Hawaii Supreme Court Rejects Rail Surcharge Lawsuit

News Release from Tax Foundation of Hawaii

HONOLULU, HAWAII–March 21, 2019–The Supreme Court of the State of Hawaii today rejected the lawsuit by the Tax Foundation of Hawaii to invalidate the “skim” of 10% on the Oahu rail surcharge from the inception of the surcharge in 2007 until it was slashed to 1% in late 2017. The Supreme Court concluded that “in 2005, it was uncertain what the potential burden of the surcharge’s administration would be, and it was reasonable for the State to estimate administration costs at 10% of the surcharge’s gross proceeds.”

The Tax Foundation of Hawaii, a nonprofit taxpayer watchdog organization, filed suit against the State of Hawaii in October 2015 to halt the State’s practice of skimming tens of millions of dollars each year from the amounts collected for the Oahu rail surcharge. The lawsuit alleged that although the law authorizing the diversion allows the State to retain the costs of administering the surcharge, the amount taken was many times those costs, amounting to a hidden State tax unwittingly paid by Oahu residents and businesses.

According to Tom Yamachika, President of the Tax Foundation of Hawaii:

“We filed this lawsuit because we on Oahu pay an extra 0.5% surcharge on most of the things we buy, and thought that the money was going to rail. In fact, over $220 million to date was skimmed off to the State general fund and was spent on everything but rail.

“We thank the Supreme Court of Hawaii for recognizing the Foundation’s ‘historical purpose as a governmental financial accountability watchdog,’ and for recognizing the Foundation’s standing to sue in the courts of Hawaii to seek justice for Hawaii’s taxpayers.

“Despite the rejection of the Supreme Court of Hawaii, our efforts were key in the legislature’s decision to drop the skim from 10% to 1% during the 2017 Special Session—this was a win for all taxpayers in this State. Had we not filed suit, perhaps the skim would not have been reduced at all and would continue until today not only in Honolulu, but in all other counties that have adopted the surcharge.”

Link: Case Documents