Grayco Land Escrow, Ltd., Matter of, 5846
| Decision Date | 14 January 1977 |
| Docket Number | No. 5846,5846 |
| Citation | 559 P.2d 264,57 Haw. 436 |
| Parties | In the Matter of the Tax Appeal of GRAYCO LAND ESCROW, LTD., and Hawaiian Ranchos, Inc., dba KBSF Land Co., Inc., Taxpayers. |
| Court | Hawaii Supreme Court |
Syllabus by the Court
1. HRS § 237-13(10) evidences, in plain and unmistakable language, the intention of the legislature to tax every form of business, subject to the taxing jurisdiction, not specifically exempted from its provisions.
2. Interest received from agreements of sale of land in fee simple does not fall within the exemption of 'gross receipts from the sale of land in fee simple.' HRS § 237-3.
3. Making a loan and taking a land contract as security is not the same activity as selling a piece of land and accepting the payment in installments.
4. A state's power to impose a privilege tax on a foreign corporation within its jurisdiction is well settled; and the fact that it is not a domiciliary of the taxing state is of little consequence.
5. The imposition of both an excise tax on a privilege or activity and an ad valorem tax on the value of property is not invalid as the taxes are imposed on separate incidents.
6. It is a universal principle of law that real property is exclusively subject to the law of the country or state within which it is situated.
7. All matters concerning taxation of such realty, title, alienation, and the transfer of such realty and the validity, effect, and construction which is to be accorded agreements intending to convey or otherwise deal with such realty are determined by the doctrine of lex loci rei sitae, that is, the law of the place where the land is located.
8. Executory contracts for the sale of land, such as the agreements of sale involved herein, are governed by the law of the place where the real property is located.
9. HRS § 237-21 is only applicable when the entire gross income cannot be constitutionally included in the measure of Hawaii's general excise tax. It is clear that the taxable event in this case was the receipt of interest income derived from the sale of land located in Hawaii under agreements of sale and the taxable income here involved consists entirely of such receipts. Accordingly, apportionment is not necessary under the circumstances of this case.
10. The construction or interpretation of a statute may be indulged in only in case of ambiguity or uncertain meaning. Where, as in this case, the language is plain and unmistakable, there is no room for construction; and, thus, it must be given its plain and obvious meaning. The court is bound by the plain, clear and unambiguous language of the statute.
11. The private agreement of the parties was not binding on the assessor and the latter was under no obligation to make a separate assessment by reason of such agreement.
12. 'Reasonable cause' has been interpreted to mean no more than the exercise of ordinary business care and prudence.
13. The issue is one of fact and the burden of proving reasonable cause is on the taxpayer.
14. To meet its burden of proof, the taxpayer must show the presence of other supporting circumstances, in addition to its honest belief, that it was not responsible for the tax.
John P. Gillmor, Honolulu (Gary L. Wixom, Honolulu, with him on the briefs; Case, Stack, Kay, Clause & Lynch, Honolulu, of counsel) for Taxpayers, appellants.
Alana W. Lau, Deputy Atty. Gen., Honolulu, for Director of Taxation, appellee.
Before RICHARDSON, C. J. and KOBAYASHI, OGATA, MENOR and KIDWELL, JJ.
This appeal by Grayco Land Escrow, Ltd. (Grayco) and Hawaiian Ranchos, Inc., dba KBSF Land Co., Inc. (KBSF) is taken from an order denying motion to amend findings of fact and conclusions of law and from the final judgment of the Tax Appeal Court which determined that Grayco was liable for general excise taxes, penalty and interest assessed against interest income Grayco derived from installment contracts of the sale of land located in the County of Hawaii, State of Hawaii.
We affirm.
The issues on appeal are:
(1) Whether interest income received by a vendor, who is a domiciliary of California, from the sales of subdivided property located on the Island of Hawaii under agreements of sale, executed out-of-state, is subject to the general excise tax of the State of Hawaii; and whether, if applicable, the general excise tax must be apportioned pursuant to the Constitution of the United States and the laws of the State of Hawaii.
(2) Whether Grayco, as trustee who holds legal title to the fee simple property and who executed the agreements of sale as vendor, is liable for the general excise tax.
(3) Whether Grayco established reasonable cause for its failure to file a general excise tax return within the purview of HRS § 231-39(b)(1).
The facts of the case were stipulated, and the stipulations of fact were incorporated into the findings of fact of the tax appeal court.
Grayco, a California corporation, having its principal place of business in Pasadena, California, has been registered as a foreign corporation authorized to do business in the State of Hawaii pursuant to HRS Chapter 418 (Foreign Corporations Generally) since March 27, 1969. Grayco is not licensed to do business pursuant to HRS Chapter 237 (General Excise Tax Law). At no time has Grayco had a place of business or any employees in Hawaii.
Prior to December 1971, KBSF, a Delaware corporation, had its principal place of business in Beverly Hills, California; thereafter, its principal offices were moved to Boston, Massachusetts. Although KBSF is licensed to do business in Hawaii, the record is unclear as to what HRS chapter KBSF is registered under.
By deed dated June 27, 1969, KBSF conveyed fee simple title of 4002.2916 acres of land 1 situated in the District of Kau, County and State of Hawaii, to Grayco, as trustee. The deed was recorded in Liber 6604, page 242, Hawaii Bureau of Conveyances. The unrecorded trust agreement, otherwise referred to as 'Subdivision Agreement No. 152' and under which Grayco holds legal title to the above property, is dated June 24, 1969, and was twice amended and restated on October 15, 1969, and on December 23, 1970, respectively.
The Subdivision Agreement of June 24, 1969, was made between Grayco, KBSF and Commonwealth United Corporation (Commonwealth) and was for the benefit of Commonwealth as first beneficiary to secure indebtedness owed to it by KBSF in the amount of $5,400,000, which was used to purchase the land and paid for initial subdivision improvements. The $5,400,000 note, dated December 31, 1968, was secured by a mortgage on the Hawaii property in question.
The above Subdivision Agreement was amended and restated on October 15, 1969, to include R. J. Beaumont and Associates (Beaumont), a California corporation, having its principal place of business in Beverly Hills, California. As a senior beneficiary, Beaumont's interest arose from its activity as the exclusive real estate broker in the promotion and sale of the Hawaii property pursuant to a listing agreement dated October 15, 1969, through which Beaumont was to receive a percentage of every lot sold. Sales and marketing activities for the period December 1, 1969 to November 30, 1971, 2 included the following:
(a) In the State of Hawaii. Advertisements of the availability of subdivided lots for sale were made through the use of newspapers, radio, and television facilities located in Hawaii, and the United States mail. Beaumont engaged licensed Hawaii real estate sales persons to contact prospective purchasers and to sell lots.
(b) In the State of California. Advertisements of the availability of subdivided lots for sale were made through the use of newspapers, radio, and television facilities located in California, and the United States mail. Also, direct mail offerings were made by Beaumont to residents of states other than California.
On March 11, 1970, Exeter Equities (Exeter), a Massachusetts limited partnership with its principal place of business in Boston, Massachusetts, succeeded to the interests of Commonwealth. On October 5, 1970, Exeter, by agreement with the shareholders of KBSF, purchased all of the issued and outstanding stock of KBSF in return for a release of the shareholders from their liability for the indebtedness secured by the Subdivision Agreement.
The Subdivision Agreement was again amended and restated on December 23, 1970, to include Dow Banking Corporation (Dow), a banking corporation established and maintained under the laws of Switzerland with its principal place of business in Zurich, Switzerland. As first beneficiary, Dow's interest arose from the advancement of funds to complete subdivision improvements on the land. Dow was paid in full on July 29, 1973, and no longer has any interest under the trust agreement. Exeter, having succeeded to the interests of Commonwealth, is the second beneficiary. Beaumont's interest as a senior beneficiary remained the same. KBSF, whose interest arose as the owner of the property prior to transfer in trust to Grayco, is the third and principal beneficiary under the trust agreement.
The trust arrangement is required under sections 2814, et seq., of the California Administrative Code for the sale of subdivided land under an agreement of sale in the State of California. Section 2814.6(a) of the California Administrative Code requires that 'record title to the property which is subject to the contract of sale' be transferred in trust 'prior to or concurrently' with the execution and delivery of the contract of sale to the contract vendee. Under the circumstances of the case, it appears that title to the property was vested in Grayco prior to any sale of the property and prior to any substantial subdivision improvements.
Upon sale of a lot, Grayco, as vendor, and the conditional contract vendee execute a standard form agreement for sale of real...
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