State ex rel. Anzai v. Honolulu, No. 23404.

• Court: Supreme Court of Hawai'i
• Writing for the Court: MOON, C.J., LEVINSON, NAKAYAMA, RAMIL, and ACOBA, JJ.
• Citation: 57 P.3d 433,99 Haw. 508
• Parties: STATE of Hawai`i, by Earl I. ANZAI, Attorney General, Plaintiff-Appellant, v. CITY AND COUNTY OF HONOLULU, and Roy Amemiya, in his capacity as Director of Finance, Defendants-Appellees.
• Docket Number: No. 23404.
• Decision Date: 07 November 2002

57 P.3d 433
99 Haw. 508

STATE of Hawai`i, by Earl I. ANZAI, Attorney General, Plaintiff-Appellant,
v.
CITY AND COUNTY OF HONOLULU, and Roy Amemiya, in his capacity as Director of Finance, Defendants-Appellees

No. 23404.

Supreme Court of Hawai`i.

November 7, 2002.

57 P.3d 435

Diane Erickson and John P. Dellera, Deputy Attorneys General, On the briefs, for plaintiff-appellant

Lee M. Agsalud and Reid M. Yamashiro, Deputy Corporation Counsels, for defendants-appellees.

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

Opinion of the Court by MOON, C.J.

This case involves a dispute between plaintiff-appellant State of Hawai`i (State) and defendant-appellee City and County of Honolulu (County)<sup>1</sup> regarding the power to tax real property. Prior to 1996, real property leased to the State was exempt from taxation, if the terms of the lease contractually obligated the State to pay the tax. When the exemption was repealed by the County, the State passed a law that purported to renew the exemption for the 1996-97 tax year. When the County refused to honor the State's statutory exemption, the State filed the present lawsuit in the First Circuit Court. Pursuant to the court's May 25, 2000 order denying the State's motion for partial summary judgment and granting summary judgment in favor of the County, final judgment was entered in favor of the County on June 5, 2000 by the Honorable Gail C. Nakatani. On appeal, the State contends that the circuit court erred when it ruled that: (1) the doctrine of sovereign immunity did not operate to bar taxation of real property leased to the State where the State is obligated to pay the tax under the terms of its lease; (2) the State had waived its immunity by implication; (3) Hawai`i Revised Statutes (HRS) § 246-36(2) (1993),² which codified the exemption relied on by the State, had lapsed eleven years after the power to tax real property was constitutionally delegated to the County; and (4) Act 227 of the 1996 Session Laws of Hawai`i, which prohibited the County from repealing the exemption for the 1996-97 tax year, was unconstitutional. For the reasons discussed below, we affirm the circuit court's judgment.

I. BACKGROUND

At one point in Hawaii's history, all taxation authority was unequivocally vested in the State. The 1968 Hawai`i Constitution provided as follows:

The taxing power shall be reserved to the State except so much thereof as may be delegated by the legislature to the political subdivisions, and the legislature shall have the power to apportion state revenues among the several political subdivisions.

Haw. Const. art. VII, § 3 (1968). However, following the 1978 State Constitutional Convention, article VII, section 3 of the Hawai`i Constitution was renumbered and amended to include a provision vesting exclusive taxation authority over real property in the counties.

57 P.3d 436

Currently, the relevant section reads as follows

The taxing power shall be reserved to the State, except so much thereof as may be delegated by the legislature to the political subdivisions, and except that all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties, with the exception of the county of Kalawao. The legislature shall have the power to apportion state revenues among the several political subdivisions.

Haw. Const. art. VIII, § 3 (1978) (emphasis added). Contemporaneously, revisions were made to article XVIII to ensure an orderly transition of the power to tax real property. Specifically, the 1978 Constitution provided that,

for a period of eleven years following ... ratification [which occurred on November 7, 1978], the policies and methods of assessing real property taxes shall be uniform throughout the State and shall be established by agreement of a majority of the political subdivisions. Each political subdivision shall enact such uniform policies and methods of assessment by ordinance before the effective date of this amendment [July 1, 1981], and in the event the political subdivisions fail to enact such ordinances, the uniform policies and methods of assessment shall be established by general law. Any amendments to the uniform policies and methods of assessment established by the political subdivisions may only be made by agreement of a majority of the political subdivisions and enactment thereof by ordinance in each political subdivision.

Real property tax exemptions . . . as provided by law and in effect upon ratification. . . shall be enacted by ordinance and shall not be eliminated or diminished for a period of eleven years following such ratification; provided that increases in such exemptions, or the additions of new and further exemptions or dedications of lands, may be established or granted only by agreement of a majority of the political subdivisions, and such increases or additions shall be enacted by ordinance in each political subdivision.

Haw. Const. art. XVIII, § 6 (1978) (emphases added). In response to these constitutional amendments, the legislature, in 1980, enacted HRS Chapter 246A with the stated purpose of "provid[ing] for the orderly transfer of these functions, powers, and duties, including the transfer of personnel, records, and equipment to the counties." 1980 Haw. Sess. L. Act 279, § 1 at 534 (presently codified as HRS § 246A-1 (1993)). The statute, enacted under the authority of article XVIII, section 6, reiterated the eleven-year proscription against repealing or diminishing real property tax exemptions that were in force prior to the transfer of real property taxation powers to the counties. See HRS § 246A-2 (1993).³

57 P.3d 437

Among the exemptions recognized by the State at the time the constitutional amendments were enacted was one involving "[r]eal property under lease to the State or any county under which lease the lessee is required to pay the taxes upon such property"⁴ [hereinafter, the Exemption]. HRS § 246-36(2) (1993). The County subsequently adopted the Exemption when it enacted Revised Ordinances of Honolulu (ROH) § 8-10.17(2) (Supp. 1981),⁵ which contains language virtually identical to that of the statute. It is uncontested that the County complied with the constitutional and statutory mandate during the eleven-year period following the transfer of the taxing authority

On September 9, 1993, however, a complaint was filed in United States District Court for the District of Hawai`i that would eventually lead to the repeal of the Exemption and the filing of the present lawsuit. In United States v. City and County of Honolulu, Civ. No. 93-00715 ACK, the United States sought, inter alia, a declaratory judgment that the Constitution of the United States prohibited the County from assessing and collecting taxes on property leased to the United States under terms requiring the United States to pay real property taxes as additional rent. The gravamen of the United States' complaint was that such taxation was unconstitutional because the County had exempted privately-owned property leased under similar terms to the State and County without extending the Exemption to the United States. The case was ultimately settled and a stipulated judgment was filed on August 22, 1994. Under its terms, the settlement did not operate as an admission by the County that ROH § 8-10.17(b) was unconstitutional. However, the County agreed not to impose a tax on property leased to the United States "as long as the above-cited ordinance section remain[ed] in force and effect, and as long as the leases involved remain[ed] unchanged and in force and effect."

Soon thereafter, in 1994, the County adopted an ordinance the stated purpose of which was "to repeal the exemption currently provided to privately owned properties that are leased to the state or county." Bill No. 64 was signed by Mayor Jeremy Harris in 1995, enacted as Ordinance 95-67, and became effective on July 1, 1996.

The 1996 Legislature responded by passing Act 227, which purported to amend HRS Chapter 246A with the addition of the following language: "Notwithstanding any other provisions of this chapter, the counties shall not diminish or repeal the exemption existing on November 1, 1989, for real property under lease to the State under which lease the lessee is required to pay the taxes on the property." 1996 Haw. Sess. L. Act 227, § 1,

57 P.3d 438

at 516, and later codified as HRS § 246A-2(2) (Supp.1996). Act 227, which was approved by the Governor on June 17, 1996, included a sunset clause providing that the amendment was to be repealed one year after its enactment. Id. at 517. According to the State, "[t]he purpose of the Act was to provide a one year grace period from the assessment of such taxes by the counties in recognition of the State's serious financial constraints, and also to allow the Legislature to properly budget for payment of property taxes in the next biennium."

The County disregarded the new legislation. Beginning with the 1996-97 tax year, real property taxes were assessed and collected from owners of property leased to the State, even in cases where the lease provided that the State would be responsible for the ultimate payment of the tax assessment. The State, however, has failed to pay any real property taxes on properties leased to it for the 1996-97 tax year. Consequently, the lessors, who had previously benefitted from the Exemption, began demanding that the State respect its contractual obligations and threatened to evict State agencies from leased premises because of the State's delinquency.

On January 12, 1998, the State filed the instant lawsuit, alleging that: (1) the doctrine of sovereign immunity precluded the County from assessing real property taxes against the State; (2) the County was acting in violation of HRS § 246A-2; and (3) irreparable injury would result, if the County were allowed to continue disregarding the Exemption. In its prayer for relief, the State requested...