In Re: Tax Appeal of Hawaiian Airlines, Inc.

NOT FOR PUBLICATION IN WEST'S HAWAIʻI REPORTS AND PACIFIC REPORTER

Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
15-MAR-2024
07:57 AM
Dkt. 54 SO

NO. CAAP-XX-XXXXXXX

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAIʻI

IN THE MATTER OF THE TAX APPEAL OF
HAWAIIAN AIRLINES, INC., Plaintiff-Appellant, v.
DEPARTMENT OF TAXATION, Defendant-Appellee.

APPEAL FROM THE TAX APPEAL COURT
(CASE NO. 1CTX-XX-XXXXXXX)

SUMMARY DISPOSITION ORDER
(By: Hiraoka, Presiding Judge, Nakasone and McCullen, JJ.)

Plaintiff-Appellant Hawaiian Airlines, Inc. (Hawaiian)

appeals from the Tax Appeal Court's 1 May 16, 2022 "Final Judgment

Re: Order Granting Defendant Department of Taxation, State of

Hawaii's Motion to Dismiss or, in the Alternative, Cross Motion

for Summary Judgment Filed on December 10, 2021."

On appeal, Hawaiian argues the Tax Appeal Court erred

in determining it had no jurisdiction over this case.

1 The Honorable Gary W.B. Chang presided.
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Upon careful review of the record and the briefs

submitted by the parties and having given due consideration to

the issues raised and the arguments advanced, we resolve the

appeal as discussed below, and affirm.

Hawaiian purchased supply parts from Boeing for

Hawaiian's fleet of Boeing aircraft, and agreed to pay certain

taxes related to those purchases. At Hawaiian's request, Boeing

sought a tax exemption for these sales under Hawai‘i Revised

Statutes (HRS) § 237-24.9 (2017). 2

Defendant-Appellee State of Hawai‘i Department of

Taxation (Tax Department) audited Boeing, with one issue being

whether Boeing's sales of parts to Hawaiian were exempt under

HRS § 237-24.9. In an email to Boeing, Tax Department stated

its position was the exemption was for "services provided to a

customer not on sales of parts alone to its customers."

(Emphasis omitted.)

On June 8, 2021, Boeing billed Hawaiian for these

taxes. The following day, June 9, 2021, Hawaiian submitted its

2 HRS chapter 237 is the General Excise Tax law, which levies
annual "privilege taxes against persons on account of their business
and other activities in the State measured by the application of rates
against values of products, gross proceeds of sales, or gross
income[.]" HRS § 237-13 (Supp. 2018).

However, "[t]his chapter shall not apply to amounts received from
the servicing and maintenance of aircraft or from the construction of
an aircraft service and maintenance facility in the State." HRS § 237-
24.9(a).

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banking/routing information to Tax Department to pay Boeing's

tax noting it was paying "under protest." 3 (Formatting altered.)

On June 10, 2021, Hawaiian filed a complaint for

declaratory judgment in the Tax Appeal Court, asserting the "Tax

Appeal Court has jurisdiction over this action for recovery of

taxes paid under protest pursuant to [HRS] § 40-35 [(2009)] and

Rule 1.1 of the Rules of the Tax Appeal Court." 4

Over a month later, on July 26, 2021, Tax Department

issued a "Notice of Final Assessment of General Excise and/or

Use Tax" (Notice of Final Assessment) to Boeing. The notice

instructed Boeing to submit payment immediately if it agreed

3 Hawaiian maintained it had "the right, under [HRS § 232-1 (2017)] to
any appeal rights Boeing may have to challenge the tax imposed." HRS § 232-1
provides:

Whenever any person is under a contractual obligation to
pay a tax assessed against another, the person shall have
the same rights of appeal to the board of review, the tax
appeal court, and the intermediate appellate court, subject
to chapter 602, in the person's own name, as if the tax
were assessed against the person. The person against whom
the tax is assessed shall also have a right to appear and
be heard on any such application or appeal.

4 HRS § 40-35 provides in pertinent part:

(a) Any disputed portion of moneys representing a
claim in favor of the State may be paid under protest to a
public accountant of the department, board, bureau,
commission, or other agency of the State with which the
claimant has the dispute. . . .

(b) Action to recover moneys paid under protest or
proceedings to adjust the claim may be commenced by the
payer or claimant against the public accountant to whom the
payment was made, in a court of competent jurisdiction,
within thirty days from the date of payment. . . . Any
action to recover payment of taxes under protest shall be
commenced in the tax appeal court.

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with the final assessment; otherwise, if it disagreed with the

final assessment, it could "appeal in accordance with the

[attached] Hawaii Taxpayer Bill of Rights." The Taxpayer Bill

of Rights included information about paying the disputed tax

assessment under protest and filing an action in tax appeal

court.

On December 10, 2021, Tax Department filed a Motion to

Dismiss or, in the Alternative, Cross Motion for Summary

Judgment (Motion), arguing the Tax Appeal Court lacked

jurisdiction because there was no actual dispute between Boeing

and Tax Department when Hawaiian made the payment under protest. 5

The Tax Appeal Court granted Tax Department's Motion.

The Tax Appeal Court correctly granted Tax

Department's Motion because, as the Hawai‘i Supreme Court held,

"there must be an 'actual dispute' before a taxpayer can make a

payment under protest and bring an action under" HRS § 40-35.

Grace Bus. Dev. Corp. v. Kamikawa, 92 Hawai‘i 608, 612, 994 P.2d

540, 544 (2000).

5 We note the Tax Appeal Court held two hearings on Tax Department's
Motion, however, the transcript from the initial hearing is not included in
either the Tax Appeal Court's record or in the record on appeal before this
court. See Hawai‘i Rules of Appellate Procedure Rule 10(b)(1)(A) and (b)(4);
Bettencourt v. Bettencourt, 80 Hawai‘i 225, 230, 231, 909 P.2d 553, 558, 559
(1995) (leaving the lower court's decision in place without transcripts to
the relevant hearing, noting "[t]he burden is upon appellant in an appeal to
show error by reference to matters in the record, and [appellant] has the
responsibility of providing an adequate transcript") (citations omitted).

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Hawaiian argues the email from Tax Department to

Boeing, a Tax Department interoffice memorandum not sent to

Boeing or Hawaiian, and a letter from Tax Department sent to

Boeing with a notice of proposed assessment were "rulings"

triggering the Tax Appeal Court's jurisdiction. But in Grace,

the supreme court rejected "a case-by-case factual analysis of

whether the surrounding circumstances are sufficient to

constitute a 'dispute' and/or 'claim.'" Id. at 613, 994 P.2d at

545. The supreme court held that "where an administrative

decision has not been formalized, simply arguing that there is a

'dispute' or 'difference of opinion' with [Tax] Department

policy and paying taxes under protest does not present an actual

dispute under HRS § 40-35." Id.

Here, there was no formal decision until the July 26,

2021 Notice of Final Assessment, which was after Hawaiian

submitted payment under protest and filed the action below. See

generally, id. at 613, 994 P.2d at 545. Thus, Hawaiian cannot

rely on HRS § 40-35 to invoke the Tax Appeal Court's

jurisdiction.

Based on the foregoing, we affirm the Tax Appeal

Court's May 16, 2022 "Final Judgment Re: Order Granting

Defendant Department of Taxation, State of Hawaii's Motion to

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Dismiss or, in the Alternative, Cross Motion for Summary

Judgment Filed on December 10, 2021."

DATED: Honolulu, Hawai‘i, March 15, 2024.

On the briefs: /s/ Keith K. Hiraoka
Presiding Judge
Thomas Yamachika,
for Plaintiff-Appellant. /s/ Karen T. Nakasone
Associate Judge
Gary S. Suganuma,
Mary Bahng Yokota, /s/ Sonja M.P. McCullen
Deputy Attorneys General, Associate Judge
for Defendant-Appellee.

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