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Electronically Filed
Supreme Court
SCAP-XX-XXXXXXX
23-APR-2024
10:07 AM
Dkt. 56 OP
IN THE SUPREME COURT OF THE STATE OF HAWAI‘I
---o0o---
SCAP-XX-XXXXXXX
In the Matter of the Tax Appeal of
WEST MAUI RESORT PARTNERS LP,
Appellant-Appellant,
vs.
COUNTY OF MAUI,
Appellee-Appellee.
APPEAL FROM THE TAX APPEAL COURT
(CAAP-XX-XXXXXXX; CASE NO. 1CTX-XX-XXXXXXX (Lead Case)
AND CONSOLIDATED CASES:
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SCAP-XX-XXXXXXX
In the Matter of the Tax Appeal of
OCEAN RESORT VILLAS VACATION OWNERS ASSOCIATION,
Appellant-Appellant,
vs.
COUNTY OF MAUI,
Appellee-Appellee.
APPEAL FROM THE TAX APPEAL COURT
(CAAP-XX-XXXXXXX; CASE NO. 1CTX-XX-XXXXXXX (Lead Case)
AND CONSOLIDATED CASES:
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APRIL 23, 2024
RECKTENWALD, C.J., McKENNA, AND EDDINS, JJ.,
CIRCUIT JUDGE OCHIAI AND CIRCUIT JUDGE SOMERVILLE,
ASSIGNED BY REASON OF VACANCIES
OPINION OF THE COURT BY RECKTENWALD, C.J.
I. INTRODUCTION
Appellants West Maui Resort Partners LP (West Maui
Resort) and Ocean Resort Villas Vacation Owners Association
(Ocean Resort), plan managers for nearly 700 time share units,
appealed their Maui County tax assessments to the Tax Appeal
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Court, which granted summary judgment for the County in both
cases. They argue on appeal that the County’s tax assessments
are unconstitutional and violated the County’s own code. In
particular, they allege that the County’s creation of a Time
Share real property tax classification acts as an illegal tax on
time share visitors. Appellants also contend that time share
units and hotel units have an identical “use” for real property
purposes, and therefore, should be taxed in the same real
property tax classification. In other words, Appellants want to
have their time share properties taxed at the same, lower tax
rate as that of hotel and resort properties.
We are not persuaded by Appellants’ arguments. The
County acted within its constitutional authority to tax real
property in creating the Time Share classification and taxing
properties assigned to it. The Hawai‘i Constitution grants broad
powers of real property taxation to the counties under article
VIII, section 3, including counties’ ability to create real
property tax classifications. Neither the Hawai‘i Constitution
nor the Maui County Code requires that the County consider only
real property use when creating those classifications. Further,
time share unit owners are not a protected class and do not
otherwise receive heightened protections under the equal
protection clauses of the Hawai‘i or U.S. Constitution. The
County had several legitimate policy purposes rationally related
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to the creation of the Time Share classification, including
raising revenue for infrastructure maintenance and addressing
time share properties’ unique impacts on the community.
We therefore affirm the Tax Appeal Court’s summary
judgment for the County in both cases.
II. BACKGROUND
A. Factual Background
The Maui County Code (MCC) outlines the real property
classifications in the County and how real property is
classified and valued for real property tax purposes. At the
time of the assessments at issue, MCC § 3.48.305 (2021) 1 stated:
A. Except as otherwise provided in subsection B,
real property must be classified, upon consideration of its
highest and best use, into the following general classes:
1. Owner-occupied.
2. Non-owner-occupied.
3. Apartment.
4. Hotel and resort.
5. Time share.
6. Short-term rental.
7. Agricultural.
8. Conservation.
9. Commercial.
10. Industrial.
11. Commercialized residential.
B. In assigning land to one of the general
classes, the director must give major consideration to: the
districting established by the land use commission in
accordance with chapter 205, Hawai‘i Revised Statutes; the
districting established by the County in its general plan
and comprehensive zoning ordinance; use classifications
1 Except as otherwise noted, we refer to the MCC as it read in
2021. Ocean Resort appeals its 2021 tax assessments, and West Maui Resort
appeals its 2020 tax assessments. There were no substantive differences
between the 2020 and 2021 cited sections of the MCC that affect the analysis
below.
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established in the Hawai‘i state plan; and other factors
that influence highest and best use; except that:
. . .
5. Real property that is subject to a time
share plan as defined in section 514E-1, Hawai͑i
Revised Statutes, as amended, must be classified as
"time share."
MCC § 3.48.290 described, the County Finance
Director’s role in real property tax assessments:
The director must cause the fair market value of all
taxable real property to be determined and annually
assessed by the market data and cost approaches to value
using appropriate systematic methods suitable for mass
valuation of properties for taxation purposes, so selected
and applied to obtain, as far as possible, uniform and
equalized assessments throughout the County . . . .
In 1986, the State created the transient accommodation
tax (TAT) to "'provide money that can be made available to the
counties to improve tourist-related infrastructure.'"
Travelocity.com, L.P. v. Dir. of Tax'n, 135 Hawai‘i 88, 121, 346
P.3d 157, 190 (2015) (citation omitted); see 1986 Haw. Sess.
Laws Act 340, § 1 at 758–64. The TAT is a tax on transient
accommodation units imposed directly on individual visitors,
including those at both time share and hotel and resort units.
For hotel guests, the TAT is assessed based on “the gross rental
or gross rental proceeds derived from furnishing transient
accommodations.” Hawai‘i Revised Statutes (HRS) § 237D-
2(a) (2017). For time share occupants, the TAT is assessed
based on the unit’s fair market rental value. HRS § 237D-2(c).
Fair market rental value is defined as “an amount equal to one-
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half of the gross daily maintenance fees that are paid by the
owner and are attributable to the time share unit located in
Hawai‘i.” HRS § 237D-1 (2017).
Before 1997, the County classified time share units in
either the Apartment or Hotel and Resort real property
classifications. In 1997, the County passed Ordinance 2569,
reclassifying all time share units into the Hotel and Resort
classification. We upheld that ordinance in Gardens at W. Maui
Vacation Club v. Cnty. of Maui, 90 Hawai‘i 334, 978 P.2d 772
(1999).
In 2004, the County’s Budget and Finance Committee
proposed a bill to the Council entitled “A BILL FOR AN ORDINANCE
ESTABLISHING A REAL PROPERTY TAX CLASSIFICATION FOR TIME
SHARES,” and the relevant committee report stated:
The purpose of the draft bill is to add a new “Time Share”
real property tax classification.
. . . .
Your Committee notes that the draft bill removes Time
Share properties from the Hotel and Resort real property
tax classification, and establishes a new classification
for Time Share properties. . . . Your Committee further
notes that Time Share properties are transient units
subject to a time share plan under Section 514E-1, [HRS].
Your Committee recognized that the application of the
Transient Accommodations Tax (TAT) under HRS Chapter 237D
is different for Hotel and Resort properties and Time Share
properties. The TAT for Time Share properties is 7.25
percent of the unit’s fair market rental value. Under HRS
Section 237D-1 “fair market rental value means an amount
equal to one-half the gross daily maintenance fees that are
paid by the owner . . .” The TAT for Hotel and Resort
properties is 7.25 percent of the gross rental proceeds.
With the application of these formulas, Time Share
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properties generate considerably less TAT revenue per unit
than Hotel and Resort properties do.
Council of the County of Maui, Budget and Fin. Comm. Rep. No.
04-187 at 1-2 (Nov. 5, 2004) (third ellipsis in original),
https://www.mauicounty.gov/Archive/ViewFile/Item/8943,
[https://perma.cc/QJL6-Q6WC].
In November 2004, the Council added the Time Share
classification to MCC § 3.48.305 and amended section 2.C. to
read:
Units occupied by transient tenants for periods of less
than six consecutive months and units subject to a time
share plan as defined in section 514E-l, [HRS], as amended,
shall be classified as "time share.”
Maui County, Haw., Ordinance 3227 (2004).
In 2005, the Council considered a bill establishing a
taxation rate for the Time Share classification, which would be
higher than the Hotel and Resort classification rate. The
relevant Budget and Finance Committee report stated “[i]n 2004,
the Council established the Time Share classification to address
the need for owners and occupants of time share units to pay a
more equitable share of taxes for County services they utilize
and the economic impact they place on the surrounding
community.” Council of the County of Maui, Budget and Fin.
Comm. Rep. No. 05-63 (as amended) at 10 (May 16, 2005),
https://www.mauicounty.gov/Archive/ViewFile/Item/9582
[https://perma.cc/ZVD9-D37N].
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B. Procedural Background
West Maui Resort appealed its 2020 tax assessment to
the County Board of Review (the Board). In 2020, the Time Share
and Hotel and Resort tax rates per thousand dollars of net
taxable assessed valuation were $14.40 and $10.70, respectively.
Maui County Res. 20-72 (2020),
https://www.mauicounty.gov/DocumentCenter/View/122153/Reso-20-
072 [https://perma.cc/S8K4-KXGB].
Ocean Resort appealed its 2021 tax assessment to the
Board. In 2021, the Time Share and Hotel and Resort tax rates
per thousand dollars of net taxable assessed valuation were
$14.60 and $11.75, respectively. Maui County Res. 21-83 (2021),
https://www.mauicounty.gov/DocumentCenter/View/127521/Reso-21-
083 [https://perma.cc/3F47-MAGQ].
The Board denied the appeals. West Maui Resort and
Ocean Resort then appealed to the Tax Appeal Court.
The County filed a motion for summary judgment in both
cases. Ocean Resort and West Maui Resort filed motions for
summary judgment, advancing similar arguments.
Ocean Resort argued the Time Share classification was
illegal under the MCC and the Hawai‘i and U.S. Constitutions. It
also alleged that the County arbitrarily set the Time Share
classification rate and claimed it was entitled to a refund of
the difference between the Time Share and Hotel and Resort tax
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rates. Ocean Resort argued the County established the Time
Share classification and the related rate for the improper
purpose of collecting a de facto TAT that was imposed on
individual visitors.
Ocean Resort contended that state law preempted the
County’s Time Share classification and rate because they
conflict with the TAT’s “comprehensive state statutory scheme,”
citing Ruggles v. Yagong, 135 Hawai‘i 411, 412, 353 P.3d 953, 954
(2015) (holding municipal ordinance is preempted by state law
“if (1) it covers the same subject matter embraced within a
comprehensive state statutory scheme disclosing an express or
implied intent to be exclusive and uniform throughout the state
or (2) it conflicts with state law.” Ocean Resort claimed the
Time Share classification conflicted with state law because the
TAT is imposed using specific rates, and the Time Share
classification impermissibly duplicates TAT assessments. It
emphasized that the TAT already supports counties’
infrastructure costs related to tourism, and therefore the
County could not create another tax addressing the same
concerns.
Ocean Resort also argued that the County set the Time
Share classification rate arbitrarily. It argued that “given
that the County just a short time earlier [in Gardens] had
argued that timeshares were properly taxed at the same rate as
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hotels and resorts, a timeshare tax rate more than 68% higher
than hotels is irrational,” and therefore bore no rational
relationship to a legitimate state purpose. 2
West Maui Resort also contended that the difference
between the Hotel and Resort and Time Share classification tax
rates operated as a de facto tax on time share visitors, and
cited Stewarts' Pharmacies, Ltd. v. Fase, 43 Haw. 131, 144
(1959) (“The nature of the tax that a law imposes is not
determined by the label given to it but by its operating
incidence.”). It argued that time share properties already paid
their fair share of taxes under the Hotel and Resort
classification and the TAT.
Next, West Maui Resort argued the County’s
classification of its time share units under the Time Share
classification violated the equal protection clauses of the
Hawai‘i and U.S. Constitutions. It claimed the County could not
demonstrate a change in the time share units’ use that justified
reclassifying the units between 1999, when Gardens was decided,
and 2005, when the Time Share classification was created. Thus,
West Maui Resort contended that the County violated the equal
2 Prior to the Time Share classification creation, time share units
were taxed under the Hotel and Resort classification, which had a tax rate of
$8.30 per one thousand dollars of net taxable assessed valuation in 2005.
When the Time Share classification was created, the related rate was $14 per
one thousand dollars of net taxable assessed valuation. Maui County Res.
5-72 (2005), https://www.mauicounty.gov/DocumentCenter/View/7518/Reso-05-072
[https://perma.cc/2PHW-F5GT].
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protection clauses by classifying hotel and time share
properties differently, even though they had the same use.
Finally, West Maui Resort argued the Time Share
classification violated MCC §§ 3.48.305.A. and C. because the
County did not consider either “highest and best use” or “actual
use” when creating the real property classification or when
assigning its units to the Time Share classification.
The County argued primarily that article VIII, section
3 of the Hawai‘i Constitution authorizes counties to tax real
property and that power “includes the authority to establish
general classifications of real property . . . for taxation at
differential rates.” The County further argued the Time Share
classification “is a levy on an ownership interest in real
property and based on the annually assessed property value,” and
thus, is an appropriate ad valorem tax on real property. In
contrast, the TAT is a point-of-sale tax levied “on the
temporary duration of a hotel visitor’s stay, and based on an
income transaction for that stay.” Therefore, the County
argued, it was constitutional to create the Time Share
classification and impose a specific tax rate for that
classification under article VIII, section 3’s broad grant of
real property tax authority to the counties.
The County also argued the MCC did not limit the
County’s creation of real property classifications. It
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contended that MCC § 3.48.305.A.’s requirement to consider
“highest and best use” applies only to the assignment of parcels
to a classification, but not to the County’s creation of
classifications.
With regard to Appellants’ equal protection
challenges, the County urged the Tax Appeal Court to apply
rational basis review because (1) residency and property
ownership were not suspect classifications, (2) West Maui Resort
had neither a property interest in nor a fundamental right to a
tax classification, and (3) Appellants’ allegation of animus
against time share users was irrelevant to the constitutional
analysis.
The County argued that its creation of the Time Share
classification was reasonably tailored to the legitimate policy
aims of (1) collecting more tax revenue from time share
properties for their use of services and infrastructure impacts,
and (2) disincentivizing conversions from hotel to timeshare
use. It emphasized that in relation to tax policy, courts’ role
is not to “evaluate the wisdom of such state policy, but only to
discover that some policy does exist.” In re Pac. Marine &
Supply Co., Ltd., 55 Haw. 572, 582, 524 P.2d 890, 897
(1974) (footnote omitted).
Moreover, the County argued that residency is not a
suspect classification, citing Daly v. Harris, 215 F. Supp. 2d
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1098, 1113 (D. Haw. 2002), aff'd, 117 F. App'x 498 (9th Cir.
2004) (holding that while ordinance “on its face, classifie[d]
on the basis of residency, non-residents are not a judicially
recognized suspect class”) and Haw. Boating Ass'n v. Water
Transp. Facilities Div., Dep't of Transp., State of Haw., 651
F.2d 661, 665 (9th Cir. 1981) (preferential rates of mooring for
state residents in recreational boat harbors was not “a
significant penalty on the right to travel”).
The County denied any discriminatory intent towards
time share owners or nonresidents, citing Allied Stores of Ohio,
Inc. v. Bowers, 358 U.S. 522, 530 (1959) (holding federal equal
protection clause not violated because “the discrimination
against residents is not invidious nor palpably arbitrary
because, as shown, it rests not upon the ‘different residence of
the owner,’ but upon a state of facts that reasonably can be
conceived to constitute a distinction, or difference in state
policy, which the State is not prohibited from separately
classifying for purposes of taxation”).
At a hearing on West Maui Resort’s and the County’s
cross summary judgment motions, the Tax Appeal Court tried to
clarify who paid the challenged tax assessments:
THE COURT: [I]n your statements, there are at least three
individuals or persons that might be paying this tax
assessment on timeshare. It could be West Maui Resorts, it
could be the owners of the slots, and it could be the
people that rent the timeshare. So which one is paying for
the use of this timeshare?
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[West Maui Resort’s counsel]: West Maui Partners is the
taxpayer of record.
(Emphasis added.) 3
The Tax Appeal Court granted the County’s summary
judgment motion and denied West Maui Resort’s cross-motion. It
concluded that the Time Share classification “is indeed
consistent with the . . . provisions of [Hawai͑i Constitution]
[a]rticle VIII, [s]ection 3 that restricts the taxing authority
for the County to imposing a tax upon real property.” The court
also concluded that the Time Share Classification acted as a
“tax upon real property,” and not a de facto TAT, as Appellants
argued. With regard to the equal protection challenge, the
court determined that heightened scrutiny did not apply. It
found a rational basis for the creation of the Time Share
classification because the County considered several legitimate
policy concerns, including:
No. 1, timeshare units are subject to a timeshare plan,
which distinguishes timeshare properties from all other
properties on Maui.
No. 2, there was an increased construction of
timeshare units.
No. 3, there was increased conversion of hotel resort
units to timeshare units.
And No. 4, the timeshare properties were imposing an
increased burden upon the County infrastructure, which was
not being borne fairly by the timeshare unit owners.
3 The Honorable Gary W.B. Chang presided in both cases.
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A week later, the Tax Appeal Court heard arguments on
the County’s and Ocean Resort’s respective motions for summary
judgment, and it ruled for the County. It found that when
considering the Time Share classification’s creation, the
Council “in addition to TAT impacts, [was] also very concerned
about the community impact of timeshare [units] and how that
affected the Maui County's responsibilities to provide
infrastructure.” Thus, the County “considered a broad spectrum
of impacts that resulted from this developing timeshare industry
and how it was not only changing population centers, but also
modifying where tax revenues could be generated for the
business” of the County.
The court concluded that the County considered time
share properties’ actual use, as well as revenue generation and
community impacts, when creating the Time Share classification,
and therefore the County did not violate the MCC’s “requirement
that in establishing classifications that the Maui County
consider highest and best use . . . .”
C. Appellate Proceedings
West Maui Resort and Ocean Resort appealed to the
Intermediate Court of Appeals (ICA), and the cases were
transferred to this court and consolidated. After accepting
transfer in West Maui Resort Partners LP, we ordered
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supplemental briefing on the jurisdictional question of whether
West Maui Resort timely appealed to the ICA.
The parties generally advance the same arguments as
below.
III. STANDARDS OF REVIEW
A. Summary Judgment
This court reviews an award of summary judgment de
novo, under the same standards applied by the trial
court. . . . Therefore, 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.
. . .
Moreover, it is well settled that, in reviewing the
decision and findings of the Tax Appeal Court, a
presumption arises favoring its actions which should not be
overturned without good and sufficient reason. The
appellant has the burden of showing that the decision of
the Tax Appeal Court was clearly erroneous. . . . Inasmuch
as the facts here are undisputed and the sole question is
one of law, we review the decision of the Tax Appeal Court
under the right/wrong standard.
Kamikawa v. Lynden Air Freight, Inc., 89 Hawai‘i 51, 54, 968 P.2d
653, 656 (1998) (internal quotations marks, emphases, and
citations omitted).
B. Ordinance Interpretation
“When interpreting a municipal ordinance, we apply the
same rules of construction that we apply to statutes.” Ocean
Resort Villas Vacation Owners Ass'n v. Cnty. of Maui, 147 Hawai‘i
544, 553, 465 P.3d 991, 1000 (2020) (citation omitted).
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Statutory interpretation is a question of law
reviewable de novo. This court's statutory construction is
guided by established rules:
First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language is plain and
unambiguous, our sole duty is to give effect to its
plain and obvious meaning. Third, implicit in the
task of statutory construction is our foremost
obligation to ascertain and give effect to the
intention of the legislature, which is to be obtained
primarily from the language contained in the statute
itself. Fourth, when there is doubt, doubleness of
meaning, or indistinctiveness or uncertainty of an
expression used in a statute, an ambiguity exists.
Id. at 552–53, 465 P.3d at 999–1000.
C. Constitutional Law
“We answer questions of constitutional law by
exercising our own independent constitutional judgment based on
the facts of the case. Thus, we review questions of
constitutional law under the right/wrong standard.” Gardens, 90
Hawai‘i at 339, 978 P.2d at 777 (citation omitted).
IV. DISCUSSION
A. This Court Has Jurisdiction Over West Maui Resort’s Appeal
Under the “Unique Circumstances” Doctrine
On August 16, 2022, the Tax Appeal Court entered
orders denying West Maui Resort’s summary judgment motion and
granting the County’s summary judgment motion. Thirteen days
later, on August 29, 2022, West Maui Resort filed a request for
entry of judgment and submitted a proposed final judgment. The
County did not oppose entry of the judgment and the Tax Appeal
Court entered final judgment on September 8, 2022, “[p]ursuant
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to Rule 1(b) of the Rules of the Tax Appeal Court of the State
of Hawai‘i and Rules 54 and 58 of the Hawai‘i Rules of Civil
Procedure . . . .” The final judgment “resolve[d] all claims
and appeals” and dismissed with prejudice “[a]ny and all
remaining claims or appeals, if any . . . .” On October 7,
2022, West Maui Resort filed its Notice of Appeal with the ICA.
Strictly interpreting existing law, West Maui Resort’s
notice of appeal to the ICA was untimely. However, we may
exercise jurisdiction over the case under the “unique
circumstances” doctrine adopted in Cabral v. State, 127 Hawai‘i
175, 180, 277 P.3d 269, 274 (2012).
HRS § 232-19 (2017) provides the procedure for appeals
from the Tax Appeal Court and states:
Any taxpayer or county aggrieved or the assessor may
appeal to the intermediate appellate court, subject to
chapter 602, from the decision of the tax appeal court by
filing a written notice of appeal with the tax appeal court
and depositing therewith the costs of appeal within thirty
days after the filing of the decision. The appeal shall be
considered and treated for all purposes as a general appeal
and shall bring up for determination all questions of fact
and all questions of law, including constitutional
questions, involved in the appeal. A notice of appeal may
be amended at any time up to the final determination of the
tax liability by the last court from which an appeal may be
taken. The appellate court shall enter a judgment in
conformity with its opinion or decision.
(Emphases added.)
West Maui Resort contends that it requested final
judgment because it believed that, under Hawai‘i Rules of Civil
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Procedure (HRCP) Rule 58 (2020), the final judgment rule
applied. HRCP Rule 58 provides:
Unless the court otherwise directs and subject to the
provisions of [HRCP] Rule 54 . . . and Rule 23 of the Rules
of the Circuit Courts, the prevailing party shall prepare
and submit a proposed judgment. The filing of the judgment
in the office of the clerk constitutes the entry of the
judgment; and the judgment is not effective before such
entry. The entry of the judgment shall not be delayed for
the taxing of costs. Every judgment shall be set forth on a
separate document.
West Maui Resort requested entry of final judgment
after the Tax Appeal Court entered the summary judgment orders,
relying on the Rules of the Tax Appeal Court of the State of
Hawai͑i (RTAC) Rule 1(b) (2019) 4 and the Rules of the Circuit
Courts of the State of Hawai‘i (RCCH) Rule 23(a) and Rule 23(e)
(2019). 5 West Maui Resort filed its Notice of Appeal within
4 RTAC Rule 1(b) provides:
These Rules shall be construed and administered to secure
the just, speedy, and inexpensive determination of every
action. These Rules shall be read and construed with
reference to each other, the Hawai‘i Electronic Filing and
Service Rules, the HRCP, the RCCH, and the Hawai‘i Court
Records Rules. The RTAC shall apply unless an issue is not
covered by these Rules, in which case the HRCP and the RCCH
shall apply, in that order. To the extent there is any
conflict between these Rules and the Hawai‘i Court Records
Rules or the Hawai‘i Electronic Filing and Service Rules,
the latter shall prevail.
5 RCCH Rule 23(a) and Rule 23(e) provide:
(a) Preparation. Within 10 days after a decision of the
court awarding any judgment, decree, or order, including
any interlocutory order, the prevailing party, unless
otherwise ordered by the court, shall prepare a judgment,
decree, or order in accordance with the decision . . . .
. . . .
(e) Request for Entry. If the drafting party fails to
timely submit a proposed judgment, decree, or order to the
court, any other party may present, through conventional or
(. . . continued)
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thirty days of the entry of final judgment, but fifty-two days
after entry of the orders denying West Maui Resort’s summary
judgment and granting summary judgment for the County.
This court held in Alford v. City & Cnty. of Honolulu
that the appealable decision of the Tax Appeal Court is the
decision that “finally decides all issues in the tax appeal,”
and a separate final judgment is unnecessary for appeal. 109
Hawai‘i 14, 22, 122 P.3d 809, 817 (2005). We explained in Alford
that HRCP Rule 58, requiring a separate final judgment to
appeal, only applies to civil actions in circuit courts, not to
the Tax Appeal Court. Id. at 20-23, 122 P.3d at 815-17.
However, Alford neither involved a final judgment, nor
determined how appeals work when a final judgment is issued
after summary judgment orders resolve all issues.
Alford does not preclude entry of final judgment in
the Tax Appeal Court. The summary judgment order in Alford
constituted the final decision that started the thirty-day
appeal clock. Where there is no order constituting a final
decision, a final judgment is what “finally decides all issues
in the tax appeal.” Id. at 22, 122 P.3d at 817.
(continued . . .)
electronic filing, a proposed judgment, decree, or order to
the court for approval and entry. A request for entry must
represent that the drafting party failed to timely submit a
proposed judgment, decree, or order as required by this
Rule.
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In Cabral, this court held that an otherwise untimely
appeal based on a court’s erroneous approval of a stipulated
appeal extension was valid under the “unique circumstances”
doctrine. 127 Hawaiʻi at 185, 277 P.3d at 279. There, the
parties stipulated to extend a notice of appeal deadline, which
the circuit court incorrectly approved. Id. at 181, 277 P.3d at
275. Petitioners then filed a notice of appeal within the
extended deadline. Id. at 177-78, 277 P.3d at 271-72. The ICA
dismissed the case for lack of appellate jurisdiction, but this
court reversed. Id. at 181, 277 P.3d at 275. We reasoned:
Petitioners relied, to their detriment, on the order
granting an extended . . . deadline, and reasonably
believed that the original . . . deadline was no longer
effective. In light of the circuit court's order, it is not
surprising that Petitioners filed their notice of appeal
after the expiration of the original deadline, but within
the presumptively valid extended deadline. The State,
having stipulated to the extended . . . deadline, and not
challenging appellate jurisdiction until the issue was
raised by the ICA, has not been prejudiced. Under the
specific, unique factual circumstances of this case, we
hold that application of the equitable doctrine of “unique
circumstances” is in the interests of justice and
appropriate.
Id. at 185, 277 P.3d at 279 (emphases added).
Under a strict reading of HRS § 232-19, West Maui
Resort’s appeal was untimely because it was not filed within
thirty days of the orders denying West Maui Resort’s summary
judgment motion and granting the County’s summary judgment
motion, which together constituted a final decision. Alford,
109 Hawai͑i at 23, 122 P.3d at 818 (“[W]here the decision of the
court finally deciding a tax appeal is clearly ascertainable,
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the matter of appealability is not uncertain, and, thus, entry
of a separate judgment on the decision to ‘make certain the
matter of appealability’ would not serve the purpose of the
separate judgment rule.”). West Maui Resort appealed twenty-two
days after the thirty-day appeal window expired.
However, West Maui Resort requested entry of final
judgment before the expiration of the appeal period, and the Tax
Appeal Court entered the requested judgment within that same
period. See Cabral, 127 Hawaiʻi at 184, 277 P.3d at 278
(applying the “unique circumstances” doctrine where
“[p]etitioners' request for an extension of time was filed prior
to the expiration of the original deadline.”). West Maui
Resort’s appeal would therefore be timely under the
“presumptively valid extended deadline” period because it
appealed twenty-nine days after the final judgment - within
thirty days pursuant to Hawai͑i Rules of Appellate Procedure
Rule 4(a)(1) (2021). See id. at 178, 277 P.3d at 272. Thus,
West Maui Resort reasonably relied on the Tax Appeal Court’s
final judgment and the “application of the equitable doctrine of
‘unique circumstances’ is in the interests of justice and
appropriate” in this case. See id. at 185, 277 P.3d at 279.
Thus, we conclude that this court has jurisdiction
over the merits of West Maui Resort’s appeal under Cabral’s
“unique circumstances” doctrine.
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B. The Tax Appeal Court Did Not Err in Concluding that the
County Had the Constitutional Authority to Create the Time
Share Classification and Tax Time Shares Accordingly
1. The Hawai‘i Constitution authorizes counties to tax
real property and does not limit their ability to
create tax classifications
The counties have broad constitutional authority to
tax real property under article VIII, section 3 of the Hawai‘i
Constitution, which states in relevant part:
The taxing power shall be reserved to the State,
except so much thereof as may be delegated by the
legislature to the political subdivisions, and except that
all functions, powers and duties relating to the taxation
of real property shall be exercised exclusively by the
counties . . . .
In Gardens, a time share vacation club challenged its
Maui County real property tax assessment shortly after the
County reclassified all time share units under the Hotel and
Resort classification. 90 Hawai‘i at 337-39, 978 P.2d at 775-77.
We wrote that owners “subject to a time share plan, although
vested with ownership rights in their time slots, put the units
to use much like transient hotel guests, resulting in intensive
use of the property.” Id. at 343, 978 P.2d at 781. Appellants
argue that Gardens held time shares were properly classified in
the Hotel and Resort classification because hotel and time share
units have an identical use.
However, Gardens did not hold that hotel and time
share properties have an identical use, requiring the County to
indefinitely maintain both types of properties in the same tax
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classification. In upholding the County’s 1997 ordinance that
moved all time share units under the Hotel and Resort
classification, this court held only that it was rational for
the County to classify time share and hotel units together
because of their similar use. See id. at 342–43, 978 P.2d at
780–81. This court also noted that the County wanted to
“uniformly classify time share units” because some of them were
taxed under the Apartment classification, while others were
taxed under the Hotel and Resort classification. Id. at 342,
978 P.2d at 780 (internal quotation marks omitted). Gardens
focused on the rationality of (1) uniformly classifying all time
share units in the same classification and (2) classifying time
share and hotel units together, but did not hold that time share
units and hotel units are used identically. See id. at 342–43,
978 P.2d at 780–81.
The Hawai‘i Constitution grants counties broad powers
to tax real property, including creating real property tax
classifications that are taxed at different rates. It places no
limitations on counties when creating those classifications.
Neither does the MCC. The MCC requires most real property to be
assigned to a tax classification based on highest and best use.
Further, all properties are taxed according to their real
property value. These principles limit the County’s ability to
single out individual properties. Nevertheless, the County may
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classify different property types based on reasonable policy
considerations other than use under the Hawai‘i Constitution’s
broad authorization to tax real property.
2. The Time Share classification is constitutional
because it acts as a real property tax
This court has held that a tax’s nature “is not
determined by the label given to it but by its operating
incidence.” Stewarts' Pharmacies, 43 Haw. at 144 (citation
omitted). We agree with the County that the Time Share
classification and its rate act as a tax on real property based
on the assessed property value, whereas the TAT is a tax
assessed on individual visitors and the value of their stay.
Appellants do not show how the Time Share real
property tax is actually a tax on individual time share unit
users. Critically, the TAT is assessed on time share visitors
according to the “fair market rental value” of individual units,
which under HRS § 237D-1 is defined as “one-half . . . the gross
daily maintenance fees that are paid by the owner . . . .” HRS
§ 237D-1. On the other hand, the Time Share classification rate
is assessed on the appraised real property’s value. See MCC
§ 3.48.180 (“[A]ll real property shall be subject to a tax upon
one hundred percent of its fair market value determined in the
manner provided by ordinance, at such rate as shall be
determined in the manner provided . . . .”) We therefore agree
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with the Tax Appeal Court that “[t]he subject tax is a tax rate
that is applied to the assessed value” of real property, and is
not a tax on users’ stays.
It is undisputed that the County’s real property tax
assessments are based on properties’ value, not occupancy or any
other user-related metric. MCC § 3.48.290 states that the
County’s Finance Director
must cause the fair market value of all taxable real
property to be determined and annually assessed by the
market data and cost approaches to value using appropriate
systematic methods suitable for mass valuation of
properties for taxation purposes, so selected and applied
to obtain, as far as possible, uniform and equalized
assessments throughout the County . . . .
Appellants repeatedly point to Councilmembers’
concerns about declining TAT revenues which led them to create
“a new real property tax rate classification for timeshare units
in order to collect a more equitable share of taxes for services
used by owners of timeshare units.” Council of the County of
Maui, Budget and Fin. Comm. Rep. No. 04-78 at 10 (2004),
https://www.mauicounty.gov/ArchiveCenter/ViewFile/Item/8909
[https://perma.cc/8NBH-WW8S].
While the Council might have wished to raise revenue
to address time share users’ impacts, the Time Share
classification tax rate is imposed as an ad valorem tax. See
Black’s Law Dictionary (11th ed. 2019) (defining ad valorem tax
as “a tax imposed proportionally on the value of something (esp.
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real property), rather than on its quantity or some other
measure”). Time share properties are taxed under the Time Share
classification based on their appraised value, not on the number
of users or length of users’ stays. The record reflects that
the real property tax is assessed on the time share plan
managers, such as West Maui Resort and Ocean Resort. But the
record does not show that time share interval owners – i.e. the
individual visitors who buy time share points and stay in the
time share units – pay the real property tax directly, if at
all. Indeed, counsel for West Maui Resort acknowledged at oral
argument that even if no time share unit owners visited the
property, the real property tax would still be assessed. In
contrast, a TAT would not be assessed if those visitors did not
come.
Therefore, we affirm the Tax Appeal Court’s conclusion
that the Time Share classification and its rate act as a real
property tax, and the County did not exceed its authority under
Hawai‘i Constitution article VIII, section 3 in adopting them.
3. The County did not violate the MCC by creating the
Time Share classification or assigning appellants’
time share units to the Time Share classification
Appellants argue that the County violated the MCC
because (1) MCC § 3.48.305.A. required the County to create
classifications based on real property use, and (2) MCC
§§ 3.48.305.A. and C. required the County to assign time share
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units based on use. Because the County allegedly violated the
MCC when it created the Time Share classification or when it
assigned their units to the Time Share classification in 2005,
appellants argue their properties should have been assigned to
the Hotel and Resort classification, and taxed accordingly. We
disagree.
First, the MCC does not require the County to create
real property classifications based on use. Appellants point to
Gardens, which stated that the County “classifie[d] real
property into nine classifications based on use for the purpose
of real property taxation.” 90 Hawai‘i at 337, 978 P.2d at 775.
At the time Gardens was decided, MCC § 3.48.305.A. (1997) stated
that “land shall be classified, upon consideration of its
highest and best use, into the following general classes.”
(Emphases added.) Similarly, at the time of these appeals, MCC
§ 3.48.305.A. stated that “real property must be classified,
upon consideration of its highest and best use, into the
following general classes.” (Emphases added.) Appellants argue
that this provision requires the County to create
classifications based on highest and best use.
We hold that the MCC does not require the County to
consider highest and best use when creating classifications.
MCC § 3.48.305.A. only requires that the County consider real
property use when classifying real property parcels into a
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particular classification. It says nothing about whether the
County must consider use when creating those classifications in
the first place.
Here, the County appropriately considered a variety of
factors when creating the Time Share classification, including
the use of such properties and their broader impacts on the
community and economy at large. See, e.g., Council of the
County of Maui, Budget and Fin. Comm. Mtg. Minutes at 41-48
(Apr. 25, 2005)
https://www.mauicounty.gov/ArchiveCenter/ViewFile/Item/9641,
[https://perma.cc/2BSS-E2LV].
Appellants’ claim that the County violated its own
code when assigning their parcels to the Time Share
classification is irrelevant for the present appeals. The 2010
amendment to MCC § 3.48.305 applies to this case. Appellants
concede that “[p]rior to the passage of the exception created by
Ordinance 3766 in 2010, the MCC required that the classification
of timeshares be based on use,” but the passage of that
ordinance “except[ed] timeshares from the requirement of
considering only ‘highest and best’ or ‘actual’ use . . . .”
(Emphasis omitted.)
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MCC § 3.48.305 (2020), which applies to the appeals at
issue, provides:
A. Except as otherwise provided in
subsection [3.48.305(B)], real property [shall] be
classified, upon consideration of its highest and best use,
into the following general classes:
. . .
B. In assigning land to one of the general
classes, the director must give major consideration to: the
districting established by the land use commission in
accordance with chapter 205, Hawai͑i Revised Statutes; the
districting established by the County in its general plan
and comprehensive zoning ordinance; use classifications
established in the Hawai͑i state plan; and other factors
that influence highest and best use; except that:
. . .
5. Real property that is subject to a time
share plan as defined in section 514E-1, Hawai͑i
Revised Statutes, as amended, must be classified as
“time share.”
Subsection B exempts time share units from being
considered based on highest and best use and requires the County
to classify real property subject to a time share plan under the
Time Share classification. Thus, we reject Appellants’ argument
that time share units must be assigned to a real property tax
classification according to their use because the Code
specifically exempts time share units from that requirement.
We therefore affirm the Tax Appeal Court’s decision on
this issue and conclude that the County neither exceeded its
constitutional authority when creating the Time Share
classification, nor violated its own code in doing so.
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C. The County’s Taxation of Time Share Units is Not Preempted
Under the test outlined in Richardson v. City & Cnty.
of Honolulu, state law preempts a municipal ordinance “if (1) it
covers the same subject matter embraced within a comprehensive
state statutory scheme disclosing an express or implied intent
to be exclusive and uniform throughout the state or (2) it
conflicts with state law.” 76 Hawai‘i 46, 62, 868 P.2d 1193,
1209 (1994).
This court explained in Richardson that:
A conflict exists if the local legislation duplicates,
contradicts, or enters an area fully occupied by general
law, either expressly or by legislative implication.
Local legislation is “duplicative” of general law when it
is coextensive therewith.
Similarly, local legislation is “contradictory” to general
law when it is inimical thereto.
Finally, local legislation enters an area that is “fully
occupied” by general law when the Legislature has expressly
manifested its intent to “fully occupy” the area, or when
it has impliedly done so . . . .
Id. at 61, 868 P.2d at 1208 (emphases and citation omitted).
Appellants argue that the State’s TAT scheme preempts
the Time Share classification and its rate under the Richardson
test. We disagree.
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1. The Time Share classification does not cover the
same subject matter embraced within a comprehensive
state statutory scheme
Appellants argue that the Time Share classification
and its rate are preempted because they cover the same subject
matter as the State’s comprehensive TAT scheme. This argument
fails because the State’s TAT scheme neither expressly nor
implicitly precludes counties from taxing transient
accommodation properties through real property taxation.
The legislature created the TAT “to tax visitors for
their use of county infrastructure and services by assessing the
cost of transient accommodations that is allocated to the
operator . . . .” Travelocity.com, 135 Hawai‘i at 127, 346 P.3d
at 196. As discussed above, the Time Share classification does
not tax visitors. See supra section IV.B.2. The Time Share
classification and its rate act as a real property tax on time
share properties. Thus, the subject matter of the State’s TAT
is not the same as the Time Share classification.
Moreover, the State did not design the TAT to be the
only source of revenue to repair infrastructure within the
counties, and thus, the TAT does not preempt the Time Share
classification because of a comprehensive statutory scheme. See
Application of Anamizu, 52 Haw. 550, 554, 481 P.2d 116, 119
(1971) (noting that county’s ordinance imposing “additional
qualifying regulations” on contractors was preempted by state’s
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comprehensive statutory scheme to license and regulate
contractors). Rather, the State created the TAT to support
counties’ ability to improve infrastructure for tourists,
because Hawai‘i residents alone bore these costs previously. The
State decided to allocate a certain portion of TAT revenues to
counties because
[T]ourism is the largest industry in Hawai͑i, and many of
the burdens imposed by tourism falls on the counties.
Increased pressures of the visitor industry mean greater
demands on county services. Many of the costs of providing,
maintaining, and upgrading police and fire protection,
parks, beaches, water, roads, sewage systems, and other
tourism related infrastructure are being borne by the
counties.
Upon further consideration, your Committee has
amended this bill in order to share the TAT revenues with
the counties.
Travelocity.com, 135 Hawai‘i at 122, 346 P.3d at 191 (emphasis
omitted).
But the TAT’s structure did not prevent counties from
raising their own revenue through real property taxes that might
also contribute to these same expenses. Instead, the State
decided to allocate TAT revenues across several priorities,
including a set percentage distributed to each county. See HRS
§ 237D-6.5 (2017). The State intended for the TAT to be passed
to individual visitors, and not the properties themselves. See
Travelocity.com, 135 Hawai‘i at 122, 346 P.3d at 191 (stating TAT
“was not a tax on the hotels, but instead, was a mechanism to
tax visitors by assessing the cost of their hotel room to
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correlate to costs associated with visitor use of infrastructure
and county services.”)
Further, when enacting the TAT, the legislature knew
that counties used real property taxation to generate revenue
for a variety of costs because of article VIII, section 3’s
language. In 1978, the legislature proposed an amendment to the
Hawai‘i Constitution that shifted real property taxation to the
counties, reasoning:
Traditionally, much of the revenue for local government is
derived from the real property tax.
. . .
Your Committee concludes that the power to levy a tax on
real property should be granted to the counties for the
following reasons:
(1) County governments are completely responsible
and accountable for the administration of their
local affairs. It is felt that in order to
have complete authority over their county
finances the real property tax function should
be given to the counties.
. . .
(4) There are certain program elements which do not
Invoke issues of statewide concern and/or which
Do not lend themselves to single, statewide
solutions. In other words, there are different
economic bases and needs of the counties which
cannot be addressed by statewide real property
provisions.
Proceedings of the Constitutional Convention of Hawai‘i of 1978
at 594-595.
We wrote recently that when proposing article VIII,
section 3, the legislature
rejected a proposal to adopt a general excise tax, noting
that “should the counties desire additional revenues,” the
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counties should do so through “the real property tax by
increasing the rates.”
. . . .
We note that the counties’ power to tax real property
cannot be construed in isolation, but instead, must be
construed with reference to “the current prohibition on the
State taxing real property.”
Kaheawa Wind Power, LLC v. Cnty. of Maui, 146 Hawai‘i 76, 91, 93,
456 P.3d 149, 164, 166 (2020) (citation and emphasis omitted).
Thus, the legislature enacted the TAT knowing that
counties already used real property taxes to raise additional
revenue and would likely continue to do so, even with the new
TAT contributions. The State did not reserve revenue-generating
powers for infrastructure repair exclusively for the TAT.
Cf. Citizens Utilities Co., Kauai Elec. Div. v. Cnty. of Kaua͑i,
72 Haw. 285, 288, 814 P.2d 398, 400 (1991) (holding county
ordinance that set utility poles’ height was preempted by state
statute and scheme that authorized only public utilities
commission to “supervise and regulate public utilities, which
would include the height of utility poles”).
We therefore conclude that the State’s TAT does not
cover the same subject matter as the County’s Time Share
classification.
2. The Time Share classification does not conflict with
state law
The County’s Time Share classification and rate do not
conflict with state law because they do not duplicate,
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contradict, or enter an area fully occupied by the State’s
general law. As described, the Time Share classification and
its rate are not duplicative of the TAT because they operate
distinctly. See supra section IV.B.2. The TAT taxes transient
accommodation visitors separately from other general excise
taxes and real property taxes.
The Time Share classification and its rate also are
not contradictory or inimical to the TAT, as Appellants argue.
See Richardson, 76 Hawai‘i at 61, 868 P.2d at 1208. Appellants
point to Travelocity.com, 135 Hawai‘i at 123, 346 P.3d at 192, in
which this court stated that the legislature intended to
“minimize the impact of the [TAT] on Hawai‘i visitors and the
hotel industry.” But Travelocity.com concerned a situation in
which the TAT was effectively assessed “twice: first, against
the [online travel companies] based on the room rate plus the
mark-up and service charges, and second, against the hotel on
the net rate collected for the room.” Id. at 126, 346 P.3d at
195 (emphasis omitted). Accordingly, we held that “the
legislature intended the TAT to be a tax upon the transient,
assessed on the cost of a hotel room,” but “did not intend that
the TAT would be assessed in full on multiple operators.” Id.
We emphasized that the TAT operates by taxing the “transient’s
cost of the hotel room . . . .” Id.
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In contrast, the Time Share classification rate
operates on the assessed real property value of the time share
property as a whole, not on the transient cost of the time share
unit. Here, the TAT was only assessed once against time share
plan operators. While those time share plan operators must also
pay real property taxes, appellants have not shown that the Time
Share classification rate operates as a double TAT assessment.
Further, the Time Share classification is far from
entering an area that is fully occupied by general law.
Richardson, 76 Hawai͑i at 61, 868 P.2d at 1208. Article VIII,
section 3 of the Hawai͑i Constitution explicitly grants
counties, not the State, the power to tax real property. The
State’s TAT does not preempt all taxation of visitors, nor of
the visitor industry. See Travelocity.com at 113, 346 P.3d at
182 (noting general excise tax “is imposed on the travel agency
and hotel operator on the respective portion of the gross income
allocated or distributed to each, and no more” in addition to
TAT). Indeed, as stated above, the legislature passed the TAT
knowing that the Constitution authorizes the counties exclusive
power to tax real property, and did not provide any limitations
on how the TAT might interact with those taxation provisions.
See Application of Ferguson, 74 Haw. 394, 400, 846 P.2d 894, 898
(1993) (“[T]he legislature is presumed to have enacted valid
statutes in harmony with all constitutional provisions.”).
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We therefore conclude that the County acted within its
constitutional authority by creating the Time Share
classification because it does not invade the State’s authority
to impose the TAT. Thus, the TAT does not preempt the Time
Share classification because the two taxes do not conflict.
D. The Time Share Classification and Its Rate Do Not
Violate the Equal Protection Clauses of the Hawai‘i and
U.S. Constitutions
“In analyzing alleged equal protection violations,
classifications that are neither suspect nor quasi-suspect are
subject to the rational basis test.” Del Rio v. Crake, 87
Hawai‘i 297, 304, 955 P.2d 90, 97 (1998) (internal quotations
omitted).
In analyzing tax classifications under the equal
protection clause, this court has stated that “where . . .
discrimination is of a ‘non-suspect’ or ‘non invidious'
variety, such discrimination is not unconstitutional if
there is any rational basis for such classification. Such
discrimination is only a violation of equal protection if
it is totally arbitrary or capricious.” In re Pacific
Marine & Supply Co., Ltd., 55 Haw. 572, 581, 524 P.2d 890,
896 (1974). Under this “rational basis test,” it is the
court's function “only to seek to adduce any state of
facts that can reasonably sustain the classification
statute . . . challenged.” Id. at 582, 524 P.2d at 896. “If
the classification statute . . . is arguably tailored to
serve the state policy, it is not arbitrary or capricious,
and hence is constitutional under the equal protection
clauses.”
Gardens, 90 Hawai‘i at 342, 978 P.2d at 780 (ellipses in
original).
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1. Rational basis review applies because time share
owners are neither a suspect class nor subject to
invidious discrimination
In Gardens, this court applied rational basis review
to a vacation club’s claim that a Maui County ordinance violated
the equal protection clauses of the Hawai‘i and U.S.
Constitutions by classifying its time share units under the
“Hotel Resort” category. Id. This court held that the
ordinance’s stated purpose to uniformly classify time share
units under the Hotel and Resort classification was reasonably
“tailored to serve the policy of eliminating disparate tax
treatment, [and thus] is neither arbitrary nor capricious.” Id.
at 342–43, 978 P.2d at 780–81. This court emphasized that the
vacation club did not acquire vested rights in its Apartment
classification because “detrimental reliance on a tax
classification alone is insufficient to establish a
constitutional right.” Id. at 345, 978 P.2d at 783. We also
held:
Multiple owners subject to a time share plan, although
vested with ownership rights in their time slots, put the
units to use much like transient hotel guests, resulting in
intensive use of the property. The “Hotel Resort”
classification thus legitimately applies to properties
whose actual use is transient or short-term, regardless of
whether the units are used personally. That being the case,
higher tax rates as applied to time share units are
rationally related to the ordinance's purpose, and do not
violate the equal protection clauses of the Hawai‘i and
United States Constitutions.
Id. at 343, 978 P.2d at 781 (emphasis added).
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Here, Appellants argue that the County’s creation of
the Time Share classification and the assignment of their
properties to it deprived them of equal protection. They
contend that (1) heightened scrutiny should apply because the
County impermissibly distinguishes between state residents and
nonresidents in a way that violates the fundamental right to
travel, and (2) the County’s Time Share classification rate is
the “product of invidious discrimination” against time share
owners.
Time share owners are neither a suspect class nor the
object of invidious discrimination. They are property tax
payers subject to a uniform tax rate. Thus, they are not a
suspect class that receives heightened protection under the
equal protection clauses of the Hawai‘i or U.S. Constitutions.
See Gardens, 90 Hawai‘i at 342, 978 P.2d at 780 (applying
rational basis review to time share owners’ classification equal
protection clause challenge); Pac. Marine, 55 Haw. at 580-81,
524 P.2d at 896 (applying rational basis review to shipping
company’s equal protection challenge of tax assessments).
The Time Share classification also does not violate
time share owners’ right to travel. First, non-residents are
not a suspect class. See Daly, 215 F. Supp. 2d at 1113 (stating
that while Honolulu ordinance “on its face, classifie[d] on the
basis of residency, non-residents are not a judicially
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recognized suspect class”). Further, even if some time share
owners are out-of-state residents, all time share owners - both
residents and nonresidents - are taxed at the same rate within
the Time Share classification. Appellants offer no evidence of
the County’s animus or invidious intent to discriminate against
either time share owners or nonresidents. See Allied Stores,
358 U.S. at 530 (noting “discrimination against residents is not
invidious nor palpably arbitrary because, as shown, it rests not
upon the ‘different residence of the owner,’ but upon a state of
facts that reasonably can be conceived to constitute a
distinction . . . which the State is not prohibited from
separately classifying for purposes of taxation” under federal
equal protection clause). The alleged invidious discrimination
against time share owners reflects the County’s
nondiscriminatory concerns about time share properties’ burden
on infrastructure and the local economy.
We therefore review for rational basis.
2. The Time Share classification is reasonably related
to several different legitimate policy purposes
The County considered several legitimate policy
purposes that were reasonably related to the creation of the
Time Share classification and the setting of the corresponding
tax rate.
[W]here, as here, discrimination is of a non-suspect or
non-invidious variety, such discrimination is not
unconstitutional if there is any rational basis for such
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classification. Such discrimination is only a violation of
equal protection if it is totally arbitrary or capricious.
Furthermore, it is well established that anyone who
questions the constitutionality of a statute on equal
protection grounds has the burden of showing, with
convincing clarity, that the challenged classification does
not rest upon some ground of difference having a fair and
substantial relation to the object of the legislation.
Pac. Marine, 55 Haw. at 581, 524 P.2d at 896–97 (internal
quotation marks omitted).
In analyzing tax classifications under the equal
protection clause, this court has stated that “where . . .
discrimination is of a ‘non-suspect’ or ‘non invidious'
variety, such discrimination is not unconstitutional if
there is any rational basis for such classification. Such
discrimination is only a violation of equal protection if
it is totally arbitrary or capricious.” . . . Under this
“rational basis test,” it is the court's function “only to
seek to adduce any state of facts that can reasonably
sustain the classification statute . . . challenged.” “If
the classification statute . . . is arguably tailored to
serve the state policy, it is not arbitrary or capricious,
and hence is constitutional under the equal protection
clauses.”
Gardens, 90 Hawai‘i at 342, 978 P.2d at 780 (citations omitted
and emphases added).
The County considered many legitimate policy purposes
reasonably related to the creation of a separate real property
tax classification for time share units. Appellants argue the
Time Share classification creation is not rationally related to
a legitimate policy purpose because generating revenue to
account for time share visitors’ impact on County infrastructure
does not “survive constitutional scrutiny.” As discussed above,
supra section IV.C.1, the County may use real property taxation
to generate revenue and is not limited as to how it uses that
revenue for various costs. Article VIII, section 3 of the
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Hawai‘i Constitution was specifically designed to “grant the
counties full control over their finances, . . . [and] further
the democratic ideal of home rule, and allow the counties
flexibility in addressing their unique local needs.” City &
Cnty. of Honolulu v. State, 143 Hawai‘i 455, 458, 431 P.3d 1228,
1231 (2018). Generating revenue needed for infrastructure costs
or other items in the County’s budget is not an improper policy
purpose. See Kaheawa Wind Power, 146 Hawai‘i at 91, 456 P.3d at
164 (noting that when adopting article VIII, section 3, “the
Standing Committee rejected a proposal to adopt a general excise
tax, noting that ‘should the counties desire additional
revenues,’ the counties should do so through ‘the real property
tax by increasing the rates.’”) (citation omitted).
Moreover, the County considered many different
purposes when creating the Time Share classification, including
time share properties’ burdens on employment, infrastructure
use, and Maui’s ability to attract visitors for large events.
See, e.g., Council of the County of Maui, Budget and Fin. Comm.
Mtg. Minutes at 41-48 (Apr. 25, 2005),
https://www.mauicounty.gov/ArchiveCenter/ViewFile/Item/9641,
[https://perma.cc/2BSS-E2LV]. It also wanted time share
properties to contribute revenue needed for infrastructure
repair and maintenance. These are legitimate policy purposes,
and the creation of a separate real property tax classification
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that could be used to regulate this type of land differently is
rationally related to those purposes.
The Time Share classification tax rate is also
constitutional. Neither the Hawai‘i Constitution nor the MCC
require that real property tax rates be related to actual
property use. See MCC § 3.48.565. Appellants point to the
County Finance Director’s erroneous calculations and statements
that he did “not have an analysis for why we would justify or
ration[alize]” the rate as evidence that the County acted
arbitrarily. Council of the County of Maui, Budget and Fin.
Comm. Mtg. Minutes at 11 (Apr. 19, 2005),
https://www.mauicounty.gov/Archive.asp?ADID=1772&ARC=5718
[https://perma.cc/Q6MC-EJ35]. However, the committee report
that set the initial rate for the Time Share classification
further explained that:
In 2004, the Council established the Time Share
classification to address the need for owners and occupants
of time share units to pay a more equitable share of taxes
for County services they utilize and the economic impact
they place on the surrounding community. The Mayor
proposed to establish a new Time Share real property tax
classification at a rate of $16 per $1,000 of net taxable
assessed valuation. Your Committee received oral and
written testimony from time share industry representatives
requesting a rate of $9.50. Due to uncertainties of the
impacts created by time shares, your Committee added an
appropriation for an independent study of the economic and
social impacts of the time share industry on the County.
Pending the outcome of this study, your Committee decided
to reduce the Time Share tax rate to $14 per $1,000 of net
taxable assessed valuation.
Council of the County of Maui, Budget and Fin. Comm. Rep. No.
05-63 at 10-11 (May 16, 2005) (as amended),
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https://www.mauicounty.gov/Archive/ViewFile/Item/9582
[https://perma.cc/ZVD9-D37N].
Under rational basis review, it is our duty “only to
seek to adduce any state of facts that can reasonably sustain
the classification statute . . . challenged.” Gardens, 90
Hawai‘i at 342, 978 P.2d at 780; see also Tax Found. of Hawai‘i
v. State, 144 Hawai‘i 175, 205, 439 P.3d 127, 157 (2019) (“[T]he
rational basis standard ‘is especially deferential in the
context of classifications made by complex tax laws. In
structuring internal taxation schemes the States have large
leeway in making classifications and drawing lines which in
their judgment produce reasonable systems of taxation.’”)
(citation omitted). The County considered the difference
between hotel and time share TAT revenues as one factor for
setting this rate, but it was not the only reason. 6
The County also considered time share properties’
broader impacts on the community when it created the Time Share
classification, and presumably drew on these same considerations
when setting the tax rate. See, e.g., Council of the County of
Maui, Budget and Fin. Comm. Mtg. Minutes at 41-48 (Apr. 25,
6 The County Finance Director explained that “the examination of
the time-share versus hotel for the TAT calculation is [the] only run
rationale that could be done in terms of evaluating the rate. It was the
rationale that we looked to, but clearly it did not establish the rate.”
Council of the County of Maui, Budget and Fin. Comm. Mtg. Minutes at 116
(Mar. 22, 2005), https://www.mauicounty.gov/ArchiveCenter/ViewFile/Item/9618
[https://perma.cc/D5D3-RSXJ].
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2005)
https://www.mauicounty.gov/ArchiveCenter/ViewFile/Item/9641,
[https://perma.cc/2BSS-E2LV]. Neither the Maui County Code nor
any other source requires that tax rates be set at exactly the
number that would make tax revenue contributions from all
sources equal. On these facts, the County set a rate rationally
related to its several policy purposes, including raising
revenue for time share properties’ impacts on the community.
We conclude that the classification of time share
units under the Time Share classification is reasonably related
to legitimate policy purposes, including to (1) ensure that time
share properties make greater contributions to the County’s
revenue and (2) mitigate time share properties’ impact on County
infrastructure. Thus, we conclude that the Time Share
classification’s creation and rates are constitutional under the
equal protection clauses of the Hawai‘i and U.S. Constitutions.
V. CONCLUSION
For the foregoing reasons, we affirm the Tax Appeal
Court’s (1) Order Granting Appellee County of Maui’s Motion
for Summary Judgment filed August 16, 2022 in Case
No. 1CTX-XX-XXXXXXX; (2) Order Denying Appellant West Maui
Resort Partners LP’s Motion for Summary Judgment filed
August 16, 2022 in Case No. 1CTX-XX-XXXXXXX; (3) Order Granting
Appellee County of Maui’s Motion for Summary Judgment filed
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March 2, 2023 in Case No. 1CTX-XX-XXXXXXX; and (4) Order Denying
Appellant Ocean Resort Villas Vacation Owners Association’s
Cross-Motion for Summary Judgment filed on March 2, 2023 in Case
No. 1CTX-XX-XXXXXXX.
Kurt W. Klein, /s/ Mark E. Recktenwald
James M. Yuda,
(Robert G. Klein and /s/ Sabrina S. McKenna
David A. Robyak on the briefs)
for appellant-appellant /s/ Todd W. Eddins
West Maui Resort Partners LP
/s/ Dean E. Ochiai
William C. McCorriston,
Brett R. Tobin /s/ Rowena A. Somerville
for appellant-appellant
Ocean Resort Villas Vacation
Owners Association
Brian A. Bilberry
for appellee-appellee
Thomas Yamachika
(on the briefs)
for amicus curiae
Tax Foundation of Hawai‘i
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