 Okay. We're back. I told you we'd come back. And we came back. Here it is, Tuesday at one o'clock block with Tom Yamachika, president of the Tax Foundation of Hawaii. And in one case at a time, we are learning about how tax works in this state. This is very important. We understand this. Welcome, Tom. Thank you, Jay. Thank you for having me back. So, last time we talked about the Kahiawa Wind Farm Assessment, which is very interesting. And let me think, that's pending, huh? It is. That's pending in the what? State Supreme Court. That's correct. And not yet resolved. Sometimes it takes a while. And that's going to have an effect on energy because the question is whether wind turbines are included in real property for real property tax assessments could have an effect all over the state on wind. And who knows what else? But there's another one, also emanating out of Maui. Maui is pretty active in the tax appeal court, I think. So far. And this one is called the Appeal of Ocean Resort Villas. And that's been kicking around for a while, but that's also of significant importance. Can you state the case, Tom? Yeah. A few years ago, effective 2006, the county of Maui enacted a separate real property tax classification for time shares. So there used to be ocean res—hotel and resort would apply to hotels and time shares and BNBs and anything with transient accommodations. But they did a separate classification effective in 2006. The ordinance happened in 2004, setting up time share as a separate class and one that was taxed much higher. Why? The reasoning of the county at the time was, well, now at the time you realize they were getting a piece of the transient accommodations tax. They were getting about 10%. So they looked at hotel rooms and they looked at time shares. And because of the way they were getting the tax calculated, they were getting a lot less money from time shares than they were from other kinds of hotel or other kinds of transient accommodations. And that troubled them because, A, it's still kind of a hotel operation, but B, time shares are not as attractive to the development of the state, tourist industry, housing, the hotel industry as regular hotel rooms because they come and go. I mean, there's a bias against time shares, right? Yeah, there is. It seems to be. Yeah. I'm not sure what the bias is from, but it's just kind of a different way to hold the realty. And one thing that you need to realize is that time shares are realty. Yeah, they're real there. It's a recognized form of, I don't want to say security, but a recognized form of real property interest. Yeah, you get a deed. And there were a lot of time share plans. There were a lot of misadventures at the beginning. It was during our time practicing. There were misadventures where scammers were involved and scam deals were there and people lost it. Yeah, I think that may have created a lot of the bias. Yeah, probably. Yeah. And so over time, though, it got to be accepted. Over time, we have people who are responsible property owners coming here on a regular basis, and it keeps them coming. I have a friend who goes out to, what's that, out there, the Disney area there every year. He has a unit, or a part of a unit there, and he has a wonderful time with his family. He could probably afford, he could probably afford to buy a condo out there and make that his vacation home, but it works better for him as time share. So really, when you shake it and bake it, time share, you know, it's part of the firmament now, where it is, not only in Hawaii, but elsewhere, destination resorts. That's right. So in this particular case, the time shares have a time share association. So Ocean Resort Villas is a time share association, so you get a bunch of people who own units in this building. And then you have ORV North, Ocean Resort Villas North, which is another building in the same general vicinity. And they said, well, you know, this time share classification doesn't make us happy, so they suit to invalidate it. So they found that classification. Yeah, so they marched down to Second Circuit Court, which is our general court in Maui, and they said, you know, court, please, you know, strike this down. OK. And of course, that made the county unhappy. And so, but then what they did. Can I ask you, though, on what basis did they seek to set aside that classification? Well, primarily, they also, you know, launched constitutional arguments, but the primary one, and the one that the Second Circuit judge eventually bought, was that there's, you know, the classification ordinance says that, you know, you break down these properties into these various classes and enlist all the classes upon consideration of highest and best use. So and they said, well, a time share, as you defined it, has nothing to do with use. So that's interesting. So this is this is inconsistent. And the people who challenged the residential aid ordinance here in Honolulu, the classification, we're saying the same thing. They're saying, you know, real property classification is supposed to be based on use and, you know, Res A is based on valuation. So it's not based on use and should be thrown out. So that's it's kind of a variation of the same. Where does this come from? The notion that that the difference in classifications has to be based on a difference in use. Where does that come from? It comes from the wording of the ordinance. Again, it starts off by saying the argument they made is that the ordinance itself is intrinsically inconsistent, that it doesn't follow its own rules. Is that what it is? Something like that. Yeah. I mean, they made the argument that it conflicted with the rest of the ordinance and and therefore, you know, it was it was it was wrong. OK. OK. Now, so. But then the more interesting thing is when when when the county government kind of got got to, you know, look at it, then they then they kind of look back at the property and they said, well, it's very interesting because here the suit was found in 2013 and she is isn't it a shame because because in 2006, seven and eight, we didn't tax the property, you know, the the the property for enough. And what I mean by that is they had taxed it into the cost approach, which is typically what you use when you value a a condo building that's being constructed the original cost of the unit to the buyer. Right. And then they said they should have been been taxing them at fair market value. So so the so the county attorneys came up with this idea of, oh, well, what we did was we tax the master parcels. We didn't tax the individual units. So we are going to tax the individual units now. Isn't that double tax on the same real property? No, because they they they gave the intervals credit for the tax that was paid by the master parcel. OK. OK. And and they and they did under this statutory scheme that says if there is omitted property, you know, property that is omitted from the assessment rules, that can be added at any time. OK. And and in the Cahiava case, the assessments did, in fact, go back a few years, the the wind power companies challenged that. And they said, no, I mean, the Intermediate Court of Appeals said, no, it was omitted property because previous to them building their windmills, it was state land. No tax was paid on because the state doesn't pay property tax. And then once they leased from from the state, then it became subject to real property tax. But the, you know, the kind didn't get around to assessing it for a couple of years. But, you know, that's how the ordinance works. So it may it may look on the surface like it's retroactive tax, but it really. Well, it is retroactive. OK. But but it's OK because the the ordinance provides for it. Uh huh. OK. OK. So so that theory is what the county of Maui used to basically nail these guys. They're the people who had the temerity, you know, to go sue them because because of this these specious arguments about real property tax classification. This sounds like payback. That's what the judge found. Retributive, a retributive assessment. That's exactly what it is. Oh my goodness. Because because so so let me just kind of give you this in the further details. So so they basically came up with these assessments and they kind of like plopped them all on the association. They said, all right, fine. $10 million. We'll fix your wagon. $10 million, please. And you have to pay in 30 days. That's downright mean. And if you don't pay, we foreclose. We foreclose your unit. Which they which they have the power to do. Which they have the power to do. OK. So so, you know, being having good lawyers, they basically amended their complaint to say, and oh, by the way, this is this is what the county did to us. So second amendment complaint, you know, including this, you know, these charges bring it in front of the judge altogether. Yeah, let's bring it out for a while and even another wrinkle to the story was this. People in other parts of Maui were concerned when they heard about these retractive assessments and they basically went and asked the county, well, what's going to happen to us? And the county said nothing. And this was in writing. And the county said, basically, you know, we have a beef with these guys because they suit us, claiming all these specious things, and they haven't paid their fair share in prior years. Don't mind us. We're just doing retribution on a few guys that have offended us. It's personal. It was very personal. That's exactly what it was. Not only mean, it's illegal. Think of the market on fairness all over it. Well, in writing. That plus, they've denied the association civil rights. Ah, interesting. Yeah. OK, because, and you may remember this from law school, there is this federal statute dating back to the 1870s. 1983. Yes, 42 U.S.C. 1983. And what that basically says is that if you, acting under color of state law, deny somebody their federal constitutional rights, then you can get sued for damages, attorneys' fees, you know. Even if you're a government. Yeah, especially if you're a government. OK. Because you're not supposed to be denying people federally protected constitutional rights. Yeah. This is really, really getting interesting. And it's a perfect time, Tom, for us to take a break. Because it's a cliffhanger. What's going to happen with all these arguments of this gross unfairness? And already we are talking about civil rights and section 1983, which is powerful stuff. When we come back from this break, you're going to find out from Tom Yamachika, president of the Hawaii Tax Foundation. Hey, loha. My name is Andrew Lanning. I'm the host of Security Matters Hawaii, airing every Wednesday here on Think Tech Hawaii, live from the studios. I'll bring you guests. I'll bring you information about the things in security that matter to keeping you safe, your co-workers safe, your family safe, to keep our community safe. We want to teach you about those things in our industry that, you know, may be a little outside of your experience. So please join me because security matters. Aloha. Aloha. My name is Mark Shklav. I am the host of Think Tech Hawaii's Law Across the Sea. Law Across the Sea is on Think Tech Hawaii every other Monday at 11 a.m. Please join me where my guests talk about law topics and ideas and music in Hawaii, Anna, all across the sea from Hawaii and back again. Aloha. I can hardly wait to get back with Tom Yamachika, president of the Hawaii Tax Foundation. Okay. And we're talking about the tax appeal of the ocean resort villas. And we're talking about it kind of in a context that's against the Kahiava Wind Farm tax appeal we talked about last time. They should be seen together. They will kind of work with each other because, as Tom mentioned to me during the break, that the Corporation Council of the County of Maui was the same person for both of these tax appeals. And I said to him just going out, I said, no kawai. And the Wild West in Maui, if you thought the Wild West was west of here, it's actually east of here. Anyway, okay. So here we are with all these arguments formed up and the possibility of a, you know, a dreaded civil rights claim under 1983. What happens? Well, so all of this goes before the judge. And the judge is not happy. I shouldn't have been there. The judge is not happy. And what he basically rules was, you know, number one, that, I mean, and at this point, you know, I think the county of Maui kind of felt the tide kind of turning against him. So it's a little squeamish then. Yeah. So he started arguing that the court didn't have jurisdiction. Oh, well, which is, which is very interesting because normally in tax appeals, there was a specialized court called the Tax Appeal Court. Yeah. You appeal from an assessment and the appeal goes to Tax Appeal Court. Yeah. Okay. But this one? That's a statewide court, right? Right. Or is that in the only, and so you find a different Tax Appeal Court in each circuit. Is that right? No, no, it's just one. Just one. And we know this one that meets all the time here in Honolulu. That's right. Is the one in Honolulu meet on other islands? Is that what happens? I don't know. But I do know they hold court here in the First Circuit Court building. Right. And they do service all islands. Right. Okay. Got it. Okay. So there was an issue that was raised as to whether the Second Circuit Court, you know, Judge Cahill, who was assigned this case, had any right to judge the matter in the first place. On the argument that it should have gone to the Tax Appeal Court. Right. And he was just a Circuit Court judge. Right. And he says, I'm taking jurisdiction, man. I'm hearing this now. Well, it's actually the same level of court, right? Circuit Court judge, Tax Appeal Judge, is a Circuit Court judge. Isn't it the same thing? It's not the same. There are a couple of important differences. One being in the Tax Appeal Court, they only have the power to adjust the assessment. They can't award damages. They can't award attorneys fees. Oh, right. It's just for what, a refund of tax you've already paid. Or, you know, what is the amount of the deficiency? Yeah. How much more do you have to pay? OK. So it's limited. It's not the full jurisdiction of the Circuit Court. It's like a slice of jurisdiction. It's like a slice of jurisdiction. OK. So the government was then arguing you were in the wrong court. Right. And, of course, our good Circuit Judge said, well, there are some cases where the Circuit Court actually has taken jurisdiction over tax cases. And, you know, cited a couple of cases. And there were cases. And there weren't. Yeah. And, but, you know, it hasn't really been decided yet what the extent of this, what we call equity jurisdiction is. So, and the Judge said, well, screw it. I have, you know, you guys have been in front of me for five years. I'm taking the whole case. Because it's a complex case. There are other issues aside from a straight tax appeal issue. Am I right? Yeah. And so I'm taking it all. Yeah. And I'm going to exercise my full Circuit Court prerogative on this. Right. And, and he says, and I can award damages. I can award a attorney's fees. And I'm going to do that. That's scary for the county of Maui now. Yeah. So, so, so the county says, of course, that's wet and bullets. And then, and he says furthermore, I am going to declare that those retroactive assessments were invalid. Okay. But people paid those assessments, Tom. Yeah. So, they're going to get their money back. Lots of money. And for each time you had to pay a filing fee to get your appeal, you know, docketed, you're going to get that back. And you had to pay a filing fee in tax appeal court. You're going to get that back. And this is a lot of owners. This is not just a handful of people. There's a lot of people here yet. 1100. Thank you. 1100 owners. All right. And he says, when you, when you had to special assess your owners to get this 10 million dollars, which you only gave them 30 days to do, the special assessment was subject to GT. So that's another. I think we get that back too. And you're getting that back too. Um, I kind of judge. And then, and then, uh, you know, the amount of damages hasn't yet been set, but, but, you know, he's setting it up real good. Yeah. Okay. So we know that's what he wants to do. And he says, uh, alternatively or further or whatever it is, um, you, you guys have established a 1983 violation and I'm going to award damages and I'm going to award attorneys fees, you know, um, and the county says, we're going to appeal. And the judge says, okay, fine. I'll let you appeal when it comes back to me. Then I'll award the damages and attorneys fees. Smart guy. Yeah. So the damages could be, what could the damages be? I mean, if we were in that crucible at a later time, post the appeal, um, and, you know, you come representing the taxpayer and you, what do you ask for in damages? What's, what's possible? You want to get your fees back? You want to get your, uh, you know, the tax back that you wouldn't have had to pay otherwise? About consequential damages, like, uh, interest on a loan I had to make to pay this. That, probably that too. Yeah. Yeah. And, and maybe some punitive damages. I don't know. I don't know. Well, 83, 1983 allows that. Yeah. Even against the government, especially against the government. Especially against the government. The government should not wander off the path this way. Oh no. I mean, with the way we look at it, you know, selectively assessing a taxpayer is bad enough. Right. Retribution doesn't really go. This is not the way things work in these United States. That's right. But, uh, but there are, there are several bases on which to, uh, bases on which to, uh, base a 1983 action. And, and it's too bad because I don't even think, uh, that the separate classification is invalid. I, uh, you know, I think they had the right to, to make the timeshare classification. They had the power to do it because they had complete power that was given to them by we the people to, to administer property taxes at the classifications. Right. And at the time, um, they were getting 10% of the transit accommodations tax. So the transit accommodations tax treatment was relevant. And, you know, we're not talking about a suspect class of taxpayers here. You know, we're talking about, um, I mean, not, not strict scrutiny. We're talking about rational basis. Does the government have a rational basis to do this? And I think they did. Okay. So it goes to the Supreme Court from the circuit, would it go to the intermediate court of appeals? Yeah, it's in the intermediate court of appeals. Oh, it's in there now. It's in there now. Has not yet been decided. Right. How, how old is it? I mean, how long has it been there at the ICA? It went there this year. And we're, we're, we're now waiting for Connie Maui to file its opening brief. So of course the briefing schedule has just, you're in the middle of the briefing schedule. Yeah. Well, that's, that's just starting. Just starting. Yeah. Okay. Yeah, because the, the, the Connie of Maui, you know, they were kind of embroiled in a couple other court cases. So they needed an extension to, you know, to, to, to get their opening brief in. Yeah. Okay. And how long does it take to finish the briefing schedule? Two or three months? Something like that. Yeah. And, and there could be oral argument here also in the intermediate court. It's possible. Yep. Okay. How much money is at stake in this case? Um, this is, you want to write this down, because this is really going to be interesting. He's calculating in his mind how many millions of dollars. Go ahead. Well, we've been 30 and 40 million. This is, this could hurt the County of Maui. Oh, uh, one of the, one of the claims that the County of Maui is making is going to be, you know, catastrophic for them, which I believe. Yeah. Don't have to raise property taxes. Well, if, if that amount is allowed, I, I, I have some doubt they can get all of that. Or that the, um, the times just can get all of that back. No problem. Give them 30 days. That's a joke. What's good for the goose is good for the ganda. Yeah. Yeah. But, but, but one, one, one problem, uh, is that there's a real, you know, tough question about whether, uh, the taxes were properly on appeal. Oh, because of the choice of court. Yeah. Yeah. Yeah. So, I mean, the, the, the, the, they definitely appealed the retroactive assessments. So I think there are, are, you know, paths to get that back. But when we're talking about like, um, you feel that down to 11, 12, 13, there was no appeal. Uh, at the time. So maybe out of school on that. They may be out of school on that. Now because, because there's law that says even if the, the taxes were collected unconstitutionally, if the, if you don't appeal, you don't get your tax back. Right. You have to follow the rules. You got to follow the rules. Yeah. Now that's a problem for the, for the, uh, the taxpayer. So, uh, you, you've been filing, uh, you've been filing amicus briefs on this. Well. Or you will file now. Yeah. I will file soon. Um, uh, obviously, uh, I'd like to see what the county has to say before, before I do my piece, but, um, you know, but they're, they, they do not have an extension to like, uh, Christmas Eve. And I may file before that Christmas Eve. Yeah. I mean, some lawyer has to file a brief on Christmas Eve. Well, it's, it's their joys. Okay. They asked for the extension. Yeah. That's perfect. They, they have to move for the extension and they got it. Did they move for the extension to Christmas Eve? That's the date they asked for. Well, it was like around the 24th. Close enough. Yeah. So, uh, you know, where does, where does it play that this is going to be a fiscal problem for Maui County? That this is going to hurt Maui County in the FISC, in the, in its ability to perform its county obligations, its county functions, you know, police, fire, what have you. Um, where does that play in this case? Is that a consideration? Will that be among the arguments made by the county? It's going to make it impossible for us to function. We're going to have to, I don't know, raise taxes or, or, or, or clean pots and pans, whatever you have to do. Well, you know, one, one big problem is, um, you have the feds with their, with their federal statute saying that if you, you know, wax somebody's, you know, civil rights, there's got to, there's got to be, you know, compensation for it. That rises above all fiscal considerations, doesn't it? That's right. Because it's a national concern that, that people follow the, you know, respect the constitutional rights of everybody here in this, in this nation, as opposed to what, you know, one, one township or what, or one county or one city could, could think. So given the fact that the, this government involved here, this is the county, um, and the amount of money involved here, which is huge for anyone, is this likely to go when we are the other two, the Supreme Court of the state? We don't know yet. I mean, we've heard that, that the parties are engaged in settlement talks even as we speak. So they may find a way to short-circuit the problem. Yeah, that would, that would, but that would still cost the county amount or something to pay them off. Yeah. I would think so. Yeah. And it won't be small. But going back to my, my point about this, it probably would go to the Supreme Court of the state because the stakes would be high if it weren't settled. Well, yeah. I mean, the question obviously would be, you know, to what extent are other counties, you know, doing the same thing or are other, are there similar laws? It's a statewide issue. Yeah. I mean, so far it looks like just a, just a county of Maui issue, but, but, you know, we've, from, from our end, figured it was important to, you know, publicize this case and, you know, the retribution that went on to kind of, you know, be a warning to everybody else to, you know, don't, don't think of pulling anything like this. Right. This is really not cool. Yeah. This is, this is bad stuff. It's really bad, you know, to do that to anybody. It's not the way things work in this country. But, you know, what, what is your expectation here? What is, oh, one more question about jurisdiction and all that. So it's a federal statute in 1983. Right. Why isn't this in the federal court? Will it be in the federal court? Will it ultimately go into the federal ballot system? No. Why don't we have a federal, a federal statute being interpreted by the federal government? No. Well, because the case was in state court to begin with, the, the feds say, you know, it's, it's fine for state courts to consider 1983 actions and to ward damages, but it's not fine for the state to say, okay, well, you got to go to tax appeal court. They can't award damages. So, so too bad. Yeah. Well, 1983 is really not a claim in the state and the tax appeal court. Right. It's not the right place. Yeah. So, so, so, so, but what I, what I think, you know, should be the right answer is, is that the Second Circuit Court of Maui keeps the case because they got this 1983 claim. It's a very good claim and they've been working with this, this case for five years. So, they may as well take, you know, deal with all of it. Yeah. So, you follow your briefs. The court may have argument in the intermediate court right here down the block. Right. When is this going to get resolved? If, assuming no settlement in the interim. Right. Assuming no settlement. We're looking at maybe a year down the pike. Okay. We want to cover it with you, Tom. And if there's any other cases, we want to cover them too. Because we want to get educated on what's going on with taxes in Hawaii. It's your middle name after all. I guess so. Tom Yamachika. Thank you, Jay. President of the Tax Foundation of Hawaii. Thanks so much. Aloha.