County ordered to refund $10.7M in property taxes
Maui County has been ordered to refund $10.7 million to two time-share owners associations in a legal dispute over amended assessments billed nearly a decade after the original assessments were made.
Second Circuit Judge Peter Cahill earlier this month ordered the county to refund Kaanapali Ocean Resort Villas $6.9 million and Kaanapali Ocean Resort Villas North $3.8 million for tax payments associated with the amended assessments.
In addition, the county must refund both associations $83,000 for fees incurred in its appeal to the county Tax Review Board. The associations also can seek other damages, including attorneys’ fees and costs.
In May 2016, the county issued amended assessments for the properties for tax years 2006, 2007 and 2008 that called for the associations to pay an additional $10 million in property taxes.
The time-share associations maintain that the county issued the amended assessments several months before a trial in which the Kaanapali time-share groups were suing the county over the creation of a separate property tax classification for time shares with the highest rates. The initial lawsuit was filed in 2013 and the case still is pending.
“The county issued the amended assessment not as part of its routine assessment and taxation function, but, viewing the facts in the light most favorable to the county, abused it(s) taxation power to create a weapon — a new $10-plus million tax obligation — against taxpayers with whom it was in litigation,” said Cahill in his decision.
The Department of Corporation Counsel, not the county’s Real Property Assessment Division, “orchestrated the county’s official decision to issue the amended assessments,” Cahill said.
There should be a finality in real property tax assessments and bills, he said, because “if the county can retroactively reassess already-assessed real property tax to change the valuation and impose additional taxes, even many years later as it argues it can here, property owners can never have confidence that they have satisfied their tax obligation for any previous years.”
Maui County Corporation Counsel Pat Wong said in a email statement Friday afternoon that the county will appeal the decision.
“The County of Maui and the Department of Corporation Counsel strongly disagree with the findings and rulings of the circuit court,” he said. “The facts discovered in the time shares’ lawsuit demonstrated that the time shares did not pay their fair shares of real property taxes (for the three tax years).”
Wong explained that the time-share associations’ failure to pay the proper amount of property taxes “unfortunately went overlooked because of significant backlogs in the real property tax assessment rolls for these years.”
“The omitted taxes were discovered when the county’s Real Property Assessment Division was researching its records to assist the county’s lawyers in defending against the highly questionable lawsuit brought by the time shares, which seeks more than $30 million in back taxes, despite the time shares having received a $10 million windfall for the omitted assessments in the past years,” Wong said.
The county attempted to offset the $30 million allegedly owed to the plaintiffs in the tax classification and assessment case by the omitted $10 million, but the time-share associations objected and argued that the county was required to assess for the back taxes, he said.
“Pending the appeal, the county will be refunding the approximate $10 million in omitted taxes, as well as the filing fees paid by the time-shares, which amounts have been held in an interest-bearing litigated account pending final resolution of this dispute,” Wong said.
Maui County Communications Director Rod Antone previously told The Maui News that the county taxed the properties as time shares as a whole but not as individual condominium properties.
He had said that the time shares received the windfall/tax break of approximately $10 million by county omission to assess condominium property. Time-share officials said the units were officially registered as condominiums during 2006, 2007 and 2008.
* Melissa Tanji can be reached at email@example.com.