Opinion ID: 1141147
Heading Depth: 3
Heading Rank: 1

Heading: get

Text: The issues on appeal of the summary judgment order center on the type and amount of the remedy HFM is entitled to receive for having paid the GET under an unconstitutional statute. HFM and the Director retake the positions they staked out in their respective motions for summary judgment. Thus HFM argues that because HRS § 237-24(18)(C) put its imported processed foods at a disadvantage vis-a-vis local fresh foods in the competition for AHC's business, it is entitled to a meaningful retrospective remedy and that that remedy should be a full refund of the GET it had paid on all of its food sales to AHC. The Director acknowledges that HFM is entitled to some form of backward-looking relief for having paid an unconstitutional tax. But he argues that: (1) the appropriate remedy can consist either of a retroactive assessment of those taxpayers who took advantage of HRS § 237-24(18)(C)'s exemption or a refund of the GET that HFM paid under protest; and (2) the choice of the remedy is his prerogative. If he chooses the refund option, the Director argues that HFM is not entitled to a refund of all of the GET it paid on its food sales to AHC, but is entitled to a refund only of taxes imposed on its sales of fresh food that was actually consumed outside of Hawai'i's territorial waters. This court reviews the award of summary judgment under the same standard applied by the trial court. Kaneohe Bay Cruises, Inc. v. Hirata, 75 Haw. ___, ___, 861 P.2d 1, 6 (1993). Pursuant to Hawai'i Rules of Civil Procedure (HRCP) 56(c) (1990), summary judgment is proper where the moving party demonstrates that there is no genuine issue of material fact and it is entitled to judgment as a matter of law. Id. at ___, 861 P.2d at 6 (citing Gossinger v. Association of Apartment Owners of The Regency Ala Wai, 73 Haw. 412, 417, 835 P.2d 627, 630 (1992)).
There can be no real dispute concerning the range of options available to the Director to remedy the constitutional defect in HRS § 237-24(18)(C). In McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Department of Business Regulation of Florida, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), the United States Supreme Court considered the types of relief available to a taxpayer who pays taxes under an unconstitutional statute. In McKesson, wholesale liquor distributors challenged a Florida liquor tax that gave special rate reductions to certain products commonly grown in Florida and used in alcoholic beverages produced there. The Florida Supreme Court agreed with McKesson that the tax scheme unconstitutionally discriminated against interstate commerce. It ruled, however, that equitable considerations mandated that any relief be prospective only. A unanimous Supreme Court reversed. The Court held that because exaction of taxes constitutes a deprivation of property, the due process clause of the fourteenth amendment to the United States Constitution mandates that a state provide procedural safeguards against the imposition of unlawful taxes. Id. at 36, 110 S.Ct. at 2250. In general, a state could satisfy due process requirements by providing either predeprivation process ( e.g., authorizing taxpayers to bring suit to enjoin imposition of a tax before its payment) or postdeprivation process. Id. Because Florida employed a system of financial sanctions and summary remedies designed to encourage taxpayers to tender tax payments before challenging a tax, Florida had to provide adequate postdeprivation process: To satisfy the requirements of the Due Process Clause, therefore, in this refund action the State must provide taxpayers with, not only a fair opportunity to challenge the accuracy and legal validity of their tax obligation, but also a clear and certain remedy, [ Atchison, T. & S.F.R. Co. v. O'Conner, 223 U.S. 280 [32 S.Ct. 216, 56 L.Ed. 436] (1912)], for any erroneous or unlawful tax collection to ensure that the opportunity to contest the tax is a meaningful one. Id., 496 U.S. at 39, 110 S.Ct. at 2251 (footnote omitted). The Court held that a state retains flexibility in providing meaningful backward-looking relief, id. at 31, 110 S.Ct. at 2247, as long as it treats [the taxpayer] and its competitors in a manner consistent with the dictates of the Commerce Clause. Id. at 39-40, 110 S.Ct. at 2252. Thus, the Court held that retroactive relief could be accorded in one of three general ways. A state could: (1) refund the difference between the tax a taxpayer paid and the tax that it would have paid had it been assessed at the preferential rate; (2) retroactively assess the taxpayer's favored competitors at the non-preferential rate; or (3) use a combination of the two methods. Id. at 40, 110 S.Ct. at 2252. In the present case, the remedial options outlined in the tax appeal court's order were consistent with the methods set forth in McKesson. Under McKesson, then, HFM clearly would receive the process it is due if the Director retroactively assesses those taxpayers who benefited from HRS § 237-24(18)(C)'s exemption. [2] A retroactive assessment would eliminate any discriminatory preference, at least in hindsight, and therefore effectively extinguish any Commerce Clause violation. Thus, any inquiry into whether HFM's imported processed food products were in competition with fresh Hawai'i-produced foods would be unnecessary: all GET taxpayers who competed for AHC's business, whether they were local or foreign or whether they sold fresh or processed foods, would be on an equal tax footing. [3] The real battle lines are drawn around the refund remedy. As noted, HFM argues that it is entitled to a full refund of the GET it paid on the sales of all of its food products, processed and fresh. The Director argues that if he chooses refund as a remedy, it should be limited to the GET that HFM paid on sales of (i) fresh foods (ii) that were actually consumed outside the territorial waters of Hawai'i.
HFM relies primarily on Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984), to support its argument that it should receive a refund of the GET imposed on sales of its processed foods. In Bacchus, liquor wholesalers challenged the constitutionality of a Hawai'i tax which imposed a twenty percent GET on wholesale liquor sales. Specifically, the wholesalers claimed that exemptions from the tax granted to okolehao and fruit (pineapple) wine violated, among other things, the Commerce Clause. Id. at 265, 104 S.Ct. at 3052. The United States Supreme Court agreed with the wholesalers. The Court held that the exemptions violated the Commerce Clause's cardinal rule against simple economic protectionism by discriminating against non-Hawaiian liquor products in both purpose and effect. Id. at 270-71, 104 S.Ct. at 3053-55. In so holding, the Court rejected the State of Hawai'i's argument that there was no discriminatory effect on interstate commerce because okolehao and pineapple wine do not compete with the other products sold by the wholesalers: [N]either the small volume of sales of exempted liquor nor the fact that the exempted liquors do not constitute a present competitive threat to other liquors is dispositive of the question whether competition exists between the locally produced beverages and foreign beverages; instead, they go only to the extent of such competition. It is well-settled that [w]e need not know how unequal the Tax is before concluding that it unconstitutionally discriminates. Id. at 268-69, 104 S.Ct. at 3053-54 (quoting Maryland v. Louisiana, 451 U.S. 725, 760, 101 S.Ct. 2114, 2136, 68 L.Ed.2d 576 (1981)) (footnote omitted). Thus, the Court held that [a]s long as there is some competition between the locally produced exempt products and nonexempt products from outside the State, there is a discriminatory effect. Id. at 271, 104 S.Ct. at 3055 (emphasis added). HFM argues that, under Bacchus, it can establish a constitutional violation by showing that there was at least some competition between its processed foods and exempt local fresh foods. Once it makes that showing, HFM argues, under McKesson it is entitled to a meaningful remedy, which must be adequate to redress its specific Commerce Clause injury i.e., the extra tax burden imposed on the sales of its imported processed foods. Under the refund option, HFM maintains, that means a full GET refund. The Director does not dispute that the existence of some competition between HFM's non-exempt imported processed foods and exempt local fresh foods is sufficient under Bacchus to establish a constitutional violation. He argues, however, that because he has already conceded the unconstitutionality of the exemption, the competition discussion in Bacchus is not relevant to the decision as to the scope of the remedy. The relevant inquiry for remedy purposes is the scope of the exemption. The Director's argument that the violation inquiry i.e., whether there was some competition between exempt and non-exempt productsis divorced from the remedy inquiry essentially reduces to the following: when the legislature enacted HRS § 237-24(18)(C), it clearly intended to give local fresh food products a competitive advantage over all processed foods, regardless of whether they were produced in Hawai'i or elsewhere. To effectuate this intention, the Director has always restricted HRS § 237-24(18)(C)'s exemption to sales of fresh local foods; sellers of processed foods, whether local or imported, have never been allowed to claim the exemption. Given that practice, the Director argues, the fact that HFM imported its processed foods rather than purchased them locally is irrelevant to why it is not entitled to the exemption under HRS § 237-24(18)(C); the only determinative fact is that it sold processed, not fresh, foods. Consequently, if HFM were given a refund of the GET it paid on its sales of processed foods, it would effectively be getting an exemption that no other taxpayerlocal or foreignever had received and which the legislature never intended to grant. Thus, the Director's main argument on the refund option appears to be that the Constitution requires only that HFM be put in the position that it would have been in had HRS § 237-24(18)(C) never included the local preference, and that it should not be made better off simply because the statute turned out to be constitutionally defective. That means that, even if HFM could establish an abstract violation of its Commerce Clause rights by showing that its imported processed foods were in some competition with local fresh foods, HFM would still not be entitled to a refund of any of the GET it had paid on the sales of those products. Rights, constitutional and otherwise, do not exist in a vacuum. Their purpose is to protect persons from injuries to particular interests, and their contours are shaped by the interests they protect. Our legal system's concept of damages reflects this view of legal rights. Carey v. Piphus, 435 U.S. 247, 254, 98 S.Ct. 1042, 1047, 55 L.Ed.2d 252, 259 (1978) (paragraph break omitted). The fatal flaw in the Director's argument is that it ignores the fundamental principle of law that the Supreme Court articulated in Carey: the nature of the injury determines the scope of the remedy. The Director acknowledges that, under Bacchus, HFM could establish that § 237-24(18)(C) is unconstitutional as applied to it by showing that there was some competition between its imported processed foods and the exempt local products. Thus, the tax discrimination against its processed foods is HFM's Commerce Clause injury. Once HFM demonstrates that injury, McKesson holds that it is entitled to meaningful retrospective relief. If the Director chooses to provide that relief by way of a refund, the refund must consist of the GET it paid on its sales of processed foods. Otherwise, HFM's particular Commerce Clause injury would go unremedied, and it would not receive the meaningful relief that the Due Process Clause mandates. The Director's attempt to escape these basic principles is unavailing. The mere fact that HFM hypothetically might be better off than it would have been had the statute not been constitutionally infirm in the first place is purely of the state's own doing and cannot be the basis for the state to skirt its constitutional obligations. As the Supreme Court stated in McKesson: If, through the State's own choice of relief, petitioner ends up paying a smaller tax than it would have paid if the State initially had imposed the highest rate on everyone, petitioner would not enjoy an unpalatable windfall. Rather, petitioner would merely be protected from the comparative economic disadvantage proscribed by the Commerce Clause. 496 U.S. at 43, 110 S.Ct. at 2253-54. If the state chooses the refund option, the amount refunded should include the GET that HFM paid on sales of its processed foods, as long as they were in some competition with exempt local fresh foods.
Having determined the scope of the refund remedy in general terms, we now turn to the question whether, for purposes of summary judgment, there is a genuine issue of material fact precluding HFM's entitlement to that remedy, as a matter of law. That is, has HFM demonstrated that there is no genuine issue of material fact that its imported processed foods competed with exempt local fresh foods for AHC's business? HFM adduced an affidavit of AHC's Senior Purchasing Agent, Judy Furukawa, stating in relevant part: 7. American Hawaii Cruises will purchase local food products, if the food products can be purchased at a price better than or equal to out-of-state food products, and if the local food products can be supplied in the required amounts and needed specifications. 8. If the prices of local food products make it economically advantageous to purchase local food products, rather than out-of-state food products, then American Hawaii Cruises will purchase the local food products. These include, but are not limited to local food products such as chilled beef, chicken or fruits rather than out-of-state food products such as cut beef and chicken that is pre-packaged and frozen or pre-cut fruits that are canned or jarred. 9. American Hawaii Cruises understands that many of the food products purchased can be considered processed in one form or another (i.e. cut, pre-packaged frozen steaks and chicken). If fresh local products can be purchased at similar prices and quantities they would certainly compete with those food products currently being purchased. The Director attempted to rebut this affidavit by submitting an affidavit of one of his auditors. That affidavit recounted statements purportedly made by Furukawa that might be construed as casting some doubt on her affidavit. For instance, it stated that Furukawa told the auditor that [p]repackaged grapefruit sections would not be substituted for fresh grapefruit on the AHC menus. The affidavit also attributed similar statements to a senior vice president of AHC ( e.g., [f]resh items are not substituted with canned items.). These statements are inadmissible hearsay and as such are of no value on summary judgment. HRCP 56(e) (1990) (opposing or supporting affidavits must set forth facts as would be admissible in evidence). Furukawa's affidavit established that HFM's products, in general, were in some competition with fresh local products. It was enough therefore to preclude the Director from obtaining summary judgment. On the other hand, the affidavit does not state that all of the processed foods that HFM sold to AHC were in competition with exempt products for the entire period in question. Because HFM is entitled only to a refund of the GET it paid on sales of the particular foods that actually competed with fresh local foods for AHC's business, there is a genuine issue of material fact as to the amount of the refund owed. Thus, HFM was not entitled to summary judgment either. On remand HFM bears the burden of establishing specifically which of its products competed with exempt products for AHC's business.
The Director also argues that HFM's GET refund should be limited to its sales of food that was actually consumed outside of the territorial waters of Hawai'i because HRS § 237-24(18)(C) is restricted to food sold for consumption out-of-state. He argues that because his auditors determined that only thirty-six percent of the food HFM sold to AHC was consumed outside of Hawai'i, it was entitled to a refund of only 36% of the GET paid on its sales to AHC. HFM counters that even though some portion of the food it sold to AHC may have been consumed in Hawai'i, those sales still should be exempt because their overall interstate character is not lost by short stops at various ports in Hawai'i. HFM's argument misconceives the basic nature of its claim. It seeks a refund of the GET it paid as retrospective relief for the violation of its rights under the Commerce Clause. It does not seek an exemption under HRS § 237-24(18)(C). The two are not the same. Consequently, HFM's argument that HRS § 237-24(18)(C) should be interpreted to apply to food that was consumed during a cruise ship's brief stops in Hawai'i is irrelevant. The only relevant inquiry for purposes of HFM's Commerce Clause claim is whether the Director's proposed adjustment would treat HFM and its competitors equally. A state treats taxpayers equally when it refund[s] to [a taxpayer] the difference between the tax it paid and the tax it would have been assessed were it extended the same rate reductions that its competitors actually received. McKesson, 496 U.S. at 40, 110 S.Ct. at 2252 (emphasis added). Thus, if HFM's competitors actually received exemptions only for their sales of food consumed outside of the territorial waters of Hawai'i, as the Director argues they were [4] , HFM's refund should be similarly circumscribed. The tax appeal court granted summary judgment in favor of the Director based on computations made by the Director that only thirty-six percent of the food that HFM sold to AHC was consumed out-of-state. The computations were based on certain schedules obtained from AHC. Those schedules were attached to an affidavit of counsel for the Director, declaring that they were true and correct copies of schedules received from AHC, but not stating that the affiant had personal knowledge of their contents. The schedules are plainly hearsay and the Director made no attempt to demonstrate that any hearsay exception applied. HRCP 56(e) requires that affidavits submitted in support of or in opposition to a motion for summary judgment be made on personal knowledge and set forth such facts as would be admissible in evidence. Accordingly, summary judgment in the Director's favor was improper because the tax appeal court had an insufficient basis to determine the specific amount of the refund reduction for foods consumed in-state. In sum, if the Director chooses the refund option, the amount of the refund should be limited to the GET imposed on sales of food that was consumed out-of-state, as long as the manner in which the Director makes that adjustment is consistent with way he made it for HFM's competitors during the relevant periods.
HFM is entitled to a refund of the GET it paid on sales of all of its food products, regardless of whether they were fresh or processed, that competed with exempt fresh Hawai'i-produced foods for AHC's business. But the refund should be limited to the GET it paid on sales of food that was consumed outside of Hawai'i. There is a genuine issue of material fact concerning which of the food products that HFM sold to AHC actually competed with the exempt local foods and how much of the food was consumed out-of-state. Accordingly, on the record before it, the circuit court erred in quantifying the refund to which HFM was entitled by way of summary judgment.