most notably, the Director

contended that certain types of rental car transactions could

not be characterized as tourism related services under any

definition of the term, including rentals to Hawaii residents

whose vehicles have broken down or to business persons traveling

to the State or among the islands for only business purposes.

c. Hearing and the Tax Court’s Ruling

The tax court held a joint hearing on the cross-

motions on August 5, 2016. At the hearing, the tax court

expressed “legitimate concern about how many times the taxpayers

are going to have to come back to . . . defend general excise

tax issues” and stated that “there’s very little dispute that

people in the world, including the tax director in Hawaii, knew

that car rental services were part of the services that these

online travel companies offered” prior to Travelocity. The

court found, however, that this did not equate to knowledge of

“actionable conduct” by the OTCs on which additional GET could

be assessed. Because Travelocity and the present case were

initiated through separate assessments based on “completely

different activity giving rise to the alleged tax liability,”

the court found that the present action was not barred by res

judicata.

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Turning to whether the HRS § 237-18(f) apportioning

provision applied, the court found that the primary commonality

among the ten enumerated examples of tourism related services in

the statute was that they were part of tour packages. Citing

this court’s discussion of the term “tour packager” in

Travelocity, the court asserted that the legislature’s inclusion

of “transportation included in a tour package” rather than

simply “transportation” confirmed that the provision was

intended to reach only services packaged together for resale by

a travel agent. Accordingly, the court found that the stand-

alone merchant rental car transactions did not qualify as

tourism related services for GET apportionment under HRS § 237-

18(f). The court further found that package transactions,

however, in which the rental car was purchased along with at

least one other service, qualified as “transportation included

in a tour package” and were thus tourism related services within

the meaning of the GET apportionment provision.

On November 4, 2016, the court entered an order

corresponding with its oral rulings granting in part and denying

in part the Director and OTCs’ cross-motions for partial summary

judgment.18 On April 25, 2017, the tax court entered a

18
The order included failure-to-file penalties against all OTCs for
tax years 2000 through 2012, as well as failure-to-pay penalties against all

(continued . . .)
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Stipulated Order and Final Judgment Disposing of All Issues and

Claims of All Parties. Both the Director and the OTCs timely

appealed. Prior to briefing, the Director and the OTCs each

filed applications for transfer to this court. This court

granted transfer on August 11, 2017.

2. Proceedings Before this Court

Before this court, the Director argues that the tax

court erred by applying the HRS § 237-18(f) GET apportioning

provision to the OTC’s package rental car transactions. The

Director contends that, by determining that rental cars included

in package transactions were “transportation within a tour

package,” the court disregarded the plain language of the law by

changing the term “transportation” to “rental cars” and ignoring

the word “tour.”

The Director further asserts that the legislative

history of HRS § 237-18(f) and other taxing provisions indicates

that the legislature intended only those services in which a

tourist is conveyed to a second location by another party to be

included in the term “transportation,” and that this meaning is

reflected by standard rules of statutory construction and in the

(. . . continued)

OTCs for tax years 2000 through 2013 except for priceline.com for the period
from May 2013 through December 2013.

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various portions of the Hawai‘i Administrative Rules that employ

the term. And, even were rental cars “transportation” for

purposes of HRS § 237-18(f), the Director contends, the OTCs

failed to demonstrate that rental cars are included in a “tour”

package. The Director argues that the OTCs submitted no

evidence detailing the components included in the specific

assessed transactions, and thus there is no evidence in the

record to create a genuine issue of material fact as to whether

the transactions constituted “tour” packages.19 An evidentiary

presumption in favor of the correctness of the Director’s tax

assessments therefore should have been determinative, the

Director contends, regardless of whether the inclusion of

airfare or accommodations would qualify a transaction as a tour

package.

The OTCs in turn argue that the tax court erred by

failing to find that principles of res judicata bar the Director

from collecting additional assessments of a tax for tax years

that have been previously litigated to final judgment. And even

if these assessments are not wholly barred, the OTCs maintain,

19
The Director’s own submitted evidence included documentation from
which it can be reasonably inferred that the assessed transactions included
package transactions with accommodations or airfare as a component, including
a declaration by a consultant hired by the DOT indicating such package
transactions accounted for approximately one-third of the assessed
transactions by volume and revenue.

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the tax court’s ruling cannot stand because it failed to apply

the HRS § 237-18(f) income-apportioning provision to the OTCs

stand-alone merchant car rental transactions, which legislative

history and principles of statutory construction confirm are

“tourism related services” within the meaning of the statute.

II. STANDARD OF REVIEW

This court reviews the grant or denial of summary

judgment de novo. Travelocity.com, L.P. v. Dir. of Taxation,

135 Hawaii 88, 96–97, 346 P.3d 157, 165–66 (2015). “When the

facts are undisputed and the sole question is one of law, the

decision of the [tax court] is reviewed ‘under the right/wrong

standard.’” Id. at 97, 436 P.3d at 166 (quoting Kamikawa v.

United Parcel Serv., Inc., 88 Hawaii 336, 338, 966 P.2d 648, 650

(1998)).

III. DISCUSSION

In reviewing the tax court’s grant or denial of

summary judgment, this court applies the same standard as the

trial court: “summary judgment is appropriate if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.” Travelocity.com,

L.P. v. Dir. of Taxation, 135 Hawaii 88, 96–97, 346 P.3d 157,

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165–66 (2015) (quoting Fujimoto v. Au, 95 Hawaii 116, 136, 19

P.3d 699, 719 (2001)). When performing this evaluation, we

consider the evidence in the light most favorable to the non-

moving party. Umberger v. Dep’t of Land & Nat. Res., 140 Hawaii

500, 528, 403 P.3d 277, 305 (2017) (quoting Lambert v. Waha, 137

Hawaii 423, 432 n.9, 375 P.3d 202, 211 n.9 (2016)).

In this case, the OTCs argue that the Director was

barred by res judicata from bringing an action to enforce any

additional GET assessments based on years for which the OTCs’

GET liability was litigated to final judgement in Travelocity.

The Director responds that as an estoppel defense, res judicata

is not available as a defense against the sovereign power of

taxation. We therefore first examine the development of the

doctrine of res judicata, relevant statutory law, and our

precedent concerning the application of estoppel defenses in

this context. We then turn to the statutes governing the GET

and examine their plain text, legislative history, and

applicable canons of statutory construction to determine whether

rental car transactions qualify as “tourism related services”

for purposes of the relevant income-reducing provision.

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A. Res Judicata

1. Overview

The OTCs argue that the Director is barred from

assessing them additional GET for the years 2000-201120 by res

judicata because their GET liability for those years was

litigated to final judgment in Travelocity. The Corpus Juris

Secundum defines res judicata as the doctrine that “treats the

final determination of an action as speaking the infallible

truth as to the rights of the parties as to the entire subject

of the controversy, so that such controversy and every part of

it must stand irrevocably closed by such determination.” 50

C.J.S. Judgments § 926 (2018). This common law doctrine has its

roots in the Roman and Germanic legal systems that contributed

to Anglo-American law, and similar rules give preclusive effect

to final judgments in most contemporary legal systems.

Developments in the Law-Res Judicata, 65 Harv. L. Rev. 818, 820

(1952).

As recognized in this court’s early decisions, the

doctrine was historically considered to have two interrelated

aspects, each arising from the litigation of a matter to final

20
The GET assessments in this case also include rental car
transactions in the years 2012 and 2013, years which were not included in the
Travelocity assessments and thus not covered by the OTCs’ res judicata
defense. See supra, notes 13, 14, and accompanying text.

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judgment: one barring the bringing of a new action between the

parties based on the same subject matter as a previous claim,

and one barring the relitigation of specific issues previously

determined in a case between the same parties.

Res judicata is twofold. The judgment of a court of
competent jurisdiction is a bar to a new action in any
court between the same parties or their privies concerning
the same subject matter, and precludes the relitigation,
not only of the issues which were actually litigated in the
first action, but also of all grounds of claim and defense
which might have been properly litigated in the first
action but were not litigated or decided. Likewise, the
adjudication by a court of competent jurisdiction of any
right, fact or issue arising between the parties and
actually litigated by them bars the relitigation between
the same parties or their privies in any court of the same
right, fact or issue arising in any subsequent action or
suit between the same parties or their privies, and this
irrespective of whether the later action or suit relates to
the same subject matter.

In re Bishop, 36 Haw. 403, 416–17 (Haw. Terr. 1943) (citing

Makainai v. Lalakea, 29 Haw. 482 (Haw. Terr. 1926)). Thus, res

judicata as originally articulated by this court prohibited the

assertion of any grounds of claim or defense that was or could

have been asserted in a prior litigation between the parties in

a later litigation concerning the same subject matter. This

concept was historically called “estoppel by judgment,” and is

modernly termed “claim preclusion,” “true res judicata,” or

simply “res judicata.”21 See E. A. K., Judgments-Distinction

21
Some formulations further divide claim preclusion into the
concepts of “merger,” “bar,” and “splitting.” See Restatement (Second) of
Judgments § 24 (1982). Merger prevents a plaintiff from asserting a new
action on a “claim or any part thereof” when a “final personal judgment” has
been rendered in the plaintiff’s favor on that claim. Id. at § 18(1). Bar

(continued . . .)
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Between Res Judicata and Estoppel by Verdict, 7 Tex. L. Rev.

167, 168 (1928); 46 Am. Jur. 2d Judgments § 443 (2018). The

doctrine further prohibited the relitigation of specific issues

that were actually decided in a prior litigation against a

party--regardless of the subject matter of the subsequent

litigation. This is known as “estoppel by verdict,” “collateral

estoppel,” “partial res judicata,” or, in modern times, “issue

preclusion.” E. A. K., supra, at 168; 46 Am. Jur. 2d Judgments

§ 443; Hemmings v. C.I.R., 104 T.C. 221, 231 (1995).

Although some academics still refer to both concepts

as falling “[w]ithin the general doctrine of res judicata,” 46

Am. Jur. 2d Judgments § 443, this court has largely adopted the

modern view that “[r]es judicata, or claim preclusion, and

collateral estoppel, or issue preclusion, are . . . . separate

doctrines that ‘involve[] distinct questions of law.’”22 Bremer

v. Weeks, 104 Hawaii 43, 53 & n.14, 85 P.3d 150, 160 & n.14

(2004) (quoting Dorrance v. Lee, 90 Hawaii 143, 148, 976 P.2d

904, 909 (1999)).

(. . . continued)

prevents a plaintiff from bringing another action on a claim on which the
plaintiff has previously lost. Id. at § 19. Splitting is the rule that
multiple claims from a “series of connected transactions” may not be brought
in separate actions. Id. at § 24.
22
The OTCs argue only that the assessments in this case are barred
by the first concept, claim preclusion. This opinion therefore addresses
issue preclusion only when relevant to its analysis of claim preclusion.

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Under modern formulations, the party asserting claim

preclusion has the burden of proving three elements to establish

that an action is barred: 1) there was a final judgment on the

merits, 2) both parties are the same or are in privity with the

same parties in the original suit, and 3) the claim decided in

the original suit is identical with the one presented in the

action in question. E. Sav. Bank, FSB v. Esteban, 129 Hawaii

154, 159, 296 P.3d 1062, 1067 (2013) (quoting Bremer, 104 Hawaii

at 54, 85 P.3d at 161). Some courts alternatively phrase the

third element as “the same cause of action must be involved in

both cases” and explicitly add a fourth requirement: that the

first judgment was rendered by a court of competent

jurisdiction. See Batchelor-Robjohns v. United States, 788 F.3d

1280, 1285 (11th Cir. 2015).

All but one of the elements are undisputed in this

case; the Director does not contest that there was a final

judgment on the merits by a court of competent jurisdiction in

Travelocity, nor that the case involved the same parties as the

present suit. Rather, the Director argues that as a matter of

law res judicata is not available as a defense in an action by

the State to collect GET.23

23
Given our disposition of this issue, we need not address whether
the OTCs’ GET liability on the merchant rental car transactions constitutes

(continued . . .)
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2. The Statutory Framework

As an initial matter, res judicata is a common law

doctrine, and common law may generally be overridden by

statute.24 See In re Water Use Permit Applications, 94 Hawaii

97, 120, 9 P.3d 409, 432 (2000) (holding the legislature may

override common law doctrine “as it deems appropriate or

necessary”); cf. Gold Coast Neighborhood Ass’n v. State, 140

Hawaii 437, 451, 403 P.3d 214, 228 (2017) (“However, statutes

which abrogate the common law must do so expressly, not

impliedly, and such statutes ‘must be strictly construed.’”

(quoting Burns Int’l Sec. Servs., Inc. v. Dep’t of Transp., 66

Haw. 607, 611, 671 P.2d 446, 449 (1983))). Indeed, many federal

courts have reasoned that the federal internal revenue code has

displaced the common law rules of claim preclusion when holding

that a claim by the federal government for a tax deficiency is

not barred by a final judgment in a taxpayer’s previous refund

action based on the same tax year. Hemmings v. C.I.R., 104 T.C.

(. . . continued)

the same claim litigated in Travelocity or whether the Director as a factual
matter could have pursued the OTCs’ GET liability for the merchant rental car
transactions in Travelocity.
24
There may be exceptions to the legislature’s ability to override
the doctrine of res judicata when to do so would violate the separation of
powers by “unconstitutionally interfer[ing] with the judiciary’s authority to
manage the judicial process and th[e] court’s ability to finally resolve
matters on appeal by precluding subsequent and repetitive efforts to
relitigate the same claims.” Berkson v. LePome, 126 Nev. 492, 495 (2010).

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221, 235 (1995) (citing, inter alia, Pfeiffer Co. v. United

States, 518 F.2d 124, 130 (8th Cir. 1975); Caleshu v. United

States, 570 F.2d 711, 713–14 (8th Cir. 1978); Pension Benefit

Guaranty Corp. v. Alloytek, Inc., 924 F.2d 620, 626 (6th Cir.

1991)).25

The Director contends that two Hawaii statutes are

relevant to this appeal. First, HRS § 237-40 (2017) provides

general guidelines for when the Director may issue a GET

assessment. When a taxpayer files a return, the Director may

issue an assessment “within three years after the annual return

was filed, or within three years of the due date prescribed for

the filing of the return, whichever is later.” HRS § 237-40(a).

When a taxpayer has failed to file a return, however, GET “may

be assessed or levied at any time.” HRS § 237-40(b). The

Director then points to HRS § 237-38 (2017), which further

addresses the failure to file a return: “If any person fails,

25
In analyzing whether the action was barred by res judicata,
Hemmings considered whether the government’s deficiency claim was a
compulsory counterclaim under Federal Rules of Civil Procedure (FRCP) Rule
13(a) (2009), which is substantially identical to Hawaii Rules of Civil
Procedure Rule 13(a) (2000). The rule requires that a defendant assert in a
responsive pleading “any claim that--at the time of its service--the pleader
has against an opposing party if the claim . . . arises out of the
transaction or occurrence that is the subject matter of the opposing party’s
claim.” FRCP Rule 13(a). Compulsory counterclaim rules incorporate common
law principles of res judicata. Tyler v. DH Capital Mgmt., Inc., 736 F.3d
455, 460 (6th Cir. 2013). Accordingly, the “classification of compulsory
counterclaims is often determinative of pleas of res judicata.” Cleckner v.
Republic Van & Storage Co., 556 F.2d 766, 769 (5th Cir. 1977) (citing
Aerojet-General Corp. v. Askew, 511 F.2d 710, 717 (5th Cir. 1975)).

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neglects, or refuses to make a return, the department of

taxation may proceed as it deems best to obtain information on

which to base the assessment of the tax. After procuring the

information the department shall proceed to assess the tax.”

Although the Director argues that these provisions

grant her wide latitude to assess GET in the manner of her

choice because the OTCs did not file GET returns for the years

in question, neither statute speaks directly to the Director’s

authority to issue multiple assessments for the same tax. HRS §

237-40’s statement that “the tax may be levied or assessed at

any time” is at most ambiguous on the point; an authorization to

issue a single assessment at any time is not equivalent to an

authorization to issue multiple assessments. And, contrary to

the Director’s characterization, HRS § 237-38 does not authorize

her to proceed as she deems best generally, but rather only in

“obtain[ing] information on which to base the assessment of the

tax.”

In comparison, the federal statutes that courts have

interpreted as displacing aspects of res judicata in federal tax

cases speak directly on the government’s discretion in filing a

deficiency counterclaim. See 26 U.S.C. § 7422 (2012) (“[T]he

United States may counterclaim in the taxpayer’s suit.”

(emphasis added)); Patzkowski v. United States, 576 F.2d 134,

136 n.1 (8th Cir. 1978) (“When a taxpayer has sued for a refund,

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the Government may, of course, assert its collection action as a

counterclaim; alternatively, however, it may file a separate

collection action.”). And in some cases these courts have also

found structural indications that the normal preclusion rules

would undermine the federal statutory scheme more generally by,

for example, allowing a taxpayer to unilaterally shorten the

statute of limitations on the government’s deficiency claim by

bringing an action for a refund based on the same tax year. See

Pfeiffer, 518 F.2d at 129.

In the absence of such a clear pronouncement from the

legislature or an obviously incompatible statutory scheme, this

court will not infer an intention to override the normal

functioning of res judicata from the statutes governing GET

assessments. See Gold Coast, 140 Hawaii at 457, 403 P.3d at 234

(“Abrogation of such a deeply-rooted principle of law is

contradictory to our jurisdiction’s requirement that the common

law governs unless ‘otherwise expressly provided.’” (quoting HRS

§ 1-1 (2009)).

3. Res Judicata, Estoppel, and the Sovereign Taxation Power

The Director argues that res judicata is a form of

estoppel and that estoppel defenses do not apply to the

fundamental sovereign tax power under this court’s decision in

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Director of Taxation v. Medical Underwriters of California, 115

Hawaii 180, 193-94, 166 P.3d 353, 366-67 (2007).26 In Medical

Underwriters, this court considered whether Medical Underwriters

of California (MUC) could assert the defense of equitable

estoppel in a tax appeal. Id. In the years prior to the case,

the insurance division of the State of Hawaii’s Department of

Commerce and Consumer Affairs had treated MUC as an insurance

company for licensing purposes under the state insurance code.

Id. at 183, 166 P.3d at 356. Relying on this classification,

MUC reasoned that it was exempt from GET under HRS § 237-29.7

(2001), which specifically excludes “insurance companies

authorized to do business under” the insurance code. Id.

26
The Director also argues that the fundamental sovereign right of
taxation is protected by article VII, section 1 of the Hawaii Constitution,
which is entitled “Taxing Power Inalienable” and provides that “[t]he power
of taxation shall never be surrendered, suspended or contracted away.”
Courts interpreting similar provisions have generally held that such
provisions bar the State from surrendering the power of taxation through a
promise, contract, or transaction. See Sheehy v. Pub. Emps. Ret. Div., 864
P.2d 762, 766 (Mont. 1993) (“Article VIII, Section 2 of the 1972 Constitution
[] prohibits the state from surrendering or contracting away the power to
tax. Under that constitutional provision, the state cannot promise any group
of taxpayers that it will never tax them.”); Nw. Nat. Life Ins. Co. v.
Jordan, 447 F. Supp. 856, 861 (D. Nev. 1978) (“[T]he Round Hill assessment
bonds do not attempt to restrict the State of Nevada or the [Tahoe Regional
Planning Agency] from promulgating and enforcing land use restrictions in the
Lake Tahoe Basin. Nor would such a promise have been legally binding. . . .
[T]he police power and power of eminent domain are generally considered
inalienable. It is presumed that parties contract with knowledge that
reservation of essential attributes of sovereign power is written into all
contracts.” (citation omitted)). The provision is therefore inapposite here,
where the State’s taxation power would be incidentally barred as the
consequence of prior litigation.

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Accordingly, the company did not file or pay GET from 1985 to

1999. Id.

In 1999, the Director assessed MUC for unpaid GET for

these years, arguing that MUC did not meet the statutory

requirements to be an “insurance company.” Id. at 183, 187, 166

P.3d at 356, 360. MUC appealed the assessments, arguing inter

alia that the Director was estopped from denying its status as

an insurance company because MUC had detrimentally relied on its

classification by the insurance division--another agency of the

State government. Id. at 193, 166 P.3d 366.

This court held that MUC was not an insurance company

for purposes of the GET exemption and that the Director was not

estopped from collecting the back-taxes. Id. at 194, 166 P.3d

367. The court reasoned that, although “generally, ‘the

doctrine of equitable estoppel is fully applicable against the

government,’” “significant limitations have been placed on the

doctrine in this context.” Id. at 193, 166 P.3d 366 (quoting

State v. Zimring, 58 Haw. 106, 126, 566 P.2d 725, 738 (1977);

Filipo v. Chang, 62 Haw. 626, 634, 618 P.2d 295, 300 (1980)).

One such limitation is that the doctrine cannot be applied to

prevent the State from exercising its sovereign power. Id.

(citing Filipo, 62 Haw. at 634, 618 P.2d at 300; Godbold v.

Manibog, 36 Haw. 206, 214 (Haw. Terr. 1942)). Because it was

“beyond dispute that the power of taxation is a sovereign power

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of the state,” the court reasoned that “the doctrine of

equitable estoppel may not be applied against the government’s

power to tax.” Id. at 194, 166 P.3d 367 (citing Fitzgerald v.

City of Bangor, 726 A.2d 1253, 1255–56 (Me. 1999); PCS, Inc. v.

Ariz. Dep’t of Revenue, 176 Ariz. 628, 630, (Ariz. T.C. 1993)).

In so holding, this court quoted from Fitzgerald v.

City of Bangor, a decision by the Supreme Judicial Court of

Maine holding that estoppel is unavailable in tax cases in order

“to assure that no officer of government has the ability to

interfere inadvertently with the government’s fundamental

sovereign power to tax its citizens.” 115 Hawaii at 194, 166

P.3d at 367 (quoting Fitzgerald, 726 A.2d at 1255–56). The

Maine court reasoned that taxation was “the paramount function

of government by which it is enabled to exist and function at

all.” Fitzgerald, 726 A.2d at 1256 n.4 (quoting Me. Sch. Admin.

Dist. No. 15 v. Raynolds, 413 A.2d 523, 533 (Me. 1980)). “An

administrative officer charged with the duty of collecting taxes

had neither the power to abrogate the state’s sovereign power to

tax nor the power to grant an exemption to a taxpayer,” the

court continued. Id. Accordingly, tax officials cannot prevent

the government from exercising its fundamental tax authority by

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intentional or unintentional acts, the court concluded.27 See

id.

The OTCs argue that “Medical Underwriters is about

equitable estoppel” and that “[t]he question of whether a taxing

authority may bring an action in the first instance (despite its

delay and/or the taxpayer’s reliance) is very different from

whether a taxing authority is free to relitigate claims that

already were brought, or could have been brought, in a prior

action that resulted in a final judgment.”

Equitable estoppel and res judicata share a common

ancestry; both “evolved from the medieval common law theory of

estoppel by matter in pais (‘in the country’ or ‘on the land’).”

Christopher Brown, A Comparative and Critical Assessment of

Estoppel in International Law, 50 U. Miami L. Rev. 369, 372

(1996). The rule originally concerned the binding effect of

representations made in public. Id. As written records became

more common, res judicata split off and became a doctrine of its

27
It is noted that federal courts do not follow this rule in
federal tax litigation, and instead apply a higher standard in determining
whether equitable estoppel is available as a defense against the government’s
power of taxation than in other contexts. See Norfolk S. Corp. v. C.I.R.,
104 T.C. 13, 60 (1995), aff’d, 140 F.3d 240 (4th Cir. 1998) (holding
government may only be equitably estopped based on a mistake of law when “a
taxpayer can prove he or she would suffer an unconscionable injury” and
setting forth a five factor test for equitable estoppel based on misstatement
of fact). It is therefore unsurprising that federal courts also consider res
judicata a potential defense against the government’s taxation power when a
statute does not provide otherwise. See, e.g., Erickson v. United States,
309 F.2d 760, 768 (Ct. Cl. 1962); Lenny v. Williams, 143 F.Supp. 29, 34 (N.D.
Ohio 1956).

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own, premised on the official recording of court proceedings.

Id. at 375.

“In spite of the historical association between

estoppel by res judicata and the other forms of estoppel, the

former is founded on vastly different principles.” Id.

Equitable estoppel, as its name implies, exists primarily to

ensure fairness to litigants by protecting innocent parties and

“prevent[ing] a party from profiting from his or her

wrongdoing.” Major League Baseball v. Morsani, 790 So.2d 1071,

1078 (Fla. 2001). Res judicata likewise protects litigants by

“reliev[ing] parties of the cost and vexation of multiple

lawsuits” and ensuring finality, thus permitting “reliance on

adjudication.” State by Price v. Magoon, 75 Haw. 164, 189, 858

P.2d 712, 724 (1993) (quoting Kauhane v. Acutron Co., 71 Haw.

458, 463-64, 795 P.2d 276, 278-79 (1990)).

But res judicata also serves to “conserve judicial

resources” and “prevent[] inconsistent decisions.” Id. The

doctrine is an aspect of “the inherent ability of the judiciary

to manage litigation and finally resolve cases,” and some courts

have held that efforts by the other branches of government to

circumvent res judicata violate the separation of powers.

Berkson v. LePome, 126 Nev. 492, 499-500, 245 P.3d 560, 565-66

(2010) (holding that a statute that permitted plaintiffs whose

victories were reversed on appeal to file new actions violated

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the separation of powers); accord Plaut v. Spendthrift Farm,

Inc., 514 U.S. 211, 225 (1995) (holding that a statute

permitting plaintiffs to refile actions previously dismissed as

untimely violated separation of powers).

Thus, unlike equitable estoppel, res judicata is a

rule not only “of fundamental and substantial justice” and

“private peace” but of “public policy.” Magoon, 75 Haw. at 189,

858 P.2d at 724 (quoting Kauhane, 71 Haw. at 463-64, 795 P.2d at

278-79). Some courts have classified this as the doctrine’s

primary purpose. See Buromin Co. v. Nat’l Aluminate Corp., 70

F.Supp. 214, 217 (D. Del. 1947) (“The doctrine of res judicata

is primarily one of public policy and only secondarily of

private benefit to the individual litigants. It has its roots

in the maxim that it concerns the public that there be an end to

litigation when one party has had a full and free opportunity of

presenting all the facts pertinent to the controversy.”) Some

commentators argue this distinction is significant enough that

“in contemporary practice, [claim and issue preclusion] are not

considered estoppels at all in spite of their nomenclature.”

Brown, supra, at 376.

This case therefore presents a conflict between

competing doctrines. On the one hand, Medical Underwriters held

that estoppel defenses should not be available against the

government in tax cases “to assure that no officer of government

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has the ability to interfere inadvertently with the government’s

fundamental sovereign power to tax its citizens.” 115 Hawaii at

194, 166 P.3d at 367 (quoting Fitzgerald, 726 A.2d at 1255–56).

On the other, res judicata implicates public policy and

fundamental judicial powers such as the ability to finally

resolve cases, and the doctrine potentially serves as a check on

the other branches of government. Berkson, 126 Nev. at 500.

This is to say that, without some form of preclusion, there is

nothing to stop litigants--including the executive and

legislative branches--from simply relitigating adverse

determinations until they receive a favorable decision.

In light of the competing considerations of the

sovereign power to tax versus the public policy of case

finality, we also consider the doctrine of issue preclusion.

Although both claim preclusion and issue preclusion were

historically considered aspects of res judicata and are

nominally forms of estoppel, when considered in relation to each

other it becomes clear that the doctrines serve different

purposes.

Claim preclusion “may be viewed as a rule of battle

which forces one side to fire all of its guns at once rather

than withhold some of its rounds for later in the battle.”

Brown, supra, at 375. It serves to conserve judicial resources

by preventing a “multiplicity of suits” and to protect litigants
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against the “cost and vexation of multiple lawsuits.” Kauhane,

71 Haw. at 463, 795 P.2d at 278. It thus promotes finality

generally in that it ensures all of the litigation related to a

given incident or transaction is settled at once.

Issue preclusion, by contrast, protects the core

judicial power to render final decisions as to facts and law in

specific controversies. See Berkson, 126 Nev. at 500. Even in

the absence of claim preclusion, issue preclusion makes judicial

determinations conclusive and prevents a party from repeatedly

litigating adverse decisions in the hopes of securing a more

favorable outcome.

We held in Medical Underwriters that the actions of a

specific government official may not deprive the State of Hawaii

of its sovereign power to collect the taxes it is legally due.

115 Hawaii at 193-94, 166 P.3d at 366-67. Our reasoning holds

equally true when those actions are in the context of a prior

litigation, and the common law defense of claim preclusion is

thus inapplicable against the State in tax cases. Id. This is

not to say, however, that the State may relitigate adverse

judicial tax decisions ad infinitum. The core judicial power to

make binding determinations of issues that come before the

courts remains protected by the doctrine of issue preclusion,

which applies with full force in tax litigation.

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Because the doctrine of claim preclusion is

inoperative as a defense against the State’s sovereign taxation

power, the OTCs may not invoke it to bar the Director’s

enforcement of the tax assessments here at issue.28 The tax

court was therefore correct to deny the OTCs’ cross-motion for

partial summary judgment.

B. GET Apportionment for Tourism Related Services

HRS § 237-18(f) permits travel agencies to pay GET on

only the portion of their proceeds that they retain when the

agencies split their gross income from arranging “tourism

related services” with third-party service providers. Both

parties challenge the tax court’s conclusion that the provision

applies categorically to services sold as part of a travel

package. The Director argues that car rentals are not tourism

related services within the meaning of the statute regardless of

whether the rental is a component of a travel package.

Conversely, the OTCs contend that vehicle rentals are covered by

HRS § 237-18(f) irrespective of their inclusion in a package

transaction.

28
The OTCs have not raised issue preclusion as a defense, and it is
therefore unnecessary for this court to determine whether the OTCs’ GET
liability for the assessed years would be an issue entitled to preclusive
effect.

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1. The Presumption of Validity and Interpretory Balance

As a threshold matter, the parties disagree as to the

litigant in whose favor this court is obliged to interpret the

governing GET statutes. The Director asserts that GET

assessments are presumed correct and that it is the OTCs’ burden

to disprove their accuracy. By contrast, the OTCs argue that,

under settled cannons of statutory construction, laws imposing

taxes are construed strictly against the government with any

doubt resolved in favor of the taxpayer. The Director responds

that this court has recognized an exception to the general rule

when a taxpayer seeks an exemption from a tax of general

applicability, in which case the statute should be interpreted

strictly against the taxpayer.

This court has held that GET assessments enjoy a

presumption of validity under HRS § 232–13 (2017), which

provides that “the assessment . . . shall be deemed prima facie

correct.” Travelocity, 135 Hawaii at 114-15, 346 P.3d at 183-84

(emphasis omitted) (citing In re Valley of Temples Corp., 56

Haw. 229, 232, 533 P.2d 1218, 1220 (1975)). The use of the term

prima facie, however, indicates that this presumption concerns

the evidentiary burden of establishing sufficient facts to

prevail. See Prima Facie Case, Black’s Law Dictionary (10th ed.

2014) (“A party’s production of enough evidence to allow the

fact-trier to infer the fact at issue and rule in the party’s

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favor.”); Rivera v. Philip Morris, Inc., 125 Nev. 185, 190–91

(2009) (“The party that carries the burden of production must

establish a prima facie case. The burden of production may be

switched from one party to another by a presumption.” (citations

omitted)). It is therefore inapplicable to the Director’s legal

conclusions, which are reviewable de novo as questions of law.

Weinberg v. City & Cnty. of Honolulu, 82 Hawaii 317, 322, 922

P.2d 371, 376 (1996).

We have further recognized that, as applied in tax

cases, there is a “rule of strict construction . . . . favoring

the taxpayer on provisions imposing the tax or cutting against

him on exemptions.” Honolulu Star Bulletin, Ltd. v. Burns, 50

Haw. 603, 604, 446 P.2d 171, 172 (1968) (quoting In re Taxes,

Hawaiian Pineapple Co., 45 Haw. 167, 192, 363 P.2d 990, 1003

(1961)). We have held, however, that “the rule of strict

construction with regard to taxing statutes is resorted to only

‘as an aid to construction when an ambiguity or doubt is

apparent on the face of the statute, and then only after other

possible extrinsic aids of construction available to resolve the

ambiguity have been exhausted.’” Travelocity, 135 Hawaii at 121

n.47, 346 P.3d at 190 n.47 (quoting Bishop Trust Co. v. Burns,

46 Haw. 375, 399–400, 381 P.2d 687, 701 (1963)).

This court is therefore free to interpret GET statutes

through normal tools of statutory interpretation and will resort
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to the rule of strict construction only if these methods do not

yield a clear answer.

2. The Text of the Statute

“Under general principles of statutory construction,

courts give words their ordinary meaning unless something in the

statute requires a different interpretation.” Saranillio v.

Silva, 78 Hawaii 1, 10, 889 P.2d 685, 694 (1995) (citing Ross v.

Stouffer Hotel Co. (Hawaii), 76 Hawaii 454, 461, 879 P.2d 1037,

1044 (1994)). Thus, “[t]he fundamental starting point of

statutory interpretation is the language of the statute itself.”

State v. Alangcas, 134 Hawaii 515, 525, 345 P.3d 181, 191 (2015)

(citing Hawaii Gov’t Emps. Ass’n v. Lingle, 124 Hawaii 197, 202,

239 P.3d 1, 6 (2010)). “[W]here the statutory language is plain

and unambiguous, our sole duty is to give effect to its plain

and obvious meaning.” Schmidt v. Bd. of Dirs. of Ass’n of

Apartment Owners of Marco Polo Apartments, 73 Haw. 526, 531–32,

836 P.2d 479, 482 (1992) (citations and quotes omitted).

HRS § 237-18(f) grants GET apportionment for “tourism

related services [] furnished through arrangements made by a

travel agency or tour packager” when “the gross income is

divided between the provider of the services and the travel

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agency or tour packager.”29 The statute defines tourism related

services as “catamaran cruises, canoe rides, dinner cruises, lei

greetings, transportation included in a tour package,

sightseeing tours not subject to chapter 239, admissions to

luaus, dinner shows, extravaganzas, cultural and educational

facilities, and other services rendered directly to the customer

or tourist.” Thus, the statute on its face imposes three

requirements: 1) the arrangement is made by a travel agency or

tour packager; 2) the gross income from the transaction is

divided between the service provider and the travel agency or

tour packager; and 3) the service is a tourism related service,

defined as either one of the enumerated examples or “[an]other

service[] rendered directly to the customer or tourist.”

29
HRS § 237-18(f) is restated here as follows:

(f) Where tourism related services are furnished through
arrangements made by a travel agency or tour packager and
the gross income is divided between the provider of the
services and the travel agency or tour packager, the tax
imposed by this chapter shall apply to each such person
with respect to such person’s respective portion of the
proceeds, and no more.

As used in this subsection “tourism related services” means
catamaran cruises, canoe rides, dinner cruises, lei
greetings, transportation included in a tour package,
sightseeing tours not subject to chapter 239, admissions to
luaus, dinner shows, extravaganzas, cultural and
educational facilities, and other services rendered
directly to the customer or tourist, but only if the
providers of the services other than air transportation are
subject to a four per cent tax under this chapter or
chapter 239.

(Emphasis added.)

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As the Director acknowledges, this court determined in

Travelocity that the first two requirements are generally met in

transactions following the OTCs’ merchant business model.30 135

Hawaii at 108, 111, 346 P.3d at 177, 180 (“[F]or the purposes of

the GET Apportioning Provision, the OTCs operate as travel

agencies in the Assessed Transactions. . . . [I]n the Assessed

Transactions, gross income is divided, as that term is used in

the GET Apportioning Provision.”). Further, vehicle rentals are

“services rendered directly to the customer or tourist” within

the plain meaning of the provision, indicating that they would

be tourism related services under a literal reading of the

statutory definition.31

Rental cars also fall within the conventional

understanding of tourism related services independent of the

statutory definition. As the OTCs point out, numerous

publications marketed toward tourists visiting Hawaii promote

renting a car during a vacation, including many publications

released by the State itself. And the previous State Strategic

30
This court held in Travelocity that the OTCs acted as travel
agencies in the specific transactions there at issue. 135 Hawaii at 108, 346
P.3d at 177. Although we did not hold that the OTCs were travel agencies for
all purposes, the Director does not dispute the OTCs’ status as travel
agencies in the transactions in this case.
31
As discussed infra, canons of statutory construction may in some
instances justify departing from the plain meaning of this type of “catch-
all” residual clause.

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Tourism Plan expressly noted that rental cars are commonly

thought of as part of the “visitor industry” due to the

prominent role they play servicing tourists. See Hawaii Tourism

Authority, Hawaii Tourism Strategic Plan 2005-2015 at 8, 14, 16

(“When speaking about the ‘visitor industry,’ what generally

comes to mind are those directly involved in hotels and other

accommodations, airlines, car rental agencies, visitor

attractions, tour operators, and restaurants and retail

operations. . . . Currently, the primary transportation modes

used by visitors are air carriers, cruise ships, ferries, public

transportation vehicles, private buses, rental cars and taxis. .

. . [N]early all visitors on the neighbor islands (and still

many on Oahu) rely on tour buses, taxis or rental cars.”

(emphases added)).

Indeed, the Director ultimately does not dispute that

“in a general sense, car rentals are part of the tourism

industry.” The Director instead attempts to distinguish

services that are part of the tourism industry from “tourism

related services.” But--at least under the common understanding

of the term--the distinction is unfounded. A conventional

dictionary defines “related” to simply mean “associated” or

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“connected.”32 Services that are part of the tourism industry

are plainly associated or connected with tourism, and thus

“tourism related” under the plain meaning of the phrase.

Because rental cars are tourism related services under

both the plain-text of the statutory definition and conventional

definitions of the term, the rental car transactions satisfy HRS

§ 237-18(f)’s third requirement. The text of HRS § 237-18(f)

therefore supports extending GET apportionment to the assessed

rental car transactions.

3. Legislative History

Even when the meaning of a law is apparent on its

face, “[l]egislative history may be used to confirm [the

court’s] interpretation of a statute’s plain language.” E & J

Lounge Operating Co. v. Liquor Comm’n of City & Cty. of

Honolulu, 118 Hawai‘i 320, 335, 189 P.3d 432, 447 (2008). The

legislative history of HRS § 237-18(f) indicates that the

provision was intended to protect and encourage the growth of

the Hawaii visitor industry. The statute was enacted in 1986 as

part of larger legislation concerning the taxation of tourism.

See 1986 Haw. Sess. Laws Act 340, § 7 at 767. Both the report

of the Senate Committee on Ways and Means and the conference

32
Related, Dictionary.com Unabridged,
http://www.dictionary.com/browse/related (last visited Feb. 20, 2019).

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committee report on the bill note that HRS § 237-18(f) was

intended to alleviate the effects of pyramiding that “does not

serve the interests of the State in encouraging tourism.” S.

Stand. Comm. Rep. No. 651-86, in 1986 Senate Journal, at 1077;

Conf. Comm. Rep. No. 70-86, in 1986 House Journal, at 962.

In 1991, the legislature expanded the definition of

“tourism related services” by adding six specific services and

the catch-all clause for “other services rendered directly to

the customer or tourist.” See 1991 Haw. Sess. Laws Act 287, § 1

at 695. The report of the House Committee on Tourism stated

that the change was intended to address “inequities [that]

appear to exist in existing statutes regarding the assessment of

the general excise tax on the revenues of travel-related

companies.” H. Stand. Comm. Rep. No. 140, in 1991 House

Journal, at 891.

Together, these statements evince the legislature’s

intention that HRS § 237-18(f) promote tourism by affording

favorable tax treatment to parties that facilitate recreational

travel to the State. As this court observed in Travelocity, the

legislature made similar statements when enacting HRS § 237-

18(g), which provides GET apportionment for transient

accommodations booked through a travel agency or tour packager,

and HRS § 237-18(h), which provides GET apportionment when motor

carriers contract together to provide transportation. See

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Travelocity, 135 Hawaii at 110, 346 P.3d at 179. We noted that,

in enacting HRS § 237-18(h), the legislature specifically

“identified transportation as an element of the Hawaii visitor

industry that needed protection.” Id. Considering the three

provisions collectively, this court observed that “the

legislature repeatedly sought to protect tourism-related

industries.” Id. at 111, 346 P.3d at 180. We therefore held

that the analogous HRS § 237-18(g) GET apportionment provision

“should not be given a constrained interpretation that would

frustrate the legislative intent to protect the tourism

industry.” Id.

The record indicates the OTCs’ business model is

designed to promote efficiency by providing global marketing for

Hawaii service providers and connecting customers with excess

inventory and availability. It reflects that the OTCs are often

able to offer customers decreased prices due to the volume of

their sales, as well as a central point from which visitors can

book a variety of services at once. The record therefore

indicates that the OTCs’ business model makes Hawaii tourism

cheaper for consumers, suggesting that the OTCs are the type of

companies to which the legislature intended HRS § 237-18(f) to

apply.

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Further, the legislature expressly stated that the

1991 expansion of the definition of tourism related services was

intended to eliminate “inequities” in the GET treatment of the

income of “travel related companies”--a descriptor that the OTCs

indisputably fit. See Travelocity, 135 Hawaii at 106, 346 P.3d

at 175 (holding that the OTCs are “travel agencies,” which is

conventionally defined as, inter alia, “an office or enterprise

engaged in selling, arranging, or furnishing information about

personal transportation or travel” (quoting Webster’s Third New

International Dictionary 2433 (unabr. 1993)). Thus, the

legislative history of HRS § 237-18(f) supports extending GET

apportionment broadly to the services offered by the OTCs that

are rendered directly to a customer by a service provider with

whom the OTCs divide the proceeds of the transaction.

4. Canons of Statutory Construction

“Whether a statutory term is unambiguous . . . does

not turn solely on dictionary definitions of its component

words.” Yates v. United States, 135 S.Ct. 1074, 1081 (2015).

Courts consider the context in which the term occurs, including

the role it plays in the larger statutory scheme. Id. at 1081-

82. In situations in which a statute contains specific examples

followed by a general term, courts have generally found

sufficient ambiguity to turn to cannons of statutory

construction in interpreting the general term. See Peterson v.

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Hawaii Elec. Light Co., 85 Hawaii 322, 329, 944 P.2d 1265, 1272

(1997) (“If the general words are given their full and natural

meaning, they would include the objects designated by the

specific words, making the latter superfluous.” (quoting

Sutherland Statutory Construction § 47.17 (2000))), superseded

on other grounds by HRS § 269-15.5 (2007).

The primary cannon employed in such instances is

ejusdem generis,33 which translates as “of the same kind or

class.” Ejusdem Generis, Black’s Law Dictionary (10th ed.

2014). “The doctrine of ejusdem generis states that where

general words follow specific words in a statute, those general

words are construed to embrace only objects similar in nature to

those objects enumerated by the preceding specific words.”

Asato v. Procurement Policy Bd., 132 Hawaii 333, 352, 322 P.3d

228, 247 (2014) (quoting Singleton v. Liquor Comm’n of Hawaii,

33
This court has also employed a related doctrine, noscitur a
sociis (literally, “it is known by its associates”) which we have freely
translated as “words of a feather flock together” or “the meaning of a word
is to be judged by the company it keeps.” Noscitur a Sociis, Black’s Law
Dictionary (10th ed. 2014); State v. Deleon, 72 Haw. 241, 244, 813 P.2d 1382,
1384 (1991). The doctrine “provides that the meaning of words may be
determined by reference to their relationship with other associated words and
phrases.” Peterson, 85 Hawaii at 328, 944 P.2d at 1271. Although the
parties’ briefs in this case analyze ejusdem generis and noscitur a sociis as
separate doctrines, this court has held that ejusdem generis is an applied
“variation” of noscitur a sociis. Id.; see also Noscitur a Sociis, Black’s
Law Dictionary (10th ed. 2014) (“The ejusdem generis rule is an example of a
broader linguistic rule or practice to which reference is made by the Latin
tag noscitur a sociis.” (quoting Rupert Cross, Statutory Interpretation
118 (1976)).

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111 Hawaii 234, 242 n.14, 140 P.3d 1014, 1022 n.14 (2006))

(internal quotations omitted). Courts employing the doctrine

identify the commonality shared by the enumerated examples and

use this commonality to limit the reach of the general term.

See State v. Kahalewai, 56 Haw. 481, 489, 541 P.2d 1020, 1026

(1975).

As the OTCs argue, the Director has consistently

failed to identify a commonality shared by all of the tourism

related services identified in the statute--“catamaran cruises,

canoe rides, dinner cruises, lei greetings, transportation

included in a tour package, sightseeing tours, . . . admissions

to luaus, dinner shows, extravaganzas, [and] cultural and

educational facilities.” Both of the commonalities argued by

the Director--that the activities are done primarily for

enjoyment and that the services are ends in themselves rather

than a means of enjoying other activities--are belied by the

inclusion of “transportation included in a tour package,” which

fits neither description. Thus, the only clear commonality

among all of the enumerated tourism related services is that

they are marketed and sold primarily (albeit not exclusively) to

tourists.34

34
The tax court instead determined that the commonality between the
ten items was that they “were part and parcel of . . . tour packages,” and
thus concluded that vehicle rentals are tourism related services only when

(continued . . .)
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Notwithstanding the general applicability of ejusdem

generis, this court has held that the cannons of statutory

construction are only “aids in ascertaining and giving effect to

the legislative intent, [and] these rules cannot be used in

contravention of the purpose of the legislature by confining the

operation of the statute within narrower limits than intended.”

State v. Prevo, 44 Haw. 665, 668–69, 361 P.2d 1044, 1047 (1961);

see also Holi v. AIG Hawaii Ins. Co., 113 Hawaii 196, 204, 150

P.3d 845, 853 (Ct. App. 2007) (“The doctrine of ejusdem generis

‘is only applicable where legislative intent or language

expressing that intent is unclear.’” (quoting Sutherland

Statutory Construction § 47.18 (2000)). The cannons are also

not a bar to applying the “sense of the words used which best

harmonizes with the design of the statute or the end in view.”

Prevo, 44 Haw. at 669, 361 P.2d at 1047. Thus, this court is

not required to employ ejusdem generis if it concludes the

(. . . continued)

included in a travel package. Although there are some indications that the
1991 bill expanding the definition of tourism related services was initially
introduced to add, inter alia, “transportation that is included in tour
packages sold for package prices[] and other incidental services included
within tour packages,” see H. Stand. Comm. Rep. No. 140, in 1991 House
Journal, at 891, the bill went through substantial revisions prior to
enactment. See H. Stand. Comm. Rep. No. 683, in 1991 House Journal, at 1081
(noting revisions to clarify the provision covered “services rendered to the
customer or tourist directly”). Presently, there is no indication in the
text of the statute that it is limited to services included in tour packages,
and both parties agree that “[a] ‘stand-alone’ luau is included within HRS §
237-18(f) to the same extent as a luau purchased as part of a package.”

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legislature clearly intended HRS § 237-18(f) to include or

exclude the assessed rental car transactions or if it finds that

the doctrine is in disharmony with the design of the statute.

Here, HRS § 237-18(f) provides that tourism services

may be “rendered directly to the customer or tourist,” implying

that it is not a prerequisite for the term’s application that

the service be primarily marketed and sold to tourists.

(Emphasis added.) And, as stated, the provision is limited by

two other requirements: the service must be arranged by a travel

agency or tour packager, and the income from the transaction

must be divided between the arranger and the service provider.

Our decision in Travelocity established that, to qualify as a

travel agency, a business must generally be “engaged in selling,

arranging, or furnishing information about personal

transportation or travel” or “engaged in selling and arranging

transportation, accommodations, tours and trips for travelers.”

135 Hawaii at 106, 346 P.3d at 175.35 Thus, applying the literal

meaning of the catch-all clause of HRS § 237-18(f)--that is,

interpreting the clause to encompass all services provided

directly to a customer--does not create an unbounded GET

35
(Quoting Travel Agency, Webster’s Third New International
Dictionary 2433 (unabr. 1993); Travel Agency, Merriam–Webster,
http://www.merriam-webster.com/dictionary/travel%20agency (last visited Sept.
17, 2014).)

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exemption. The provision covers only transactions by a party

whose business model centers on arranging travel services, and

only when those services are rendered directly to the consumer

by a third-party service provider with whom the proceeds are

divided.

Such an interpretation avoids the unequal tax

treatment disfavoring travel facilitators that would result if

this court were to apply ejusdem generis. Many services

commonly used by tourists would likely not qualify as primarily

marketed or sold to tourists--which is, as stated, the only

clear commonality shared by all the enumerated examples of

“tourism related services” included in HRS § 237-18(f). For

example, spa or massage treatments are in all likelihood enjoyed

by locals and tourists in similar measure. Under an ejusdem

generis interpretation of HRS § 237-18(f), a spa service sold

directly to a customer by the spa provider would be subject to

GET only once. By contrast, the same spa service sold to a

tourist for the same price as part of a package arranged by a

travel agent would be taxed twice--once on the full amount

tendered to the arranger and once on the amount remitted to the

spa provider.

As discussed supra, the legislature enacted the 1991

expansion of HRS § 237-18(f) that added the catch-all clause to

the definition of tourism related services specifically to

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correct “inequities [that] appear to exist in existing statutes

regarding the assessment of the general excise tax on the

revenues of travel-related companies.” H. Stand. Comm. Rep. No.

140, in 1991 House Journal, at 891. It is apparent that

applying the doctrine of ejusdem generis would produce a result

that would be inconsistent with the legislative goal of

promoting Hawaii tourism by providing special tax treatment to

companies that facilitate travel to the State.

Given these indications of incompatibility, we decline

to apply the doctrine of ejusdem generis, and instead interpret

“tourism related services” in accordance with its plain text and

legislative history to include all services rendered directly to

customers that satisfy HRS § 237-18(f)’s other requirements for

GET apportionment. Accordingly, the provision of rental

vehicles is a “tourism related service” within the meaning of

the statute, and the tax court erred by failing to apply GET

apportionment to the assessed stand-alone rental car

transactions.

IV. CONCLUSION

Based on the foregoing discussion, we hold that the

claim preclusion component of res judicata is not an available

defense against the government’s sovereign power of taxation,

and all assessments in this case are therefore considered on the

merits. We further hold that car rentals are tourism related

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services that qualify for GET apportionment under these

circumstances. Accordingly, we vacate the tax court’s

Stipulated Order and Final Judgment Disposing of All Issues and

Claims of All Parties and remand this case for recalculation of

the OTCs’ GET liability and associated penalties and interest.

Paul Alston /s/ Mark E. Recktenwald
Ronald I. Heller
Pamela Bunn /s/ Paula A. Nakayama
for petitioners/taxpayers-
appellants-appellees-cross- /s/ Sabrina S. McKenna
appellants
/s/ Richard W. Pollack
Gary Cruciani, pro hac vice
Steven D. Wolens, pro hac vice /s/ Michael D. Wilson
Kenneth T. Okamoto
Robert A. Marks
Cynthia M. Johiro
Warren Price III
Hugh R. Jones
for petitioner/appellee-
appellant-cross-appellee

Thomas Yamachika
for amicus curiae
Tax Foundation of Hawaii

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