By Kevin Dayton
Advertiser Capitol Bureau Chief
After years of quarreling over the state’s special tax on utility companies, Honolulu and the Neighbor Island counties have finally reached an out-of-court settlement with the state that will pump an extra $30 million a year into county treasuries.
The dispute dates back to 1999, when former Big Island Mayor Stephen Yamashiro’s administration sued the state and demanded a share of the public service company tax the state imposes on utilities.
The state constitution gives the counties the power to impose property taxes, but the state’s public service company tax law required utilities to pay a separate tax to the state instead of paying property taxes to the counties.
Yamashiro argued that was an improper infringement into the county’s powers to impose property taxes, and eventually sued.
The dispute was dismissed from state Circuit Court and landed in state Tax Court after the Big Island attempted to impose property taxes on the utilities, said Gerald Takase, assistant corporation counsel for the Big Island.
Verizon, Hawaiian Electric Co. and The Gas Co. appealed, arguing they were in effect being required to pay property taxes twice — once to the state, and once to the counties.
In a settlement finalized on Friday, the state agreed the portion of the public service company tax that is imposed in lieu of county property taxes will be turned over to the counties, Takase said. A bill must be approved by the state Legislature this year to adjust the public service company tax law and complete the settlement, he said.
State director of finance Neal Miyahira said the city of Honolulu is expected to receive a windfall of about $23 million a year under the settlement, although that amount will vary as the utilities’ revenues increase or decrease.
The Big Island and Maui are each expected to receive about $3 million, and Kaua‘i would receive about $1 million, Miyahira said.
However, city budget director Malcolm Tom said the city expects to receive about $28 million a year.
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