FROM THE TAX APPEAL COURT OF THE STATE OF HAWAI'I
(CAAP-15-0000861; TAX APPEAL CASE NO. 1TX12-1-0264)
Christopher J. Muzzifor appellant
Kimberly Tsumoto Guidryfor appellee
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON,
case requires us to determine if Hawaii's use tax
violates the Commerce Clause or the Equal Protection Clause
of the United States Constitution.
Stores, L.P. (CompUSA) is a Texas-based limited partnership
which operated two retail stores in Hawai'i selling
personal computers and other consumer electronics until 2008.
CompUSA imported all goods that it sold from third party
vendors outside the state. Pursuant to the use tax statute,
Hawai'i Revised Statutes (HRS) § 238-2,
the years 2006, 2007, and 2008, CompUSA made use tax payments
in the amount of $385, 855.68, $323, 628.50 and $42, 045.78,
2010, CompUSA filed claims for refund of its 2006, 2007, and
2008 use tax payments. The Department of Taxation
(Department) denied CompUSA's request for refund. CompUSA
appealed, and its appeal was ultimately transferred to the
Tax Appeal Court. CompUSA and the Department's Director
of Taxation (Director) submitted cross-motions for summary
judgment to the Tax Appeal Court. The Tax Appeal Court denied
CompUSA's Motion for Summary Judgment, and granted the
Department's Motion for Summary Judgment, concluding that
the use tax does not violate the Commerce Clause or the Equal
Protection Clause. CompUSA timely filed its notice of appeal
in the Intermediate Court of Appeals (ICA) and subsequently
filed its application for transfer, which was granted.
2004, the legislature amended the use tax statute, HRS §
238-2. CompUSA argues that the 2004 amendment to the statute
rendered the statute unconstitutional because the amendment
eliminated the application of the tax to in-state unlicensed
sellers, thereby limiting the tax to out-of-state sellers.
Thus, CompUSA argues that the use tax violates the Commerce
Clause and the Equal Protection Clause because the tax
discriminates against out-of-state commerce, and cannot be
justified by a legitimate local purpose.
conclude that the current version of the statute serves a
legitimate local purpose of leveling the playing field
between in-state and out-of-state sellers, because in-state
sellers are subject to the general excise tax (GET), and
out-of-state sellers are subject to the use tax. Further, HRS
§ 237-22(a) (Supp. 2002) and HRS § 238-3(i) (Supp.
2000) are designed to ensure that out-of-state sellers are
not over-taxed. Thus, HRS § 238-2 does not violate the
Commerce Clause of the United States Constitution.
evaluating whether the current version of the use tax statute
violates the Equal Protection Clause, we agree with CompUSA
that the statute establishes a classification between instate
and out-of-state sellers. However, the statute satisfies
rational basis review because the classification of
out-of-state sellers bears a rational relationship to the
legitimate state interest of "leveling the economic
playing field" for local businesses subject to the GET.
Thus, HRS § 238-2 does not violate the Equal Protection
Clause of the United States Constitution.
we affirm the Tax Appeal Court's October 6, 2015 judgment
granting the Department's motion for summary judgment and
denying CompUSA's motion for summary judgment.
The Use Tax in Hawai'i
court has summarized the use tax, HRS § 238-2, as
The use tax is closely connected with Hawaii's general
excise tax (GET). The GET places a 0.5% tax on the business
of manufacturing and wholesaling in Hawai'i, resulting in
a price differential between the products made and sold
wholesale locally and the same products made and sold
wholesale on the mainland. In the absence of a use tax that
complements a GET, sellers of goods acquired out-of-state
theoretically enjoy a competitive advantage over sellers of
goods acquired in-state: . . . out-of-state products would be
less expensive than in-state products, the prices of which
would presumably reflect some pass-on of the GET.
CompUSA Stores LP v. Dep't of Taxation
(CompUSA I), 128 Hawai'i 116, 122, 284 P.3d 209');">284 P.3d 209,
215 (2011) (internal citations and quotations omitted)
(citing HRS § 238-2 (1993)).
2004, the legislature amended HRS Chapter 238 for the
The purpose of this Act is to clarify current use tax laws in
light of Baker & Taylor, Inc. v. Kawafuchi, SC 23376
(Jan. 14, 2004) and administrative rule 18-237-13-02.01 by:
(1) Clarifying when a seller is subject to the 0.5 per cent
(2) Restoring the imposition of taxes on goods purchased both
within and outside the State; and
(3) Clarifying that the use tax applies to sellers who
acquire goods from outside the State and import the product
for sale or resale in the State.
2004 Haw. Sess. Laws Act 114, § 1 at 431.
Baker & Taylor, this court held that the use tax did not
apply to a mainland seller, Baker, who sold and shipped, FOB
("free on board") origin, books to the Hawai'i
State Library. In re Tax Appeal of Baker & Taylor,
Inc. v. Kawafuchi, 103 Hawai'i 359, 361-62, 372, 82
P.3d 804, 806-07, 817 (2004). Title passed to the library
while the books were on the mainland, and thus Baker did not
own the goods when they arrived in Hawai'i, or use them
in Hawai'i. Id. Because the sale of books was
directly from Baker to the library, Baker therefore did not
import the books from an unlicensed seller, and Baker did not
purchase the books and resell them to the library.
Id. Thus, this court concluded that Baker was not
subject to the use tax under the plain language of the
The 2 0
04 amendment, inter alia, both added and
removedlanguage in HRS § 238-2:
There is hereby levied an excise tax on the use in this State
of tangible personal property which is imported [7-or-]
by a taxpayer in this State whether owned, purchased
from an unlicensed seller, or however acquired for
use in this State. The tax imposed by this chapter shall
accrue when the property is acquired by the importer or
purchaser and becomes subject to the taxing jurisdiction of
For purposes of this section, tangible personal property
is property that is imported by the taxpayer for use in this
State, notwithstanding the fact that title to the property,
or the risk of loss to the property, passes to the purchaser
of the property at a location outside this State.
2004 Haw. Sess. Laws Act 114, § 3 at 433, 435.
the definitions for "import" and
"purchaser" were amended as follows to clarify that
the use tax applies to the purchase of tangible property from
an unlicensed seller, whether the title passed in-state or
(1) The importation into the State of tangible
property, services, or contracting owned, purchased from an
unlicensed seller, or however acquired, from any other
part of the United States or its possessions or from any
foreign country, whether in interstate or foreign commerce,
or both[-]; and
(2) The sale and delivery of tangible personal
property owned, purchased from an unlicensed seller, or
however acquired, by a seller who is or should be licensed
under the general excise tax law from an out-of-state
location to an in-state purchaser, regardless of the free on
board point or the place where title to the property
transfers to the purchaser.
"Purchaser" means any person purchasing property,
services, or contracting and "importer" means any
person importing property, services, or contracting[t],
regardless if at the time of importation, the property,
services, or contracting is owned by the importer, purchased
from an unlicensed seller, or however acquired; ....
2004 Haw. Sess. Laws Act 114, § 2 at 431-32. The
definition of "use" was also changed with the
addition of the following language:
and shall include control over tangible or intangible
property by a seller who is licensed or who should be
licensed under chapter 237, who directs the importation of
the property into the state for sale and delivery to a
purchaser in the State, liability and free on board (FOB) to
the contrary notwithstanding, regardless of where title
passes . .
2004 Haw. Sess. Laws Act 114, § 2 at 432.
Tax Appeal Court Proceedings
following facts appear undisputed from the record. From
January 1, 2006 through February 29, 2008, CompUSA conducted
its retail business through two stores on Oahu. CompUSA did
not manufacture any of the products sold at its retail stores
and purchased all products from vendors and manufacturers
located outside of Hawai'i. CompUSA also purchased and
imported products for its own use in Hawai'i. CompUSA was
thus assessed use tax in the following amounts: (1) $385,
855.68 in 2006; (2) $323, 628.46 in 2007; and (3) $42, 045.78
in 2008. On April 20, 2010, CompUSA filed General Excise/Use
Tax Annual Return & Reconciliation forms for all three
years, requesting a refund for the use tax paid in each year.
The Department denied the request for a refund on the 2006
tax year and issued tax assessments for the 2007 and 2008 tax
subsequently filed its Notice of Appeal to the Tax Appeal
Court. CompUSA argued that HRS § 238-2 impermissibly
imposed a use tax directly on CompUSA in violation of the
Commerce Clause and Equal Protection Clause of the United
States Constitution, creating disparate treatment in the
taxability of CompUSA's out-of-state purchases and
similar purchases that could have been made in the State of
moved for summary judgment, and the Director filed a
cross-motion for summary judgment. The Tax Appeal Court held
four hearings on the motions before granting the
Department's motion for summary judgment and denying
CompUSA's motion for summary judgment.
court explained that CompUSA contended that under the
pre-2004 statute, HRS § 238-2 imposed a use tax upon any
property that was purchased from an unlicensed seller,
whether the seller was in-state or out-of-state, and that
after the 2004 amendment, the use tax was imposed only upon
property purchased from out-of-state unlicensed sellers. The
court explained that the Director contended that both before
and after the 2004 amendment, "[HRS] § 238-2