WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​

​Weekly Commentary

For the Week of December 9, 2018

The County Strikes Back (Part 3)
By Tom Yamachika, President
 
We continue with our series about a timeshare association suing the county, with the county then back assessing the association for $10 million.
 
Here we examine:  “Are back assessments of property tax legal?”

In most of our counties, the ordinances say that the assessor is to make a tax assessment list each year by a certain time.  The county then sends out bills to the property owners with the numbers off the list.  Owners then either pay, or appeal.

But what if your property isn’t on the list?

This can happen very easily if you have just signed a lease for state lands.  The state doesn’t have to pay real property tax because governments generally don’t tax each other, so there is no previous assessment of the land.  A lessee of state lands, however, isn’t a government and therefore needs to pay real property tax.  But let’s say, for whatever reason, the real property tax bill doesn’t come in the mail for a couple of years.  The ordinances call that “omitted property,” and they say that the county can assess the current year, and any back years, whenever the county gets around to doing that.  And when they do, if you want to appeal the assessment you need to do it within 30 days – which isn’t much time.

If you go to the county and say that the assessment is unfair and illegal, you won’t get much sympathy.  “You’ve received fire and police protection, trash pickup, and many other benefits that come with occupying that property,” they’ll say.  “Didn’t you think it strange that you were receiving all these valuable benefits for free while everyone else in the county has to pay for them through their property taxes?”

As it turns out, there is a court case holding that this type of assessment, called an omitted property assessment, is perfectly legal.

In our Maui case, however, the facts were quite different.  The plaintiffs were time share associations.  The county had assessed the property – but they didn’t assess the intervals or the condominium units, they assessed the master parcel.  The county sent the bills to the associations, and the associations paid the assessments in full.

“Oho!” the county said.  “We didn’t assess the intervals, which are the units of property that are being bought and sold.  They are therefore omitted property, and we get to assess them whenever we want!”

So, the county back assessed the interval owners, and they assessed a lot more tax because the method they used to assess the master parcel was based on its cost while the method they used to assess the intervals was based on market value.  But then they needed to figure out what to do about the payments that already had been made on the property.  And they decided to credit each of the interval owners for a proportionate part of the payments that were previously made.
Fair, perhaps; but it was also an admission that tax previously had been paid on the property assessed, so the county had no business calling it omitted property.

“[I]f the County can retroactively assess already-assessed real property to change the valuation and impose additional taxes, even many years later as it argues it can here,” the Maui judge wrote, “property owners can never have confidence that they have satisfied their tax obligation for any previous years.  Potential buyers can never have confidence that a purchased property will not later be burdened by a hefty ‘amended assessment’ for some year long before their purchase.”

Well said, Judge; now we’ll see how well his judgment fares in the appellate courts.

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WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
​To view the archives of the Tax Foundation of Hawaii's commentary click here. ​​​​​​​

Weekly Commentary

For the Week of December 2, 2018

 The County Strikes Back (Part 2)
By Tom Yamachika, President

This week we begin a series on a long and hotly litigated property tax case from Maui.  This case isn’t about wind turbines like we wrote about a couple of weeks ago.  This one involves timeshares.
Some timeshare projects in Kaanapali were unhappy when Maui County enacted in 2004 a new Time Share property classification, effective in 2006, that was much more expensive for impacted taxpayers.  In 2013, the associations sued in Circuit Court on Maui asking for the court to declare that the Time Share classification was invalid.

Maui’s eagle-eyed attorneys and tax assessors then noticed something interesting.  For the years 2006, 2007, and 2008, they had assessed the master projects, such as the land and buildings on the whole condominium project, as opposed to individual time share interests (typically, ownership of a certain unit for a week per year).  And the property was assessed using cost data, which is typically used for projects being constructed, rather than market data.  The county, claiming it had a right to charge tax on “omitted property” that wasn’t taxed before, then set up a counterclaim in the lawsuit for $10 million in additional property tax owed for 2006, 2007, and 2008.

The timeshares moved to have the counterclaim tossed out.  “There’s a process for assessing tax and you didn’t follow it,” they said, and the judge agreed.  “We’ll fix that,” the county said, and issued “amended property tax assessments” to every timeshare unit owner in the projects, in order to give those owners some credit for the tax that had been paid on the master parcels.  (But wait.  Isn’t there something weird about issuing “amended” assessments on what they claim is “omitted property” that hasn’t been assessed before?)  The total of the 1,111 amended assessments was $10 million, due and payable in 30 days.

The timeshares somehow scraped up the money to pay the assessments and appealed all the amended assessments.  The filing fees for the appeals totaled more than $80,000.  The timeshares had to raise their $10 million through special assessments, which, unlike maintenance fees charged by non-timeshare condominium associations, are GET taxable.  Another $300K+ was sent down the tubes.

Now, Maui isn’t that big of an island.  Word of the massive assessments got out, and let’s just say that other people were concerned.  “You don’t have to worry,” county officials said, in effect.  “We only assessed these folks retroactively because they were making a huge and questionable claim against the county and they didn’t pay their fair share of tax in prior years.”  Which easily could be read as, “These suckers had the nerve to sue us.  So, we are going to pound the stuffing out of them.  Government-fearing citizens need not be afraid.”

This was way too much for the trial judge.  He ruled that the supplemental assessments were all void because the county didn’t follow proper assessment procedure and that it wasn’t lawful for the county to reach back for so many years.  The judge found that the county retaliated against the timeshares for suing them, which violated many of the timeshares’ constitutional rights.  Thus, the timeshares were entitled to damages and attorneys’ fees under federal civil rights law.  And, for good measure, the judge ruled the Time Share property tax classification on Maui invalid since inception, which would give the suing timeshares the right to a $30 million refund of overpaid tax as well.  Maui County appealed the decision, and the case now sits in the Intermediate Court of Appeals.
In the next few weeks, we will be taking a close look at some of the issues, including the validity of the assessments, the validity of the Time Share classification, and even whether the case belongs in the right court.