Background
Hawaiʻi’s Department of Taxation adopted a 2018 rule providing that online travel-booking agents’ services are used or consumed where the booked accommodation or travel service is located. The rule subjected Booking.com, a Netherlands-based online accommodations platform, to Hawaii general excise tax on fees from Hawaii bookings.
Booking.com filed a circuit-court action under HRS § 91-7 seeking to invalidate the rule on federal statutory and constitutional grounds. After the Department assessed more than $19 million in general excise taxes, penalties, and interest for 2010 through 2020, Booking.com also appealed that assessment in tax appeal court. The circuit court dismissed the rule challenge, and the Intermediate Court of Appeals affirmed, concluding Booking.com lacked standing and that the tax-related declaratory-relief bar in HRS § 632-1 applied.
The Court’s Holding
The Hawaii Supreme Court vacated the ICA and circuit-court judgments and remanded. It held that Booking.com was an “interested person” with standing under HRS § 91-7 because the online-booking rule could adversely affect it. A facial validity challenge to an agency rule need not seek a determination of how the rule applies to the particular plaintiff.
The court further held that HRS § 632-1’s prohibition on declaratory relief in tax controversies does not bar an HRS § 91-7 action challenging the validity of a tax administrative rule. HRS § 91-7 supplies a separate, specific remedy for facial rule challenges. The court also overruled Hawaii Home Infusion Associates v. Befitel, holding that HRS § 91-7(a)’s reference to the petitioner’s county concerns optional venue, not subject-matter jurisdiction; thus, an out-of-state plaintiff may sue where the agency is domiciled.
Key Takeaways
- Taxpayers may use HRS § 91-7 to facially challenge the validity of a tax administrative rule.
- HRS § 632-1’s tax-controversy limitation does not displace that specific administrative-rule remedy.
- HRS § 91-7(a) expands venue options and does not deprive Hawaii courts of jurisdiction over out-of-state challengers.
Why It Matters
The decision confirms that taxpayers need not wait for an assessment and then pursue a tax appeal before challenging a tax rule’s validity. That avenue can be significant where a rule exposes a taxpayer to years of back taxes, penalties, and interest.
It also removes a jurisdictional obstacle for out-of-state businesses seeking to challenge Hawaii agency rules and clarifies the distinction between facial attacks on rules and challenges to a rule’s application.