The Supreme Court of Hawai'i will allow Hawaiian Airlines (HA, Honolulu) to maintain its lawsuit against the state's tax office over payment of USD1,624,482.75 in general excise taxes connected with parts sold to it by Boeing.
Justice Sabrina McKenna issued the reasons for her decision on October 7, 2024, vacating earlier rulings from the Hawai'i Tax Appeal Court and Intermediate Court of Appeals, sending the matter back to the state's tax courts "for further proceedings consistent with this opinion."
The case stemmed from the sale of parts to Hawaiian by Boeing. The seller was required to collect the required taxes on the transaction and remit them to the relevant state and federal tax agencies. Hawaiian agreed to this when it entered into the transaction. Hawaiian state laws impose use taxes on goods, intangibles, services, and contracting purchased from most sellers. But there are some exemptions. At Hawaiian's request, Boeing sought one for these sales under Hawai'i's Revised Statutes.
In response to the request, the tax agency initiated an audit of Boeing to assess whether the sale of parts to Hawaiian is exempt under the statutes. It later told Boeing that the exemption sought was for "services provided to a customer, not on sales of parts alone to its customers." Boeing subsequently invoiced Hawaiian for the tax bill, which the airline paid "under protest."
Hawaiian later filed a complaint for declaratory judgment in Hawai'i's Tax Appeal Court, arguing that the court had jurisdiction over an action to recover taxes paid under protest. Later in the year, Hawai'i's tax department filed a motion to dismiss, saying the court lacked jurisdiction because there was no actual dispute between Boeing and the tax department when Hawaiian made the payment. The court agreed, saying local tax laws required an actual dispute to be underway before a taxpayer can make a payment under protest. Hawaiian Airlines appealed to the state's Intermediate Court, but a panel of three judges dismissed that appeal in March 2024.
As reported in ch-aviation, Hawaiian Airlines appealed this decision to the state's Supreme Court. In July, the court accepted the appeal but did not state its reasons for doing so.
This week, McKenna said a notice of proposed assessment (NOPA) issued to Boeing in May 2021 by Hawai'i's Department of Taxation was sufficient to create an actual dispute under state jurisdictional statutes. She also ruled that the assessment notice contained a demand and determination of tax liability, which under previously developed state case law, also met the criteria for establishing an actual dispute.
Hawaiian Airlines declined to comment.
