A single lawsuit that could cost Maui District a staggering 34 million dollars in property tax refunds, district officials confirmed last week.

The district is appealing a verdict by Peter Cahill, 2nd Circuit Court Judge, who in March this year issued an order saying the timeshare property tax classification established more than 10 years ago is illegal. He ruled that the tax bracket for the classification from 2005 to the present is “invalid and void.”

Cahill’s ruling comes from a lawsuit filed back in 2013 by the Ocean Resort Villas North Vacation and the Ocean Resort Villas Vacation Owners Association and which involve both owners from the Westin Ka’anapali Ocean Resort Villas, along with association officials Peter A. Bagatelos and Vic H. Henry.

The lawsuit is against the district and the County Council over establishing the timeshare category, which has had the highest tax rate. Currently, the rate for timeshares is $15.41 per $1,000 of net taxable assessed valuation. It is followed by hotel and resort properties, which are taxed at $9.37. Homeowners pay the lowest at $2.85.

The district and council pursued establishing the timeshare class and rate to eradicate tax disproportions in Maui’s visitor business between hotels and timeshares, according to court papers.
In the March ruling, Cahill said that, “under the Maui County Code, the district may create property tax classifications based only on differences in the use of real property. The code says there is no distinction in the actual use of hotels and timeshares, because it defines that use in identical terms,”. Also stating that the only modification between a condo classified as a hotel and a condo classified as timeshare is the existence of a timeshare plan, which he says is “a distinction that is irrelevant to the property’s actual use.”

According to records from the court hearing, Cahill said that if the district loses the appeal the costs could go above and beyond 34 million dollars.

Saying the “$34 million is just the beginning of the tip of the iceberg here.”

Brian Bilberry, Deputy Corporation Counsel said at the hearing that “the consequences of the district losing the case could be devastating. The opposing ruling would damage the districts bond and credit ratings and weaken Maui County’s tax code.”

Prior to the hearing the news was brought to the public’s attention. Maui commented in a press release they are “devoted to preserving Maui’s economic and ecological sustainability by energising voters.”

A written account from the district said that since the timeshare owners did not “follow the law” and file timely tax appeals, the district has been vetoed from placing the demanded tax refunds into an account for property tax issues under litigation. Therefore, the associations sidestepped the normal appeals process and headed straight to court.

Due to this, the district upholds that the ruling could be overturned. The ruling also could be reversed as Cahill has “no general subject matter jurisdiction over tax disputes.” And, by law, all appeals for tax refunds are the “exclusive and special jurisdiction” of the tax appeal court on Oahu.

A statement was obtained from the timeshare association attorneys stating that the Westin Ka’anapali Ocean Resort Villas boards, says that their owners love Maui and its residents and are “committed to being positive contributors to the Maui community for years to come. It is not now (nor has it ever been) our intention to place the county in a serious financial situation by taking legal action against it. We, like any taxpayer, merely sought to be taxed fairly and legally,”

Nonetheless, the associations attorneys said they recognise that because of the litigation, the districts “financial exposure is now significant. Given this, it is our sincere hope that we can settle our dispute amicably and without delay or further litigation, on terms that are financially feasible for the county and significantly mitigate its overall legal risks.”

When questioned what the criteria is to create property tax categories, the district statement said it is based partly on use, but it’s not limited to actual use of property.

The council sustained there were tax loopholes that offered an incentive for hotel conversions to timeshare.

The difference between hotels and timeshare are, hotels need to keep up with housekeeping, food, customer service and other amenities, whereas timeshare owners generally have their own kitchens, and housekeeping doesn’t normally service rooms every day.

“Timeshare is a financial model that significantly benefits the developers,” however, it leaves communities with less jobs, less tax revenue and less overall income.”

It was only after public assemblies and debates that the council determined that the influences of the growing timeshare industry warranted the creation of a separate category, the district said. The council also sent a representative to participate with a local task force to gather information about the impact’s timeshare use was having on Maui.

The county statement pointed out that “the individual timeshare occupant pays a minimum” fee to an association to help cover the property taxes ultimately paid by the timeshare associations (not the member/owners).

The district stated that it does asses condo units for property tax purposes, but it does not assess individual timeshare intervals.

If your timeshare resort is going through lawsuits, it is not worth your hassle to have to go through it. Speak with and Advisor At ABC Lawyers today and let us help you with the exit and the claiming of compensation, and finally be free of your timeshare burden.

See our recent post regarding timeshare and if they are worth your money.