82 Hawai'i 317, Weinberg v. City and County of Honolulu
| Decision Date | 23 July 1996 |
| Docket Number | No. 18562,18562 |
| Citation | 922 P.2d 371 |
| Parties | 82 Hawai'i 317 In the Matter of the Tax Appeal of William WEINBERG, successor in interest of WKH Corporation, a dissolved corporation, formerly d.b.a. Kahala Hilton Hotel, Appellant-Appellant, v. CITY AND COUNTY OF HONOLULU, Appellee-Appellee. |
| Court | Hawaii Supreme Court |
Robert B. Bunn and Carlito P. Caliboso of Cades Schutte Fleming & Wright, on the briefs, Honolulu, for appellant-appellant.
Gregory J. Swartz, Deputy Corporation Counsel, on the briefs, Honolulu, for appellee-appellee.
Before MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA and RAMIL, JJ.
Appellant-appellant William Weinberg, the successor in interest of the now-dissolved WKH Corporation (formerly doing business as the Kahala Hilton Hotel) appeals from the tax appeal court's judgments upholding the real property tax assessments by appellee-appellee City and County of Honolulu (the City) for the tax years 1991 and 1992. Weinberg's consolidated tax appeals challenged the City's land value assessment of the property known as the Kahala Hilton Hotel.
The four issues raised by Weinberg in this appeal essentially involve the tax appeal court's rulings regarding the admissibility of, and the weight given to, certain evidence used to establish the value of the land. We affirm.
The Kahala Hilton Hotel is situated on 6.485 acres of land leased from the trustees under the Will and of the Estate of Bernice Pauahi Bishop (Bishop Estate). Prior to the City's assessment of the property in 1991 and 1992, the existing thirty-year lease between fee owner Bishop Estate and lessee WKH Corporation was due to expire on October 31, 1990. Pursuant to the lease terms relating to renegotiation of the lease rent, the annual lease rent for the ten-year period beginning November 1, 1990 would be set by agreement of the lessee and Bishop Estate. If the parties could not reach an agreement, the annual lease rent would be set, by appraisal and binding arbitration, at six percent of the then-market value of the property, exclusive of improvements thereon. The lease provided that the market value determined by the arbitrators, or by a majority of them, would be final, conclusive, and binding.
WKH Corporation offered Bishop Estate $1,200,000 in annual rent based on its land valuation of $20,000,000. Bishop Estate, however, sought $18,000,000 in annual rent based on its land valuation of $300,000,000. Because the parties could not agree on the new annual lease rent, the matter was submitted to binding arbitration, pursuant to the terms of the lease.
On August 13, 1992, after hearing five days of testimony, a three-member arbitration panel comprised of arbitrators John J. Hulten, Sr., Nicholas Ordway, Ph.D., and Tan Tek Lum, determined that, as of November 1, 1990, the market value of the property, exclusive of improvements, was $93,350,000. Arbitrator Hulten testified before the tax appeal court that, during the arbitration proceeding, he believed that the market value was between $30,000,000 and $73,000,000. However, he agreed to the $93,350,000 valuation because he believed that, if he did not agree, arbitrator Lum would agree to a value in the high end of Ordway's valuations, which ranged from $80,000,000 to $121,000,000. The record indicates that arbitrator Lum dissented from the panel's decision, stating that he had determined the market value to be $155,000,000, or at minimum, $121,000,000.
The compromise arbitration valuation of $93,500,000 resulted in an annual lease rent of $5,601,000 (six percent of $93,350,000). On December 1, 1992, the circuit court granted Bishop Estate's motion to confirm the arbitration award and denied WKH Corporation's motion to vacate the award. Subsequently, WKH Corporation timely appealed from the circuit court's confirmation order. During the pendency of the appeal, WKH Corporation prepared to file for bankruptcy. Because the Kahala Hilton Hotel "could not exist and pay that rent," WKH Corporation also attempted negotiations with Bishop Estate to work out a lower lease rent that would allow the Kahala Hilton Hotel to continue its operations.
The negotiations resulted in a Letter Agreement between Bishop Estate, WKH Corporation, and the prospective purchasers of the Kahala Hilton Hotel, Bill Mills Development Company, Inc. and Tokyo General Corporation. Pursuant to the Letter Agreement, Bishop Estate agreed to, inter alia, lower the annual lease rent of $5,601,000 to $1,200,000 plus a percentage of the annual gross income (after deductions of base rent, real property taxes, and other items). The percentage rates were fixed as follows: (1) no percentage rent for the first two years; (2) three percent for the next eight years; and (3) five percent thereafter. The lease term was also extended from ten years to forty years. According to Nathan Aipa, counsel to Bishop Estate, the objective of the new lease terms was to yield the economic equivalent of $5,601,000 in annual rent. In turn, WKH Corporation agreed to, inter alia, sell the Kahala Hilton to Bill Mills Development Company, Inc. or Tokyo General Corporation, which would undertake Bishop Estate-approved capital improvements of not less than $30,000,000 to "repair, refurbish, upgrade[,] and enhance" the hotel.
On October 27, 1993, WKH Corporation distributed its interest in the Kahala Hilton Hotel to Weinberg, its sole stockholder. Weinberg, in turn, sold his interest in the Kahala Hilton to Bill Mills Development Company, Inc., which immediately resold it to the Kahala Hotel Associates Limited Partnership, an entity controlled by Tokyo General Corporation. The final adjusted sales price for the Kahala Hilton Hotel was $53,750,000.
The day after the sale, WKH Corporation's appeal from the circuit court's order confirming the arbitration award was dismissed with prejudice, pursuant to the stipulation of the parties. Bishop Estate then executed a new lease with the Kahala Hilton Hotel Associates Limited Partnership, in accordance with the terms set forth in the Letter Agreement. A memorandum of the new lease was recorded at the Bureau of Conveyances on October 28, 1993. The conveyance tax paid reflected a land valuation, for conveyance tax purposes, of $20,000,000 (representing $1,200,000 in annual rent capitalized at the statutory rate of six percent).
The City thereafter rendered its assessment of the land and buildings situated on the property known as the Kahala Hilton Hotel, Tax Map Key No. 3-5-023-039. The following chart illustrates the land and building valuations assigned by the City and Weinberg for the tax years 1991 and 1992:
1991 Tax Year
(7/1/91 - 6/30/92)
Valuation date: January 1, 1991
Land Building TOTAL
The City $72,303,000 $37,576,000 $109,879,000
Weinberg $20,000,000 no dispute $ 57,576,000
1992 Tax Year
(7/1/92 - 6/30/93)
Valuation date: January 1, 1992
Land Building TOTAL
The City $72,303,000 $38,800,100 $111,103,100
Weinberg $20,000,000 no dispute $ 58,000,100
Relying on Revised Ordinances of Honolulu (ROH) §§ 8-12.3(1), (2), and (4) (1990), Weinberg challenged the City's land value assessment of the property before the tax appeal court. ROH § 8-12.3 provides that an assessment may be lowered if:
(1) assessment of the property exceeds by more than 10 percent the market value of the property, or (2) lack of uniformity or inequality, brought about by illegality of the methods used or error in the application of the methods to the property involved, or (3) denial of an exemption to which the taxpayer is entitled and for which such person has qualified, or (4) illegality, on any ground arising under the Constitution or laws of the United States or the laws of the state or the ordinances of the city in addition to the ground of illegality of the methods used, mentioned in clause (2).
ROH § 8-12.3 (emphases added).
At the hearings before the tax appeal court, arbitrators Ordway and Hulten described how they had arrived at their arbitration decision and acknowledged that the final award was the result of a compromise decision. In Hulten's view, the evidence presented by the lessee was more credible than the evidence offered by the lessor because the lessee's approaches to valuation recognized the express terms of the lease by taking "into consideration the use to which the land [was] then put by the Lessee[.]" For example, the lessee utilized some market land comparables from vacant neighbor island properties, as well as the income approach 1 to valuation, based on the existing use of the property.
Hulten testified that, in contrast, the Bishop Estate's evidence "was on the basis of highest and best use if vacant," which was contrary to the terms of the lease. According to Hulten, Bishop Estate "projected the development of about 70 ultra luxury condominium units on the property to sell for six or seven million dollars a piece and there was no presentation of any marketability."
Arbitrator Ordway testified that, "[w]ithin the four corners of the lease, taking into consideration the restrictions in the lease document, I valued the land at $93,350,000." He recalled that three appraisal reports were presented to the panel and that,
Robert C. Hastings, Jr., one of the appraisers who had made a presentation before the arbitrators, used a number of valuation methods to determine the value of the land. Regarding his land valuations for the tax years 1991 and 1992, Hastings testified that
[m]arket comparison with resort sites gave...
To continue reading
Request your trial
-
County of Kaua`I v. Baptiste
...the requirements of statewide uniformity for the assessment of real property taxation lapsed. See Weinberg v. City & County of Honolulu, 82 Hawai`i 317, 324, 922 P.2d 371, 378 (1996). In 2004, the Appellants, as part of a group known as Ohana Kaua`i, successfully circulated a petition that ......
-
Coon v. City and County of Honolulu
...manner consistent with its purpose, the language must be read in the context of the entire ordinance. Weinberg v. City and County of Honolulu, 82 Hawai`i 317, 322, 922 P.2d 371, 377 (1996) (citations and internal quotation marks omitted). C. Deference To The Decisions Of Administrative Agen......
-
Com, Inc. v. Dir. Taxation (In re Priceline)
...inapplicable to the Director’s legal conclusions, which are reviewable de novo as questions of law. Weinberg v. City & Cnty. of Honolulu, 82 Hawai‘i 317, 322, 922 P.2d 371, 376 (1996).We have further recognized that, as applied in tax cases, there is a "rule of strict construction.... favor......
-
Com, Inc. v. Dir. Taxation (In re Priceline)
...Director's legal conclusions, which are reviewable de novo as questions of law. Weinberg v. City & Cnty. of Honolulu, 82 Hawai'i 317, 322, 922 P.2d 371, 376 (1996). We have further recognized that, as applied in tax cases, there is a "rule of strict construction . . . . favoring the taxpaye......