City and County of Honolulu v. Steiner

• Decision Date: 26 August 1992
• Docket Number: No. 15250,15250
• Parties: In the Matter of the Tax Appeal of CITY AND COUNTY OF HONOLULU, Appellee-Appellant/Cross-Appellee, v. Mary P. STEINER, Trustee, Appellant-Appellee/Cross-Appellant.
• Court: Hawaii Supreme Court

Page 1302

834 P.2d 1302

73 Haw. 449

In the Matter of the Tax Appeal of CITY AND COUNTY OF HONOLULU, Appellee-Appellant/Cross-Appellee, v. Mary P. STEINER, Trustee, Appellant-Appellee/Cross-Appellant.

No. 15250.

Supreme Court of Hawai'i.

Aug. 26, 1992.

Syllabus by the Court

1. 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.

2. The appellant has the burden of showing that the decision of the Tax Appeal Court was clearly erroneous.

3. The Director of Finance of the City and County of Honolulu (the Director) is responsible for the valuation and assessment of property for the purposes of real property taxation in the City and County of Honolulu (the City).

4. The Revised Ordinances of Honolulu 1990 (ROH) provide that the Director shall cause the fair market value of all taxable real property to be determined and annually assessed.

5. Fair market value of real property shall be determined by the market data and cost approaches to value using appropriate systematic methods suitable for mass valuation of properties for taxation purposes. These methods are to be selected and applied to obtain, as far as possible, uniform and equalized assessments throughout the county. ROH § 8-7.1(a).

6. The ultimate purpose of valuation for real property tax purposes is to arrive at a fair and realistic value of the property involved.

7. Fair market value is the relevant measure of the value of property.

8. Market value is defined as the value in money of any property for which that property would sell on the open market by a willing seller to a willing buyer.

9. The market data approach to valuation involves obtaining all available sales data, qualifying these as being transacted at arms-length conditions or being bona fide transactions, and comparing these recently sold properties to the one being appraised, making adjustments as necessary for comparisons.

10. A taxpayer's assessment will be lowered only if the taxpayer can show: (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) 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 (1990).

11. The Tax Appeal Court must base its conclusions upon evidence adduced and not upon what might have been adduced.

12. The City's primary valuation method involves establishing (1) a typical lot size and (2) a benchmark value, in dollars per square foot, for a particular neighborhood or area by reviewing comparable sales data and then (3) assessing the subject parcel based on the benchmark value. This method comports with the market data approach required by ROH § 8-7.1(a) and described in the Procedure and Reference Manual.

13. Although the Procedure and Reference Manual is a department guideline, rather than a statute or ordinance, compliance with the policies and procedures in the Manual is an indicia of fairness.

14. Tax valuation methods must be applied uniformly and equally, although not identically, to all taxpayers.

15. When the assessors follow their department's guidelines, there is a much greater likelihood that the tax burden will be equally shared by all taxpayers.

16. The City tax assessor's compliance with the policies and procedures set forth in the Finance Department's Procedure and Reference Manual is strong evidence that the City's method of mass valuation is being uniformly and fairly applied to all taxpayers.

17. The theory that certain sales, e.g. to Japanese buyers, are "above-market" sales because they do not reflect the economically "justified prices" of the properties is rejected.

18. Faulty as is market price as an index of value, it supplies a relatively objective and easily administered basis of valuation that no other method can supply.

19. The above-market theory invites a sale-by-sale analysis of the justified price; this is repugnant to the concept of using appropriate systematic methods suitable for mass valuation.

20. An expert witness may not serve as a mere conduit for the hearsay opinion, the factual basis of which is not established through evidence, of another expert who does not testify when the expert who does testify lacks the requisite qualifications to render the opinion in his own right.

21. The benchmark value is calculated for a typical or benchmark lot size and, when a property is smaller than the typical lot, the benchmark value must be adjusted upward to reflect greater value per square foot.

22. When a particular parcel is larger than the benchmark or typical lot, even if the usable area of the property is less than the area of the typical lot, we will not create an anomaly whereby a single parcel is viewed as being both larger and smaller than the benchmark lot.

23. The Tax Appeal Court's decision was not clearly erroneous when it rejected an overage valuation which used the same overage formula for unbuildable, rock-strewn overage with no beach access as it did for level, usable beach-front overage, and the City failed to adjust its overage formula in contradiction of its own assessment guidelines.

24. Where the City's assessment discriminated against the landowner by requiring payment of more than the land's allocable share of the total real property tax burden, the taxpayer's right to equal protection under the law was violated.

25. The equal protection clause of the U.S. Constitution is violated when taxation in fact bears unequally on persons or property of the same class.

26. The fairness of one's allocable share of the total property tax burden can only be meaningfully evaluated by comparison with the share of others similarly situated relative to their property holdings.

Winston K.Q. Wong, Deputy Corp. Counsel, Honolulu, for appellee-appellant/cross-appellee.

Arthur B. Reinwald (Jeffre W. Juliano, with him on the briefs), Reinwald, O'Connor, Marrack, Hoskins & Playdon, Honolulu, for appellant-appellee/cross-appellant.

Before LUM, C.J., MOON, KLEIN, and LEVINSON, JJ., and BURNS, Chief Judge, Intermediate Court of Appeals, in Place of WAKATSUKI, J., recused.

KLEIN, Justice.

The City and County of Honolulu (the City) appeals from a Tax Appeal Court ruling on the assessed fair market value of the ocean-front Black Point Road property of Mary P. Steiner, trustee (Steiner) for the 1988-89 and 1989-90 tax years. ¹ The City objects to the valuation of the Tax Appeal Court because: (1) the City believes that the court disregarded sales to Japanese buyers in determining fair market value, and (2) the court applied the Kahala Beach benchmark for a 20,000 sq. ft. ² lot to only 14,000 sq. ft. of the Steiner property without adjusting the benchmark upward to reflect the decreased size. Steiner cross-appeals from the Tax Appeal Court's finding that 14,000 sq. ft. of the property is usable, claiming that only 11,000 sq. ft. of the 46,707 sq. ft. lot is usable. This appeal concerns the valuation of the land only, not the improvements thereon.

Our previous decisions specify the applicable standard of review:

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."

In re Puna Sugar Co., 56 Haw. 621, 623, 547 P.2d 2, 4 (1976) (citing In re Ewa Plantation Co., 47 Haw. 41, 51, 384 P.2d 287, 292 (1963)); see also In re Hawaiian Land Co., 53 Haw. 45, 49, 487 P.2d 1070, 1074 (1971), appeal dismissed, 405 U.S. 907, 92 S.Ct. 938, 30 L.Ed.2d 778 (1972); In re O.W. Ltd. Partnership, 4 Haw.App. 487, 492, 668 P.2d 56, 61 (1983).

I.

A. Real Property Tax Valuation

Under the Revised Ordinances of Honolulu 1990 (ROH) chapter 8, article 7, ³ the Director of Finance of the City and County of Honolulu is responsible for the valuation and assessment of property for the purposes of real property taxation. ⁴ ROH § 8-7.1(a) provides that:

The Director of Finance shall 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....

We have stated the general principles of tax valuation as follows:

The 'ultimate purpose of valuation, whether in eminent domain or tax ... proceedings is to arrive at a fair and realistic value of the property involved.' Our statutory scheme of real property taxation adopts this principle by identifying 'fair market value' as the relevant measure of the value of property. And we have previously defined 'market value' as 'the value in money of any property for which that property would sell on the open market by a willing seller to a willing buyer.'

In re Amfac, Inc., 65 Haw. 499, 502, 654 P.2d 363, 366 (1982) (citations omitted). We review the valuation of the Steiner property in light of these principles.

The Department of Finance has established more specific guidelines for real property valuation in the Procedure and Reference Manual of the Real Property Assessment Division, Department of Finance, City and County of Honolulu (Procedure and Reference Manual or Manual ). The Manual provides two basic methods of land valuation, the market data approach and the income approach (used for income generating properties). Procedure and Reference Manual...