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Of Counsel:
ALSTON HUNT FLOYD & ING
Attorneys at Law
A Law Corporation

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PAUL ALSTON
1726-0
THOMAS E. BUSH
4737-O
LORI K. STIBB
9670_0
1O01 Bishop Street, Suite 1800
Honolulu, Hawai'i 96813
Telephone: (808) 524-1800
Facsimile: (808) 524-4591
E-mail: palston@ahfi.com
tbush@ahfi.com
lstib(@ahfi.com

Attorney for Plaintiff
IN THE CIRCUIT COURT OF THE FIRST CIRCUIT
STATE OF'HAWAI'I

TAX FOUNDATION OF HAWAII, A
Hawaii nonprofit corporation, on
behalf of itself and those similarly
situated,

1s*1-zTa0*åß

CIVIL NO
(Other Civil Action)

Ë üf{

COMPLAINT FOR AN INJUNCTION
AND MANDAMUS RtrLItrF; SUMMONS

Plaintiff,
VS

STATtr OF HAWAII,

Defendant.

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do tìerôby certífy thaÌ this is a full, true, an6

ü,riecr eopy of the onginalon file in lhis offieø,
àq

943327v51

{llcrk, Circuit Cr¡u;t,

Èi

Circuil

 COMPLAINT FOR AN INJUNCTION AND MANDAMUS RELIEF
The TAX FOUNDATION OF HAWAII, on behalf of itself and all others

similariy situated, by and through its counsel, Alston Hunt Floyd & Ing, for its
Complaint against Defendant, alleges as follows

Introduction

1.

This is a class action seeking an injunction and mandamus relief

brought in the public interest of a1l taxpayers in the City & County of Honolulu
("Honolulu taxpayers") to rectify an injustice that has damaged these taxpayers
by more than a hundred million doilars and that, unless enjoined, will damage

them by hundreds of millions of dollars more.

2.

Under the pretense of collecting funds to administer a surcharge

imposed soleiy on Honolulu taxpayers, the State of Hawaii, since 2OO7, lnas

kept tens of millions of dollars of this surcharge money in the State general

fund, rather than turning them over to the City & County of Honolulu
("Honoluiu") to use them for the purpose for which the funds were coliected,

that is, to fund Honolulu's mass transit rail project. As explained below, this
usurpation of Honolulu's surcharge money violates the relevant statute and
constitutional law.

3.

An injunction or mandamus should issue to compel the State to

follow the law and an injunction should issue to prevent the State from
breaking the law, with the result that it disgorges tax revenues improperly
retained in the State general fund and ends its unlawful conduct of skimming

943327v5/

1

 tens of millions of dollars a year under the pretense of "administering" the

surcharge money collected
The Parties

4.

Plaintiff TAX FOUNDATION OF HAWAII ("Plaintiff') is a Hawaii

nonprofit corporation with its principal office in the City and County of
Honolulu, State of Hawaii. Plaintiff has paid Hawaii General Excise Tax,
inciuding the Honolulu county surcharge, in 2014.

5.

Defendant STATE OF HAWAII ("State"), through its agency the

Department of Taxation (DOTAX), enforces the tax laws of the State of Hawaii,

including the General Excise Tax Law, Hawaii Revised Statutes (HRS) Chapter
237; and the Use Tax Law, HRS Chapter 238. Another State agency, the
Department of Budget and Finance ("8&F") is required to administer the
finances of the State government.

Jurisdiction and Venue

6.
2 1.5(a)(3),

7.

Jurisdiction is proper in this court pursuant to HRS SS 603603-2I.7 (b), 603-21.9, 632-1, 634-35(a), and 663-I.
Venue is proper in the First Circuit pursuant to HRS

S

603-36(5)

in that Piaintiff s claims arose there.
Factual Background

B.

In 2005, the State enacted Act247, which allowed each County to

impose a county surcharge amoLtnt of one-half

pe

general excise and use taxes collected by DOTAX.

943327v5

2

rcent

(1

l2 o/o) on state

 9.

Though made avaiiable to each County, the legislative history of

Acf,247 is clear that this iaw was passed to provide Honolulu with a source to

fund its mass transit rail project.

10.

In referring to the money anticipated to be collected from

Honolulu's expected use of this surcharge, DOTAX testified before the State
legislature that to ad.minister the surcharge it would require a one-time

appropriation of $g.O mittion for hardware, software, and equipment, and $2.5
million annually thereafter for recurring staffing and operational costs.
1

1.

Act 247 , part of which is codified at HRS S 248-2.6, provides in

pertinent part in subsection (a) that:
If adopted by county ordinance, all count¡r surcharges on state tax
collected by the director of taxation shall be paid into the State treasury
quarterly, within ten working days after collection, and shall be placed
by the director of finance in special accounts. Out of the revenues
generated by county surcharges on state tax paid into each respective
state treasury special account, the director of finance shall deduct ten
percent of the gross proceeds of a respective count¡r's surcharge on state
tax to reimburse the State for the costs of assessment, collection, and
disposition of the county surcharge on State tax incurred by the State.
Amounts retained shall be general fund realizatíons of the State.

12.

HRS S 248-2.6 provides

in subsection (b) that:

The amounts deducted for costs of assessment, collection, and
disposition of county surcharges on state tax shall be withheld from
payment to the counties by the State out of the county surcharges on
state tax collected for the current calendar year.

13.

HRS S 248-2.6 requires

in subsection (d) that "[a]fter the

deduction and withholding of the costs under subsections (a) and (b), the
director of fìnance shall pay the remaining balance on [a] quarterly basis to the

943327v5

-

J

 director of fìnance of each county that has adopted a count¡r surcharge on
state tax under section 46-76.8." (emphasis added).

14.

After Act 247 was enacted, Honolulu enacted Ordinance O5-O27,

which imposes a county surcharge on the state general excise and use taxes
collected from Honoiulu taxpayers as authorizedby HRS

S

46'16.8.

15.

No other county has imposed a county surcharge on these State

16.

DOTAX has collected the Honolulu county surcharge which B&F

taxes.

initially places in a special account.

17.

From this special account, B&F deducts

lO%o

of the gross amount

and distributes the remainder to Honolulu. B&F has deducted and continLtes
to deduct this 10% without ever determining the costs incurred by the State in
assessing, collecting and disposing of the county surcharge.

18.

B&F has deposited and continues to deposit and keep the entire

10% withheld from Honolulu into the State general fund.

19.

The i0% deducted by B&F exceeds the costs to the State of the

assessment, collection and disposition of the county surcharge.

20.

During the State fiscal years ending on June 30,2OI2,2073,

2OL4, and 2015, DOTAX reported that
$ tgS.

it had collected approximately $2t t.8,

I, fi242.6 and $248.5 million, respectively,

of county surcharge funds.

Thus, B&F would have deducted and diverted approximately $Z t. t, $ 19.3,
#Z+.2 and $24.8 million to the State general fund in those years.

943327v5

4

 2I.

These amounts grossly exceed the cost incurred by the State to

assess, collect and dispose of the count¡l surcharge funds.

22.

During fiscal years 2OI2,2OI3,2014, and 2O15, DOTAX collected

in excess of $6 billion in state taxes of all kinds, yet its entire operating budget
for those years was approximately #23.4, fi22.8, fiZ+.t, and #ZZ.g million
respectively. This means that the 10% count¡r surcharge diverted by the State

during those fiscal years was between

87%o

and 100% of the entire amount

expended bv the State in as sessing, collecting and disposing of all state
taxes.

23. In calendar

years 2072, 2OI3, 2OI4 , and prior years, t}:re l0o/o

deducted and diverted to the State general fund has grossly exceeded the
State's costs to assess, coilect and dispose of the county surcharge.

24. Thus, tl:re IOo/o retained by the State cannot properly be
characterized as a fee for the administration of the county surcharge as is
stated in HRS S 248-2.6. Instead, the bulk of the

7Oo/o

retained by the State is

an illegal and discriminatory additional general excise tax on those who are
now required to pay the count¡r surcharge.

25.

The State's diversion of tax proceeds in excess of its actual costs of

administration injures Plaintiff and the class it represents by increasing the
gross amount of excise tax that must be collected in order to cover the cost of

the Honolulu rail project andf or by exposing Plaintiff and the class it
represents to an illegal tax burden.

943327v5

5

 Class Action Alleqations

26.

Pursuant to Haw. R. Civ. P. Rule 23, Plaintiff brings this action

on behalf of itself and all others similarly situated, that is, ail taxpayers upon
whom the Oahu county surcharge was, is, or will be imposed during years
when the State has diverted, or will in the future divert, more than the actual
costs of assessment, collection and disposition into the State's coffers

27.

This action has been brought and may be properly maintained as

a Class Action pursuant to Haw. R. Civ. P. Rule 23

28.

Numerosity of the Class The Class is so numerous that joinder of

all such persons is impracticable and the disposition of their claims in a Class
Action, rather than individual actions, will benefit the parties and the Court.

29.

TYpicalitv. Plaintiff's claims are typical of the ciaims of the Class

as a whole.

30.

Adequacy. Plaintiff will adequately represent the Class because it

will fairly and adequately protect the interest of the Class. Plaintiff knows of
no conflicts of interest among members of the class. Plaintiff is committed to
the vigorous prosecution of the action. Plaintiff is represented by competent

counsel experienced in complex litigation and class actions and will adequately
represent the interest of the entire class.

31.

Existence and Predominance of Common Questions of Law and

Fact. There is a well-defined commltnity of interest in the que stions of law and
fact involved in this case which affect all members of the Class and which

943327v5

6

 predominate over any individual issues. Questions of law and fact common to
the class members include, but are not limited to, the following

a. Whether the State has deducted and continues to deduct 10%
of the Oahu surcharge without any determination of the costs to the State of

the assessment, collection and disposition of the surcharge;

b. Whether the 10%o deducted for the Oahu surcharge

reasonably

equates to the costs to the State to administer the county surcharge;

c. The proper measure of Plaintiff's and the class members'
damages; and

d.

Whether Plaintiff and the class members are entitled to the

injunctive and deciaratory relief prayed for bçlow.

32.

SuperioriW. This case is the superior method for fair and efficient

adjudication of this controversy because the expense and burden of individual
litigation makes it impracticable for members of the class to seek redress
individually of the wrongful conduct alleged herein. Further, it would be

virtually impossible for the members of the class individually to redress
effectively the injuries inflicted on them. This class action presents far fewer
management difficulties, and provides the benefits of single adjudication,
economy of scale and comprehensive supervision by a single court.

33.

Risk of Inconsistent Adiudications. Prosecution of separate

actions by individual members of the class would create a risk of inconsistent
or varying adjudications with respect to individual members of the class, which

would estabiish incompatible standards of conduct for the State in opposing

943327v5

7

 the class, or adjudications with respect to individual members of the class
which would, as a practical matter, be dispositive of the interests of the other
class members not parties to the adjudications, or which would substantially

impair or impede their ability to protect their interests

34.

Defendant's Acts and Refusals to Act Concerning the Class. This

action may aiso be maintained as a class action because the State has acted
and refused to act on grounds generally applicabie to the class as a whole,
thereby, making appropriate injunctive and declaratory relief with respect to
the members of the class
Count I (lniunction)

35. Plaintiff repeats

and realleges each and every allegation set forth

above.

36.

HRS S 248-2.6(d) requires that the State pay to the count¡r the

entire balance of the count¡r surcharge collected by DOTAX minus oniy the
costs of administering the amounts collected by DOTAX.
37

.

By deducting and diverting

lOo/o

of all Oahu surcharge proceeds

collected without regard to the actual cost of assessing, collecting and

disposing of the amounts collected, the State has failed to follow HRS S 2482.6(d) and has collected an amou.nt that bears no relation to the State's costs
of administering the county surcharge. As a result, Piaintiff and similarly

situated class members have been and continue to be required to pay a higher
state tax than that imposed on state tax payers of other counties.

943327v5

B

 38.

This application of HRS g 248-2.6 constitutes a violation of the

General Laws provision of the Constitution of the State of Hawaii (Article VIIi,

Section 1) as well as a violation of the Equal Protection Clause of the

Constitution of the State of Hawaii and the Equal Protection Clause of the
Constitution of the United States of America.

39.

The State's violation of the Art. VIII $ 1 and the state and federal

Equal Protection Clauses has injured and continues to injure Piaintiff and all

similarly situated class members in an amount to be determined at triai.

40.

Plaintiff and all similarly situated class members are entitled to an

order enjoining the State from continuing to violate the Generai Laws provision
and the state and federal Equal Protection Clauses.

41.

Plaintiff and ail similarly situated class members are entitled to

injunctive relief directing that the State reimburse to Plaintiffs and/or
Honoluiu all amounts improperly kept by the State.
Count

il

(Mandamus Relief)

42.

Plaintiff repeats and realleges each and every allegation set forth

43.

The State's failure to follow HRS

above.
S

248-2.6(d) has resulted in a

continuing injury to Piaintiff and similarly situated class members by violating
their constitutional rights as described above and by imposing on them
additional taxes not imposed on State taxpayers in other counties in an
amount to be determined at trial.

943327v5

9

 44.

Plaintiff and all similarly situated class members have no other

remedy avaiiable and are entitled to mandamus directing the State to follow
HRS S 248-2.6(d), and deduct and withhold only the cost of administering the

Oahu surcharge and to pay the remaining balance of the

10%o

county

surcharge initially withheld to Honolulu.

45.

Plaintiff and a1l similarly situated ciass members have no other

remedy available and are entitied to mandamus directing that the State

reimburse to Plaintiffs and/or Honolulu all amounts improperly kept by the
State.

WHEREFORE, Plaintiff, on behalf of itself and the class it represents,

prays that this Court give relief as follows:

1.

For an order enjoining the State from collecting any Oahu

surcharge amounts in violation of statutory and constitutional laws;

2.

For an order directing the State to follow HRS S 248-2.6(d), and to

deduct and withhold only the cost of administering the Oahu surcharge and
pay the remaining balance to the City & County of Honolulu.

3.

For an order directing the State to reimburse to the City & County

of Honolulu and/or Plaintiff and class members any and all illegally collected

Oahu surcharge amounts;

4.

For an award of attorneys' fees based upon, any applicable theory,

including but not limited to, the fact that this action produces a common fund
andf or common benefit within the meaning of In re Water Use Permit

Applications, 96 Hawal'i 27,25 P.3d BO2 (2OO1) and Chun v. Board of Trustees

943327v5

10

 of the Employees' Retirement System ,92 l{awaf i 432,999 P.2d I27

from which attorneys' fees are recoverable; and

5.

For such other and further relief as is just and proper.
OeT

DATED: Honolulu, Hawaii,

2 1 20t5

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THOMAS E. BUSH
LORI K. STIBB
Attorneys for Plaintiff
TAX FOUNDATION OF HAV/AII

943327v5

11

(2OOO),

 iN THE CIRCUIT COURT OF THE FIRST CIRCUIT
STATE OF HAWAI'I

TAX FOUNDATION OF HAWAII, A
Hawaii nonprofit corporation, on
behalf of itself and those similarly
situated,

CIVIL NO
(Other Civil Action)
SUMMONS

Plaintiff,
VS

STATE OF HAWAII,

Defendant
SUMMONS
STATE OF HAWAII
To the above-named Defendants:

You are hereby summoned and required to file with the court and serve

upon ALSTON HUNT FLOYD & ING, attorneys for Plaintiff, whose address is
1001 Bishop Street, Suite 1800, Honolulu, Hawaii 968i3, an answer to the

Complaint which is herewith served upon you, within twenty (20) days after
service of this Summons upon you, exclusive of the day of service. If you fail to
do so, judgment by default will be taken against you for the relief demanded in

the Complaint.
This Summons shall not be personally delivered between 10:00 p.m. and
6:00 a.m. on premises not open to the general public, unless a judge of the
above-entitled court permits, in writing on this Summons, personal delivery

during those hours

943327v51

1

 A failure to obey this Summons may result in an entry of default and

default judgment against the disobeying person or party.
fficT ä

DATED: Honolulu, Hawai'i,

N"

r

ANAYA

CLERK OF THE ABO

943327v5

2

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