TAXWatch: Take-Aways from the ‘Con-Am’ Argument

On October 18, 2018, the Supreme Court of Hawaii held oral argument on a petition by the four counties to invalidate the “Con-Am,” namely the constitutional amendment ballot measure that would allow the State to slap a “surcharge,” essentially an additional property tax, on “investment” real property. We now know that the Court invalidated the ballot measure with an opinion to follow, like what was recently done in Arizona. We present here some highlights from the oral argument.

On the Counties’ side, Honolulu Corporation Counsel Donna Leong seemed to run into stormy seas early when she argued that the new taxing power potentially applied to even residential property, because everyone who buys a home here hopes that its value will go up and can then be sold at a higher price somewhere further down the pike. Justice Wilson pointed out that if all property could be considered investment property, then why does the new taxation power apply to “investment” real property instead of “all” real property? But then Justice McKenna jumped in with a bombshell: a prior Hawaii Supreme Court case, Cieri v. Leticia Query Realty, 80 Haw. 54 (1995), said, “[R]eal estate is, particularly in Hawai`i, both scarce and expensive. As a result, the purchase of real estate or a residence likely is the largest ‘investment’ a person in Hawai`i may make in a lifetime.” That case held that a buyer of real estate could sue
the seller and the seller’s realtor under Hawaii’s consumer fraud laws because the buyer had committed money in a “personal investment.”

When Attorney General Russell Suzuki came up to the podium, he started by saying that the Hawaii Supreme Court didn’t have jurisdiction and should essentially get out of the Legislature’s way…which is probably not something you should be telling the Court right out of the gate. After fierce questioning that followed, he was forced to concede that the Legislature might be able to surcharge primary residences if the Con- Am passed, leading to:

JUSTICE NAKAYAMA: Let me ask you this, suppose I had the money to buy a house for my daughter, for her to live in. That’s why I’m buying this house. Is that included as investment property?

ATTORNEY GENERAL SUZUKI: I think it’s to be defined by the Legislature.

JUSTICE NAKAYAMA: So how is a person supposed to vote on this? If I’m not buying this house in order, I think Ms. Leong mentioned, in order for property to increase as an investment, but I’m actually buying it for somebody to live in and not rent out. How do I know as a voter that that’s not going to be taxed?

ATTORNEY GENERAL SUZUKI: Then I think you should probably vote “no.”

Laughter broke out across the whole audience.

Justice McKenna then pushed Suzuki to concede that nothing in the measure would guarantee that the surcharge would result in a net increase in money for education. “Couldn’t these amounts actually be used to substitute for general fund funding, and the legislature is actually not required to increase public education funding, correct?” McKenna said.

“The appropriation powers are with the Legislature so that is correct, but the intent here is to fund public education,” Suzuki said. We can’t expect the Hawaii Supreme Court to void any confusing or sneakily worded ballot measure like this one all the time. So we as voters need to make the effort to really understand what we are voting on when we are staring at a question on the ballot. We would do well to remember the opening sentence of our state constitution: “All political power of this State is inherent in the people and the responsibility for the exercise thereof rests with the people.”

Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.

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