City & County of Honolulu v. Steiner

For tax purposes, the City and County of Honolulu (the city) (defendant) assessed the value of Mary Steiner’s (plaintiff) oceanfront property in the Black Point area at $2.5 million. To reach this value, the city used a sales-comparison approach that relied on market data from recent sales of oceanfront properties in Black Point as well as in the nearby Diamond Head and Kahala Beach areas. However, the sandy beach shoreline in those other two areas was more desirable than the boulder-heavy shoreline in Black Point. Thus, the city adjusted the sale numbers from those areas downward to reflect Black Point’s rocky, less usable shoreline. Using all this market data, the city set the benchmark value for an oceanfront Black Point property at $75 per square foot. The city then applied that benchmark number to Steiner’s property, using the same oversized-lot formula that it used for oceanfront properties in all three areas. Steiner protested the assessment. First, Steiner argued that the benchmark number was too high because it was based on inflated sale prices. Steiner claimed that investors from Japan had recently taken advantage of that country’s more favorable economic conditions to purchase Hawaii properties at what Steiner considered above-market prices. Steiner claimed her property’s intrinsic or real value was lower than these recent sales suggested. Second, Steiner claimed the city’s oversized-lot formula was incorrect because it did not adequately adjust for the different shorelines, ultimately valuing some Kahala Beach properties with flat, buildable beach shoreline at only $10 per square foot more than her Black Point property with its rocky, unbuildable shoreline. The Hawaii Tax Appeal Court ruled that the city’s benchmark number and formula were both incorrect, and it lowered Steiner’s assessment to $2.1 million. The city appealed to the Hawaii Supreme Court.