Boards of Review: Facing Extinction

by Tom Yamachika, President, Tax Foundation Hawaii

In Hawaii, we have a beast called a Taxation Board of Review that is quickly following the dodo bird down the path to extinction. This is why we should be concerned.

None of us relish a tax audit, knowing that the person across the table from you represents a government agency that has the power to garnish your wages, seize your bank accounts, force the sale of your home, shut down your business, and file criminal charges. And yet, because the person in that position is a person and not some divine being, mistakes can and will happen. That's why our laws provide for review of tax assessments.

There are two principal ways state tax assessments can be reviewed by people who aren't employees of the Department of Taxation. One way is through the court system. The other way is through a citizen panel known as a Taxation Board of Review. The Boards were established in 1932, three years before the Territory of Hawaii adopted the General Excise Tax. Boards are in each of the principal counties, and have the power to hear and determine tax disputes arising in their county.

Each Board is supposed to have five members appointed by the Governor and confirmed by the Senate. The Board can't make a decision unless there is a “quorum” of three members that hears a particular case. Under a 2013 law, there may be up to three panels of five in each county, and a quorum can be gathered from any members available, so in each county there is a potential pool of fifteen members, three of which are needed to hear any particular case.

At present, only one Board exists in each county, so the “powers that be” either don't know or don't care that there can be three panels. (Let’s not get confused. There are different boards of review for county real property taxes. The City & County of Honolulu has had three boards since 2006, and they are functioning.)

To compound the problem, each of the boards has several vacancies. In fact, the Boards of Review for Kauai, Maui, and Oahu have fewer than three members left. They can’t do anything until they get more members. Only the Big Island board has three left, barely enough to function. Do the powers that be know or care?

Finding members for the Boards might not be an easy task. Most of the people in our community who know about the fine points of state tax law use that knowledge to make a living. But if you are on a Board, you are subject to the same ethics laws that apply to state employees, which means you can’t represent any clients for money before the Department of Taxation for the time you are on the Board, and for one year afterward. (See HRS section 84-18.) This prohibition doesn’t apply to task forces, but it does apply to boards and commissions. The requirement was designed to make sure the people in positions of influence don’t turn around after their service is done and parlay that influence into profit. So how do you get people to fill the vacancies? Not with pay; Board members are paid only a nominal $10 per day for their service. Retired practitioners, and practitioners serving only one client (such as CFOs) might be willing to go along with this, but folks who represent clients before the Department to feed their families probably won’t. And why is it that task forces can skate around the one-year restrictions while other boards and commissions can’t?

In any event, we have problems here and they need to be fixed. Are we going to let the Boards of Review become extinct through inaction? Or are we going to address the issues that have brought the Boards into decline, and fix them so that taxpayers once again can have another viable means of reviewing the actions of our Department of Taxation?