Suganuma v. Goodman

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
17-OCT-2024
08:09 AM
Dkt. 59 MO
NO. CAAP-XX-XXXXXXX

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI#I

GARY S. SUGANUMA,1 DIRECTOR OF TAXATION, STATE OF HAWAII,
Appellant-Appellee,
v.
BLAKE GOODMAN and BLANCA GOODMAN,
Appellees-Appellants

APPEAL IN THE TAX APPEAL COURT OF THE STATE OF HAWAI#I
(CASE NO. 1TX151000221)

MEMORANDUM OPINION
(By: Leonard, Acting Chief Judge, Hiraoka and Nakasone, JJ.)

Blake Goodman and Blanca Goodman (Taxpayers) claimed a
Hawaii Revised Statutes (HRS) § 235-12.5(h) renewable energy
technologies income tax credit of $17,250 on their 2012 return.
The Department of Taxation reduced their credit by 30 percent
under HRS § 235-12.5(g) and assessed $5,416.50 of additional tax
and interest. Taxpayers appealed to the review board. The board
ruled for Taxpayers. The Director of Taxation appealed to the
Tax Appeal Court. The Tax Appeal Court disallowed the credit and
ordered Taxpayers to pay additional tax of $17,250.2 Taxpayers
appeal from the Tax Appeal Court's March 15, 2024 "Order

1
Gary S. Suganuma, the current director of taxation, is substituted
for former director Maria E. Zielinski under Hawai#i Rules of Appellate
Procedure Rule 43(c)(1).
2
The Honorable Gary W.B. Chang presided.
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

Regarding Appellant Maria E. Zielinski, Director of Taxation,
State of Hawaii's Motion for Summary Judgment Filed on May 18,
2017[.]"3 We hold that the Tax Appeal Court acted outside its
jurisdiction by ordering Taxpayers to pay more than the amount of
the assessment; affirm the Department's assessment; and remand to
the Tax Appeal Court for further proceedings.

I. BACKGROUND

Taxpayers were married and filed a self-prepared joint
return for the 2012 tax year. According to the return, Blake
Goodman worked as an attorney and Blanca Goodman worked as a
paralegal. Their 2012 adjusted gross income was $448,212. Their
tax liability was $33,473. $8,221 had been withheld from income.
Their net tax liability was $25,252. After deducting a $17,250
renewable energy technologies income tax credit, they owed $8,002
to the Department.
The Department audited the return and issued a Notice
of Final Assessment of Income Tax for an additional $5,416.50.
The Department explained:

The adjustments shown are made in accordance with the
provisions of [HRS §] 235-12.5[.] Adjustment is based on
information obtained from Form N-342.

A review of your 2012 Hawaii income showed that on Form
N-342, line 42 you elected to treat the renewable energy
technologies income tax credit as Refundable. On line 43b
you elected to treat the tax credit for a solar energy
system as refundable because ALL of your income is exempt
from Hawaii taxation or your Hawaii adjusted gross income is
$20,000 or less ($40,000 or less if filing jointly).
However, Form N-11, line 20 showed that your Hawaii adjusted
gross income of [sic] $448,212.
Therefore, we reduced your renewable energy technologies
income tax credit by 30% because your Hawaii adjusted gross
income exceeds $40,000.

3
The Tax Appeal Court also entered a judgment on March 15, 2024,
but the judgment is superfluous. Appeals from the Tax Appeal Court are taken
under HRS § 232-19 from "the decision of the tax appeal court . . . that
finally decides all issues in the tax appeal." Alford v. City & Cnty. of
Honolulu, 109 Hawai#i 14, 22, 122 P.3d 809, 817 (2005) (emphasis added). HRS
§ 232-19 (2017) requires that these appeals be "speedily disposed of[.]"

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Please note that once an election on Form N-342, line 42 is
made, it cannot be revoked or amended as provided under
section 235-l2.5(g), [HRS].

Taxpayers appealed to the Board of Taxation Review.
The Board concluded that the Form N-342, line 42 election was
based on HRS § 235-12.5 subsection (f), not subsection (g), and
subsection (f) does not state the election is irrevocable,
although subsection (g) does. The Board ordered the Director to
let Taxpayers choose between a refundable or non-refundable
credit.
The Director appealed to the Tax Appeal Court and moved
for summary judgment. During oral argument Blake Goodman argued
he made a mistake because tax form N-342 was poorly drafted. He
admitted not consulting the form's instructions; he relied on
Turbo Tax. He did not read every line of the tax return before
signing it. But he understood that irrevocable "meant there's no
going back. There's no change in decision of . . . election."
Blanca Goodman thanked the court and said, "I trust my
husband so — I don't know too much about law but I — I trust him
and I just sign whatever he does[.]"
At the court's direction, the Director filed a
supplemental memorandum explaining how the $5,416.50 final
assessment had been calculated.
The court entered a minute order on November 14, 2023.
The minute order was attached to the March 15, 2024 Order. The
court ruled that Taxpayers' irrevocable election of a credit for
which they were not eligible disqualified them from claiming the
credit, and ordered that they pay the Director an additional
$17,250 in income tax for tax year 2012. This appeal followed.

II. STANDARDS OF REVIEW

"[I]n reviewing the decision and findings of the Tax
Appeal Court, a presumption arises favoring its actions which
should not be overturned without good and sufficient reason. The
appellant has the burden of showing that the decision of the Tax
Appeal Court was 'clearly erroneous.'" Alford v. City & Cnty. of

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Honolulu, 109 Hawai#i 14, 20, 122 P.3d 809, 815 (2005).
We review questions of jurisdiction de novo. Hawaii
Government Employees Association, AFSCME Local 152 v. Lingle, 124
Hawai#i 197, 201, 239 P.3d 1, 5 (2010).
Statutory interpretation is a question of law reviewed
de novo. Lingle, 124 Hawai#i at 201–02, 239 P.3d at 5–6.

III. POINT OF ERROR

Taxpayers state a single point of error: "The Tax
Appeal Court erred as a matter of law and abused its discretion,
when it decided that the applicable rules controlling this case
are based on the Director's Tax Form N-342, instead of based on
substantive Hawaii law."

IV. DISCUSSION

A. The Tax Appeal Court Acted Outside its
Jurisdiction

Taxpayers did not challenge the Tax Appeal Court's
jurisdiction. To the Department's credit, it was raised in the
answering brief. Lack of subject matter jurisdiction can never
be waived, and if we perceive a jurisdictional defect we must
take appropriate action. See Ditto v. McCurdy, 103 Hawai#i 153,
157, 80 P.3d 974, 978 (2003).
The Tax Appeal Court is not a circuit court established
by HRS § 603–2 (2016); it is a court of limited jurisdiction
established by HRS § 232–11 (2001). Alford, 109 Hawai#i at 21,
122 P.3d at 816.

The jurisdiction of the tax appeal court is limited to
the amount of . . . taxes . . . in dispute as shown on the
one hand by the amount claimed by the taxpayer or county and
on the other hand by the amount of the assessment, or if
increased by the board, or equivalent county administrative
body, the assessment as so increased.

HRS § 232-13 (2001) (emphasis added).
Tax Appeal of Cnty. of Maui v. KM Haw. Inc., 81 Hawai#i
248, 915 P.2d 1349 (1996), involved the county's real property

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tax assessment of the Hyatt Regency Maui. A week before trial,
the county disclosed it had assessed the hotel's property value
using the market data method, rather than the replacement cost
approach it used for other hotels in the county. The replacement
cost value calculated by the county was admitted into evidence.
It was lower than the value stated in the taxpayer's notice of
appeal. The tax appeal court concluded the county's assessment
was discriminatory, and reduced the assessed value based on the
replacement cost approach — that is, below the value claimed by
the Taxpayer's notice of appeal.
The county appealed, arguing that the tax appeal court
exceeded its jurisdiction by lowering the assessed value below
the amount claimed by the taxpayer in its notice of appeal. The
supreme court quoted the relevant part of HRS § 232-12 (1993)4
and noted that the phrase the amount claimed by the taxpayer was
not defined in HRS Chapter 232. KM Hawaii, 81 Hawai#i at 253,
915 P.2d at 1354. After analyzing statutes in pari materia and
legislative history, the supreme court held that the amount
claimed by the taxpayer was not limited to the amount stated by
the taxpayer in its notice of appeal, but meant "whatever amount
is supported by the evidence presented to the Tax Appeal Court,
and HRS § 232–13 limits the jurisdiction of the Tax Appeal Court
to that amount." Id. at 255, 915 P.2d at 1356.
Here, the phrase the amount of the assessment is not
subject to dispute. It means the amount of the Department's
assessment, unless increased by the review board or county
equivalent. HRS § 232-13. According to the Department's Notice
of Final Assessment of Income Tax, the amount of the assessment
is $5,416.50. The Tax Appeal Court's jurisdiction under HRS
§ 232-13 was limited to affirming either that assessment or the
$17,250 credit claimed by Taxpayers. The Tax Appeal Court acted
outside its jurisdiction by increasing Taxpayers' tax liability
to more than the amount of the assessment.

4
The version of the statute relevant to this appeal has not changed
since KM Hawaii was decided.

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B. Tax Form N-342 and its Instructions Are
Consistent with HRS § 235-12.5

The substantive Hawai#i law controlling this case is
HRS § 235-12.5. The starting point for statutory interpretation
is the language of the statute. Lingle, 124 Hawai#i at 202, 239
P.3d at 6. HRS § 235-12.5 (Supp. 2011) provides:

(a) When the requirements of subsection (d) are met,
each individual . . . taxpayer that files an individual
. . . income tax return for a taxable year may claim a tax
credit under this section against the Hawaii state
individual . . . income tax. . . . The tax credit may be
claimed as follows:

(1) For each solar energy system: thirty-five per
cent of the actual cost or the cap amount
determined in subsection (b), whichever is
less[.]
. . . .

(b) The amount of credit allowed for each eligible
renewable energy technology system shall not exceed the
applicable cap amount, which is determined as follows:

. . . .

(2) For all . . . solar energy systems [other than
those the primary purpose of which is to use
energy from the sun to heat water for household
use], the cap amounts shall be:
(A) $5,000 per system for single-family
residential property[.]
. . . .

(d) For taxable years beginning after December 31,
2005, the dollar amount of any utility rebate shall be
deducted from the cost of the qualifying system and its
installation before applying the state tax credit.

The Department did not dispute that the actual cost of
Taxpayers' solar energy system was $18,025. Thirty-five percent
of that cost under HRS § 235-12.5(a)(1) is $11,716.25. That is
more than the $5,000 cap imposed by HRS § 235-12.5(b)(2)(A).
Taxpayers should only have claimed a $5,000 credit. They entered
that amount on line 26 of their 2012 Form N-342, but not on their
Schedule CR or on line 32 of their Form N-11 tax return. The
Department waived this issue.

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HRS § 235-12.5 continues:

(f) If the tax credit under this section exceeds the
taxpayer's income tax liability, the excess of the credit
over liability may be used as a credit against the
taxpayer's income tax liability in subsequent years until
exhausted, unless otherwise elected by the taxpayer pursuant
to subsection (g) or (h). . . . Failure to comply with this
subsection shall constitute a waiver of the right to claim
the credit.
(g) For solar energy systems, a taxpayer may elect
to reduce the eligible credit amount by thirty per cent and
if this reduced amount exceeds the amount of income tax
payment due from the taxpayer, the excess of the credit
amount over payments due shall be refunded to the taxpayer;
provided that tax credit amounts properly claimed by a
taxpayer who has no income tax liability shall be paid to
the taxpayer; and provided further that no refund on account
of the tax credit allowed by this section shall be made for
amounts less than $1.
The election required by this subsection shall be made
in a manner prescribed by the director on the taxpayer's
return for the taxable year in which the system is installed
and placed in service. . . . An election once made is
irrevocable.

(h) Notwithstanding subsection (g), for any
renewable energy technology system, an individual taxpayer
may elect to have any excess of the credit over payments due
refunded to the taxpayer, if:

(1) All of the taxpayer's income is exempt from
taxation under section 235–7(a)(2) or (3); or

(2) The taxpayer's adjusted gross income is $20,000
or less (or $40,000 or less if filing a tax
return as married filing jointly);
provided that tax credits properly claimed by a taxpayer who
has no income tax liability shall be paid to the taxpayer;
and provided further that no refund on account of the tax
credit allowed by this section shall be made for amounts
less than $1.
. . . .
The election required by this subsection shall be made
in a manner prescribed by the director on the taxpayer's
return for the taxable year in which the system is installed
and placed in service. . . . An election once made is
irrevocable.

These subsections only apply to taxpayers whose credit
exceeds their net tax liability. Under subsection (f) the excess
credit is saved and applied to future tax liability; this is the
nonrefundable election because the excess credit is not refunded.
But it is not lost, because it is applied to future tax
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liability. Under subsections (g) and (h) the excess credit is
refunded to the taxpayer; this is the refundable election. Any
taxpayer is eligible for the subsection (g) refund, but the
credit goes down by 30 percent. Only taxpayers with no tax
liability are eligible for the subsection (h) refund with no
reduction of the credit.
Taxpayers elected the refundable subsection (h) credit.
The manner prescribed by the Director for electing the credit
was Form N-342. Taxpayers' 2012 Form N-342 as completed stated:

IRREVOCABLE ELECTION ON HOW TO TREAT THE TAX CREDIT THIS
SECTION MUST BE COMPLETED.
42. I elect to treat the tax credit as: (check only one
box) Note: Once an election is made, it cannot be
revoked or amended.

: a. Refundable (Go to line 43 and complete lines 43
through 47; skip lines 48 through 55.)

9 b. Nonrefundable (Go to line 48 and complete lines
48 through 55; skip lines 43 through 47.)
REFUNDABLE TAX CREDIT Complete this section if you checked
the box on line 42a.
43. Check the appropriate box:

9 a. I elect to treat the tax credit for a solar
energy system as refundable. The amount of the
tax credit will be reduced by 30%.

: b. I elect to treat the tax credit for a solar
energy system or a wind-powered energy system as
refundable. ALL of my income is exempt from
Hawaii taxation under a public retirement system
or received in the form of a pension for past
services or my Hawaii adjusted gross income is
$20,000 or less (S40,000 or less if filing
jointly).

. . . .
47. If you checked the box on line 43(b), enter the amount
from line 14, 26, 39, 40, or 41. This is your
refundable renewable energy technologies income tax
credit. Enter this amount, rounded to the nearest
dollar, on the appropriate line on Schedule CR or Form
N-13, whichever is applicable.

Taxpayers entered "5000" (the cap amount) on line 47,
but not on their Schedule CR or their Form N-11 tax return. 2012
Form N-342 was not poorly drafted, as Taxpayers contend. They

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just did not complete it properly. Blake Goodman blamed Turbo
Tax, and admitted not reading the Form N-342 instructions. The
instructions for Form N-342 (Rev. 2012) stated:

A taxpayer may elect to treat the tax credit as
nonrefundable or refundable. If a taxpayer elects to treat
the tax credit as nonrefundable, the tax credit allowed
shall be claimed against the net income tax liability for
the taxable year. A tax credit that exceeds the taxpayer's
income tax liability may be used as a credit against the
taxpayer's income tax liability in subsequent years until
exhausted. A taxpayer may elect to treat the tax credit as
refundable under the following circumstances:

• For solar energy systems, a taxpayer may elect to
reduce the eligible credit amount by 30%. If this
reduced amount exceeds the amount of income tax
payment due from the taxpayer, the excess of the
credit amount over payments due will be refunded to
the taxpayer.
• For any renewable energy technology system, an
individual taxpayer may elect to have any excess of
the credit over payments due refunded to the taxpayer
without any further reduction if (1) ALL of the
taxpayer's income is exempt from taxation under
section 235-7(a)(2), Hawaii Revised Statues [sic]
(HRS), i.e., distributions from a public retirement
plan or system, or section 235-7(a)(3), HRS, i.e., any
compensation received in the form of a pension for
past services; or (2) the taxpayer has Hawaii adjusted
gross income of $20,000 or less (or $40,000 or less if
filing a tax return as married filing jointly).

A husband and wife who do not file a joint tax return
shall only be entitled to make this election to the extent
that they would have been entitled to make the election had
they filed a joint tax return.

A separate election may be made for each separate
system that generates a tax credit. Once an election is
made to treat the tax credit as nonrefundable or refundable,
the election cannot be revoked. An amended return cannot be
filed to change the tax credit from nonrefundable to
refundable or from refundable to nonrefundable.

(Bold italics added.)
A reasonable person in Taxpayers' position who read the
instructions would have understood that their only option was to
elect the nonrefundable credit — their credit amount being less
than their tax liability, there would be no excess credit to
refund. But Taxpayers elected a refundable credit to which they
were not entitled (because their income was not exempt from
taxation and exceeded $40,000). The Department could have

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disallowed any credit, as did the Tax Court. But it didn't. It
decided to treat Taxpayers as having checked box 43.a instead of
43.b, reduced their claimed credit by 30 percent, and assessed
the $5,416.50 difference (including interest). Under these
circumstances, the Tax Appeal Court should have affirmed the
Department's Notice of Final Assessment of Income Tax for
$5,416.50.

V. CONCLUSION

We vacate the March 15, 2024 "Order Regarding Appellant
Maria E. Zielinski, Director of Taxation, State of Hawaii's
Motion for Summary Judgment Filed on May 18, 2017" and the
March 15, 2024 "Final Judgment Re: Order Regarding Appellant
Maria E. Zielinski, Director of Taxation, State of Hawaii's
Motion for Summary Judgment Filed on May 18, 2017" and
remand to the Tax Appeal Court for further proceedings consistent
with this memorandum opinion.
DATED: Honolulu, Hawai#i, October 17, 2024.

On the briefs:
/s/ Katherine G. Leonard
Blake Goodman, Acting Chief Judge
Blanca Goodman,
Self-represented /s/ Keith K. Hiraoka
Appellees-Appellants. Associate Judge

Nathan S.C. Chee, /s/ Karen T. Nakasone
Cynthia M. Johiro, Associate Judge
Joshua J. Michaels,
Deputy Attorneys General,
for Appellant-Appellee
Gary S. Suganuma, Director
of Taxation, Department of
Taxation, State of Hawai#i.

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