In the Matter of the Tax Appeal of KAHEAWA WIND POWER, LLC, Taxpayer-Appellant-Appellee/Cross-Appellant,
COUNTY OF MAUI, Appellee- Appellant/Cross-Appellee
APPEAL FROM THE TAX APPEAL COURT. (TX. NO. 10-1-1246 and Consolidated Cases TX NOS. 10-1-1247, 10-1-1248, 10-1-1249 & 11-1-0035).
Richard B. Rost, Deputy Corporation Counsel, County of Maui, for Appellee-Appellant/Cross-Appellee.
Ronald I. Heller (Brian W. Tilker, Austin F. McCullough with him on the briefs), (Torkildson Katz, Moore, Hetherington & Harris), for Taxpayer-Appellant-Appellee/Cross-Appellant.
Vito Galati, Christopher T. Goodin (Cades Schutte LLP), on the briefs for Amici Curiae, Auwahi Wind Energy LLC.
Richard Wallsgrove, (Blue Planet Foundation), on the briefs for Amicus Curiae, Blue Planet Foundation.
FOLEY, PRESIDING JUDGE, FUJISE, and GINOZA, JJ.
[135 Hawai'i 203] GINOZA, J.
In this consolidated tax appeal, the County of Maui (County) appeals, and Kaheawa Wind Power, LLC (Kaheawa) cross-appeals, from a Final Judgment issued on July 24, 2012, by the Tax Appeal Court of the State of Hawai'i (Tax Appeal Court).
This case arises from Kaheawa's challenges to real property assessments issued by the County for taxing property on Maui (Property) that Kaheawa leases from the State of Hawai'i (State). Kaheawa operates a business on the Property producing electrical power from wind energy, with the power generated by twenty wind turbines. There are two issues before us on appeal: first, whether the wind turbines located on the Property could be considered in the " building" valuation for the real property assessments under the Maui County Code (MCC); and second, whether property assessments
[135 Hawai'i 204] issued by the County in 2010 validly assessed the Property for retroactive taxes applicable to the years 2007-2009.
In its appeal, the County asserts that the Tax Appeal Court erred by ruling that the wind turbines could not be considered in the " building" valuation for the real property assessments, and thus, erred in granting Kaheawa's motion for partial summary judgment and denying the County's motion for partial summary judgment on this issue.
In its cross-appeal, Kaheawa contends that the Tax Appeal Court erred by granting partial summary judgment to the County as to the retroactive assessments of the Property for taxes. Kaheawa asserts that a factual dispute exists over when the County discovered that Kaheawa was leasing the Property, which made the Property taxable and which affects whether the assessments were timely. Kaheawa also contends that the Tax Appeal Court erred in holding that the County had an unlimited time period in which to add the Property as " omitted property" for assessment and taxing purposes.
We affirm the Tax Appeal Court's Final Judgment and hold that: (1) the wind turbines do not constitute " real property" for tax purposes under the MCC; and (2) the County was entitled to retroactively assess the Property for taxes in this case because the MCC does not create an express or implied time limit in which the County must add " omitted property" to tax assessment lists.
I. Case Background
A. Stipulated Facts
The parties agreed to stipulated facts, which provide in relevant part:
1. This consolidated action is a real property tax appeal, filed by Kaheawa with respect to the parcel of land identified as Tax Map Key 4-8-001-001-6001 (the " Subject Property" ). The present consolidated action involves tax years 2007 through 2011.
2. The Subject Property is located in the West Maui mountain area, roughly three miles mauka from Maalaea harbor. The Subject Property is leased from the State of Hawaii. Kaheawa acquired a leasehold interest in the Subject Property by executing General Lease No. S-5731 dated January 19, 2005 (the " Lease" ). . . .
3. The Taxpayer-Appellant, Kaheawa, is engaged in the business of producing electrical power from wind energy. There are currently 20 wind turbines located on the Subject Property, each capable of independently generating approximately 1.5 megawatts of electricity. This is a commercial power-generating business; the electricity is sold to Maui Electric Company, Limited (on an " as-available" basis) and ultimately used by businesses and/or consumers.
. . . .
5. On or about May 17, 2010, the County issued an " AMENDED NOTICE OF PROPERTY ASSESSMENT" for each of the 2007, 2008 and 2009 tax years. . . .
6. On or about March 15, 2010, the County issued a " NOTICE OF PROPERTY ASSESSMENT" for the 2010 tax year. . . .
7. On or about March 15, 2011, the County issued a " NOTICE OF PROPERTY ASSESSMENT" for the 2011 tax year. . . .
8. The County is treating the turbines and the towers on which the turbines are mounted as real property included in " building" value for real property tax assessment purposes. Kaheawa asserts that the turbines and the associated towers are equipment and machinery, moveable and not real property.
9. The turbines are mounted on towers, which are bolted onto poured concrete foundation slabs. Kaheawa does not dispute that the poured concrete slabs are affixed to the land,1 and thus are real property, included within " building" value for real property tax purposes.
10. The turbines and the towers are bolted in place. They can be unbolted and removed without any harm to either the equipment or the land.
[135 Hawai'i 205] . . . . 13. The turbines and towers were purchased as commercially available hardware.2 . . . .
19. For building permit purposes, Kaheawa had to submit plans and drawings for the concrete foundation slabs. Kaheawa did not have to obtain a building permit, or submit plans and drawings, for the turbines and the towers.
20. The towers came with an instruction booklet from the manufacturer, as opposed to a set of blueprints for construction drawn by an architect. . . .
21. When the turbines and towers were purchased and placed in service, Kaheawa claimed a Capital Goods Excise Tax Credit for Hawaii state income tax purposes. Under HRS § 235-110.7, the Capital Goods Excise Tax Credit only applies to " tangible personal property" that meets certain requirements. Thus, in order to get the credit, the property involved must be " tangible personal property." HRS § 235-110.7 (e) says that:
" Tangible personal property" does not include tangible personal property which is an integral part of a building or structure . . .
22. The Department of Taxation of the State of Hawaii allowed the Capital Goods Excise Tax Credit claimed by Kaheawa.
23. Kaheawa's Lease specifically requires the removal of the turbines and towers at the end of the Lease term, subject to a right of the Lessor to elect to take ownership. . . .
1" Affixed" meaning that the slabs could not be removed without significant damage to the slabs themselves and/or the surrounding land.
2 As with many products, " Some assembly required."
B. Procedural History
Kaheawa initiated this action by filing appeals with the Tax Appeal Court from the respective notices and amended notices of property assessment issued by the County for the years 2007 through 2011. In its appeals, Kaheawa challenged the County's treatment of alleged personal property as being part of the building value. Kaheawa also challenged the County's issuance of amended notices in 2010 that retroactively assessed the Property for the previous years of 2007, 2008, and 2009.
On January 18, 2012, Kaheawa filed a motion for partial summary judgment, arguing that the wind turbines and towers are not real property for purposes of real property taxes. On January 19, 2012, the County filed a cross motion on the same issue. At a February 13, 2012 hearing, the Tax Appeal Court held that the wind turbines and towers do not constitute real property for real property tax assessment purposes. On April 9, 2012, the Tax Appeal Court filed an order denying the County's motion for summary judgment, and also an order granting Kaheawa's motion for partial summary judgment, holding as a matter of law that " the towers and turbines which are located on the subject property are not within the definition of 'real property' for purposes of the real property tax."
The Tax Appeal Court's April 9, 2012 orders thus determined that the wind turbines and towers could not be included in the real property valuation for the assessments. Because the assessments covered more than just the wind turbines and towers, a remaining issue was whether the County properly issued amended notices of property assessment in 2010 retroactive back to 2007, 2008, and 2009.
On June 7, 2012, the County filed a motion for partial summary judgment, arguing that the 2010 amended notices of property assessment for 2007, 2008, and 2009 were proper. The County explained that up until 2005, the Property was exempt from taxation because it is owned by the State and real property owned by the State is exempt from property taxes under MCC § 3.48.530 (2014). In 2005, the State leased the Property to Kaheawa, and thus the Property became taxable. The County argued that although ...