Opinion ID: 2602391
Heading Depth: 2
Heading Rank: 2

Heading: Statutory Immunity From Real Property Taxation

Text: The State contends that: (1) HRS § 246-36(2) is a valid legislative enactment that generally precludes the County from taxing the leaseholds; and (2) Act 227 is a valid legislative enactment that exempts the State from an obligation to pay the real property taxes assessed against State-leased property for the 1996-97 tax year. The County, on the other hand, argues that HRS § 246-36(2) is no longer controlling and that Act 227 was invalid at its inception. In assessing the validity of these legislative enactments, we believe it is necessary to first examine the 1978 constitutional amendments that transferred all functions, powers and duties relating to taxation of real property to the counties. Haw. Const. art. VIII, § 3. In doing so, we adhere to this court's well-established rules of construction: The fundamental principle in construing a constitutional provision is to give effect to the intention of the framers and the people adopting it. This intent is to be found in the instrument itself. When the text of a constitutional provision is not ambiguous, the court, in construing it, is not at liberty to search for its meaning beyond the instrument. However, if the text is ambiguous, extrinsic aids may be examined to determine the intent of the framers and the people adopting the proposed amendment. State v. Kahlbaun, 64 Haw. 197, 201-02, 638 P.2d 309, 314 (1981). The plain language of the constitutional provision at issue clearly indicates an intent to confer exclusive authority over real property taxation to the counties. This court has addressed the 1978 constitutional amendments in earlier cases that are relevant to the issues raised by the State. In Gardens at West Maui Vacation Club v. County of Maui [hereinafter, Gardens ], 90 Hawai`i 334, 978 P.2d 772 (1999), this court held that [a]rticle VIII, section 3 was expressly and manifestly designed to transfer to the counties broad powers of real property taxation. Id. at 341, 978 P.2d at 779. This court has observed that the purpose of the amendment was to place the burden of the real property taxation system at the county level[,] id., and that the constitutional amendment, along with the legislative enactments contained in HRS Chapter 246A providing for the orderly transfer of property taxation power to the counties, covered the whole subject . . . and embraced the entire law in that regard. Id. Gardens involved a challenge to the counties' power to establish differential tax rates. Id. at 340, 978 P.2d at 778. In that case, the plaintiffs contended that, the constitutional amendment and HRS Chapter 246A notwithstanding, the existence of HRS § 248-2, a state statute requiring a state-wide single rate of tax, precluded the counties from creating classifications of property and taxing them at differential rates. Id. The court in Gardens held that the legislative enactments implementing the constitutional amendments had the effect of superceding the earlier statute and that HRS § 248-2 had been repealed by implication. Id. at 341-42, 978 P.2d at 780. In Weinberg v. City and County of Honolulu, 82 Hawai`i 317, 922 P.2d 371 (1996), the plaintiff argued that the transfer of all functions, powers, and duties to the counties did not operate to relieve the counties of their duty to continue assessing real property under the methods detailed in HRS § 246-10(f)(1). Id. at 323-24, 922 P.2d at 377-78. The plaintiff's argument was premised on his interpretation of HRS § 246A-2(3) (1993), which provided that, in their exercise of real property taxation powers, the counties would succeed to the duties and obligations previously incurred by the State Department of Taxation. Id. at 323, 922 P.2d at 377. This court disagreed and concluded that the plaintiff's argument was untenable, reasoning that: The purpose of HRS Chapter 246A was to provide for the orderly transfer of [real property taxation] functions, powers, and duties, . . . to the counties. HRS § 246A-1. HRS §§ 246A-2(1) and 246A-2(2) generally describe an eleven-year transition period during which the counties, by majority agreement among themselves, were to adopt ordinances to provide for uniform policies and methods of assessment for the taxation of all real property throughout the state. Each county was also to enact by ordinance and adopt as law for the county all of the real property tax exemptions . . . as now provided by law. By their own terms, HRS §§ 246A-2(1) and 246A-2(2) lapsed after a period of eleven years, in November 1989. Adoption of Weinberg's interpretation of HRS § 246A 2(3)that the counties are still bound by the same assessment methods that were imposed on the State Department of Taxationwould render the provision of an eleven-year transition period meaningless because HRS chapter 246, rather than county ordinances, would continue to govern the policies and methods of assessment. Id. at 324, 922 P.2d at 378. In Weinberg, this court held that, to the extent that there is any conflict between HRS § 246-10(f)(1) and ROH § 8.7-1(a), it is the ordinance, and not the statute, that is controlling. Id. In the present case, the State maintains that HRS § 246-36(2), a statute that preexisted the 1978 constitutional amendment, continues to retain its validity despite the subsequent enactment of a County ordinance expressly repealing the Exemption created by the statute. The State seeks to persuade this court that the statute's express creation of an exemption and the ordinance's express repeal of the very same exemption does not represent a genuine conflict, thereby obviating the need to find that the ordinance is controlling. The State argues that the measures actually overlap insofar as they both deal with real property taxation, but full effect can be given to both because section 246-36(2) deals with matters of statewide concern that are reserved to the legislature under [a]rticle VIII, [section] 6 of the Hawai`i Constitution. We are unpersuaded and conclude that this argument is as untenable as that presented by the plaintiff in Weinberg. Just as HRS § 246A-2(1) required the counties to maintain uniform policies and methods of assessment for a period of eleven years, HRS § 246A-2(2) temporarily limited the counties' ability to repeal or diminish real property tax exemptions existing under state law. This statutory restriction on the counties' exclusive authority over real property taxation was valid insofar as it merely codified the language of article XVIII, section 6 of the Hawai`i Constitution. Any such restriction, however, became constitutionally impermissible at the expiration of the eleven-year period mandated by the Constitution and the legislative enactments implementing the 1978 amendments. We, therefore, hold that, as applied to these facts, HRS § 246A-2 lapsed by its own terms and by the terms of article XVIII, section 6 of the Constitution. For analogous reasons, we conclude that HRS § 246-36(2) is no longer controlling in light of the County's enactment of Ordinance 95-67. Simply put, the Constitution obligated the County to maintain the Exemption for eleven years, after which period the County was free to exercise its exclusive authority to increase, diminish, enact, or repeal any exemptions involving real property taxes without interference by the legislature. To argue, as the State does, that the Exemption is a matter of statewide concern is to ignore the fact that the framers of the amendment clearly understood real property taxation powers, including the power to create or repeal exemptions, as matters of local concern. Although this understanding is not revealed in the plain language of the constitutional provision, this court may resort to extrinsic aids to glean the framers' intent. Kahlbaun, 64 Haw. at 201-02, 638 P.2d at 314. The Proceedings of the Constitutional Convention of Hawai`i of 1978 repeatedly underscore the understanding that the power to tax real property encompassed matters of strictly local concern and that this power included the power to grant or repeal exemptions from real property taxation. For example, the Standing Committee on Taxation and Finance reasoned that the power to levy a tax on real property should be granted to the counties because, inter alia, [c]ounty governments are completely responsible and accountable for the administration of their local affairs and [t]here are certain program elements which do not invoke issues of statewide concern and/or which do not lend themselves to single, statewide solutions. In other words, there are different economic bases and needs of the counties which cannot be addressed by statewide real property provisions. 1 Proceedings of the Constitutional Convention of Hawai`i of 1978, at 594-95 (1980). The Committee of the Whole Reports also clarify the framers' understanding that the counties would have the exclusive authority to create or repeal exemptions, even if, in exercising this prerogative, the State might lose the advantage of existing exemptions. Specifically, the Committee of the Whole noted that it had changed the language of the proposed amendment to include the phrase all functions, powers and duties relating to the taxation of real property in order to clarify the standing committee's intent to grant all taxing powers relating to real property to the counties, except Kalawao. There was some question under the earlier language as to whether or not the counties would have the power to set exemptions. Although the mover of this amendment explained that the power to levy did include the lesser power of setting exemptions, this amendment was adopted as having the better language. Id. at 1008. Furthermore, the Committee rejected an amendment to return this section to its original language which rests all taxing powers with the State. Some members argued that this section should not be capriciously tampered with in light of the social policies already set forth by the State through its enactment of exemptions. Other members pointed out that the trend is toward more home rule and that the county governments want to take on more responsibility. That branch of government that is responsible for running certain affairs should have the responsibility and right to collect revenues. It is anticipated that county councils, with their daily contact with constituents, will be more responsive. Members concluded that exemptions for a particular group or groups should not determine who has this power. In any event, there is no guarantee that the State will continue to retain the same exemptions. Id. at 1008-09. Accordingly, we hold that the power to set exemptions from real property taxation is not a matter of statewide concern reserved to the legislature under article VIII, section 6 of the Hawai`i Constitution.