SB 3300: Taxation; Tax Appeals; Payments Under Protest

A BILL FOR AN ACT

relating to procedures for tax appeals.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that in the recent case In re:  Tax Appeal of PM & AM Research, Inc. v. State, CAAP‑25‑0000525 (Haw. App. Sept. 17, 2025), a taxpayer attempted to appeal a tax assessment by the department of taxation to the Hawaii tax appeal court.  Due to a procedural technicality, the court dismissed the appeal.  On appeal to the intermediate court of appeals, the court observed that the taxpayer had not paid the assessed tax, as required by section 235-114, Hawaii Revised Statutes, and dismissed the appeal on that basis.  Thus, the taxpayer was denied any substantive review of the assessment.

     Accordingly, the purpose of this Act is to clarify that:

     (1)  A tax shall be paid before the courts may entertain a second appeal on the merits of the dispute;

     (2)  A taxpayer who partially prevailed during the taxpayer's first appeal shall pay the amount determined to be due in that first appeal, rather than the entire assessment, in order to make a subsequent appeal; and

     (3)  A taxpayer who does not appeal the decision of the body reviewing the initial tax assessment by the department of taxation is required to pay the tax as determined by the taxation board of review or tax appeal court or the tax assessment by the Department of Taxation if left unmodified and unamended by the appellate body.

     SECTION 2.  Section 235-114, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Any person aggrieved by any assessment of the tax or liability imposed by this chapter may appeal from the assessment in the manner and within the time hereinafter set forth.  Appeal may be made either to the taxation board of review or to the tax appeal court.  The first appeal to either the taxation board of review or to the tax appeal court may be made without payment of the tax assessed.  Either the taxpayer or the assessor may appeal to the tax appeal court from a decision by the board or to the intermediate appellate court from a decision by the tax appeal court; provided that if the decision on the merits by the board or the tax appeal court is appealed by the taxpayer, [or the decision by the board in favor of the department is not appealed,] the taxpayer shall pay the tax [assessed] as determined by the board or the tax appeal court, plus interest as provided in section 231-39(b)(4)[.], to proceed with the second appeal; provided further that if the taxpayer does not file a second appeal from the decision by the board or by the tax appeal court reviewing the initial tax assessment by the department of taxation, then the taxpayer shall pay the tax as determined by the board or the tax appeal court or the tax assessment by the department of taxation if left unmodified and unamended by the board or the tax appeal court."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

Report Title:

Taxation; Tax Appeals; Payments Under Protest

Description:

Requires a tax to be paid before the courts may entertain a second appeal on the merits of the dispute.  Requires a taxpayer who partially prevailed during the taxpayer's first appeal to pay the amount determined to be due in that first appeal, rather than the entire assessment, in order to make a subsequent appeal.  Clarifies that a taxpayer who does not appeal the decision of the body reviewing the initial tax assessment by the Department of Taxation is required to pay the tax as determined by the Taxation Board of Review or Tax Appeal Court or the tax assessment by the Department of Taxation if left unmodified and unamended by the Board or Court.  (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

relating to procedures for tax appeals.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that in the recent case In re:  Tax Appeal of PM & AM Research, Inc. v. State, CAAP‑25‑0000525 (Haw. App. Sept. 17, 2025), a taxpayer attempted to appeal a tax assessment by the department of taxation to the Hawaii tax appeal court.  Due to a procedural technicality, the court dismissed the appeal.  On appeal to the intermediate court of appeals, the court observed that the taxpayer had not paid the assessed tax, as required by section 235-114, Hawaii Revised Statutes, and dismissed the appeal on that basis.  Thus, the taxpayer was denied any substantive review of the assessment.

     Accordingly, the purpose of this Act is to clarify that:

     (1)  A tax shall be paid before the courts may entertain a second appeal on the merits of the dispute; and

     (2)  A taxpayer who partially prevailed during the taxpayer's first appeal shall pay the amount determined to be due in that first appeal, rather than the entire assessment, in order to make a subsequent appeal.

     SECTION 2.  Section 235-114, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Any person aggrieved by any assessment of the tax or liability imposed by this chapter may appeal from the assessment in the manner and within the time hereinafter set forth.  Appeal may be made either to the taxation board of review or to the tax appeal court.  The first appeal to either the taxation board of review or to the tax appeal court may be made without payment of the tax assessed.  Either the taxpayer or the assessor may appeal to the tax appeal court from a decision by the board or to the intermediate appellate court from a decision by the tax appeal court; provided that if the decision on the merits by the board or the tax appeal court is appealed by the taxpayer, [or the decision by the board in favor of the department is not appealed,] the taxpayer shall pay the tax [assessed], as determined by the board or the tax appeal court, plus interest as provided in section 231-39(b)(4)."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

Report Title:

Taxation; Tax Appeals; Payments Under Protest

Description:

Requires a tax to be paid before the courts may entertain a second appeal on the merits of the dispute.  Requires a taxpayer who partially prevailed during the taxpayer's first appeal to pay the amount determined to be due in that first appeal, rather than the entire assessment, in order to make a subsequent appeal.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO. 2442

Honolulu, Hawaii

RE:     S.B. No. 3300

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Judiciary, to which was referred S.B. No. 3300 entitled:

"A BILL FOR AN ACT RELATING TO PROCEDURES FOR TAX APPEALS,"

begs leave to report as follows:

     The purpose and intent of this measure is to:

     (1)  Require a tax to be paid before the courts may entertain a second appeal on the merits of the dispute; and

     (2)  Require a taxpayer who partially prevailed during the taxpayer's first appeal to pay the amount determined to be due in that first appeal, rather than the entire assessment, in order to make a subsequent appeal.

     Your Committee received testimony in opposition to this measure from one individual.

     Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that in the recent case of In re:  Tax Appeal of PM & AM Research, Inc. v. State, CAAP‑25‑0000525 (Haw. App. Sept. 17, 2025), a taxpayer filed an appeal in the Tax Appeal Court from a general excise tax assessment.  Existing law requires a taxpayer in this situation to send a copy of the notice of appeal to the Director of Taxation.  In this case, however, the taxpayer inadvertently sent the notice to the Administrative Appeals Office, which is located in the same room of the same building in Honolulu.  Due to this procedural technicality, the Court dismissed the appeal.  When the taxpayer appealed to the Intermediate Court of Appeals, the Court found that the State has a "pay to play" law regarding tax appeals, meaning the first appeal to the tax appeal court is free, but any appeal after that may only be entertained if the taxpayer has paid the assessed tax in full.  This measure will ensure that taxpayers receive a decision on the merits of their case before being required to pay the assessed tax for any subsequent appeals.

     Your Committee has amended this measure by:

     (1)  Clarifying that a taxpayer who partially prevailed during the taxpayer's first appeal is required to pay the amount determined to be due in that first appeal, rather than the entire assessment, in order to proceed with the appeal;

     (2)  Clarifying that a taxpayer who does not appeal the decision of the body reviewing the initial tax assessment by the Department of Taxation is required to pay the tax as determined by the Taxation Board of Review or Tax Appeal Court or the tax assessment by the Department of Taxation if left unmodified and unamended by the Board or Court;

     (3)  Amending section 1 to reflect its amended purpose; and

     (4)  Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

     As affirmed by the record of votes of the members of your Committee on Judiciary that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3300, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3300, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Judiciary,