Kaheawa Wind Power, LLC v. Cnty. of Maui

• Decision Date: 21 January 2020
• Docket Number: SCAP-17-0000816
• Parties: In the Matter of the Tax Appeal of KAHEAWA WIND POWER, LLC, Respondent/Taxpayer-Appellant-Appellee, v. COUNTY OF MAUI, Petitioner/Appellee-Appellant. In the Matter of the Tax Appeal of Auwahi Wind Energy LLC, Respondent/Taxpayer-Appellant-Appellee, v. County of Maui, Petitioner/Appellee-Appellant.
• Court: Hawaii Supreme Court

456 P.3d 149

In the Matter of the Tax Appeal of KAHEAWA WIND POWER, LLC, Respondent/Taxpayer-Appellant-Appellee,

v.COUNTY OF MAUI, Petitioner/Appellee-Appellant.

In the Matter of the Tax Appeal of Auwahi Wind Energy LLC, Respondent/Taxpayer-Appellant-Appellee,

v.County of Maui, Petitioner/Appellee-Appellant.

SCAP-17-0000816

Supreme Court of Hawai‘i.

JANUARY 21, 2020

Brian A. Bilberry, Honolulu, for appellant

Ronald I. Heller, Honolulu, for appellee Kaheawa Wind Power

Vito Galati (Christopher T. Goodin with him on the brief), Honolulu, for appellee Auwahi Wind Energy

Thomas Yamachika for amicus curiae Tax Foundation of Hawai‘i

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

OPINION OF THE COURT BY RECKTENWALD, C.J.

I. INTRODUCTION

This case arises from a taxation dispute between Appellant County of Maui (County) and Appellees Kaheawa Wind Power, LLC, Kaheawa Wind Power II, LLC (collectively, Kaheawa), and Auwahi Wind Energy LLC (Auwahi), which lease land on the island of Maui in order to operate their wind farms.¹

At issue is whether the County had the authority, under article VIII, section 3 of the Hawai‘i Constitution, to include the value of Appellees’ wind turbines in Appellees’ real property tax assessments, and to redefine the term "real property" within section 3.48.005 of the Maui County Code (MCC) to include wind turbines for that purpose.

Appellees challenged the County’s actions in the Tax Appeal Court (TAC), which issued summary judgment orders and a final judgment in their favor. The TAC held that the County, by amending the MCC, exceeded its authority under article VIII, section 3 because the delegates to the 1978 Constitutional Convention did not intend to grant the counties the power to redefine "personal property" as "real property." In response, the County filed five separate appeals with the ICA (consolidated under CAAP-17-816) and filed an application for transfer, which this court granted.

We hold that the County exceeded its constitutional authority by amending MCC § 3.48.005 to expand its definition of "real property" to include "personal property," and agree with the TAC that the delegates to the 1978 Constitutional Convention did not intend to grant the counties the power to define the term. We further hold that the delegates intended for this power to be reserved to the legislature. As such, we uphold the TAC’s final judgment in favor of Appellees.

II. BACKGROUND

To understand the issues at the heart of this case, we first explain the proceedings of the 1978 Constitutional Convention, the County’s initial enactment of MCC § 3.48.005 (1980), and the ICA’s 2014 Kaheawa Wind Power, LLC v. County of Maui decision. See 135 Hawai‘i 202, 347 P.3d 632 (App. 2014), cert. denied, 2015 WL 745424 (Feb. 19, 2015). We then explain the County’s amendment to MCC § 3.48.005 (2013), the TAC’s rationale for granting summary judgment for the Appellees, and the parties’ positions on appeal to this court.

A. Article VIII, Section 3

Article VIII, section 3 of the Hawai‘i Constitution took effect in 1981, pursuant to its adoption by the 1978 Constitutional Convention and subsequent ratification by the voters. Since 1981, it has provided:

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, with the exception of the county of Kalawao. The legislature shall have the power to apportion state revenues among the several political subdivisions.

(emphasis added).

This language as ultimately adopted is similar to the language of article VIII, section 3 as originally proposed, except that the originally proposed language only granted the counties the "power to levy a tax on real property." Stand. Comm. Rep. No. 42 in 1 Proceedings of the Constitutional Convention of Hawai‘i of 1978, at 594 (1980). Prior to the amendment’s adoption, "all taxation authority was unequivocally vested in the State." See State ex rel. Anzai v. City & Cnty. of Honolulu, 99 Hawai‘i 508, 510, 57 P.3d 433, 435 (2002) (citing Haw. Const. art. VII, § 3 (1968) ).²

The Standing Committee on Local Government was the first Committee to consider section 3’s proposed language and the extent of the taxation authority to grant the counties. See id. In Report No. 42, the Committee recommended that the counties be given the "power to levy a tax on real property." Id. at 521, 57 P.3d at 446. In relevant part, Report No. 42 contained the following discussion:

Your Committee finds that the question of a centralized real property tax program versus a decentralized system has been discussed many times over the past several years. ....

Presently, under the Hawai‘i Revised Statutes, the State is responsible for assessing all real property in the State that is subject to the payment of real property taxes, and for levying and collecting all such taxes, and adjudicating taxpayer appeals. Basic policies defining real property, setting the basis of assessment, determining the manner in which rates are set, setting exemptions and describing the appeals process are the responsibility of state lawmakers.

....

In recent years, county officials have advocated the transfer of real property functions from the State to the counties. Such a move, it is felt, would permit counties to use the power to tax real property in a more effective manner. A general grant of taxing powers to the counties would include: a) assessments of property, b) adjudications of appeals, c) levying of tax rates, d) collections of taxes and e) formulation of basic policies.

....

Your Committee concludes that the power to levy a tax on real property should be granted to the County 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.

2) By placing total responsibility for the real property tax program with the counties, public confusion as to who or which level of government is responsible for the real property tax bite would be eliminated.

3) County administration of the real property tax is consistent with home rule.

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.

Your Committee also considered granting the counties the power to levy a general excise tax ....

....

Your Committee acknowledges the desire of the counties for greater autonomy, self-reliance and financial independence. Although the general excise tax looks like an attractive way for counties to raise revenues, your Committee finds that one should keep in mind the issue of fairness to taxpayers[.]

Your Committee is in accord with the conclusion reached by Mr. Fred Bennion of the Tax Foundation of Hawai‘i who states:

The counties, should they desire additional revenues, have the power to raise the added revenue through the real property tax by increasing the rates[.]

Comm. of the Whole Debates in 2 Proceedings of the Constitutional Convention of Hawai‘i of 1978, at 594–95 (1980).

The floor debates on the amendment took place next, where, notably, Delegate Souki and Delegate Crozier voiced their concerns over the proposed amendment’s language. Comm. of the Whole Debates in 2 Proceedings of the Constitutional Convention of Hawai‘i of 1978, at 258–59 (1980). Delegate Souki, for instance, explained that "the intent of the section providing for the exclusive power of real property taxation [was] not so that the counties [could] increase their revenue or increase their taxing powers," but rather, "to provide for better management of the taxing power" and "more accountability." Id. Similarly, Delegate Crozier explained that "while [he was] kind of for the counties get[ting] control of [real property taxation]," he was also "kind of afraid of a council that [might] lean[ ] one special way" in a way that would "advantage ... select group[s]" while disadvantaging others. Id. at 258.

After the floor debate ended, the Committee of the Whole convened and issued Report No. 7, which recommended adopting the language found in article VIII, section 3 today. Comm. as a Whole Rep. No. 7 in 1 Proceedings of the Constitutional Convention of Hawai‘i of 1978, at 1008 (1980). In relevant part, Report No. 7 explained its recommendation to change the "tax levying" language to the broader "all functions, powers and duties" language "to clarify the Standing Committee’s intent to grant all taxing powers relating to real property to the counties, except Kalawao." Id. Report No. 7 continued:

[T]here was some question under the earlier ["tax levying"] language as to whether or not the counties would have the power to set exemptions. Although the mover of this amendment explained that ‘the power to levy’ did include the lesser power of setting exemptions, this amendment was adopted as having the better language.

Id.

The Report further explained that the Committee of the Whole was "reject[ing] an amendment to grant the counties [the] power to levy a general excise tax," in light of delegates’ concerns that it would "add[ ] taxes to the same people and would therefore be unfair." Id.

As such, article VIII, section 3 of the Hawai‘i Constitution was enacted, giving the counties exclusive authority over "all functions, powers and duties relating to the taxation of real property." Haw. Const. art. VIII, § 3. At the time of the amendment’s adoption, and still, today, the constitution had not defined the term "real property."

To facilitate the transition of real property tax power from the State to the...