Fasi, Matter of, 6971

• Decision Date: 21 September 1981
• Docket Number: No. 6971,6971
• Parties: In the Matter of the Tax Appeal of Frank F. FASI, Mayor, City and County of Honolulu.
• Court: Hawaii Supreme Court

Page 98

634 P.2d 98

63 Haw. 624

In the Matter of the Tax Appeal of Frank F. FASI, Mayor,

City and County of Honolulu.

No. 6971.

Supreme Court of Hawai'i.

Sept. 21, 1981.

Syllabus by the Court

1. While the word "shall" is generally regarded as mandatory, it may be considered directory in certain situations.

2. The statutory time for perfecting appeals, tax appeals in particular, is generally mandatory.

3. Close juxtaposition of the verbs "shall" and "may" infers use of their ordinary meanings.

4. Use of the word "shall" requires the mayor or city council of Honolulu to file an appeal within the statutory time limitation.

5. There is a conflict between the terms used in HRS § 246-36(1)(D). "Tenant" and "occupancy" connote possession and interest in land while "permit" and "license" imply something less.

6. It is well settled in this jurisdiction that the rule of strict construction is applicable in tax cases.

7. If doubt exists as to the construction of a taxing statute the doubt should be resolved in favor of the taxpayer.

8. It is well established that exemptions from taxation are strictly construed against the taxpayer.

9. A statute which creates an exception to a well-established statutory tax exemption should be construed in favor of the taxpayer where the language creating a tax liability is ambiguous.

10. In determining tax liability, the substance, not the form of the transaction, governs.

11. HRS § 246-36(1)(D) does not apply to a service contract.

12. Tax on Hawaii realty is assessed to the "owner," a single entity.

13. Property ownership responsibilities include providing maintenance, security, and improvement services.

14. The intent of the parties governs the meaning of legal instruments in the construction of contracts and the interpretation by the parties of an ambiguous contract controls.

Alana W. Lau, Special Deputy Atty. Gen., Honolulu, for Director of Taxation, appellant.

Samuel P. King, Jr., Dept. of Corp. Counsel, Special Deputy Corp. Counsel, Honolulu, for Mayor, C & C of Honolulu, appellee.

Before RICHARDSON, C. J., OGATA, LUM and NAKAMURA, JJ., and GREIG, Circuit Judge, in place of MENOR, J., excused.

RICHARDSON, Chief Justice.

This appeal seeks to determine whether a service contract between APCOA, ITT (APCOA) and the State of Hawaii under which APCOA operates the airport parking facilities located on State-owned land at Honolulu International Airport meets the requirements of HRS § 246-36 (1976) for exempting APCOA from real property tax liability. Appellant State of Hawaii contends that the tax appeal court was without jurisdiction to consider the issue with respect to tax years 1972 through 1976 because appellee Mayor, City & County of Honolulu, filed an untimely appeal to the lower court. Appellant further argues that with respect to subsequent years governed by the contract, the State retained all incidents of ownership under the operating agreement and therefore APCOA is not liable for real property taxes on the airport facility. ¹ We agree with appellant on both issues and therefore reverse. Although other matters were argued on appeal, we find it unnecessary to address them at this time.

I.

Then Honolulu Mayor Frank F. Fasi appealed to the tax appeal court on April 7, 1977, contesting the tax exemption granted APCOA for the taxable years 1972-73 through 1976-77 and for the subsequent years of the contract between APCOA and the State. The initial issue is jurisdictional and concerns the timeliness of the appeal. The applicable statute for the enumerated tax years was HRS § 246-46 (1968 & Supp.1969) (amended 1975, effective Jan. 1, 1977). ² We agree with appellant's contention that HRS § 246-46 precluded this appeal with regards to the tax years 1972-73 through 1976-77 because, in the present context, the phrase "the appeal shall be taken ... on or before September 25 of the tax year" is a mandatory direction.

While the word "shall" is generally regarded as mandatory, it may be considered directory in certain situations. Perry v. Planning Commission of the County of Hawaii, 62 Haw. 666, 619 P.2d 95 (1980); Jack Endo Electric Co. v. Lear Siegler, Inc., 59 Haw. 612, 595 P.2d 1265 (1978); 1A C. Sands, Sutherland on Statutory Construction § 25.04, at 301 (4th ed. 1972). This is not one of those situations.

The statutory time for perfecting appeals, tax appeals in particular, is generally mandatory, Sears, Roebuck & Co. v. State Tax Commission, 370 Mass. 127, 345 N.E.2d 893 (1976); William Rodman & Sons, Inc. v. State Tax Commission, 364 Mass. 557, 306 N.E.2d 820 (1974); 2A C. Sands, Sutherland on Statutory Construction § 57.19, at 445 (4th ed. 1973); cf. In re Taxes, Valley of the Temples Corp., 56 Haw. 229, 533 P.2d 1218 (1975) (right of appeal is purely statutory), and the legislative scheme of HRS § 246-46 supports the application of the general rule to the instant case.

Where both mandatory and directory verbs are used in the same statute, especially where "shall" and "may" are used in close juxtaposition, we infer that the legislature realized the difference in meaning and intended that the verbs used should carry with them their ordinary meanings. 2A C. Sands, supra § 57.11, at 429. Cf. Blumenthal v. Clerk of Circuit Court, Anne Arundel County, 278 Md. 398, 365 A.2d 279 (1976) (when read in conjunction with each other, two subsections of the tax recordation statute require the word "shall" to have a directory effect). The second paragraph of § 246-46 provides that the mayor or the City and County of Honolulu may appeal an assessment or exemption of real property. We are construing a subsequent clause of the second paragraph which provides that the mayor or city council of the City and County of Honolulu shall appeal on or before September 25 of the tax year. ³ Such close proximity of the contrasting verbs "may" and "shall" requires a mandatory effect for the term "shall." Therefore, the mayor's appeal must be filed within the statutory time limitation.

The legislative intent is further clarified upon examination of the amendments to § 246-46 (the prior RLH § 128-30 (1955)). The second paragraph originally was enacted in 1963 and amended in 1967, 1969, and 1975. SLH 1963 c. 92; SLH 1967 c. 255; SLH 1975 c. 170. All three amendments altered only the dates of the real property tax schedule thus emphasizing the importance of the appeal date. ⁴ Because appellee did not meet the time limitation in effect for the tax years 1972 through 1976, we reverse the tax appeal court and dismiss the appeal as to those years.

II.

As for the tax years 1977 through 1984, the lower court found that appellant APCOA had the exclusive right to operate the parking facility at Honolulu International Airport for eleven years ⁵ and therefore was subject to the real property tax on the parking area in accordance with HRS § 246-36 (1976). We are not persuaded that the contractual agreements between APCOA and the State justify the tax burden imposed on APCOA.

In 1973 APCOA and the State first executed a service contract, the relevant terms of which are incorporated in the controlling 1974 agreement, wherein APCOA agreed to operate the State's airport parking facilities. The avoidance of real property taxation was an incident thereof. ⁶ Appellee alleges and the lower court found that, pursuant to the terms of the service contract, APCOA is an "owner" of the airport parking property as defined in HRS § 246-36(1)(D) and hence is liable for the real property taxes.

We agree that the tax exemption for State-owned property afforded by § 246-36 and the exception provided for in § 246-36(1)(D) is determined by the issue of whether APCOA is an "owner." ⁷ The pertinent statutory language is as follows:

(1) (P)rovided ... that real property belonging to the State ... shall be taxed on the fee simple value thereof, and private persons shall pay the taxes thereon and shall be deemed the "owners" thereof for the purposes of this chapter, in the following cases:

....

(D) Property where the occupancy by the tenant for commercial purposes has continued for a period of one year or more, whether the occupancy has been on a permit, license, month-to-month tenancy, or otherwise, shall be fully taxable to the tenant after the first year of occupancy ....

HRS § 246-36(1)(D) (1976). Stated another way, the determinative questions are first, whether a common-law tenancy with a property interest is a prerequisite to taxation or whether the statute applies to all licensees and permittees; and second, if a property interest is required, whether APCOA has such a property interest.

The conflict between the terms of the statute, i. e., as between the terms "tenant" and "occupancy" which connote possession and interest in land as opposed to "permit" and "license" which imply something less, ⁸ cannot in this case be resolved by resort to legislative intent. Legislative history only describes the broad purpose of § 246-36(1)(D) which was "to: (1) render more efficient the administration of the various state tax laws and (2) eliminate some of the inequities inherent in the existing tax structure." H. Stand.Comm.Rep.No. 871, 3d Haw.Leg., 1st Sess., reprinted in House Journal 765 (1965).

Because the legislative history and other extrinsic evidence do not provide enough materials to ascertain the specific legislative intent as to the present problem, we find sufficient ambiguity in § 246-36(1)(D) to invoke the appropriate rules of statutory construction.

It is well settled in this jurisdiction that the rule of strict construction is applicable in tax cases and that, " 'if doubt exists as to the construction of a taxing statute, the doubt should be resolved in favor of the taxpayer.' " Hawaiian Trust Co. v. Borthwick, 35 Haw. 429, 436 (1940) (quoting Hassett v. Welch, 303 U.S. 303, 314, 58 S.Ct. 559, 564, 82 L.Ed. 858 (1938)). "(I)t is also equally well established that exemptions from taxation are...