In re Tax Appeal of Kaheawa Wind Power, LLC v. County of Maui. ( 2020 )

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Electronically Filed
Supreme Court
SCAP-XX-XXXXXXX
21-JAN-2020
08:11 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI I
---o0o---
IN THE MATTER OF THE TAX APPEAL OF KAHEAWA WIND POWER, LLC,
Respondent/Taxpayer-Appellant-Appellee,
vs.
COUNTY OF MAUI,
Petitioner/Appellee-Appellant.
------------------------------------------------
IN THE MATTER OF THE TAX APPEAL OF AUWAHI WIND ENERGY LLC,
Respondent/Taxpayer-Appellant-Appellee,
vs.
COUNTY OF MAUI,
Petitioner/Appellee-Appellant.
SCAP-XX-XXXXXXX
APPEAL FROM THE TAX APPEAL COURT
(CAAP-XX-XXXXXXX and CONSOLIDATED CASES: CAAP-XX-XXXXXXX,
CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX, and CAAP-XX-XXXXXXX;
T.X. No. 14-1-0266 AND CONSOLIDATED CASE T.X. No. 16-1-0272;
T.X. No. 14-1-0267 AND CONSOLIDATED CASE T.X. No. 16-1-0273;
and T.X. Nos. 16-1-0275, 15-1-0238, and 16-1-0328)
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JANUARY 21, 2020
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY RECKTENWALD, C.J.
I. INTRODUCTION
This case arises from a taxation dispute between
Appellant County of Maui (County) and Appellees Kaheawa Wind
Power, LLC, Kaheawa Wind Power II, LLC (collectively, Kaheawa),
and Auwahi Wind Energy LLC (Auwahi), which lease land on the
island of Maui in order to operate their wind farms. 1 At issue
is whether the County had the authority, under article VIII,
section 3 of the Hawai i Constitution, to include the value of
Appellees’ wind turbines in Appellees’ real property tax
assessments, and to redefine the term “real property” within
section 3.48.005 of the Maui County Code (MCC) to include wind
turbines for that purpose.
Appellees challenged the County’s actions in the Tax
Appeal Court (TAC), which issued summary judgment orders and a
final judgment in their favor. The TAC held that the County, by
amending the MCC, exceeded its authority under article VIII,
section 3 because the delegates to the 1978 Constitutional
Convention did not intend to grant the counties the power to
redefine “personal property” as “real property.” In response,
1
Kaheawa and Auwahi operate their wind farms on land leased from
the State of Hawai i and Ulupalakua Ranch, Inc., respectively.
2
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the County filed five separate appeals with the ICA (consolidated
under CAAP-17-816) and filed an application for transfer, which
this court granted.
We hold that the County exceeded its constitutional
authority by amending MCC § 3.48.005 to expand its definition of
“real property” to include “personal property,” and agree with
the TAC that the delegates to the 1978 Constitutional Convention
did not intend to grant the counties the power to define the
term. We further hold that the delegates intended for this power
to be reserved to the legislature. As such, we uphold the TAC’s
final judgment in favor of Appellees.
II. BACKGROUND
To understand the issues at the heart of this case, we
first explain the proceedings of the 1978 Constitutional
Convention, the County’s initial enactment of MCC § 3.48.005
(1980), and the ICA’s 2014 Kaheawa Wind Power, LLC v. County of
Maui decision. See 135 Hawai i 202, 347 P.3d 632 (App. 2014),
cert. denied, 2015 WL 745424 (Feb. 19, 2015). We then explain
the County’s amendment to MCC § 3.48.005 (2013), the TAC’s
rationale for granting summary judgment for the Appellees, and
the parties’ positions on appeal to this court.
A. Article VIII, Section 3
Article VIII, section 3 of the Hawai i Constitution
took effect in 1981, pursuant to its adoption by the 1978
Constitutional Convention and subsequent ratification by the
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voters. Since 1981, it has provided:
The taxing power shall be reserved to the State,
except so much thereof as may be delegated by the
legislature to the political subdivisions, and except
that all functions, powers and duties relating to the
taxation of real property shall be exercised
exclusively by the counties, with the exception of the
county of Kalawao. The legislature shall have the
power to apportion state revenues among the several
political subdivisions.
(emphasis added).
This language as ultimately adopted is similar to the
language of article VIII, section 3 as originally proposed,
except that the originally proposed language only granted the
counties the “power to levy a tax on real property.” Stand.
Comm. Rep. No. 42 in 1 Proceedings of the Constitutional
Convention of Hawai i of 1978, at 594 (1980). Prior to the
amendment’s adoption, “all taxation authority was unequivocally
vested in the State.” See State ex rel. Anzai v. City & Cty. of
Honolulu, 99 Hawai i 508, 510, 57 P.3d 433, 435 (2002) (citing
Haw. Const. art. VII, § 3 (1968)). 2
The Standing Committee on Local Government was the
first Committee to consider section 3’s proposed language and the
extent of the taxation authority to grant the counties. See id.
2
Article VII, section 3 of the 1968 Hawai i Constitution provided:
The taxing power shall be reserved to the State except
so much thereof as may be delegated by the legislature
to the political subdivisions, and the legislature
shall have the power to apportion state revenues among
the several political subdivisions.
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In Report No. 42, the Committee recommended that the counties be
given the “power to levy a tax on real property.” Id. at 521.
In relevant part, Report No. 42 contained the following
discussion:
Your Committee finds that the question of a
centralized real property tax program versus a
decentralized system has been discussed many times
over the past several years.
. . . .
Presently, under the Hawai i Revised Statutes, the
State is responsible for assessing all real property
in the State that is subject to the payment of real
property taxes, and for levying and collecting all
such taxes, and adjudicating taxpayer appeals. Basic
policies defining real property, setting the basis of
assessment, determining the manner in which rates are
set, setting exemptions and describing the appeals
process are the responsibility of state lawmakers.
. . . .
In recent years, county officials have advocated the
transfer of real property functions from the State to
the counties. Such a move, it is felt, would permit
counties to use the power to tax real property in a
more effective manner. A general grant of taxing
powers to the counties would include: a) assessments
of property, b) adjudications of appeals, c) levying
of tax rates, d) collections of taxes and e)
formulation of basic policies.
. . . .
Your Committee concludes that the power to levy a tax
on real property should be granted to the County for
the following reasons:
1) County governments are completely
responsible and accountable for the
administration of their local affairs. It
is felt that in order to have complete
authority over their county finances the
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real property tax function should be given
to the counties.
2) By placing total responsibility for the
real property tax program with the
counties, public confusion as to who or
which level of government is responsible
for the real property tax bite would be
eliminated.
3) County administration of the real property
tax is consistent with home rule.
4) There are certain program elements which
do not invoke issues of statewide concern
and/or which do not lend themselves to
single, statewide solutions. In other
words, there are different economic bases
and needs of the counties which cannot be
addressed by statewide real property
provisions.
Your Committee also considered granting the counties
the power to levy a general excise tax . . . .
. . . .
Your Committee acknowledges the desire of the counties
for greater autonomy, self-reliance and financial
independence. Although the general excise tax looks
like an attractive way for counties to raise revenues,
your Committee finds that one should keep in mind the
issue of fairness to taxpayers[.]
Your Committee is in accord with the conclusion
reached by Mr. Fred Bennion of the Tax Foundation of
Hawai i who states:
The counties, should they desire additional revenues,
have the power to raise the added revenue through the
real property tax by increasing the rates[.]
Comm. of the Whole Debates in 2 Proceedings of the Constitutional
Convention of Hawai i of 1978, at 594–95 (1980).
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The floor debates on the amendment took place next,
where, notably, Delegate Souki and Delegate Crozier voiced their
concerns over the proposed amendment’s language. Comm. of the
Whole Debates in 2 Proceedings of the Constitutional Convention
of Hawai i of 1978, at 258–59 (1980). Delegate Souki, for
instance, explained that “the intent of the section providing for
the exclusive power of real property taxation [was] not so that
the counties [could] increase their revenue or increase their
taxing powers,” but rather, “to provide for better management of
the taxing power” and “more accountability.” Id. Similarly,
Delegate Crozier explained that “while [he was] kind of for the
counties get[ting] control of [real property taxation],” he was
also “kind of afraid of a council that [might] lean[] one special
way” in a way that would “advantage . . . select group[s]” while
disadvantaging others. Id. at 258.
After the floor debate ended, the Committee of the
Whole convened and issued Report No. 7, which recommended
adopting the language found in article VIII, section 3 today.
Comm. as a Whole Rep. No. 7 in 1 Proceedings of the
Constitutional Convention of Hawai i of 1978, at 1008 (1980). In
relevant part, Report No. 7 explained its recommendation to
change the “tax levying” language to the broader “all functions,
powers and duties” language “to clarify the Standing Committee’s
intent to grant all taxing powers relating to real property to
the counties, except Kalawao.” Id. Report No. 7 continued:
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[T]here was some question under the earlier [“tax
levying”] language as to whether or not the counties
would have the power to set exemptions. Although the
mover of this amendment explained that ‘the power to
levy’ did include the lesser power of setting
exemptions, this amendment was adopted as having the
better language.
Id.
The Report further explained that the Committee of the
Whole was “reject[ing] an amendment to grant the counties [the]
power to levy a general excise tax,” in light of delegates’
concerns that it would “add[] taxes to the same people and would
therefore be unfair.” Id.
As such, article VIII, section 3 of the Hawai i
Constitution was enacted, giving the counties exclusive authority
over “all functions, powers and duties relating to the taxation
of real property.” Haw. Const. art. VIII, § 3. At the time of
the amendment’s adoption, and still, today, the constitution had
not defined the term “real property.”
To facilitate the transition of real property tax power
from the State to the counties, the delegates of the
Constitutional Convention also adopted article XVIII, section 6,
which explained:
The amendment to Section 3 of Article VIII shall take
effect on the first day of July after two full
calendar years have elapsed following the ratification
of such amendment [November 7, 1978]; provided that
for a period of eleven years following such
ratification, the policies and methods of assessing
real property taxes shall be uniform throughout the
State and shall be established by agreement of a
majority of the political subdivisions. Each
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political subdivision shall enact such uniform
policies and methods of assessment by ordinance before
the effective date of this amendment [July 1, 1981],
and in the event the political subdivisions fail to
enact such ordinances, the uniform policies and
methods of assessment shall be established by general
law. . . .
Haw. Const. art. XVIII, § 6.
B. MCC § 3.48.005’s Enactment (1980)
In accordance with article XVIII, section 6, and to
provide a framework for the required transition, the legislature
enacted HRS chapter 246A in 1980 to take the place of chapter
246, the State’s real property tax code. 3 In adopting their
respective property tax ordinances, all the counties, with the
exception of Kalawao, borrowed the statutory language of chapter
246, including the language from HRS § 246-1 (1967), which
provided the following definition of “real property”:
“Property” or “real property” means and includes all
land and appurtenances thereof and the buildings,
structures, fences, and improvements erected on or
affixed to the same, and any fixture which is erected
on or affixed to such land, buildings, structures,
fences, and improvements, including all machinery and
other mechanical or other allied equipment and the
foundations thereof, whose use thereof is necessary to
the utility of such land, buildings, structures,
fences, and improvements, or whose removal therefrom
cannot be accomplished without substantial damage to
such land, buildings, structures, fences, and
improvements, excluding, however, any growing crops.
3
Both of these chapters were repealed in 2016 “for the purpose of
deleting obsolete and unnecessary provisions.” See H.B. No. 2217, H.D. 1,
S.D. 1.
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Thus, when the County of Maui enacted MCC § 3.48.005 in
1980, it provided:4
“Property” or “real property” means and includes all
land and appurtenances thereof and the buildings,
structures, fences, and improvements erected on or
affixed to the same, and any fixture which is erected
on or affixed to such land, buildings structures,
structures, fences, and improvements, including all
machinery and other mechanical or other allied
equipment and the foundations thereof, whose use
thereof is necessary to the utility of such land,
buildings, structures, fences, and improvements, or
whose removal therefrom cannot be accomplished without
substantial damage to such land, buildings,
structures, fences, and improvements, excluding,
however, any growing crops.
This definition of “real property” for taxation
purposes remained the same for over thirty years, until 2013
after Kaheawa challenged the County’s authority under the MCC to
include the value of its wind turbines within its real property
tax assessments for the 2007-2011 tax years. 5 Kaheawa, 135
Hawai i at 204, 347 P.3d at 634.
4
The County concedes that the ordinance’s language tracked the language
of HRS § 246-1 (1967). The stricken and underlined text represents the ways
in which the language of MCC § 3.48.005 (1980) differed from the language of
HRS § 246-1 (1967). The stricken text represents the text of HRS § 246-1 that
was omitted in the County’s ordinance, while the underlined text represents
what was added.
5
Auwahi was not a party to the Kaheawa litigation. However, after
the ICA’s Kaheawa decision, Auwahi entered into a stipulated final judgment
with the County that Auwahi’s wind turbines were not “real property” under MCC
§ 3.48.005 (1980) for the 2013 tax year. As discussed below, after the County
amended the definition of “real property” in the MCC, it again classified
Auwahi’s wind turbines as real property for tax years 2014 onward.
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C. The ICA’s Kaheawa Decision
In the litigation that followed, the ICA affirmed the
TAC’s grant of summary judgment to Kaheawa, and held in a
published opinion that wind turbines did not qualify as “real
property” under the definition provided in MCC § 3.48.005. Id.
To constitute “real property” under the MCC, the ICA
explained that the wind turbines would, as a threshold matter,
need to qualify either as “improvements” or “fixtures.” Id. at
207, 347 P.3d at 637. The ICA first held that the wind turbines
did not qualify as “improvements.” Id. at 208-09, 347 P.3d at
638-39. The ICA explained:
The County urges this court to apply the Black’s Law
Dictionary definition [of ‘improvement’], which
defines ‘improvement’ as ‘[a]n addition to real
property, whether permanent or not; esp., one that
increases its value or utility or that enhances its
appearance.” Black’s Law Dictionary 826 (9th ed.
2009). Considering the particular issue before us, we
disagree that the broad definition of ‘improvement’
advanced by the County applies to the wind turbines in
this case.
As recognized in the parties’ stipulation,[ 6] Kaheawa
asserts that the wind turbines are equipment and
machinery. The County [] also expressly recognizes
that ‘[t]he turbines are plainly machinery.’ [] In
MCC § 3.48.005, certain types of ‘machinery’ are
incorporated as part of the description of a
‘fixture.’
. . . .
6
The County and Kaheawa signed a Stipulation of Facts regarding the
Kaheawa litigation (CAAP-12-728), which provided that the Stipulation was
“made solely for purposes of the present action” and did not “constitute an
admission of any fact for any other purpose or with respect to any third
party.”
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If the County’s broad interpretation of an improvement
was applied to this case, the language in MCC
§ 3.48.005 related to fixtures and machinery would be
rendered meaningless.
Id.
Second, the ICA held that the wind turbines did not
qualify as “fixtures.” Id. at 209-211, 347 P.3d at 639-641. To
qualify as a “fixture” under the MCC’s definition of “real
property,” the ICA explained that it would either have to find
that “(1) the use of the wind turbines [would be] necessary to
the utility of the land . . . . ; or [] (2) the removal of the
wind turbines [could not] be accomplished without substantial
damage to the land[.]” Id. at 209-10, 347 P.3d at 639-40
(emphases added). Because the parties had stipulated that
Kaheawa’s wind turbines could be removed without substantially
damaging the land, the ICA focused on whether the land could be
utilized without the wind turbines’ use. Id. Noting that the
MCC did not clarify whether the term “utility” meant (1) general
utility or (2) utility specific to a particular business or use,
the ICA looked to the “traditional common law” analysis regarding
“fixtures” for guidance, and in particular, its “adaptation”
element. Id. at 210, 347 P.3d at 640. The analysis was as
follows:
The traditional common law test for determining
whether an item of personal property has become a
‘fixture’ requires three elements: (1) the actual or
constructive annexation of the article to the realty,
(2) the adaptation of the article to the use or
purpose of that part of the realty with which it is
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connected, and (3) the intention of the party making
the annexation to make the article a permanent
accession to the freehold.
Id. (citing 35 Am.Jur.2d Fixtures § 4 and Cartwright v.
Widemann, 9 Haw. 685, 690-91 (Haw. Kingdom 1892), superseded on
other grounds, RLH § 8871 (1945), as recognized in Hess v. Paulo,
38 Haw. 279 (Haw. Terr. 1949)) (emphasis added).
While acknowledging that jurisdictions varied in their
interpretation of the test’s “adaptation” element, 7 the ICA
applied the analysis set forth in Zangerle v. Republic Steel
Corp., 60 N.E.2d 170 (Ohio 1945), given its consistency with
Cartwright v. Widemann,8 which the ICA described as the “only
7
The ICA did not cite to any cases demonstrating how different
jurisdictions treated the “adaptation” prong of the common law fixture test.
We note, however, that while the Ohio Supreme Court in Zangerle only
considered an article a “fixture” if, under the “adaptability” prong of the
test, the article was useful to the inherent utility of the land, other
courts, such as the Supreme Court of New Hampshire considered an article a
“fixture” if the article was “intimately intertwined with the primary use of
the land itself,” or in other words, the use to which the land was being put.
See, e.g., King Ridge, Inc. v. Town of Sutton, 340 A.2d 106, 110 (N.H. 1975)
(holding that ski lifts were taxable as real property, in part, because the
hills upon which they were located were “specially cleared and graded for
downhill skiing”).
8
The ICA explained:
In Cartwright, the Supreme Court of the Kingdom of
Hawai i held that machinery used as part of an iron
works company (including lathes, an emery wheel, a
drill press, a milling machine, a shaping machine and
a grinding machine), most of which were fastened to
the flooring of a building or overhead, were not
fixtures. 9 Haw. at 688-89. Significantly, the court
also stated that “movable machines, whose number and
permanency are contingent upon the varying conditions
of the business differ from engines and boilers and
other articles secured by masonry and designed to be
permanent and indispensable to the enjoyment of the
freehold.”
(continued...)
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Hawai i case” to touch upon the issue. Id. at 210-11, 347 P.3d
at 640-41. The ICA explained:
In Zangerle, a company that operated steel plants
challenged the tax assessment of machinery and
equipment as improvements on the land rather than as
personal property. [] 60 N.E.2d at 173. Addressing
the second part of the traditional fixture test, the
Ohio Supreme Court relied on the following:
The general principle to be kept in view,
underlying all questions of this kind, is the
distinction between the business which is
carried on in or upon the premises, and the
premises, or locus in quo. The former is
personal in its nature, and articles that are
merely accessory to the business, and have been
put on the premises for this purpose, and not as
accessions to the real estate, retain the
personal character of the principal to which
they appropriately belong and are subservient.
But articles which have been annexed to the
premises as accessory to it, whatever business
may be carried on upon it, and not particularly
for the benefit of a present business which may
be of a temporary duration, become subservient
to the realty and acquire and retain its legal
character.
Id. (citing Zangerle, 60 N.E.2d at 177) (emphases added).
Finding that Kaheawa’s wind turbines were “only
necessary to the utility of the land . . . given the particular
business [that] Kaheawa currently operat[ed],” – i.e., the
business of producing wind energy – the ICA held that the wind
turbines could not satisfy the “adaptation” element of the
“utility” prong of the fixture test. Id. at 209-11, 347 P.3d at
(...continued)
Kaheawa, 135 Hawai i at 211, 347 P.3d at 641 (citing Cartwright, 9 Haw.
at 688-89).
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639-41. Accordingly, the wind turbines could not be considered
“fixtures,” and therefore, could not constitute “real property”
under the MCC. Id.
In 2015, the County filed an application for writ of
certiorari challenging the ICA’s holding that Kaheawa’s wind
turbines were not “improvements,” and further, its reliance on
Zangerle in interpreting what constituted a common law “fixture.”
See SCWC-12-728. This court rejected that application. See 2015
WL 745424 (Feb. 19, 2015).
D. The County’s 2013 Amendment to MCC § 3.48.005
In response to the litigation described above, the
County amended MCC § 3.48.005 in 2013 to include wind turbines,
or other articles that would “increase the value” of the
underlying realty, within its definition of “real property.” As
amended, and as it reads today, MCC § 3.48.005 provides: 9
“Property” or “real property” means and includes all
land and appurtenances thereof and the building
structuress, fences, and improvements erected on or
affixed to the same,; and any fixture which is erected
on or affixed to such land, buildings, structures,
fences, and improvements, including all machinery and
other mechanical or other allied equipment and the
foundations thereof, whose use thereof is necessary to
the utility of such land, buildings, structures,
fences, and improvements, or whose removal therefrom
cannot be accomplished without substantial damage to
such land, buildings, structures, fences, and
improvements, excluding, however, any growing crops.
9
The stricken and underlined text represents the ways in which the
language of MCC § 3.48.005 (2013) differed from its original language. The
stricken text represents the text of MCC § 3.48.005 (1980) that was omitted in
the amendment, while the underlined text represents what was added.
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1. Whose use thereof increases the value to, or is
necessary to the utility of such land,
buildings, structures, fences, and improvements;
or
2. Whose removal therefrom cannot be accomplished
without substantial damage to such land,
buildings, structures, fences, and improvements,
excluding, however, any growing crops; or
3. Any and all wind energy conversion property that
is used to convert wind energy to a form of
usable energy, including, but not limited to, a
wind charger, windmill, wind turbine, tower and
electrical equipment, pad mount transformers,
power lines, and substation, and other such
components.
(2013).
In essence, through the changes to the ordinance, the
County redefined “real property” to include wind turbines, and
also allowed any article whose use “increases the value to, or is
necessary to the utility” of the land to become an assessable
accession to realty for the purposes of real property taxation. 10
Under its new authority from the amended code, the
County again began including the value of Kaheawa’s and Auwahi’s
wind turbines within their real property tax assessments for the
2014, 2015, and 2016 tax years.
The Appellees thus challenged the County’s actions,
arguing this time that the County exceeded its authority under
10
Notably, by allowing any article whose use “increases the value
to, or is necessary to the utility” of the land to become an assessable
accession to realty, the County seemed to adopt the broad interpretation of
“improvement” that it had unsuccessfully advocated for in Kaheawa. See
Kaheawa, 135 at 208-09, 347 P.3d at 638-39.
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article VIII, section 3 of the Hawai i Constitution by expanding
the definition of “real property” to include “personal property.”
E. The TAC’s Grant of Summary Judgment to Appellees
The TAC granted Kaheawa and Auwahi’s motions for
summary judgment and issued final judgments in their favor after
finding that the delegates to the 1978 Constitutional Convention
had never intended to grant the counties the power to redefine
the term “real property” to include “personal property.” 11
To reach its conclusion, the TAC emphasized the
language of the Committee on Local Government and Committee of
the Whole’s reports, as well as Delegate Souki and Crozier’s
comments on the floor. In its oral ruling for the Appellees, the
TAC explained:
[W]hen we look at the language of the Constitutional
Convention Amendment and its reference to taxation of
real property, the Court finds . . . that the
Constitutional Convention in 1978 had no intention to
confer the power of policymaking to the extent that
the counties [could] redefine the term “real property”
to include chattel which are personal property because
that is a matter of policy.
And if the counties of [Hawai i] have the power to
redefine real property so broadly as to include
chattel, then there may be no end to what the counties
will ultimately do with respect to taxing chattel that
are located upon real property. Certainly it is not
endless potential, but the potential for including as
real property items that were formally chattel on
personal property is a matter of great public policy.
. . . .
11
The Honorable Gary W.B. Chang presided.
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[T]he Court is unable to conclude that the
Constitutional Conventioneers intended to confer onto
the counties the power to redefine the term “real
property” to include items of personal property and
convert those into “real property” and subject those
items of personal property to real property and
subject to real property taxation.
F. The Instant Appeal
Upon the TAC’s written final judgments in favor of
Kaheawa and Auwahi,12 the County filed five appeals with the ICA
(consolidated under CAAP-17-816) and filed an application for
transfer, which this court granted.
The County contends that article VIII, section 3
transferred the power to define “real property” to the counties,
and that accordingly, the County had the power to (a) add wind
turbines to its definition of “real property,” and (b) adopt its
own test, based on appraisal concepts of use, utility, and value,
to potentially tax any type of property that satisfied the test
as assessable accessions to realty.
To its first point, the County contends that article
VIII, section 3 provided a general grant of authority to the
counties over the “functions, powers and duties” related to the
taxation of real property, and that this general grant
necessarily gave the counties the authority to define “real
property.”
12
See Final Judgment in favor of Kaheawa for Tax Years 2014 and 2015
(October 4, 2017) in CAAP-17-816, JEFS Dkt. 1:7-10 and CAAP-17-817, JEFS Dkt.
1:1-7; Final Judgment in Favor of Auwahi for Tax Year 2015 in CAAP-17-818,
JEFS Dkt. 1; Final Judgment in Favor of Auwahi for Tax Year 2014 in CAAP-17-
819, JEFS Dkt. 1; and Final Judgment in Favor of Auwahi for Tax Year 2016 in
CAAP-17-820, JEFS Dkt. 1.
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Citing to Report No. 42 by the Committee on Local
Government for support, the County notes the Committee’s
statements that in 1978, “pursuant to the [HRS], the ‘real
property tax program’ including “basic policies defining real
property” . . . [was] the responsibility of state lawmakers”;
that the State had the ability to “utilize the real property tax
as an instrument of land use and economic policy”; and that “a
general grant of authority to the counties [of the power to tax
real property] would include . . . [the] formulation of basic
policies.” In light of these acknowledgments, the County argues
that the Committee of the Whole would not have adopted the broad
“functions, powers and duties” language that it did over the more
narrow “tax levying” language it had considered, had it not meant
to provide the counties with a general grant of authority.
The County further refers to Gardens at West Maui v.
County of Maui, whereby, the County contends, this court was
“unambiguous” in its recognition that article VIII, section 3
provided the counties with a general grant of authority over real
property policymaking functions. 13 See 90 Hawai i 334, 978 P.2d
772, 779 (1999) (“The constitutional and legislative acts
[including article VIII, section 3] covered the whole subject of
property taxation power and embraced the entire law in that
regard.”).
13
In its answering brief, Auwahi argues that the Gardens at West
Maui case is inapposite, because this case only recognized the counties’ grant
to tax real property.
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In light of the amendment’s legislative proceedings and
Gardens at West Maui, the County contends that article VIII,
section 3 explicitly gave the County the authority to define
“real property.” As such, and in accord with the laws of other
jurisdictions, the County contends it had the authority to amend
MCC § 3.48.005 to redefine “real property” to include wind
turbines, and to rely on appraisal concepts of use, utility, and
value to further classify which articles of property could become
assessable accessions to realty. See, e.g., King Ridge, Inc. v.
Town of Sutton, 340 A.2d 106 (N.H. 1975) and Opinion of the
Justices, 697 A.2d 125 (N.H. 1997)).14
Because the County argues that article VIII, section 3
granted the counties the power to define “real property,” and
because it contends that neither the common law nor the statutory
scheme in Hawai i defined the “personal property” that could only
be taxed by the State, it contends that any reliance in this
jurisdiction on Zangerle to define “real property” is misplaced.
On the one hand, the County contends that the ICA’s
Kaheawa decision has no effect on the current lawsuit because
that decision only held that wind turbines could not be
14
In King Ridge, Inc., the New Hampshire Supreme Court held that the
legislature had the power to make any type of property realty for taxation
purposes, even if that property was personalty at common law. 340 A.2d at
109-10. In Opinion of the Justices, the same court again recognized the
legislature’s power to make any kind of property realty for purposes of
taxation, and further, explained that the legislature could validly subject to
taxation certain instruments of production or machines, which by their nature
were designed for use in connection with real estate, regardless of whether
they were part of or attached to realty. 697 A.2d at 107.
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considered “real property” under the County’s previous version of
MCC § 3.48.005. Because the County contends that it resolved any
confusion over whether wind turbines could be considered “real
property” under the amended version of the code, pursuant to its
constitutional authority to redefine “real property,” it argues
that there is no inconsistency between the Kaheawa decision and
the County’s actions now.
On the other hand, the County continues to challenge
the ICA’s reliance on Zangerle to inform its analysis of what
constituted a “fixture” at common law. Specifically, the County
contends that Zangerle cannot control in Hawai i given: (1) the
“significant variance in the traditional common law test of
fixtures across [] jurisdictions[;]” (2) the differences between
Ohio and Hawaii’s statutory and constitutional schemes and the
Supreme Court of Ohio’s “consistent” repudiation of the test; (3)
the test’s limited applicability to fixtures as applied to
electric power generation facilities; and (4) the test’s “vague”
concept of “general inherent utility.”
Ultimately, the County argues that this court should
abandon the ICA’s recognition of Zangerle’s “fixture” test, which
it claims erroneously characterizes an article’s “utility” as an
article’s “general utility” to realty. The County advocates that
we should now recognize an article’s “utility” as that use for
which the land is currently being put, because “it is difficult
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to understand what its ‘general inherent utility’ could possibly
be, except for perhaps the value in owning and possessing it.”
The County further argues that the Appellees’ wind
turbines constitute “real property” because they are permanent
and their removal would cause material injury to the land. 15 For
permanency, the County contends that “to determine the
excludability of personal property from being taxed as realty”
for the common law fixture test, the test should be “whether
property installed similar to the [article at issue] is not
‘ordinarily’ intended to be affixed permanently to real property”
and should not be based on a party’s intent of permanency. 16 If
this were the test, the County contends, then by “all reasonably
manifested outward appearances[,] [the Appellees’] wind turbine
generators” would be considered permanent.
In summary, the County urges this court to hold that
the Hawai i Constitution provided the counties with the authority
15
This is inconsistent with the stipulated facts from Kaheawa,
whereby all parties agreed that Kaheawa’s wind turbines and towers could be
“unbolted and removed without any harm to either the equipment or the land.”
See Kaheawa, 135 Hawai i at 204, 347 P.3d at 640.
16
See, e.g., NYT Cable TV v. Audubon Borough, 9 N.J. Tax 359, 369
(1987) (“To determine the excludability of personal property from being taxed
as realty, the test is not what plaintiffs actually intended as to its
permanency, but whether property installed similar to the subject tower is not
‘ordinarily’ intended to be affixed permanently to real property.”); American
Hydro Power Partners, L.P. v. Clifton City, 12 N.J. Tax 264, 269 (1991) (“the
improvements should be taxed as real property because plaintiff failed to
establish, by a preponderance of the evidence, that the equipment was not
‘ordinarily intended to be affixed permanently to the real property[.]”);
Guardian Energy LLC v. Cty. of Waseca, 868 N.W.2d 253, 260 (2015) (rejecting
contention that tanks were not “permanently affixed” to the land because they
could theoretically be removed by detaching them from their foundations or by
towing them away).
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to define “real property” for taxation purposes, and thus uphold
its 2013 amendment to the MCC. In the alternative, however, the
County explains that under the proper interpretations of utility
and permanence, wind turbines do constitute real property, even
under the common law fixture test.
The Appellees, as well as Tax Foundation of Hawai i
(Tax Foundation) as amicus curiae, argue that the County exceeded
its authority under the Constitution when it expanded the
definition of real property beyond what it was commonly
understood as in 1978. As such, they argue that MCC § 3.48.005
as amended is ultra vires, and that the ICA’s Kaheawa decision
appropriately applied Zangerle’s fixture test to conclude that
wind turbines could not be “real property.” Additionally, the
parties argue that permitting the County to tax wind turbines as
part of its real property scheme would both frustrate Hawaii’s
renewable energy policy goals, and contravene federal and state
taxation policy.17
17
For instance, Kaheawa and Tax Foundation argue that at the federal
level, the IRS has treated wind turbines as tangible personal property for
energy credit and depreciation purposes (citing IRC §§ 48(a)(3),
168(e)(3)(B)(vi); IRS Private Letter Ruling 9007042 (1989) (credit allowed for
wind turbines under IRC section saying that eligible property includes
tangible personal property and other tangible property except a building and
its structural components)). And, at the State level, both Appellees note
that they qualify for a Capital Goods Excise Tax Credit under HRS § 235-
110.7(3) with respect to their wind turbines, and that this credit is limited
to “tangible personal property” which does not include “property . . .
integral [to] a building or structure.”
Last, Kaheawa notes the State of Hawaii’s energy policy to move
away from fossil fuels. Kaheawa cites to HRS § 269-92, which “set[s] a goal
of one hundred per cent renewable [energy] by 2045[,]” as well as Governor
Ige’s and state agencies’ commitments to “move more decisively and
irreversibly away from imported fossil fuel for electricity and transportation
(continued...)
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III. STANDARDS OF REVIEW
A. Summary Judgment
“Unlike other appellate matters, in reviewing summary
judgment decisions an appellate court steps into the shoes of the
trial court and applies the same legal standard as the trial
court applied.” Beamer v. Nishiki, 66 Haw. 572, 577, 670 P.2d
1264, 1270 (1983) (internal quotation omitted). As such, when
reviewing questions of law from summary judgment orders in the
TAC, we review those questions under the right/wrong standard.
Maile Sky Court Co. v. City & Cty. of Honolulu, 85 Hawai i 36,
39, 936 P.2d 672, 675 (1997) (citation omitted).
B. Constitutional Interpretation
“Issues of constitutional interpretation present
questions of law that are reviewed de novo.” Blair v. Harris, 98
Hawai i 176, 178, 45 P.3d 798, 800 (2002) (citation omitted). In
construing the constitution, the appellate court observes the
following basic principles:
Because constitutions derive their power and authority
from the people who draft and adopt them, we have long
recognized that the Hawai i Constitution must be
construed with due regard to the intent of the framers
and the people adopting it, and the fundamental
principle in interpreting a constitutional provision
is to give effect to that intent. This intent is to
be found in the instrument itself.
[T]he general rule is that, if the words used in a
constitutional provision are clear and unambiguous,
17
(...continued)
and towards indigenously produced renewable energy and an ethic of energy
efficiency.”
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they are to be construed as they are written. In this
regard, the settled rule is that in the construction
of a constitutional provision the words are presumed
to be used in their natural sense unless the context
furnishes some ground to control, qualify, or enlarge
them.
Moreover, a constitutional provision must be construed
in connection with other provisions of the instrument,
and also in the light of the circumstances under which
it was adopted and the history which preceded it.
Hanabusa v. Lingle, 105 Hawai i 28, 31-32, 93 P.3d 670, 673-74
(2004) (brackets in original) (quotation omitted).
C. Statutory Interpretation
“Statutory interpretation is a question of law
reviewable de novo.” State v. Wheeler, 121 Hawai i 383, 390, 219
P.3d 1170, 1177 (2009) (internal quotation marks omitted). Our
construction of statutes is guided by the following rules:
It is a cardinal rule of statutory construction that
the courts are bound, if possible, to give effect to
all parts of a statute, and no sentence, clause or
word shall be construed as surplusage if a
construction can be legitimately found which will give
force to and preserve all the words of the statute.
In re Ainoa, 60 Haw. 487, 490, 591 P.2d 607, 609 (1978).
When construing a statute, our foremost obligation is
to ascertain and give effect to the intention of the
legislature, which is to be obtained primarily from
the language contained in the statute itself. And we
must read statutory language in the context of the
entire statute and construe it in a manner consistent
with its purpose.
When there is doubt, doubleness of meaning, or
indistinctiveness or uncertainty of an expression used
in a statute, an ambiguity exists . . . .
In construing an ambiguous statute, “[t]he meaning of
the ambiguous words may be sought by examining the
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context, with which the ambiguous words, phrases, and
sentences may be compared, in order to ascertain their
true meaning.” HRS § 1-15(1) [(1993)]. Moreover, the
courts may resort to extrinsic aids in determining
legislative intent. One avenue is the use of
legislative history as an interpretive tool.
Gray [v. Admin. Dir. of the Court], 84 Hawai i [138,]
148, 931 P.2d [580,] 590 [(1997)] (quoting State v.
Toyomura, 80 Hawai i 8, 18-19, 904 P.2d 893, 903-04
(1995)) (brackets and ellipsis points in original)
(footnote omitted). The appellate court may also
consider "[t]he reason and spirit of the law, and the
cause which induced the legislature to enact it . . .
to discover its true meaning.” HRS § 1-15(2). . . .
“Laws in pari materia, or upon the same subject
matter, shall be construed with reference to each
other. What is clear in one statute may be called
upon in aid to explain what is doubtful in another.”
HRS § 1-16 (1993).
State v. Koch, 107 Hawai i 215, 220, 112 P.3d 69, 74 (2005)
[(some brackets added and some in original) (one ellipsis added
and some in original)] (quotation omitted).
Absent an absurd or unjust result, the appellate court
is bound to give effect to the plain meaning of unambiguous
statutory language; we may only resort to the use of legislative
history when interpreting an ambiguous statute. State v.
Valdivia, 95 Hawai i 465, 472, 24 P.3d 661, 668 (2001).
IV. DISCUSSION
In prior cases, this court addressed the counties’
broad scope of authority to set property tax policy. We have
acknowledged, for instance, that “[a]rticle VIII, section 3 was
expressly and manifestly designed to transfer to the counties
broad powers of real property taxation,” that “the purpose of the
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amendment was to place the burden of the real property taxation
system at the county level,” and further, that the amendment,
along with the legislative enactments contained in HRS Chapter
246A, which provided for the orderly transfer of property
taxation power to the counties, “covered the whole subject [of
real property taxation] and embraced the entire law in that
regard.” Gardens at West Maui, 90 Hawai i at 341, 978 P.2d at
779.
In Gardens at West Maui, for instance, we recognized
that under article VIII, section 3, the counties were free to
classify properties and tax them at different rates, despite an
earlier statute that would have prohibited such action. Id. at
340, 978 P.2d at 778. And, in Weinberg v. City & County of
Honolulu, 82 Hawai i 317, 324, 922 P.2d 371, 378 (1996), we held
that after the statutory period for uniformity in HRS Chapter
246A had lapsed, the counties were no longer bound by the
assessment methods the State Department of Taxation had
previously imposed – in other words, they were free to set their
own methods of assessment.18 Last, in State ex rel. Anzai v.
City & County of Honolulu, 99 Hawai i 508, 519-21, 57 P.3d 433,
444-45 (2002), we recognized that the counties, pursuant to this
18
To hold otherwise, we concluded, “would render the provision of
[the] eleven-year transition period meaningless because HRS chapter 246,
rather than the county ordinances, would continue to govern the policies and
methods of assessment.” Id.
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authority, were free to set and repeal exemptions to the real
property tax, as these were clearly “matters of local concern.” 19
Like Gardens, Anzai, and Weinberg, the instant case
concerns the scope of the counties’ policymaking authority under
article VIII, section 3. The County argues that, in particular,
Gardens supports its argument that the general grant of authority
over real property policy making included the authority to
redefine “real property.” As such, the County contends it had
the authority to amend MCC § 3.48.005 to redefine “real property”
and particularly “fixtures” thereon to include machinery or
equipment the use of which “increases the value to” the
underlying realty, and “property that is used to convert wind
energy to a form of usable energy[.]” MCC § 3.48.005 (2013).
“To the extent that the counties, in exercising their
exclusive power to tax real property, do not run afoul of the
19
In Anzai, in determining the framers’ intent, we referred to the
Proceedings of the Constitutional Convention of Hawai i of 1978. See id.
This court noted several instances in the proceedings reflecting “the
understanding that the power to tax real property encompassed matters of
strictly local concern and that this power included the power to grant or
repeal exemptions from real property taxation.” Id. One example was from a
report from the Standing Committee on Taxation and Finance, which reasoned:
[T]he power to levy a tax on real property should be
granted to the counties because, inter alia, “[c]ounty
governments are completely responsible and accountable
for the administration of their local affairs” and
“[t]here are certain program elements which do not
invoke issues of statewide concern and/or which do not
lend themselves to single, statewide solutions. In
other words, there are different economic bases and
needs of the counties which cannot be addressed by
statewide real property provisions.”
Id. (citing 1 Proceedings of the Constitutional Convention of Hawai i of
1978, at 594–95 (1980)).
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federal or state constitutions, they may act as they see fit.”
Anzai, 99 Hawai i at 517, 57 P.3d at 442. While we acknowledge
the counties’ broad policymaking authority recognized in these
prior cases, however, we cannot conclude in this case that this
authority extends as far as the County claims.
As set forth below, the counties’ taxation authority
cannot extend beyond “real property,” the definition of which is
currently set by the legislature, nor can it impact any authority
the constitution expressly reserved to the State. MCC §
3.48.005, as amended in 2013, does both and thus runs afoul of
the state constitution.
A. Article VIII, Section 3 Does Not Grant the Counties the
Power to Define Real Property
Our court has “long recognized . . . the general rule
. . . that, if the words used in a constitutional provision are
clear and unambiguous, they [must be] construed as they are
written.” Hanabusa, 105 Hawai i at 31-32, 93 P.3d at 673-74.
The ultimate aim is to give effect to the constitutional
delegates’ intent, which can be done by examining “other
provisions of the instrument” and “the circumstances under which
it was adopted and the history which preceded it.” Id.
Moreover, this court has recognized that “tax laws should be
strictly construed and any doubt resolved in favor of the
public.” In re Assessment of Taxes, Commercial Pac. Cable Co.,
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16 Haw. 396, 400 (1905) (citing Cooley on Taxation); Narmore v.
Kawafuchi, 112 Hawai i 69, 82, 143 P.3d 1271, 1284 (2006).
1. Plain Language
When interpreting a constitutional provision, every
word is presumed to have meaning. See Camara v. Agsalud, 67
Hawai i 212, 215-16, 685 P.2d 794, 797 (1984) (“Courts are bound,
if rational and practical, to give effect to all parts of a
statute, and [] no . . . word shall be construed as superfluous,
void, or insignificant if a construction can be legitimately
found which will give force to and preserve all the words of the
statute.”).
At the time of article VIII, section 3's adoption, the
term “real property” had not been defined in the Hawai i
constitution. Despite this, the 1978 constitution still included
amendments that distinguished between “real” and “personal”
property, thereby implying that there was some inherent
difference between the terms.
Article X, section 5, for instance, provided that the
University of Hawai i “shall have title to all the real and
personal property now or hereafter set aside or conveyed to
it[,]” while sections 5 and 6 of article XII provided that the
Office of Hawaiian Affairs and the Board of the Office of
Hawaiian Affairs, respectively, would “hold title to all the real
and personal property now or hereafter set aside or conveyed to
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it” and would “exercise control over real and personal
property[.]” (Emphasis added).
In light of the constitution’s recognition of “real”
and “personal” property, the use of the word “real” before
“property” is meaningful. Article VIII, section 3 provides:
The taxing power shall be reserved to the State,
except so much thereof as may be delegated by the
legislature to the political subdivisions, and except
that all functions, powers and duties relating to the
taxation of real property shall be exercised
exclusively by the counties, with the exception of the
county of Kalawao. The legislature shall have the
power to apportion state revenues among the several
political subdivisions.
(Emphasis added).
Had the delegates intended to provide the counties the
authority to tax “personal” property, they presumably would have
done so explicitly. Hanabusa, 105 Hawai i at 31-32, 93 P.3d at
673-74; Fought & Co., 87 Hawai i at 55, 951 P.2d at 505 (“This
court has consistently applied the rule of expressio unius est
exclusio alterius - the express inclusion of a provision in a
statute implies the exclusion of another[.]”). Instead, the
delegates provided that “the taxing power [would] be reserved to
the State . . . except that” the “functions, powers and duties
relating to the taxation of real property” would be granted to
the counties. Art. VIII, § 3.
Thus, a plain reading of article VIII, section 3,
indicates that the counties had only been granted the power to
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tax “real property” – not to redefine personal property as “real
property.”
2. Legislative Proceedings
An examination of the “circumstances” under which
article VIII, section 3 was adopted and the “history which
preceded it” supports this conclusion. See Hanabusa, 105 Hawai i
at 31-32, 93 P.3d at 673-74; see also Nelson v. Hawaiian Homes
Comm’n, 127 Hawai i 185, 198, 277 P.3d 279, 292 (2012) (“In order
to give effect to the intention of the framers and the people
adopting a constitutional provision, an examination of the
debates, proceedings and committee reports is useful.”) (quoting
State v. Kahlbaun, 64 Haw. 197, 204, 638 P.2d 309, 316 (1981)).
We note that the final language of article VIII,
section 3 was adopted only after deliberation by the Standing
Committee on Local Government, floor debates, and deliberation by
the Committee of the Whole.
The Standing Committee on Local Government acknowledged
that at the time of the amendment’s contemplation, “the State
[was] responsible for assessing [] real property [] subject to
the payment of real property taxes, [] for levying and collecting
[the] taxes upon such property, and [for] adjudicating taxpayer
appeals.” Stand. Comm. Rep. No. 42 in 1 Proceedings of the
Constitutional Convention of Hawai i of 1978, at 594 (1980). It
also acknowledged that the “basic policies defining real
property, setting the basis of assessment, determining the manner
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in which rates [were] set, setting exemptions and describing the
appeals process” were the responsibilities of the state’s
lawmakers. Id. The Committee further explained that a “general
grant” of the taxing powers to the counties would include
property assessments, appeal adjudications, tax levying,
collecting taxes, and formulating basic policies. Id. Notably,
the Standing Committee rejected a proposal to adopt a general
excise tax, noting that “should the counties desire additional
revenues,” the counties should do so through “the real property
tax by increasing the rates.” (Emphasis added).
Comments during the floor debates suggest that at least
two delegates supported only a narrow grant of authority to the
counties. Delegate Souki, for instance, explained that “the
intent of the section . . . [was] not so that the counties
[could] increase their revenue or increase their taxing powers,”
while Delegate Crozier explained his concern “of a council that
[might] lean[] one special way” to “advantage . . . select
group[s]” while disadvantaging others. Id. Comm. of the Whole
Debates in 2 Proceedings of the Constitutional Convention of
Hawai i of 1978, at 264 (1980).
Moreover, although the Committee of the Whole
recommended adopting the “all functions, powers and duties”
language, as seen in the amendment today, it explained that it
was doing so to clarify that “the counties would have the power
to set exemptions.” Id. (emphasis added). And, as the TAC
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concluded, nothing was said in the Committee of the Whole’s
report about a “general grant” of authority to tax personal
property.
3. The Legislature’s Power to Define “Real Property”
Thus, from our analysis above, although it is clear
that the delegates to the 1978 Constitution Convention did not
intend to grant the counties the power to tax anything more than
“real property,” it is not clear from the text of the amendment
or constitution what the delegates meant by “real property.” As
such, we may look to “the history of the times and the state of
being when [the amendment] was adopted” for guidance. See
Nelson, 127 Hawai i at 198, 277 P.3d at 292 (quoting Kahlbaun, 64
Haw. at 202, 638 P.2d at 315).
Well before article VIII, section 3's adoption, HRS
§ 246-1 (1967) clearly provided a definition of the term “real
property” as related to the subject of real property taxation.
Because we presume the delegates were aware of this statute at
the time of article VIII, section 3's adoption, and because the
delegates took no action to define the term in light of this
awareness, we presume that they understood that the power to
define, and redefine, the term “real property” rested with the
legislature. See Hawai i State AFL-CIO v. Yoshina, 84 Hawai i
374, 377, 935 P.2d 89, 97 (1997) (explaining that constitutional
delegates are deemed to be aware of common law and statutory
principles).
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The legislature incorporated the definition of “real
property” from HRS § 246-1, which was repealed in 2016, into our
current taxation statutes. See HRS §§ 231-1 and 248-1. As such,
the definition of “real property” that applied to the counties in
1978 still applies to the counties today:
“Property” or “real property” means and includes all
land and appurtenances thereof and the buildings,
structures, fences, and improvements erected on or
affixed to the same, and any fixture which is erected
on or affixed to such land, buildings, structures,
fences, and improvements, including all machinery and
other mechanical or other allied equipment and the
foundations thereof, whose use thereof is necessary to
the utility of such land, buildings, structures,
fences, and improvements, or whose removal therefrom
cannot be accomplished without substantial damage to
such land, buildings, structures, fences, and
improvements, excluding, however, any growing crops.
HRS §§ 231-1 and 248-1.20
4. This Court’s Power to Interpret Statutes
The legislative definition of “real property” cites to
“fixtures” and “use,” but does not define how the “use” prong of
the fixture test should be interpreted. Thus, HRS §§ 231-1 and
248-1 are ambiguous. It is the task of this court, then, to
examine the common law to determine what these terms mean, in the
absence of legislative or constitutional guidance. See Peters v.
Weatherwax, 69 Hawai i 21, 27, 731 P.2d 157, 161 (1987) (“The
interpretation of well-defined words and phrases in the common
law carries over to statutes dealing with same or similar subject
matter.”).
20
We note that any variations from HRS § 246-1 (1967) are minor.
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B. Wind Turbines Do Not Constitute Real Property
“[I]n the absence of anything to the contrary it is
fair to assume that [the legislature] used [“fixture”] in the
statute in its common-law sense.” Id. at 27, 731 P.2d at 161
(quoting Gilbert v. United States, 370 U.S. 650, 655 (1962)).
“We follow the common law in this jurisdiction.” Smith v. Smith,
56 Haw. 295, 303, 535 P.2d 1109, 1115 (1975). Thus, until the
legislature clarifies how the “use” prong of the fixture analysis
should be interpreted, we continue to rely on the common law test
set forth in Zangerle to determine whether an object affixed to
the land should be considered a fixture. 21
In Kaheawa, the ICA applied the traditional common law
fixture test from Zangerle to hold that wind turbines could not
constitute “fixtures” under MCC § 3.48.005 (1980). See Kaheawa,
135 Hawai i at 210-11, 347 P.3d at 640-41. The ICA was correct
to rely on this test, which is consistent with the only cases in
Hawai i that have analyzed fixtures. 22 See Kaheawa, 135 Hawai i
21
To the extent that Zangerle’s test has not been adopted among all
jurisdictions, we note that lack of uniformity in this area of law can be
traced to individual state laws defining “fixtures” and “real property.” See,
e.g., Marc L. Roark, Groping Along Between Things Real and Things Personal:
Defining Fixtures in the Law and Policy in the UCC, 78 U. Cin. L. Rev. 1437
(2010) (“The law of fixtures under the Uniform Commercial Code [] is
helplessly tied to the various state laws dictating real estate.”).
22
Although the Ohio Supreme Court had repudiated its use of the
Zangerle fixture test for some time after its publication, Ohio courts,
including the Ohio Supreme Court, began recognizing the test again. Kaheawa,
135 Hawai i at 641, 347 P.3d at 632 (citing In re Jarvis, 310 B.R. 330, 337-39
(Bankr. N.D. Ohio 2004) and Perez Bar & Grill v. Schneider, 2012 WL 6105324 at
*5 (Ohio Ct. App. 2012); see also Funtime, Inc. v. Wilkins, 822 N.E.2d 781,
786 (Ohio 2004); Metamora Elev. Co. v. Fulton Cnty. Bd. Of Revision, 37 N.E.3d
(continued...)
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at 210-11, 347 P.3d at 640-41; In re Waipuna Trading Co., Inc.,
41 B.R. 812, 815 (Bankr. D. Haw. 1984); Cartwright, 9 Haw. at 690
(holding that affixed machines in an iron works company were not
fixtures, as “the object of their annexation to the ground was in
order to keep them steady, and the attachment overhead was for
the purpose of communicating steam power to them, both being in
order to the more complete enjoyment of the machines as
chattels”). Further, we agree with the ICA’s application of the
Zangerle test and its conclusion that wind turbines are not
fixtures.
By statute, property becomes a fixture if (1) it is
“necessary to the utility of [the] land” or (2) it cannot be
removed “without substantial damage to such land[.]” HRS §§ 231-
1 and 248-1. Here, because the parties stipulated that the wind
turbines could be removed without damage to the land, the only
question is whether they are “necessary to the utility of the
land.” Kaheawa, 135 Hawai i at 210-11, 347 P.3d at 640-41.
In making this determination, the court must
distinguish between tangible property that is “merely accessory
to the business,” and property that has been “annexed to the
premises as accessory to it, whatever business may be carried on
22
(...continued)
1223, 1229 (Ohio 2015)).
Notably, Zangerle’s fixture test was also adopted by statute in
Ohio. See Ohio Rev. Code § 5701.02 (“‘Fixture’ means any item of tangible
personal property that has become permanently attached or affixed to the land
or to a building, structure, or improvement, and that primarily benefits the
realty and not the business, if any, conducted by the occupant on the
premises.”).
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upon it[.]” Zangerle, 60 N.E.2d at 177; see also Cartwright, 9
Haw. at 691 (distinguishing between “moveable machines, whose
number and permanency are contingent upon the varying conditions
of the business differ from engines and boilers and other
articles secured by masonry and designed to be permanent and
indispensable to the enjoyment of the freehold”). In other
words, we will only consider property to be a “fixture” under
Zangerle if the land to which the alleged fixture is attached
cannot be purposefully utilized without its presence.
Applying this test, wind turbines are “only necessary
to the utility of the land [] given the particular business that
[Appellees are] currently operating. The wind turbines are not
accessory or useful to the land ‘whatever business may be carried
on upon it.’” Kaheawa, 135 Hawai i at 211, 347 P.3d at 641
(quoting Zangerle, 60 N.E.2d at 177). Accordingly, the wind
turbines are not “fixtures,” and do not constitute “real
property.”
We reject the County’s claims that the Appellees’ wind
turbines can be considered “fixtures” under this interpretation
of “use,” and also reject the County’s assertion that it may
define what may become assessable accessions to realty pursuant
to appraisal concepts of use, utility, and value, because, again,
this expanded definition of what constitutes “improvements” would
be inconsistent with the common law principles reflected in
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Zangerle. See Kaheawa, 135 Hawai i at 210-11, 347 P.3d at 640-
41.
We note that the counties’ power to tax real property
cannot be construed in isolation, but instead, must be construed
with reference to “the current prohibition on the State taxing
real property.” City & Cty. of Honolulu v. State, 143 Hawai i
455, 468, 431 P.3d 1228, 1241 (2018). Because “only the counties
currently possess the constitutional authority to levy a tax on
real property within the State of Hawai i,” by re-defining
certain personal property as real property, the County prevents
the State from exercising its taxing authority over those items.
See id. at 459, 468, 431 P.3d at 1232, 1241 (“[T]he constitution
currently allows only the counties to tax real property to the
exclusion of all other government entities[.]” (emphasis added)).
As established above, “real property” pursuant to
article VIII, section 3 includes affixed machinery or equipment,
“whose use is necessary to the utility of the land . . . or whose
removal therefrom cannot be accomplished without causing
substantial damage to the land[.]” See, e.g., HRS §§ 231-1 and
248-1. Because the counties have the exclusive authority to tax
these fixtures, the State cannot. The State can, however, tax
all other machinery or equipment if the legislature so decides.
Pursuant to this analysis, wind turbines cannot be
construed as “real property” subject to the County’s taxation.
In defining a “fixture” to include machinery or equipment that
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increases the value of the underlying realty, the County would
assess the value of virtually any machinery or equipment bolted
in place, including wind turbines. In turn, the County would now
preclude the State from taxing the same. “The potency of the
real property tax as a policy tool . . . is undeniable.” Stand.
Comm. Rep. No. 42 in 1 Proceedings of the Constitutional
Convention of Hawai i of 1978, at 595 (1980). Unless the
legislature provides to the contrary, such policy-making power
must be reserved to the State.
V. CONCLUSION
For the foregoing reasons, we hold that the County
exceeded its power under the Hawai i Constitution when it amended
MCC § 6.48.005 to redefine “real property.” We therefore affirm
the TAC’s summary judgment orders and final judgment in favor of
the Appellees.
Brian A. Bilberry /s/ Mark E. Recktenwald
for appellant
/s/ Paula A. Nakayama
Ronald I. Heller
for appellee Kaheawa Wind Power /s/ Sabrina S. McKenna
Vito Galati (Christopher T. /s/ Richard W. Pollack
Goodin with him on the brief)
for appellee Auwahi Wind Energy /s/ Michael D. Wilson
Thomas Yamachika
for amicus curiae
Tax Foundation of Hawai i
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