Hawaii Supreme Court Tax Cases to Watch: Potential Shifts in Taxpayer Rights and Dispute Costs

The Change

The Hawaii Supreme Court is reviewing two significant cases, Booking.com BV vs. Suganuma and a companion case involving general contractors, which will determine the extent to which courts can review and interpret Hawaii's tax laws. The core issue is whether tax laws already clearly define the scope of judicial review or if court interpretations can broaden or narrow existing tax obligations. The outcome will clarify the role of the judiciary in tax disputes and could potentially set new precedents for how tax laws are applied and challenged in the state.

Who's Affected

• Small Business Operators: Businesses facing tax disputes or audits may find their ability to challenge tax assessments through the courts altered. This could lead to increased reliance on protracted administrative processes or higher upfront legal costs if court intervention becomes more restricted or more complex. The implications for operating costs and potential liabilities are significant.
• Real Estate Owners: Property owners and developers subject to various state and county taxes (property tax, transient accommodations tax) could be impacted if the court's interpretation of tax laws changes. This may affect how they can contest assessments or new tax implementations, potentially leading to higher compliance costs or protracted legal battles. Investors in real estate may need to re-evaluate risk associated with tax-related liabilities.
• Investors: Portfolio managers and real estate investors need to consider how potential shifts in tax law interpretation might affect the profitability and asset valuation of their Hawaii-based holdings. Uncertainty around tax dispute resolution could increase perceived risk, potentially impacting investment decisions and returns. This is particularly relevant for investors with significant exposure to Hawaii's real estate and tourism sectors.
• Tourism Operators: Hotels, vacation rental owners, and other hospitality businesses are directly affected given their significant tax liabilities, including the transient accommodations tax. Clarity on how tax laws are interpreted and challenged could impact operational budgets and financial planning. A more complex or costly dispute resolution process could deter challenges and lead to higher effective tax burdens.
• Entrepreneurs & Startups: While not immediately impacted by ongoing interpretations of existing tax law, startups and entrepreneurs should be aware that a less favorable judicial review process could make tax compliance more burdensome. This is especially true if they plan to scale or engage in business activities with significant tax implications, where future disputes might arise.
• Agriculture & Food Producers: This sector, while perhaps less directly impacted by the nuances of business-to-consumer tax disputes like Booking.com, still faces numerous tax regulations. Any broadening or narrowing of judicial review could influence how agricultural businesses approach tax appeals related to operational taxes or excise taxes, potentially affecting their cost structure.
• Healthcare Providers: Healthcare providers, particularly those operating private practices or clinics, are subject to various tax codes. The outcome of these cases could influence their ability to contest tax assessments, potentially impacting operating costs and the need for specialized legal counsel in tax matters.

Second-Order Effects

If judicial review in tax matters becomes more constrained or complex, businesses might face higher legal expenses and longer resolution times for tax disputes (Source: Hawaii Reporter). This financial uncertainty and potential increased cost of doing business could indirectly affect employment in sectors heavily reliant on consistent profitability, such as tourism and small business services, by discouraging expansion or leading to cost-cutting measures. Additionally, a less accessible judicial process might disincentivize investment in sectors with significant tax exposures.

What to Do

• Small Business Operators: If you anticipate or are currently involved in a significant tax dispute, consult with a tax attorney experienced in Hawaii tax law to understand how these pending cases might affect your strategy. Review your current tax compliance procedures and documentation for all state and local taxes. No immediate action is required if you do not have active tax disputes.
• Real Estate Owners: Monitor the outcomes of Booking.com BV vs. Suganuma and the related contractor case. If these rulings lead to more restrictive or complex tax appeal processes, factor potential increases in legal costs for property tax or TAT disputes into your financial planning for 2027.
• Investors: Assess the tax-related regulatory risk for your Hawaii portfolio, particularly concerning real estate and tourism assets. Understand your potential exposure to increased litigation costs should tax disputes arise. Maintain communication with legal counsel regarding potential shifts in tax law interpretability.
• Tourism Operators: If you have ongoing or anticipated tax disputes (e.g., TAT audits), engage legal counsel to understand how potential changes in judicial review might impact your case. Factor potential increases in legal expenses into your operating budgets for the next 1-2 years.
• Entrepreneurs & Startups: While direct impact is minimal for early-stage companies, continue to prioritize robust tax compliance practices. Be aware that if you scale significantly, the landscape for tax disputes could become more challenging.
• Agriculture & Food Producers: Review any existing or potential tax disputes with your financial and legal advisors. Understand how potential changes in judicial review might impact your ability to challenge tax assessments.
• Healthcare Providers: Consult with your legal and financial advisors regarding the potential impact of these rulings on your practice's tax compliance and dispute resolution mechanisms. Be prepared for potential shifts in the cost and complexity of tax litigation.

Action Details: Monitor the Hawaii Supreme Court's dockets for rulings in Booking.com BV vs. Suganuma and the related contractor case over the next 6-12 months. If these rulings significantly restrict judicial review of tax laws, businesses with active or potential tax disputes should proactively engage specialized tax counsel to adjust their litigation or appeal strategies within 90 days of a ruling.