In Re the Tax Appeal of Hawaiian Land Co.

DISSENTING OPINION OF

LEVINSON, J.,

WITH WHOM MARUMOTO, J., JOINS

I dissent.

I agree with the majority opinion that the tax appeal court erred in failing to consider the valuation of the land as well as the building in the proceedings below. I also agree with the majority’s statutory interpretation that assessment, within the meaning of HRS § 232-3(1), refers to the assessed value of the real property represented by a percentage of the fair market value. Nevertheless, based upon constitutional considerations I would reach a different result from the majority in this case.

The taxpayer contends that HRS § 232-3(1) violates the due process and equal protection guarantees of article I, section 4 of the Hawaii Constitution and section 1 of the fourteenth amendment to the United States Constitution because the statute (1) denies the taxpayer an opportunity to be heard on the amount of his assessment, and (2) capriciously forecloses appellate review of assessment valuations not in excess of 100 per cent fair market value of the assessed property. After a careful analysis of the procedures available for challenging the accuracy of real property tax assessments, I agree that the taxpayer has been denied the due process and equal protection of the laws. Therefore I would hold that HRS § 232-3(1) may not be used to bar the tax appeal court from lowering the appellee’s assessment and I would remand the case for a reconsideration of the aggregate valuation of the taxpayer’s property.

*64I. DUE PROCESS OF LAW REQUIRES THAT THE TAXPAYER BE GIVEN AN OPPORTUNITY TO BE HEARD BEFORE THE MANDATE TO PAY THE TAX BECOMES FINAL.

The Supreme Court of the United States has long recognized that where the State levies a tax on property according to its value, due process of law requires that notice be given to the taxpayer of the proposed assessment and an opportunity afforded to him to test the validity of the tax at a time before it becomes final. Hagar v. Reclamation District No. 108, 111 U.S. 701, 710 (1884); Hodge v. Muscatine County, 196 U.S. 276, 281 (1905); Nickey v. Mississippi, 292 U.S. 393, 396 (1934). This is because the tax assessor, in estimating the value of property for purposes of taxation is engaged in a fact finding process. He must gather and weigh evidence in order to determine the value of the property in question. These facts uniquely concern the property of the individual taxpayer, and thus they are particularly appropriate for adjudication. For this reason the Supreme Court has recognized that due process requires a hearing to correct any errors which may have been committed by the tax assessor. Hagar v. Reclamation District No. 108, supra. The taxpayer argues that it has been denied this basic principle of legal justice and I agree.

HRS § 246-43 provides that the director of taxation shall give yearly notice to each property owner of the assessment which has been made against his property. Notice is to be furnished by personal delivery to the owner or by mail. In addition, the assessor in each district is instructed to give public notice of the assessments in his district. HRS § 246-43 states that the purpose of these notice requirements is to enable the taxpayer “to ascertain what assessments have been against him or his property and to confer with the assessor so that errors may be corrected before the filing of the assessment list.” While this provision does satisfy the due process notice requirements, I do not believe that it secures constitutionally adequate hearing procedures.

*65As was noted above, assessment valuation facts are not general in nature but concern individual judgments. Thus, the tax assessor bases his opinion upon the accumulation of specific information about a given parcel of property. Such a process is always open to challenge on at least two grounds: (1) The data on which the expert rests his opinion may be shown to be incorrect; (2) The conclusions drawn from the facts may, in the opinion of men of equal skill, rest upon faulty grounds. 3A Wigmore, Evidence § 992 (Chadbourn rev. 1970). In this context I believe that rudimentary principles of due process require that a taxpayer be given an opportunity to offer his proof, to know the opposing proof and arguments and to examine relevant witnesses. See Goldberg v. Kelly, 397 U.S. 254, 267-68 (1970); Hodge v. Muscatine County, supra at 281-82; Mortensen v. Employees Retirement System, 52 Haw. 212, 220, 473 P.2d 866, 871 (1970). Only under such procedures will the taxpayer be assured of a just and reliable assessment. This trial type hearing is not available under the informal discussion provision of HRS § 246-43. It may be secured only through the appeal process of HRS ch. 232. Unfortunately this process is closed to those in the appellee’s position.

HRS § 232-3 governs the grounds of appeal which may be raised by a taxpayer in a hearing before the tax review board or the tax appeal court. This provision provides in relevant part:

In the case of a real property tax appeal, no taxpayer or county shall be deemed aggrieved by an assessment, nor shall an assessment be lowered or an exemption allowed, unless there is shown:
(1) Assessment of the property in excess of its one hundred per cent fair market value. . . .

It is apparent from the above provision that unless a taxpayer alleges and proves that the assessed value of his property exceeds 100 per cent of its fair market value his assessment cannot be lowered. In other words, the taxpayer may come before the review board or the tax appeal court *66and elicit overwhelming evidence to establish obvious overvaluations of his property; yet, unless the assessor’s error is such that the assessed value exceeds 100 per cent of the property’s fair market value, these reviewing bodies are powerless to grant him any relief. Clearly this is a denial of the due process of law.

The constitutional requirement that the taxpayer be given a hearing is meaningless if the very errors the hearing process is supposed to correct are shielded, by legislative fiat, from the remedial powers of the reviewing authorities. Due process of law is not served by telling the taxpayer that “we will listen to what you have to say but we are powerless to do anything about it.” Such a provision is a mockery of the constitutional right to be heard. Therefore, I would hold that the limitation of HRS § 232-3(1) is invalid because it denies the taxpayer access to the only available forum for giving it a constitutional hearing on the validity of its assessment.

II. HRS § 232-3(1) DENIES THE APPELLEE THE EQUAL PROTECTION OF THE LAWS.

The guarantee of the equal protection of the laws, found in both the Hawaii and Federal Constitutions, was not intended to interfere with the power of the State to classify its citizens for various purposes and treat some differently from others. Rinaldi v. Yeager, 384 U.S. 305, 309 (1966); Hasegawa v. Maui Pineapple Co., 52 Haw. 327, 329, 475 P.2d 679, 681 (1970). Nevertheless the equal protection clause does mandate that government not exercise its classification powers arbitrarily; that is, when defining a class which is subject to legislation the distinctions drawn must be reasonable in relation to the purpose of the legislation. Rinaldi v. Yeager, supra at.309; Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 527 (1959); Hasegawa v. Maui Pineapple Co., supra. In the present case the legislature has established forums for appellate review of tax assessments and has *67chosen to exclude a designated class of taxpayers from access to these tribunals. Under the principles stated above such a bar is constitutional only if it bears a reasonable relation to the purpose of the legislation.

As the majority opinion points out, in enacting HRS § 232-3(1) the legislature desired to limit appellate review to those disagreements over assessment valuations which were not the result of “inevitable differences of opinion.” To achieve this goal appeals were prohibited by HRS § 232-3(1) unless the assessed value exceeded 100 per cent of the fair market value of the assessed property. Currently this provision operates, in conjunction with the present tax base of 70 per cent, to prohibit all appeals protesting erroneous valuations unless the tax assessor has overvalued the taxpayer’s property by 43 per cent. While I have serious doubts that an overvaluation of 43 per cent can rationally be classified as an inevitable difference of opinion the arbitrariness of HRS § 232-3(1) does not rest on this figure alone. In placing this restriction on taxpayer appeals I believe the legislature has violated the constitutional prohibition against irrational class distinctions because it has failed to place any limits on the margin of error which HRS § 232-3(1) may insulate from appellate review.

As previously noted, the present- percentage used by the director of taxation in calculating the tax base or assessment value of a taxpayer’s property is 70 per cent. This rate is not, however, fixed by statute. Instead, HRS § 246-2 authorizes the director of taxation to certify any percentage of fair market value which, he chooses to utilize as a tax base. The statute also provides that, insofar as the validity of the tax base is concerned, the director’s certificate is conclusive.

The effect of the tax director’s power to alter the assessment rate is that the margin of erroneous valuations escaping appellate review varies directly with the discretionary fluctuation of the tax base. To illustrate, if the director of taxation sets the tax base at 50 per cent he can then value *68property with a fair market value of $1000 at a valuation of $2000. This is an error of 100 per cent. Yet at a 50 per cent tax base the assessed value of the property is only $1000. Since this figure is not greater than 100 per cent of the fair market value of the property, the taxpayer is precluded by HRS § 232-3(1) from appealing the assessor’s valuation of his property. Similarly, if the tax base is set at 10 per cent an overvaluation of 900 per cent would still leave the taxpayer without any appellate remedies under HRS § 232-3(i).

It is apparent from this analysis that the class of taxpayers excluded from the appellate process by HRS § 232-3(1) is not limited to those whose disagreements with the tax assessor arise merely from inevitable differences of opinion. Thus the class distinction drawn by the legislature does not bear a reasonable relation to the purpose of the legislation and the State has violated its constitutional duty to refrain from exercising its powers in an arbitrarily discriminatory manner. I would hold, therefore, that HRS § 232-3(1) violates the equal protection clauses of both the Hawaii and Federal Constitutions. The case should be remanded to the tax appeal court for a consideration of the aggregate valuation of the property.