Opinion ID: 1348704
Heading Depth: 2
Heading Rank: 1

Heading: The Benchmark

Text: The Tax Appeal Court, as part of its valuation of the Steiner property, rejected the City's benchmark value for ocean-front Black Point properties. [7] The court substituted the Kahala Beach benchmark value. Although we presume that the court made this substitution in order to arrive at a fair and realistic value as we directed in Amfac, we find no evidence supporting the application of the Kahala Beach figure to the subject Black Point property. See In re Amfac Inc., 65 Haw. 499, 502, 654 P.2d 363, 365 (1982). We have stated that the tax appeal court ... must base its conclusions upon evidence adduced and not upon what might have been adduced. In re Tax Appeals, Maenaka, 41 Haw. 141, 149 (1955) (quoting In re Taxes of Carter, 27 Haw. 826, 828 (1924)). Thus, we find that the substitution of the Kahala Beach benchmark for the Black Point benchmark was clearly erroneous. In contrast, the City presented ample evidence to uphold the application of its Black Point benchmark to the Steiner property. The general method used by the City assessor in arriving at the benchmark comports with the market data approach required by ROH § 8-7.1(a) and described in the Procedure and Reference Manual. The assessor integrated the sales data for recently sold properties in the Black Point area into the benchmark. She also compared sales data from the Kahala Beach area, while recognizing that the Black Point benchmark should be lower because of the differences in the topographies of the two areas. Although the Procedure and Reference Manual is a department guideline, rather than a statute or ordinance, we find that compliance with the policies and procedures in the Manual is an indicia of fairness. Tax valuation methods must be applied uniformly and equally, although not identically, to all taxpayers. See, e.g., Addington v. Board of County Comm'rs, 191 Kan. 528, 382 P.2d 315, 319 (1963) (Uniformity in taxing implies equality in the basis of assessment as well as in the rate of taxation.); Kittery Elec. Light Co. v. Assessors, 219 A.2d 728, 734 (Me.1966) (citations omitted) ([U]niformity and equality in a constitutional and statutory sense does not require mathematical exactitude in the assessment valuation of property for taxation.). When the assessors follow department guidelines, there is a much greater likelihood that the tax burden will be equally shared by all taxpayers. See Allegheny Pittsburgh Coal Co. v. County Comm'n of Webster County, 488 U.S. 336, 345, 109 S.Ct. 633, 638-639, 102 L.Ed.2d 688 (1989) (In finding an equal protection violation, the U.S. Supreme Court noted that the tax assessor's practice seems to be contrary to that of the guide published by the West Virginia Tax Commission as an aid to local assessors in the assessment of real property.). Therefore, we hold that the City tax assessor's compliance with the policies and procedures set forth in the Finance Department's Procedure and Reference Manual is strong evidence that the City's method of mass valuation is being uniformly and fairly applied to all taxpayers.
Steiner argued in the tax court that sales to Japanese investors were not comparable without adjustment, thus such sales should have been disregarded or discounted in calculating the benchmark value and the fair market value of Steiner's property. Steiner's experts opined that Japanese investors were paying more than fair market value because they had special influences, motivations and conditions and they were armed with tremendous financial wallop. The experts testified that, at the time of the alleged above market sales, the dollar to yen ratio was high, Japan real estate prices were high, and low interest rates were available in Japan. Thus, they argued, Japanese buyers were paying much higher prices than were economically justified by any measure of value. Although wealthy Japanese investors in Hawaii property may be a modern phenomenon, Steiner's theory is not. Bonbright's 1937 treatise on the appraisal of property discusses a similar theory that property should be valued at its intrinsic value or justified price rather than its fair market value. J. Bonbright, 1 Valuation of Property 24-29 (1937). Intrinsic value [8] differs from fair market value in that it represents, not what the property could presently be sold for, but what, in the appraiser's judgment, the property would sell for, were the market composed of (a) intelligent individuals who (b) were interested in buying and selling the property only by reference to its investment merits. Id. at 27. [9] The intrinsic value theory mirrors Steiner's argument that sales to Japanese buyers are not economically justified, thus the court should adjust the sales data to reflect what would be a property's intrinsic value or justified price. Bonbright states that one reason why courts have wisely hesitated to embrace the concept of intrinsic value is that it would be extremely difficult to estimate. Id. at 28-29. If [tax assessors or tax courts] were compelled to find the intrinsic value ... for tax purposes, the administration of the law would become almost hopeless. Endless controversies would arise between taxpayers and assessors, many of which would be carried into the courts. Faulty as is market price as an index of value, it supplies a relatively objective and easily administered basis of valuation that no other method can supply. Id. at 29. We agree with this analysis and will not inject uncertainty into Hawaii's property tax assessments by subscribing to Steiner's theory. We further note that Steiner's theory invites a sale-by-sale analysis of the justified price; we find this to be repugnant to the concept of using appropriate systematic methods suitable for mass valuation. See ROH § 8-7.1(a). Thus, we reject Steiner's argument that sales to Japanese buyers do not reflect the fair market value of the properties sold to them. In particular, we reject Steiner's argument that the 1987 sale of the parcel next to the Steiner property should be discounted because the buyer was a Japanese citizen and thus he paid more than fair market value. Market value ... is no more than the value in money of any property for which that property would sell on the open market by a willing seller to a willing buyer. In re Puna Sugar Co., 56 Haw. 621, 624, 547 P.2d 2, 4 (1976). The property next door was listed on the open market for 95 days at $3,000,000 and sold for $2,750,000; and, there is no evidence suggesting other than an arms-length transaction between a willing buyer and a willing seller. Furthermore, although the buyer was Japanese, he has owned and lived in a Kahala beach condominium since 1979 and is the owner of a local business, the Pearl City Tavern. Even if we agreed with Steiner's above-market theory, which we do not, nationality alone would be insufficient to establish that this transaction was tainted by the Japan factor. Although the Tax Appeal Court made findings of fact that recited Steiner's expert's testimony regarding the above-market theory, the court did not incorporate this theory into its own valuation of the subject property. The court merely substituted the Kahala Beach benchmark and applied it to a smaller portion of the Steiner parcel. The Kahala Beach benchmark was also based in large part on sales to Japanese buyers. Thus, the Kahala Beach benchmark used by the court was equally influenced by the alleged above-market sales and its use in no way indicates the court's adoption of Steiner's theory. The City argues that the Tax Appeal Court disregarded sales to Japanese buyers in determining benchmark and fair market values, while also arguing that the court failed to adjust the Kahala Beach benchmark upward when the court applied them to less than 20,000 sq. ft. of the property. We find it equally plausible that the court used the Kahala Beach figure in an attempt to adjust upward from the Black Point benchmark when it decided to apply the benchmark to less than 20,000 sq. ft. Since both the Kahala Beach and the Black Point benchmarks incorporated sales to Japanese as well as other buyers, we find the City's argument on this point to be misguided. However, as stated above, we agree with the City that the tax court erred by using the Kahala Beach benchmark in this case. Rather, we conclude that the court should have applied the Black Point benchmark as the City did in its assessment.