Opinion ID: 2786941
Heading Depth: 1
Heading Rank: 4

Heading: discussion of the tat assessments

Text: The TAT is imposed by HRS Chapter 237D; HRS § 237-2 provides as follows: (a) There is levied and shall be assessed and collected each month a tax of: . . . (3) 7.25 per cent for the period beginning on January 1, 1999, and thereafter; on the gross rental or - 67 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER gross rental proceeds derived from furnishing transient accommodations. (b) Every operator shall pay to the State the tax imposed by subsection (a), as provided in this chapter. HRS § 237D-2 (Supp. 1998) (emphases added). Thus, the TAT is assessed on the “gross rental or gross rental proceeds,” (Gross Rental Proceeds) derived from furnishing transient accommodations and is payable by “operators.” In their motions for summary judgment, both the Director and the OTCs made arguments regarding the assessment of the TAT upon the Assessed Transactions, and, separately, the assessment of a “failure to file” penalty and a “failure to pay” penalty. B. The tax court’s in-court statements regarding the TAT Assessments At the summary judgment hearing, the tax court heard arguments and made statements regarding the TAT.41 The court first analyzed the statutory definition of operator: “Operator” means any person operating a transient accommodation, whether as owner or proprietor or as lessee, sublessee, mortgagee in possession, licensee, or otherwise, or engaging or continuing in any service business which involves the actual furnishing of transient accommodation. HRS § 237D-1 (1993). The tax court recognized two definitions provided by the statute. 41 The tax court did not make findings of fact or conclusions of law, pursuant to Hawaiʻi Rules of Civil Procedure (HRCP) Rule 52(a). - 68 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Under the first definition, the tax court examined the terms “owner, proprietor, lessee, sublessee, mortgagee in possession, [or] licensee.” The court observed that these are “all individuals or entities that have some form of ownership interest.” Thus, the court found that the “first half of the operator definition deal[s] with entities who have some type of ownership interest.” Under the second statutory definition, the court found that the reference to “engaging or continuing in any service business which involves the actual furnishing of transient accommodation” signified that the operator was “a non-owner or some entity or person that does not have an ownership interest but has another connection to the property.” The court found that the TAT was enacted to tax the tourist industry and that the OTCs were “travel agents.” Accordingly, the lack of a “connection” to the hotel property indicated to the tax court that the OTCs were not operators. The court further examined the operation of an apportioning provision within the definition of Gross Rental Proceeds (TAT Apportioning Provision). The TAT Apportioning Provision provides as follows: Where transient accommodations are furnished through arrangements made by a travel agency or tour packager at noncommissionable negotiated contract rates and the gross income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, . . . [G]ross [R]ental - 69 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER [P]roceeds to the operator means only the respective portion allocated or distributed to the operator, and no more. HRS § 237D-1. The court found that the TAT did not “envision” pyramiding because the legislature split the gross revenues between a travel agency and an operator and specified that revenues that were assessable for the TAT meant only the respective portions “allocated or distributed to” the operator. The tax court concluded that the TAT only applied to the net rate that is distributed to the hotels. Based on that conclusion, the tax court granted the motion for summary judgment filed by the OTCs and denied the motion filed by the Director. The court reiterated its conclusion when it denied the Director’s motion for reconsideration: “[T]he hotel as an operator under the TAT law pays the TAT on the revenue the hotel generates for transient accommodations. No pyramiding is permitted under the law. The OTCs are not hotel operators and therefore are not subject to TAT . . . .” Thus, influenced in part by its reading of the TAT Apportioning Provision, the tax court found that the OTCs were not operators. C. The parties’ TAT arguments on appeal The Director appeals the tax court’s grant of summary judgment in favor of the OTCs on the issue of the OTCs’ liability for GET, the court’s denial of reconsideration of that - 70 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER grant, and the court’s denial of the Director’s motion for reconsideration. 1. The Director’s arguments regarding the TAT Assessments The Director argues that the OTCs function as TAT “operators” and are subject to the TAT on all proceeds received from transients. a. The Director argues that as TAT “operators,” the OTCs are liable for the TAT The Director argues that the OTCs are liable for the TAT because they function as “TAT operators.” The Director focuses on the definition of the word operator: “Operator” means any person operating a transient accommodation, whether as owner or proprietor or as lessee, sublessee, mortgagee in possession, licensee, or otherwise, or engaging or continuing in any service business which involves the actual furnishing of transient accommodation. HRS § 237D-1 (emphases added). The Director contends that the OTCs function as TAT “operators” under the second definition by “engaging or continuing in any service business which involves the actual furnishing of transient accommodations.” The Director maintains that the legislature chose a “very broad definition” of operator for the TAT and “rejected a narrow ‘operate or manage’ definition it used elsewhere.” The Director asserts that the verb “involves” is important because, as with “operator,” the “legislature chose a very broad and - 71 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER expansive term.”42 The Director claims that the activities of the OTCs are all functions “that hotels would traditionally perform themselves in furnishing their hotel rooms to transients.” The Director argues that as “parties to the rental contract with the transient,” the OTCs are “extensively ‘involved in the actual furnishing’ of hotel rooms” and the “hotel does not have any involvement in the consumer transaction.” The Director further argues that this court and others have broadly construed the key term “furnishing.” Citing to Territory v. Hu Seong, 20 Haw. 669 (Haw. Terr. 1911), the Director contends that “‘furnish’ is a comprehensive term and includes many different ways by which an article may be supplied or delivered by one person to another.” The Director cites to cases from other jurisdictions involving a hotel room tax in which the OTCs were defendants that the Director contends interpreted “furnishing” in a similarly expansive manner in favor of the taxing authority. 42 The Director cites eleven activities conducted by the OTCs as constituting involvement: (1) furnishing transients the contractual right to occupy hotel rooms, (2) being the Merchant of Record on the credit card transaction, (3) setting the price of the room, (4) operating a vast hotel reservation network, (5) advertising and marketing the availability of hotel rooms, (6) entering into legal contracts with hotels and transients, (7) collecting tax and rental payments from transients, (8) assuming the risk of bad debts, (9) issuing transaction receipts to transients, (10) processing cancellations and refunds, and (11) providing 24-hour customer support “and more.” - 72 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER According to the Director, “the TAT statute, [HAR], and Hawaiʻi case law make clear that ‘actual’ furnishing refers to services that are provided which lead to ‘actual occupancy’ of accommodations as opposed to fees received in lieu of occupancy, such as cancellation fees, or services incidental to occupancy (such as food and beverage).” The Director maintains that an interpretation of the word “actual” to be “the person who really delivers and hands over the accommodations to the transient” would “render[] meaningless the second half of the ‘operator’ definition since it would be redundant of the first half.” b. The Director argues that all proceeds the OTCs received from transients are subject to the TAT The Director next examines the definition of the term Gross Rental Proceeds to conclude that “the OTC does not get to deduct the amount it pays the hotel pursuant to the OTC-Hotel Contracts when determining the OTC’s TAT liability.” The Director observes that the term “gross receipts” has been held to mean “‘all receipts’ with no deductions, as opposed to ‘net receipts,’” and the TAT applies to the compensation the OTCs receive for the “furnishing of” transient accommodations. The Director states that “HRS § 237D-2 currently levies a 9.25% TAT ‘on the [Gross Rental Proceeds] derived from furnishing transient accommodations.’” The Director contends - 73 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER that--analogous to the legislature’s use of the expansive term “involves” in the definition of “operator”--the use of the term “derives” in the imposition of the tax is also expansive. The Director reasons that the TAT “is imposed upon the gross proceeds ‘derived’ from transient accommodations” and “[g]ross proceeds would include the total price the transient pays the OTCs for the right to occupy the room.” Second, the Director argues that the “well-established . . . pyramiding of taxes in Hawaiʻi” indicates that “the TAT statute underscores that there can be two operators for a single hotel stay.” The Director maintains that the TAT statute “plainly and unambiguously imposes the tax on ‘every operator’ (not ‘the operator’) and defines operator as meaning ‘any person’ (not ‘the person’) involved in the actual furnishing of transient accommodations.” The Director contends that, in the Assessed Transactions, “both the OTCs (under the second half of the ‘operator’ definition) and the hotel (under the first half) are operators,’ and each is independently subject to TAT.” Lastly, the Director notes again that the TAT and GET statutes are in pari materia and therefore the TAT “taxes ‘operators’ such as the OTCs for the ‘gross’ amounts they receive from transients ‘without any deductions’ and regardless of any tax payments remitted to the State by the hotels to satisfy the hotels’ separate tax obligations.” - 74 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER 2. The OTCs’ arguments regarding the TAT Assessment In response, the OTCs make the following arguments: they are not operators of hotels, and therefore they are not subject to the TAT; their compensation is not Gross Rental Proceeds “derived from actually furnishing transient accommodations” and thus not subject to the TAT; and ambiguities in the TAT statute must be construed in their favor. a. The OTCs argue they are not ‘operators’ of hotels The OTCs contend that HRS § 237D-2 imposes the TAT “only on ‘operators’ of hotels” engaged in a business “which involves the actual furnishing of transient accommodation.” The OTCs reason that “to be an ‘operator,’ one must be able to transfer possession of hotel rooms to travelers, whether as one who has . . . possession of [] the hotel . . ., or as one who otherwise engages in a business that ‘involves the actual furnishing’ of rooms.” The OTCs contend that “actually furnishing” accommodations means to “physically deliver possession of a hotel room.” “[T]o actually furnish something means considerably more than just furnishing. . . . It [i]s like in the capacity of handing someone a key. [That person would be] actually furnishing it.” The OTCs argue that this interpretation of “operator” is confirmed by the definition of “gross proceeds”: “by . . . expressly limiting TAT liability to - 75 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER only the portion allocated to the operator, and not the portion allocated to the travel agency.” The OTCs contend that they are “‘travel agencies’ under Hawaiʻi law” and thus not subject to the TAT. The OTCs also maintain this interpretation of “operator” is supported by the Department’s rules. The OTCs assert that the rules specifically reject that term’s “[a]pplication to travel agents.” The OTCs conclude that the “TAT Statute and Rules both confirm that the ‘operator’ of a transient accommodation must be one who physically possesses the property.” The OTCs argue that because they are not operators, they are not subject to the TAT. The OTCs contend they act “only as an intermediary between the traveler and the hotel.” b. The OTCs argue that the Director misinterprets the TAT statute to improperly expand its scope The OTCs contend that the Director misconstrues the TAT statute to incorrectly extend its reach. First, the OTCs argue that the Director improperly expands the TAT from being assessable against “a business which involves the actual furnishing of transient accommodations” to assess any business that is involved in a process that leads to the furnishing of transient accommodations by a third party. Second, the OTCs argue the Director’s “notion of multiple operators,” is contrary to “all governing authority.” Third, the OTCs dispute the - 76 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Director’s reliance on statutes and court decisions from other jurisdictions. Lastly, the OTCs conclude that there is no evidence to establish that they actually furnish transient accommodations. c. The OTCs argue that a statutory definition of “travel agent” confirms that they are not operators In a separate argument as to why the OTCs are not operators as that term is defined by the TAT, the OTCs contend a statutory definition of “travel agent” confirms that they are not operators. The OTCs claim that the record establishes that the OTCs act as intermediaries. “[T]he TAT’s definition of [Gross Rental Proceeds] expressly acknowledges that a ‘travel agency’ remains a ‘travel agency’ when operating” on a noncommissioned basis. Thus, the OTCs conclude that a travel agency is not transformed into an operator. d. The OTCs argue their income is not Gross Rental Proceeds The OTCs state that the TAT can only be imposed on Gross Rental Proceeds derived from furnishing transient accommodations. The OTCs maintain that their compensation is for their “online services” and not for the furnishing of transient accommodations. Additionally, the OTCs contend that the TAT is not a “pyramiding tax.” The OTCs argue that the Director’s claim that “the TAT is a pyramiding tax . . . fails to cite any authority - 77 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER for that assertion . . . [and] rests on the bald assertion that the TAT is modeled after the GET and the GET is considered a pyramiding tax.” The OTCs argue the TAT statute expressly applies to only one entity--the operator of the hotel that actually furnishes the transient accommodations. e. The OTCs argue ambiguities in the TAT statute must be construed in their favor Lastly, the OTCs argue that their construction of the TAT is reasonable. Therefore, even if the Director’s construction were also reasonable, “any ambiguity in a taxing statute must be strictly construed against the taxing authority and in favor of the taxpayer.” D. Discussion of the TAT The TAT is imposed by HRS Chapter 237D; HRS § 237-2 provides as follows: (b) There is levied and shall be assessed and collected each month a tax of: . . . (3) 7.25 per cent for the period beginning on January 1, 1999, and thereafter; on the gross rental or gross rental proceeds derived from furnishing transient accommodations. (b) Every operator shall pay to the State the tax imposed by subsection (a), as provided in this chapter. - 78 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER HRS § 237D-2 (emphases added). Thus, the TAT is assessed on the Gross Rental Proceeds43 derived from furnishing transient accommodations and is payable by “operators.” 1. “Actual” within the definition of “operators” is ambiguous The OTCs are liable for the TAT on Gross Rental Proceeds derived from the Assessed Transactions if they are “operators” under HRS § 237D-2(b). An “operator” is “any person operating a transient accommodation, whether as owner or proprietor or as lessee, sublessee, mortgagee in possession, licensee, or otherwise, or engaging or continuing in any service business which involves the actual furnishing of transient accommodation.” HRS § 237D-1 (emphasis added). Thus, the statute provides for two types of operators. It is not disputed that the OTCs are not owners or proprietors of any of the hotels in the Assessed Transactions, nor do the 43 “Gross Rental Proceeds” means gross receipts, cash or accrued, of the taxpayer received as compensation for the furnishing of transient accommodations and the value proceeding or accruing from the furnishing of such accommodations without any deductions on account of the cost of property or services sold, the cost of materials used, labor cost, taxes, royalties, interest, discounts, or any other expenses whatsoever. . . . The words [Gross Rental Proceeds] shall not be construed to include the amounts of taxes imposed by chapter 237 or this chapter on operators of transient accommodations and passed on, collected, and received from the consumer as part of the receipts received as compensation for the furnishing of transient accommodations. HRS § 237D-1. - 79 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER OTCs acts as lessee, sublessee, mortgagee in possession, or licensee of any hotel. Therefore, the first statutory definition of operator does not apply to the OTCs. An operator may also be any person “engaging or continuing in any service business which involves the actual furnishing of transient accommodation.” Id. (emphasis added). It is undisputed the OTCs are engaging or continuing in their respective service businesses. Thus, the only remaining question is whether, in the Assessed Transactions, the OTCs are “involve[d] [in] the actual furnishing of transient accommodation.” Id. As relevant to the Assessed Transactions, “transient accommodations” means: the furnishing of a room, apartment, suite, or the like which is customarily occupied by a transient for less than one-hundred eighty consecutive days for each letting by a hotel, apartment hotel, motel, condominium property regime or apartment . . . that provides living quarters, sleeping, or housekeeping accommodations, or other place in which lodgings are regularly furnished to transients for consideration. Id. The parties do not dispute that the accommodations in the Assessed Transactions are transient accommodations. “Involve” means “to draw in as a participant: Engage, Employ” or “to oblige, to become associated: Embroil, Entangle, Implicate.” Webster’s, supra, at 1191. It also means “to include as a necessary circumstance, condition, or consequence; imply; entail.” The Random House College Dictionary 703 (rev. - 80 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER unabr. ed. 1979) [hereinafter Random House]. Thus, an entity is “involved” in the “actual furnishing of transient accommodations” if it is drawn in as a participant, or included as a necessary circumstance, to the actual furnishing of transient accommodations. The term “furnish” means “to provide or supply with what is needed, useful, or desirable: Equip.” Webster’s, supra, at 923; see also Random House, supra, at 536 (defining “furnish” as “to provide or supply”). In Hu Seong, this court held that “the word ‘furnish’ is a comprehensive term and includes many different ways by which an article may be supplied or delivered by one person to and accepted by another.”44 20 Haw. at 671. Thus, the TAT statute contemplates that the operator must engage or continue in a service business that delivers or provides transient accommodations. It is plain that the OTCS are “involved” in “furnishing” transient accommodations. That is, the OTCs are both drawn in as participants and included as a necessary circumstance in the Assessed Transactions, and they engage or 44 Hu Seong found that the term encompassed “supply,” “provide,” “shipment” and “delivery,” “sale and delivery,” “provide for use,” “to give away,” “to let one have,” “to sell,” “to find,” to “obtain or procure,” but would not encompass “a sale without actual delivery.” Hu Seong, 20 Haw. at 671. - 81 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER continue in a service business that delivers or provides transient accommodations in the Assessed Transactions. However, the TAT definition of operator also includes the term “actual.” That is, the business must involve the “actual furnishing of transient accommodation.” HRS § 237D-1 (emphasis added). “Actual” means “[e]xisting in fact, real.” Black’s Law Dictionary, supra, at 42. “Existence in fact” and “realness” would seem to be an inherent quality of being involved in the furnishing of transient accommodations, but if that were true, “actual” would be superfluous. “Actual” might also imply some physical presence,45 but the entity operating the physical premises is not dispositive. For example, the Department’s rules would appear to continue to assess the TAT on the owner-operator of the transient accommodation, even if a management company directed the day-to-day operations from the premises.46 45 Physical presence appears to be analogous to the use of the term “actual” in a related statute; HRS § 486K-1 defines a “Hotelkeeper” or “keeper” to includes “any individual, firm, or corporation actually operating a hotel.” HRS § 486K-1 (1993) (emphasis added). 46 The Department’s rules that define “operator” provide the following illustrations: Example 1. Mr. Paul owns three apartment units and is engaged in the activity of furnishing transient accommodations. As owner and operator, Mr. Paul is liable for the tax imposed by this chapter. Example 2. The facts are the same as in Example 1, except that Mr. Paul engages XYZ Corporation, a firm engaged in the property management business, to manage and rent out (continued. . .) - 82 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Therefore, the term “actual” is ambiguous in the context of the definition of operator. 2. Defining “actual” This court presumes that every word of a statutory definition has meaning and effect; therefore, we must look to sources other than the plain meaning of the statute in order to determine the meaning of “actual” within the definition of operator. Camara v. Agsalud, 67 Haw. 212, 215-16, 685 P.2d 794, 797 (1984). Where the words of a law are ambiguous, this court examines the context in which the ambiguous words are placed, and examines the reason and spirit of the law and the cause that induced the legislature to enact it.47 HRS § 1-15; McKnight, 131 Hawaiʻi at 388, 319 P.3d at 307. (. . .continued) the apartment units. Although the apartments are managed and rented out by XYZ Corporation, as the owner operator, Mr. Paul is liable for the tax imposed by this chapter. HAR § 18-237D-1-05(c) (effective 1988) (emphasis added). 47 It is recognized that “a cardinal rule of construction [is] that a statute imposing taxes is to be construed strictly against the government and in favor of the taxpayers and that no person and no property is to be included within its scope unless placed there by clear language of the statute.” In re Tax Appeal of Hawaiian Tel. Co., 61 Haw. 572, 578, 608 P.2d 383, 388 (1980). However, the rule of strict construction with regard to taxing statutes is resorted to only “as an aid to construction when an ambiguity or doubt is apparent on the face of the statute, and then only after other possible extrinsic aids of construction available to resolve the ambiguity have been exhausted.” Bishop Trust Co. v. Burns, 46 Haw. 375, 399400, 381 P.2d 687, 701 (1963). Based on our resolution of the meaning of “actual,” we do not resort to the rule of strict construction with regard to taxing statutes. - 83 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER
The TAT was created by the legislature in 1986. See 1986 Haw. Sess. Laws. Act 340, § 1 at 758-64. The legislative history indicates that the legislature enacted the TAT in order to recompense the counties for infrastructure costs incurred by tourists and visitors that are borne by the counties. The Conference Committee Report on H.B. 2508-86, the bill enacting the TAT, stated as follows: “It is the intent of your Committee that a portion of such revenues be appropriated for the promotion, stimulation and development of visitor assistance programs which may include . . . grants to the counties for the construction of recreational and other infrastructure to enhance visitor satisfaction.” Conf. Comm. Rep. No. 70-86, 1986 House Journal, at 962; No.66-86 1986 Senate Journal, at 765. The legislature noted that the distribution of tax revenues generated by the TAT would “assist the industry and the counties.” S. Stand. Comm. Rep. No. 651-86, in 1986 Senate Journal, at 1076. Comments made by the legislators state this purpose more clearly. “[W]e have provided as a direct result of revenues to be realized by [the TAT], additional funds in the budget for tourism promotion and grants-in-aid to the counties.” 1986 House Journal, at 828 (statement of Rep. Kiyabu). “The bill that finally emerged from the Conference Committee would - 84 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER provide money that can be made available to the counties to improve tourist-related infrastructure.” 1986 House Journal, at 830 (statement of Rep. Pfiel). Each year, more than a million visitors -- a population equal to or greater than the number of residents in Hawaii -- use our roads, our parks, our water, and every other public facility and service, and in my estimation, without paying their “fair share” of the cost. . . . In effect, only half of those making demands on government services are paying the taxes which make those services possible. Simply, that has not been fair. 1986 House Journal, at 828 (statement of Rep. Kamaliʻi) (emphasis added). The legislature reconfirmed this purpose in 1990:48 Your Committee also notes that tourism is the largest industry in Hawaii, and many of the burdens imposed by tourism falls on the counties. Increased pressures of the visitor industry mean greater demands on county services. Many of the costs of providing, maintaining, and upgrading police and fire protection, parks, beaches, water, roads, sewage systems, and other tourism related infrastructure are being borne by the counties. Upon further consideration, your Committee has amended this bill in order to share the TAT revenues with the counties. Conf. Comm. Rep. No. 207, 1990 House Journal, at 845, 1990 Senate Journal, at 845-46 (emphasis added). Thus, the legislature determined the cost borne by the counties should be recovered by a tax imposed on tourists: Since 1959 when Hawaii became a state of our union we have had the people of the State of Hawaii carry the burden in making improvements for the infrastructure of all the counties through real property taxes, state income taxes, other revenue measures that tax the people of the State of 48 See 1990 Haw. Sess. Laws Act 185, §§ 1-4, at 394-96. Act 185 amended HRS Chapter 237D to provide for an exact percentage distribution to the Counties and amended the requirements for returns and payments. These amendments are not relevant to the current discussion. Act 185 also amended the definition of Gross Rental Proceeds to exclude the imposition of the TAT itself, as discussed, infra. - 85 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Hawaii and the people of this state have carried the burden of improving the State of Hawaii in every area so that we can allow our visitors who come to Hawaii to enjoy the amenities that we now have at the present time. And we pledge to continue to improve our infrastructure our amenities so that more people can come to Hawaii. The 5 percent is the additional tax we are considering for the rooms. I believe that this is a fair burden of taxes that must be shouldered by our visitors who visit the State of Hawaii. . . . I think it is fair for the visitors to help shoulder the burden with the rest of the people of the state. The people of the state have given us a message that now is the time to levy a room tax of some kind . . . . 1986 Senate Journal, at 654-55 (statement of Sen. Yamasaki) (emphases added). The mechanism that the legislature determined would be most appropriate was referred to as a “hotel room tax.” See 1986 House Journal, at 826 (statement of Rep. Ikeda) (referring to the TAT as a “hotel room tax”); id. at 828 (statement of Rep. Kamaliʻi) (same); id. at 830 (statement of Rep. Pfiel) (same); id. at 830 (statement of Rep. Isbell) (“[I]t should be very clear that it is the room itself that has a 5% charge to the tourist . . . .”); see also 1986 Senate Journal, at 652, 658 (statements of Sen. Soares) (referring to a “hotel room tax” and a “tourist tax”); id. at 655 (statement of Sen. Yamasaki) (referring to “the additional tax we are considering for the rooms”); id. at 655-58 (statements of Sens. Kawasaki and Cobb) (referring to a “tourist tax”); id. at 657 (statement of Sen. Abercrombie) (referring to “a hotel room tax, a tourist tax”). - 86 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER The legislative history indicates that the “hotel room tax” was not a tax on the hotels, but instead, was a mechanism to tax visitors by assessing the cost of their hotel room to correlate to costs associated with visitor use of infrastructure and county services. i. Intent is reflected in the structure chosen for the tax The intent of the legislature to tax transient visitors through the mechanism of a hotel room tax is reflected in the structure of the tax that was developed. The TAT was originally proposed not as a separate tax, but as a special rate and application of the GET. See H. Stand. Comm. Rep. No. 58686, 1986 House Journal, at 1260, 1261 (proposing to amend HRS § 237-13(6) to apply a nine percent GET on “the gross proceeds of sale or gross income received”). Critically, the proposal was later changed to a separate tax, styled as the TAT. See H.B. 2805-86 H.D.1, S.D.1, 13th Leg., Reg. Sess. (1986). The reason given for the change from a special application of the GET to a separate TAT was to protect the hotel industry from excessive taxation. The committee report for H.B. 2805-06 H.D.1, S.D.1 states as follows: The purpose of this bill is to provide for a general excise tax on transient accommodations of 9 per cent, and to amend the provisions concerning the application of the general excise tax to reimbursements. Your Committee agrees with the Committee on Finance of the House of Representatives that the time has come to impose a tax on transient accommodations; however, it does not agree that the rate should be as high as 9 per cent, nor that the - 87 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER vehicle for imposing the tax should be the general excise tax but instead should be a separate tax. The reason for a separate tax on transient accommodations is to lessen the income loss of transient accommodation operators. Presently, under the general excise tax, if a person prices an item at $100, the person generally charges $104 in order to pass on the 4 per cent general excise tax. However, the general excise tax is on gross collections, which means the person must pay 4 per cent on $104, or $4.16. This means that for every $100 transaction a person loses 16 cents. If the general excise tax itself was increased to 8 per cent, then on a $100 price, the person would charge $108, pay taxes on $108 or $8.64 in taxes, and lose 64 cents. By creating a new transient accommodations tax at a 4 per cent rate and providing that the general excise tax passed on and collected is not included in the gross proceeds which are taxed under this tax and similarly providing that the gross proceeds subject to the general excise tax do not include collections under the new tax, the amount of the loss is reduced to 32 cents per $100— total tax paid of $8.32 composed of the general excise tax of $4.16 and the transient accommodations tax of $4.16. The savings under the two tax system to the industry is appreciable for businesses making thousands of dollars a year. In this manner, the State is able to tax the industry for the benefit of the State, while at the same time minimizing the impact of the tax on the industry. S. Stand. Comm. Rep. No. 651-86, 1986 Senate Journal, at 1076 (emphases added); see also Conf. Comm. Rep. No. 70-86, 1986 House Journal, at 961-62, 1986 Senate Journal, at 764-65 (echoing much of the same language). Thus, the legislative history of the TAT indicates the intent to “minimiz[e] the impact of the tax” on the hotel and visitor industries. S. Stand. Comm. Rep. No. 651-86, 1986 Senate Journal, at 1076. Comments during debate on the measure reinforce this conclusion. “This bill imposes a separate tax of 5% on tourist accommodations charges. In this way, the tax does not fall on the corporate hotel industry or pyramid in its collection. It - 88 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER is a simple and clean tax.” 1986 House Journal, at 828 (statement of Rep. Kamaliʻi) (emphasis added). ii. Subsequent amendments indicate that the TAT is effectively a tax on net rental proceeds The legislative history of the amendments indicates the legislature’s continuing focus to minimize the impact of the tax on Hawaiʻi visitors and the hotel industry. The TAT, originally enacted in 1986, 1986 Haw. Sess. Laws. Act 340, § 1 at 758-63, was amended to include the TAT Apportioning Provision in 1988. See 1988 Haw. Sess. Laws Act 241, § 2 at 424-25. The legislature did not provide explicit statements explaining its intent in enacting the TAT Apportioning Provision. However, the GET and TAT Apportioning Provisions, although passed in different bills, were passed in the same session of the Hawaiʻi legislature. See 1988 Haw. Sess Laws Act 167, § 1 at 292-93 (amending the GET); Act 241, § 2 at 424-25 (amending the TAT). The Committee reports for Act 241, amending the TAT, indicate that the “application of the [TAT] is presently patterned after the [GET].” H. Stand. Comm. Rep. No. 198, 1987 House Journal, at 1178. Similarly, when the legislature amended the GET to include the GET Apportioning Provision codified at HRS § 237-18(g), the senate committee stated, “Your Committee finds that this bill provides equitable treatment for operators - 89 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER of transient accommodations under the general excise tax law.” S. Stand. Comm. Rep. No., 914, in 1987 Senate Journal, at 1286. The GET Apportioning Provision expressly references the TAT Apportioning Provision: “As used in this subsection, the words ‘transient accommodations’ and ‘operator’ shall be defined in the same manner as they are defined in section 237D-1.” HRS § 237-18(g). Based on the similar construction of the GET and TAT Apportioning Provisions, enactment by the same legislature, and recognition by the legislature of the parallels between the two, it is clear that the legislature consciously crafted the two provisions in conjunction with one another. Accordingly, the same purpose is attributed to the TAT Apportioning Provision as was expressed by the legislature in its concurrent enactment of the GET Apportioning Provision: to protect the hotel and visitor industry from the TAT being unfairly assessed on grossed up revenues. In addition to adding the TAT Apportioning Provision, Act 241 also specified that the Gross Rental Proceeds exclude amounts charged for the GET. See 1988 Haw. Sess. Laws. Act 241, § 2 at 424. The exclusion of the GET from Gross Rental Proceeds was intended to prevent additional taxation on the privilege of doing business in Hawaiʻi. - 90 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER Your Committee believes that the charge for doing business in Hawaii is already imposed under the [GET] which is a tax on gross proceeds. It is already acknowledged that the [TAT] is an additional tax imposed on a particular type of activity. Therefore, your Committee feels that the transient accommodations tax should not be imposed on the basis of the room charge plus any amount passed-on due to the . . . tax. H. Stand. Comm. Rep. No. 198, 1987 House Journal, at 1178 (emphasis added). The definition of Gross Rental Proceeds was further amended in 1990 to specify that it excludes any amount collected for the TAT. See 1990 Haw. Sess. Laws. Act 185, §3 at 395. The Department objected to the exclusion of the TAT collected from the transient in calculating the TAT because of what the Department perceived as a transformation of the TAT into a tax on net room rate. [S]ection 3 of [the bill] provides that the words “gross rental” or “gross rental proceeds” shall not be construed to include the transient accommodations tax imposed upon and passed on by operators of transient accommodations to occupants thereof. This provision is contrary to the definition of such words provided under section 2 of [the bill]. The proposal changes the entire concept of the [TAT] from that of a tax on gross rentals to a tax on net rentals. It is clear from the committee reports of the 1986 Legislature that it meant to tax any passed-on tax as gross income. This provision should be deleted. Department Testimony on S.B. No. 1712, S.D. 3, H.D. 1, Relating to Transient Accommodations (March 31, 1982) (emphasis added). By enacting the 1988 and 1990 amendments to the definition of Gross Rental Proceeds, the legislature indicated that the TAT was not merely assessed on a gross room rate. By creating a TAT Apportioning Provision, the legislature made it - 91 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER clear that, where a travel agency or tour packager had made the room arrangements for the transient, the TAT was not to be charged on the gross rate paid by the transient but only on the Gross Rental Proceeds allocated to or distributed to the operator. Further, the GET and the TAT were expressly excluded from the TAT calculation. Taken together, the amendments indicate that the TAT is a tax to be paid by the transient based only on the cost attributed to the hotel room that is allocated to the operator. That is, the TAT was to be based on a room rate paid by the transient and allocated to the operator, less any amount distributed to a travel agency or tour packager, and excluding any GET or TAT. Thus, notwithstanding that the nomenclature for the assessable proceeds--“Gross Rental” or “Gross Rental Proceeds”--remained unchanged, the statutory definition excludes certain amounts. With the intention of the legislature in mind, we turn to the TAT Apportioning Provision to determine how its operation might instruct this court’s interpretation of “actual” within the definition of “operator.” b. In context with the intent of the legislature, the TAT Apportioning Provision helps to define “operator” The exclusions contained within the definition of Gross Rental Proceeds include the TAT Apportioning Provision: Where transient accommodations are furnished through arrangements made by a travel agency or tour packager at noncommissionable negotiated contract rates and the gross - 92 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, [Gross Rental Proceeds] to the operator means only the respective portion allocated or distributed to the operator, and no more. HRS § 237D-1 (emphasis added). The elements of the TAT Apportioning Provision are nearly identical to the elements of the GET Apportioning Provision of HRS § 237-18(g).49 As in the GET, the operation of the TAT Apportioning Provision requires the involvement of two entities: an “operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand.” Thus, a single entity cannot fill both the role of operator of transient accommodations “on the one hand” and the travel agency or tour packager “on the other hand.” However, the TAT Apportioning Provision differs from the GET Apportioning Provision in a crucial aspect. The GET Apportioning Provision provides that “the tax imposed by this chapter shall apply to each such person with respect to such person’s respective portion of the proceeds, and no more.” HRS § 237-18(g) (emphasis added). That is, the GET Apportioning Provision divides the taxable base into two portions and holds “each” responsible party liable for their respective portion. 49 In the elements of the GET and TAT Apportioning Provisions, the only difference is that the GET Apportioning Provision refers to “noncommissioned” negotiated contract rates, whereas the TAT Apportioning Provision uses the term “noncommissionable.” Based on the analysis to follow, any difference in the meaning of the two terms is not relevant. - 93 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER In contrast, the TAT Apportioning Provision defines the tax amount as “only the respective portion allocated or distributed to the operator, and no more.”50 HRS § 237D-1 (emphasis added). Thus, the TAT Apportioning Provision takes the gross amount paid by a transient and divides it into two portions: one assessable under the TAT, and one that is not. As a result, whereas the GET Apportioning Provision holds both parties liable for the GET, the TAT Apportioning Provision provides that only the operator is liable for the TAT. If the OTCs are operators, the OTCs cannot apply the TAT Apportioning Provision to split their Gross Rental Proceeds with the hotels. This is because neither party has asserted the hotels are travel agents or tour packagers; thus, the hotels cannot fill the role of “travel agent or tour packager on the 50 The GET Apportioning Provision provides as follows: Where . . . the gross income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, the tax imposed by this chapter shall apply to each such person with respect to such person’s respective portion of the proceeds, and no more. HRS § 237-18(g) (emphasis added). The TAT Apportioning Provision provides as follows: Where . . . the gross income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, [Gross Rental Proceeds] to the operator means only the respective portion allocated or distributed to the operator, and no more. HRS § 237D-1 (emphasis added). - 94 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER other hand.” Hence, if an OTC is considered the “operator . . . on the one hand,” then there is no legitimate entity to fill the position of “travel agency . . . on the other hand.” As stated by the Director, “Where there is no ‘travel agent’ in the transaction, as is the case in the [Assessed Transactions], the [TAT Apportioning Provision] does not apply.” Because the elements of the TAT Apportioning Provision would not have been satisfied if the OTCs are operators, then the Assessed Transactions would not fall within the TAT Apportioning Provision. Accordingly, the entire amount paid to an OTC by a transient would be Gross Rental Proceeds subject to the TAT, except for the taxes already included.51 The parties do not dispute that the hotels owe the TAT on their Gross Rental Proceeds that derive from furnishing the transient accommodations in the Assessed Transactions.52 Thus, if the meaning of “actual” within the definition of “operator” encompasses the OTCs, then the TAT would be assessed twice: 51 As noted, the legislature enacted the TAT Apportioning Provision to protect operators who do not know the actual cost of the room charged to the transient. Here, the OTCs have actual knowledge of the cost charged to the transient; thus, the application of the TAT Apportioning Provision by an OTC would be inappropriate. Thus, application of the TAT Apportioning Provision to define the Gross Rental Proceeds of an OTC would also be contrary to the intent of the legislature for this additional reason. 52 As stated by the Director, “Because they act as “operators” in [Assessed Transactions], the OTCs owe TAT on “gross rental proceeds . . . without any deductions.” So too does the hotel on its “gross rental proceeds . . . without any deductions” that it receives from the OTCs pursuant to the OTC-hotel Contracts.” (Emphasis added). - 95 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER first, against the OTCs based on the room rate plus the mark-up and service charges, and second, against the hotel on the net rate collected for the room. The legislature determined that visitors should be assessed to pay for providing, maintaining, and upgrading county infrastructure and services. The primary justification for the TAT was to enable the visitor to pay to the state their “fair share” of the costs incurred by the county for providing infrastructure and services. 1986 House Journal, at 828 (statement of Rep. Kamaliʻi). The mechanism the legislature created for that purpose was a tax based on the transient’s cost of the hotel room, limited to the proceeds allocated to the operator, to be remitted to the State by the transient’s hotel. The TAT was designed to charge the visitor through the assessment against the cost of the hotel room; therefore, to more than double the TAT assessment would be contrary to the intent of the legislature that correlated the tax to the hotel room use. Plainly, the impact of a tourist’s use of county infrastructure and services does not vary upon whether the room is booked through the OTC or through the hotel directly; the legislature did not intend that the TAT should be applied once or twice depending on the method the transient selected to reserve accommodations. - 96 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER As stated, the legislature repeatedly demonstrated its intent to minimize the impact of the TAT on the tourist industry by taking the following steps: establishing the TAT in 1986 as a separate tax from the GET; amending the law in 1988 to include the TAT Apportioning Provision that assessed only the operator and not the travel agency or packager; excluded the GET from the definition of Gross Rental Proceeds so that the TAT would not be calculated based upon an amount that included the GET; and amending the TAT again in 1990 to ensure that the amount due was not calculated based on an amount that included the TAT charged. Together, the legislative history of the TAT demonstrates clear intent to preserve the TAT as a “simple and clean tax” that does not “fall on the corporate hotel industry or pyramid in its collection.” 1986 House Journal, at 828 (statement of Rep. Kamaliʻi). Considering that the legislature intended the TAT to be a tax upon the transient, assessed on the cost of a hotel room, and collected through the mechanism of the operator, it is clear that the legislature did not intend that the TAT would be assessed in full on multiple operators. Thus, defining “actual” to mean “[e]xisting in fact” or “real,” Black’s Law Dictionary, supra, at 42, would result in double application of the TAT, contrary to the intent of the legislature. Consequently, the legislature must have intended a - 97 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER different meaning for the term. See McKnight, 131 Hawaiʻi at 388, 319 P.3d at 307 (“[W]e must read statutory language in the context of the entire statute and construe it in a manner consistent with its purpose.” (quoting State v. Wells, 78 Hawaiʻi 373, 376, 894 P.2d 70, 73 (1995)). c. “Actual” indicates a single “operator” Based on the continuing intent of the legislature to tax visitors for their use of county infrastructure and services by assessing the cost of transient accommodations that is allocated to the operator, to utilize the hotels as the vehicle for collecting that tax, and to minimize the impact of the TAT on the hotel and visitor industry, only a single taxable event as to the TAT occurs when a transient accommodation is furnished to a visitor. It follows then, that a single operator is associated with the furnishing of transient accommodations. Applying the principle of pari materia, “actual” as part of “actually furnish,” within the definition of operator, indicates a single entity as fulfilling this role. Thus, an operator may be an “owner or proprietor or as lessee, sublessee, mortgagee in possession, licensee, or otherwise” or, if such person is not present, then the operator may be a person “engaging or continuing in any service business which involves the actual furnishing of transient accommodation[s].” See HRS § 237D-1. The definition of operator in HRS § 237D-1 does not contemplate - 98 - FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER or allow for multiple operators when a transient accommodation is furnished. Here, the hotels in the Assessed Transactions are acknowledged by all parties to be an operator within the meaning of the use of that term as provided by HRS § 237D-1; thus, for purposes of the TAT Assessments, only the hotels are operators in the Assessed Transactions. Therefore, the OTCs are not operators and the TAT is not applicable to the OTCs in the Assessed Transactions.53 E. Penalties on the TAT Assessments As we find that the OTCs are not operators, the determination of the tax court as to the TAT is affirmed, and the applicability of the penalties to the TAT Assessments is not presented.