A public skirmish has broken out between county officials and representatives of Kaanapali time-share groups over claims of “retroactive” tax bills, three weeks before a trial between the parties is scheduled to begin in 2nd Circuit Court.
Days before the Aug. 13 primary election, One Ohana PAC, a super PAC organized by time-share owners and supporters, posted ads on social media and sent out automated phone calls inviting registered voters to a telephone town hall, hosted by taxpayer advocate Ted Costa, chief executive officer of People’s Advocate.
One Ohana PAC claimed that the county was starting to raise property taxes retroactively.
That triggered a response from Maui County Council Chairman Mike White, who said in a news release Aug. 11 that retroactive assessments were not being done countywide – only for two time-share associations at their attorneys’ request. No other time-share units or properties in other tax categories were involved.
The point was reiterated in a letter sent to the two time-share associations at the Kaanapali Ocean Resort Villas and Kaanapali Ocean Resort Villas North by the county Department of Corporation Counsel.
One Ohana PAC took issue with White’s statement about attorneys representing time-share associations requesting or inviting the “retroactive taxation by the County of Maui.”
“This statement is patently false and a parroting of an erroneous conclusion reached by the deputy corporation counsel representing the County of Maui and Maui County Council,” One Ohana PAC said in a news release Monday. “It should be immediately retracted.”
The source of this recent tit for tat began more than a decade ago with the creation of a time-share property tax category that became law in 2005. A lawsuit was filed in 2013 by the Kaanapali Ocean Resort Villas and Kaanapali Ocean Resort Villas North owners associations against the county over the creation of the tax category and the rates, the highest of all property tax categories. In May, the county issued amended assessments for the properties for 2006, 2007 and 2008 that called for the associations to pay an additional $10 million in property taxes.
That additional $10 million, which the associations have provisionally paid, lies at the heart of the recent clash of words. Both sides broadly espouse the same set of facts, but differ on whether the county has the power to reassess properties after taxes have been paid.
The Westin Kaanapali Ocean Resort Villas, with 280 vacation units, and the Westin Kaanapali Ocean Resort Villas North, with 258 units, currently have a total of 28,000 fractional time-share owners, though the number fluctuates, said Grant Gillham, One Ohana PAC’s executive director, on Thursday.
During the 2006 to 2008 tax years, the county taxed the properties as time shares as a whole but “inadvertently” not as individual condominium properties, county spokesman Rod Antone said Thursday. The Ocean Resort Villas initially was assessed at $2.1 million, $2.3 million and $2.5 million, and the Ocean Resort Villas North at $145,445, $145,445 and $1.3 million in the years 2006, 2007 and 2008, respectively.
The time-share associations received a “windfall/tax break of approximately $10 million by county omission to assess condominium property,” Antone said. Gillham pointed out that the units were officially registered as condominiums during those years.
The assessments were correctly stated in tax year 2009, when the Ocean Resort Villas assessment rose to $5 million and the Ocean Resort Villas North to $5.4 million, Antone said. On May 24, the county real property tax division sent out amended assessments for 2006-08, Antone said.
“Eight to 10 years after the County of Maui assessed the subject real properties in 2006, 2007 and 2008, and eight to 10 years after the taxpayers paid the assessed taxes on time and in full, the county now seeks to change the assessment methodology and increase the assessed value of the properties in order to retroactively collect more than $10 million in additional taxes,” said Gillham. “There is no legal basis for the county’s amended tax assessments.”
He added that the county issued its reassessments just three months before a trial in 2nd Circuit Court on the challenge to the time-share property tax classification and rates. The trial in Judge Peter Cahill’s courtroom is set to begin Sept. 12, according to court documents.
Time-share plaintiffs requested that the property tax division hold off on collecting on the bill, which had a June 23 deadline, but corporation counsel declined “and suggested, by including in its response incomplete excerpts from legal proceedings that were taken out of context, that the attorneys for the subject time-share properties somehow invited or requested that the county issue amended assessments,” Gillham said.
“Such a suggestion is, again, absolutely not true,” he said.
Court documents indicate that the time-share groups paid the new bill “under protest” and to preclude delinquency. The amended assessments also were appealed to the Real Property Tax Review Board.
“The county, we believe at the recommendation of the Department of the Corporation Counsel, issued the amended assessments against the subject time-share properties to punish them for exercising their right to challenge the county’s real property tax classification and rate for time shares,” Gillham said.
Antone said that he could not comment on specifics of the case because it is in litigation, but said that the time-share plaintiffs “are stretching the truth way out of proportion to meet their needs.”
While the lawsuit encompasses the reassessment, its main focus is the creation of the time-share classification that took effect Jan. 1, 2005. Prior to the establishment of the new tax category, time-shares and hotels were in the same classification.
“The argument is that there was no rational basis to create a separate tax classification for time shares,” Gillham said.
In the lawsuit, the plaintiffs argue that the time-share classification “draws an arbitrary and irrational distinction between time-share properties and hotel and resort properties” when, in fact, time-share owners use their units like hotel guests.
The tax rates established for time-share owners are between 165 percent and 169 percent higher than the rates on hotels and resorts, and the county “knowingly and intentionally designed the time-share classification so that the highest tax burden would fall on nonresidents, who comprise the overwhelming majority of time-share owners,” the lawsuit said.
Plaintiffs are asking the court to strike down the time-share classification and rates as unconstitutional and to deem the amended assessments invalid.
* Lee Imada can be reached at leeimada@mauinews.com.
