Gardens at West Maui v. County of Maui, 21903.

• Decision Date: 11 May 1999
• Docket Number: No. 21903.,21903.
• Parties: In the Matter of the Tax Appeal of GARDENS AT WEST MAUI VACATION CLUB, Appellant, v. COUNTY OF MAUI, Appellee.
• Court: Hawaii Supreme Court

978 P.2d 772

90 Haw. 334

90 Hawai`i 334

In the Matter of the Tax Appeal of GARDENS AT WEST MAUI VACATION CLUB, Appellant, v. COUNTY OF MAUI, Appellee.

No. 21903.

Supreme Court of Hawai`i.

May 11, 1999.

Robert E. Rowland (Matthew V. Pietsch with him on the briefs), Kahului, for appellant.

Traci Fujita Villarosa (Brian T. Moto with her on the brief), Deputies Corporation Counsel, for appellee.

MOON, C.J., KLEIN, LEVINSON, NAKAYAMA, and RAMIL, JJ.

Opinion of the Court by KLEIN, J.

Appellant Gardens at West Maui Vacation Club ("appellant") appeals from the judgment of the Tax Appeal Court in favor of appellee County of Maui ("the County") and against appellant, filed September 3, 1998. Appellant challenges the real property tax assessed for the 1997 tax year upon its properties located in the County of Maui.

On appeal, appellant contends that (1) the County's differential tax rate structure is an invalid exercise of its real property taxation powers; (2) the County's differential tax rate with respect to time share owners of a condominium unit violates the Equal Protection Clauses of the Hawai`i and United States Constitutions; (3) Maui Ordinance 2569 (Ordinance 2569) amending subsection C.4. of Maui County Code (MCC) § 3.48.305, rendered MCC § 3.48.305.C unconstitutionally vague and ambiguous; and (4) the retroactive application of Ordinance 2569 unconstitutionally deprived appellant of "vested rights." For the reasons set forth below, we affirm the judgment of the Tax Appeal Court.

I. BACKGROUND

The Gardens at West Maui Vacation Residence is located in the County of Maui. The properties are units subject to a time share plan, as defined in Hawai`i Revised Statutes (HRS) § 514E-1 (1993),¹ registered with the Department of Commerce and Consumer Affairs. The tax map key numbers, land classification, assessed valuations as determined by the Tax Assessor of the Second Taxation District, and the approximate taxes in controversy are as follows:

                              Land                         Taxes In
                Tax Key No.   Classification   Valuation   Controversy
                4-3-2-40:20   Hotel/Resort     $135,400    $440
                4-3-2-40:21   Hotel/Resort     $135,400    $440
                4-3-2-40:22   Hotel/Resort     $135,400    $440
                4-3-2-40:23   Hotel/Resort     $135,400    $440
                4-3-2-40:25   Hotel/Resort     $135,400    $440
                4-3-2-40:26   Hotel/Resort     $135,400    $440
                4-3-2-40:28   Hotel/Resort     $135,400    $440
                4-3-2-40:30   Hotel/Resort     $130,600    $424
                4-3-2-40:33   Hotel/Resort     $130,600    $424
                4-3-2-40:34   Hotel/Resort     $130,600    $424
                

The County of Maui classifies real property into nine classifications based on use for the purpose of real property taxation. Based on these classifications, the County assigns differential real property tax rates. The rates instituted for the 1997 tax year for each class of property are as follows:

                                             Tax Rate per $1000
                                               of Net Taxable
                  Classification               Assessed Valuation
                  Improved Residential             $4.75
                  Apartment                        $4.75
                  Commercial                       $6.50
                  Industrial                       $6.50
                  Agricultural                     $4.75
                  Conservation                     $4.75
                  Hotel & Resort                   $8.00
                  Unimproved Residential           $4.75
                  Homeowner                        $3.50
                

Pursuant to MCC § 3.48.185,² real property is assessed on January 1 preceding each tax year. Accordingly, appellant's property was assessed for the 1997 tax year on January 1, 1997. The 1997 tax year began on July 1, 1997 and ended on June 30, 1998.

During the tax years prior to 1997, appellant's properties had been assessed in the classification "Apartment" under MCC § 3.48.305.³ When the County tax assessment notices for the 1997 tax year were distributed in March 1997, appellant was notified of a change in its properties' classification from "Apartment" to "Hotel Resort."

On March 14, 1997, the Mayor of the County of Maui submitted the proposed county budget for Fiscal Year 1998 accompanied by a proposed bill entitled "A Bill for an Ordinance Amending Section 3.48.305, Maui County Code, Pertaining to Real Property Taxation of Condominium Units Classified Hotel Resort" (Bill No. 29). The initial draft of bill No. 29 provided that the ordinance, if passed, would "take effect upon its approval."

In April 1997, appellant filed an appeal from the tax assessment notices received in March 1997 with the Real Property Tax Board of Review. At the time of that appeal, MCC § 3.48.305.C.4 defined "Hotel Resort" as a unit "occupied by transient tenants for periods of less than six consecutive months."

Thereafter, Bill No. 29 was passed by the Maui County Council on May 29, 1997 and approved by the Mayor of the County of Maui on June 13, 1997 (Ordinance 2569). It provided that the ordinance "shall be effective as of January 1, 1997" and amended MCC § 3.48.305 subsection C.4 to read as follows:

4. Hotel Resort. 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-1, Hawai`i Revised Statutes, as amended, shall be classified as "hotel resort."

(Emphasis added.) Ordinance 2569 officially reclassified appellant's property from "Apartment" to "Hotel Resort" retroactive to January 1, 1997.

On August 29, 1997, the Real Property Tax Board of Review entered a decision in favor of the County and against appellant. Appellant filed an appeal with the Tax Appeal Court on September 29, 1997.⁴. The Tax Appeal Court entered its findings of fact and conclusions of law and order on August 17, 1998. In rejecting all four of appellant's claims, the court concluded in pertinent part that:

1. The County of Maui has the power to set the taxation rate and classification of Appellant's time share condominium units as "Hotel Resort." The Hawai`i State Constitution grants the counties all powers relating to real property taxation, including the power to set differential rates ....

2. Retroactive tax provisions withstand due process challenges unless, in light of the "nature of the tax and the circumstances in which it was laid," the law "is so harsh and oppressive as to transgress the constitutional limitation." Welch v. Henry, 305 U.S. 134, 147, 59 S.Ct. 121, 83 L.Ed. 87 (1938).

... this court finds no violation of Appellant's due process.

a) The County's purpose was neither illegitimate nor arbitrary. There is no plausible contention that the County acted with an improper motive such as targeting Appellant for a particular reason.

b) The County acted promptly and established only a modest period of retroactivity....

3. ... the Owners had not acquired vested rights in being classified as "Apartment" rather than "Hotel Resort." In Carlton, the Court looked at whether detrimental reliance alone was sufficient to establish a constitutional violation. The Court held that the Appellant's reliance alone was insufficient to establish a constitutional right ....

4. The statutory and applicable definition of a "time share unit" is precise and unambiguous. There is no confusion, given the definitions of "Apartment" and "Hotel Resort", as to where a "time share unit" is to be classified. In stating that "time share" owners are no different from an apartment owner because they also use their units for their own "personal use", Appellants have taken a very strained and limited interpretation of "Apartment" classification and ignored the statutory and applicable definition of "time share units", which must be read in conjunction with this ordinance. Accordingly, there is no credible basis to Appellant's position relating to "vagueness" and violation of the equal protection clause.

5. The County of Maui's differential tax rate structure is not an invalid exercise of its real property taxation powers. HRS Chapter 246A clearly empowers the counties with the authority and ability to develop a real property tax rate structure....

6. The County's differential tax rate with respect to condominium units does not violate the equal protection clauses of the United States and Hawai`i State Constitutions.

While there was no change in the actual use of the condominiums when they were reclassified, this alone does not violate the equal protection clauses of the Constitutions.

The County has considerable discretion in classifying taxation rates. As long as this reclassification was not capricious nor arbitrary, the reclassification is valid....

The County only needs to show some reasonable consideration of difference or policy for constitutionality. The classification of time share condominium units as "Hotel Resort" bears a fair and substantial relation to the purpose of eliminating disparities in the tax treatment of time share units.

Accordingly, the Tax Appeal Court entered judgment in favor of the County and against appellant on September, 3, 1998. Appellant timely filed this appeal.

II. STANDARDS 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 Tax Appeal of Maile Sky Court Co., Ltd. v. City & County of Honolulu, 85 Hawai`i 36, 39, 936 P.2d 672, 675 (1997) (quoting City and County of Honolulu v. Steiner, 73 Haw. 449, 453, 834 P.2d 1302, 1306 (1992)).

Conversely, "Conclusions of law are reviewed under the right/wrong standard." Gold v. Harrison, 88 Hawai`i 94, 100, 962 P.2d 353, 359 (1998) (citing Furukawa v. Honolulu Zoological Society, 85 Hawai`i 7, 12, 936 P.2d 643, 648 (1997)). Under the de novo or right/wrong standard, this court "examines the facts and answers the question without being required to give any weight to the trial court's answer to it." Id. (citing Aickin...