Swann, Matter of
| Decision Date | 28 February 1989 |
| Docket Number | No. 12982,12982 |
| Citation | 7 Haw.App. 390,776 P.2d 395 |
| Parties | In the Matter of the Tax Appeal of Frank W. SWANN and Emmy Lou Swann, Taxpayers-Appellants. |
| Court | Hawaii Court of Appeals |
Syllabus by the Court
1. When reviewing the decision and findings of the tax appeal court, a presumption arises favoring its actions and they should not be overturned without good and sufficient reason.
2. The appellant has the burden of showing that the tax appeal court's decision was clearly erroneous.
3. The cost approach to value takes the valuation of land by the market approach and adds to it the sound value of the structure, that is, the reproduction cost new, less depreciation.
4. Although the original cost of construction is a proper factor for consideration in the valuation of improved real property for taxation purposes, such cost is not necessarily equivalent to the replacement cost even if the improvement was recently constructed.
5. Where a state statute requires the counties to provide for uniform policies and methods of assessment for the taxation of real property throughout the state, the counties' use of a cost factor manual prepared by the City and County of Honolulu, with proper adjustments, to determine the replacement costs of buildings is neither illegal nor erroneous.
6. Where the Maui County Code requires the director of finance to "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," the method utilized by the director of valuing the land by the market data approach and adding to that value the replacement cost of the building, less accrued depreciation, meets the code requirement.
7. The Equal Protection Clause of the Fourteenth Amendment applies only to taxation which in fact bears unequally on persons or property of the same class.
8. Where the appellants' building and the appellants' neighbor's building were not deemed to be comparable and were assigned different classifications under the cost factor manual that was used to determine their respective replacement costs for real property tax assessment purposes, the buildings are not of the same class and the Equal Protection Clause is inapplicable.
Frank W. Swann and Emmy Lou Swann, Kihei, Maui, taxpayers-appellants, pro se.
Howard N. Fukushima, Deputy Corp. Counsel, Wailuku, Maui, for appellee Director of Finance, County of Maui.
Before BURNS, C.J., and HEEN and TANAKA, JJ.
Frank W. Swann (Swann) and Emmy Lou Swann (collectively Appellants or the taxpayers) appeal from the judgment of the tax appeal court affirming the assessed valuation of Appellants' real property for the 1986-1987 tax year, as determined by the Director of Finance of the County of Maui (Director). Essentially, the taxpayers claim that the method which the County's real property tax appraiser used to determine the assessed valuation of the improvements on their land was illegal and, as a consequence, the County imposed on them "a disproportionate and unequal share of the County tax burden." We affirm the tax appeal court's judgment.
The improvements on the taxpayers' land in Kihei, Maui, consist of a two-story residential building (Building) with 3,920 square feet of living area, a 432 square foot garage, a 392 square foot carport, and a 2,086 square foot deck with 370 lineal feet of railing. Construction of the Building commenced in 1984.
On December 29, 1984, Maui County real property tax appraiser Jerry M. Niemeyer (Niemeyer) inspected the Building, which was 90.5 percent complete at that time. For the 1985-1986 tax year, 1 Niemeyer determined the assessed valuation of the Building to be $135,000. He arrived at such valuation by multiplying the Building Department's estimated building permit value of the Building, $150,000, by the completion percentage of 90.5. At the tax appeal court trial, Niemeyer testified that the Building Department "will use either $45 or $55 as a cost factor" for the permit value. Transcript at 92.
For the 1986-1987 tax year, Niemeyer calculated the assessed valuation to be $403,156 for the Building and $64,978 for the land. Deeming themselves aggrieved by the assessment, the taxpayers appealed to the Maui County board of review (Board). Because the assessed valuation for the Building included the value of an incomplete swimming pool, the Board reduced the Building valuation to $373,933, but sustained the land valuation of $64,978.
The taxpayers then appealed the Board's decision relating solely to the $373,933 assessed valuation of the Building to the tax appeal court. At the trial, Niemeyer testified that he utilized the cost approach in determining the assessed valuation of the Building. He calculated the replacement cost of the Building by using a cost factor manual (Manual) formulated by the Property Technical Office of the City and County of Honolulu. He determined that the Building fell within the "Residential W-6" Manual classification and used a $73.41 per square foot cost factor applicable to a residential W-6 basic U-shaped single-family wood building in the 2,800 square feet category. He used the $73.41 cost factor for the second floor living area and adjusted the cost factor to $51.39 for the first floor living area, $22.02 for the garage, $8.55 for the carport, $5.99 for the deck, and $17.04 for the railing. Since the Manual cost factors were formulated in 1983, a 1.284 adjustment index was applied to the computed total to bring the replacement cost to a 1986 level. A .98 depreciation index was then applied. The replacement cost, as adjusted, less depreciation, resulted in the assessed valuation of $373,933 for the Building.
The taxpayers submitted evidence that the actual cost of construction of the Building totaled $171,546.85. Clarence Seong (Seong), the taxpayers' appraiser, testified that the fair market value of the Building was $202,400.
The tax appeal court made the following findings of fact (FOFs) which Appellants challenge on appeal:
8. For the mass valuation of real property for tax purposes, in determining the replacement cost of buildings, the COUNTY OF MAUI utilizes a cost factor manual formulated by the Property Technical Office of the City and County of Honolulu.
This manual is updated and adjusted each year to reflect market changes and further adjustments for differences in replacement costs for each island.
9. Utilizing the cost factor manual, the County correctly classified APPELLANTS' residence as a W-6 as it fit most of the criteria set forth for a W-6 classification.
10. Applying the cost factor manual to appellants' W-6 residence resulted in a proper assessment of $373,933 by the County. Appellants' exclusion of financing, architectural fees and contractor's overhead, etc. is misplaced, since such cost items must be used in determining the replacement cost depreciated of any residence.
11. The court cannot place any reliance on the expert testimony of Mr. Clarence Seong whose credibility was successfully impeached by the County.
Record at 76-77. Based on its findings, the tax appeal court rendered a judgment in favor of the Director, from which the taxpayers timely appealed.
When reviewing the decision and findings of the tax appeal court, a "presumption ... arises favoring its actions ... and [they] should not be overturned without good and sufficient reason[.]" In re Ewa Plantation Co., 47 Haw. 41, 51, 384 P.2d 287, 292 (1963). Also, the appellant has the burden of showing that the tax appeal court's decision was "clearly erroneous." In re Puna Sugar Co., Ltd., 56 Haw. 621, 623, 547 P.2d 2, 4 (1976). See also In re Hawaiian Land Co., Ltd., 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). We have held that the term "clearly erroneous" has the same meaning in a tax appeal context as that term is construed under Hawaii Rules of Civil Procedure Rule 52(a). In re O.W. Limited Partnership, 4 Haw.App. 487, 492-93, 668 P.2d 56, 61 (1983).
We apply these standards in reviewing this appeal.
The assessment, levy, and collection of real property taxes in Hawaii was the function of the State Department of Taxation and its predecessor agencies for many years. See Hawaii Revised Statutes (HRS) Chapter 246 (1985). Effective July 1, 1981, however, pursuant to the mandate of section 3 of article VIII of the State Constitution, 2 the functions, powers, and duties relating to the taxation of real property were transferred to the counties. See Act 279, 1980 Haw.Sess.Laws 533 (codified in HRS Chapter 246A (1985)). HRS § 246A-2(1) provides in part as follows:
[T]he counties shall by majority agreement of the counties, provide for uniform policies and methods of assessment for the taxation of all real property throughout the State. Such policies and methods shall include but not be limited to the assessment, levy, and collection of real property taxes. Upon agreement of the uniform policies and methods to be used for the taxation of all real property each county shall thereafter adopt by ordinance such uniform policy and method of assessment as the real property tax law of the county.
Maui County's ordinance relating to real property taxation is codified in Chapter 3.48 of the Maui County Code (MCC) (1980 & Supp.1988). MCC § 3.48.290, relating to valuations of taxable real property, provides in part:
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.......
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