STAND. COM. REP. NO.1366

Honolulu, Hawaii

, 2003

RE: H.B. No. 851

H.D. 1

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 851, H.D. 1, S.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO TAXATION APPEALS,"

begs leave to report as follows:

The purpose of this measure is to allow the first appeal from a tax assessment to either the Board of Review or the Tax Appeal Court to be made without first paying the assessed taxes.

Your Committee finds that it is appropriate to eliminate the payment of taxes upon appeal to the Tax Appeal Court, in a manner similar to that now allowed upon an appeal to the Board of Review. This will allow taxpayers an opportunity to appeal to either the Board or the Tax Appeal Court without paying assessed taxes. This is similar to the federal Tax Court procedure where no payment is required to appeal to the Tax Court, but if the taxpayer appeals from a Tax Court decision, then taxes and interest must be paid.

Your Committee finds, however, that appeals by the taxpayer after a judgment against the taxpayer at the Board of Review, or the Tax Appeal Court should be permitted only after paying the outstanding tax assessment. Your Committee notes that during the 1980's a number of large tax appeals were taken in which the State was the recipient of large sums of taxes that had been paid into the litigated claims fund during the lengthy tax appeal process. Those cases were Bacchus Imports, Ltd v. Dias, 468 U.S. 263 (1984) involving more than $100 million, Aloha Airlines Inc. v. Director of Taxation, 464 U.S. 7 (1983) involving more than 26 million, and the domestic insurance rate cases involving more than $18 million settled in favor of the State. Even though in some instances the taxpayer won on appeal, the State received the majority of the moneys paid into the litigated claims fund during the process, in addition to all of the interest thereon. If the requirement that the payment of taxes to appeal was totally repealed, in many instance the State would not be able to collect the outstanding debt from the losing taxpayer. In all likelihood, the debt would be too large and the taxpayer would go into bankruptcy due to inability to pay. This would be reflected in the loss of state revenues. Your Committee also notes that in 1992 (Act 147, Session Laws of Hawaii 1992), the Legislature required taxes of all types to be paid in order to appeal.

Your Committee finds that the balance in the litigated claims fund has recently ranged from $200,000 to $16 million and that the State wins more tax appeals then it loses. Payment of taxes at some point in the appeal process will eliminate frivolous appeals and prevent abuse of the tax appeal system. The payment of taxes upon appeal by the taxpayer after the first hearing should be the rule in Hawaii.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 851, H.D. 1, S.D. 1, and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

____________________________

BRIAN T. TANIGUCHI, Chair