On February 16, 1993, the state of Hawai`i cut a check for $13 million payable to two parties: Blue Point Land Development, Inc., and its attorneys, Goodsill Anderson Quinn & Stifel. The check was the second of two payments totaling $23 million made by the state to acquire 40 acres of shorefront land at Mahai`ula, North Kona.
Despite the state’s own involvement as purchaser, and despite the participation in the transaction of a deputy attorney general who has handled many other such transfers, the transaction occurred in violation of a state law that allows the state to make sure the required taxes are paid by the seller on any income received from the sale of property.
Blue Point, whose chairman of the board was Big Island rancher Larry Mehau, never filed a tax return reporting income realized from the sale. In addition, such income tax as it did pay was paid late. Penalties and interest owed on those prior tax payments came to more than $13,000 at the time the state paid Blue Point and Goodsill Anderson the $13 million balance.
On August 27, 1993, the state Department of Taxation filed with the Bureau of Conveyances a lien against Blue Point, claiming penalties and interest of $13,634.31 owed on 1991 and 1992 taxes.
On November 15, 1993, Clifford Higa, director of the Department of Commerce and Consumer Affairs, decreed that Blue Point was involuntarily dissolved “for failure to file an annual report for a period of two years or remit fees as required by law.” Any chance that the state may have had for recovery of the delinquency — by that time it was nearly $14,000 — or future taxes that would be owing, should a 1993 return have been filed by Blue Point, was also pretty well dissolved by that action.
Bucks Are Passed
Edwin P. Watson is the deputy attorney general who handled the condemnation lawsuit against Blue Point. He also was the attorney who drafted the settlement setting terms for the state’s purchase of the land from Blue Point. Paragraph No. 5 of that settlement, known formally as a “Stipulated Judgment and Order for Withdrawal of Funds,” the lawyer for Blue Point was to submit to the state “at the time of entering into this stipulated judgment … a duly executed State of Hawai`i, Department of Taxation, Form N-289…”
As explained elsewhere, Form N-289 allows the state to make sure that income received from the sale of property is reported to the Department of Taxation.
Watson did not receive any Form N-289 from Blue Point or its attorney, Bruce Lamon of the Goodsill Anderson firm. In a recent telephone interview, Watson said he had written Lamon in January, a month before payment was made, to remind him of the need to file the form. He sent Lamon a reminder letter on February 18, he said — not knowing that the money had been paid out by the Third Circuit Court in Hilo two days earlier.
In the telephone interview, Watson stated that the purpose of the tax form was to indicate that property taxes had been paid on the land being transferred, “so that the state would not get stuck having to pay to the counties money owed by the private landowner.”
When told that the form had not been filed, Watson stated that it was the responsibility of the Circuit Court clerk to make sure that all the conditions of the transfer were satisfied before making payment.
Differing View
Lester Oshiro is clerk of the Third Circuit Court in Hilo. When Oshiro learned that the required Form N-289 had not been filed, he noted that the burden of providing it had been placed on the defendant’s lawyer, and the burden of receiving it had been on the plaintiff — that is, the Attorney General’s office, which had prosecuted the case on behalf of the state of Hawai`i.
The clerk’s office, Oshiro said, generally has its hands full making sure it complies with what the court orders it to do. In this case, Oshiro said, the clerk’s office was to make sure that payment was made promptly to the parties named in the stipulated judgment — that is, Blue Point and Goodsill Anderson.
Oshiro was concerned enough about the failure of the defendant to provide the required Form N-289 to call the Honolulu office of the Judiciary that publishes the rules of procedure for court clerks. “If we need to revise our procedures in order to make sure this doesn’t happen again, we should do it,” Oshiro said.
No Tax Clearance
In early February 1993, a few days before the $13 million payment was made, Andy Hirama, an officer of Blue Point, attempted to receive a tax clearance from the state Department of Taxation, apparently in the mistaken belief that this was needed to satisfy the state’s condition of making the payment.
Mrs. G. Nakajo of the Department of Taxation remembers being told by Hirama that Blue Point was unable to collect a “large sum of money” on the Big Island without the clearance. To get the clearance, Hirama brought in returns for 1991 and 1992 for Blue Point. According to Mrs. Nakajo, the primary source of income reported was interest, presumably on the $10 million paid to Blue Point in December 1990.
Hirama did not get the tax clearance. Taxes were paid, but still owing were the penalty and interest for the late filings, an amount that by October 18, 1993, totaled $13,866.03. Mrs. Nakajo made several efforts between February and October 1993 to alert the Third Circuit Court to the tax delinquency, but all the money had been released by the time of her notices.
Lost Chance
The state had a second chance to catch up with Blue Point. In May 1993, the state filed with the Bureau of Conveyances notice of the stipulated judgment, which transferred title to the Mahai`ula property to the state. To satisfy state law in such circumstances, some identifying tax number — Social Security number, in the case of an individual, or the state General Excise tax number or Federal Employee Identification Number in the case of corporations — of the buyer needs to be recorded along with the judgment.
Instead, deputy Attorney General Ed Watson filed an affidavit to accompany recordation of the judgment. In that document, Watson states that he “has attempted to obtain the social security number, state of Hawai`i general excise taxpayer identification number, or federal employer identification number of … Blue Point, Inc., without success.” Such number, he further attested, “is unavailable to affiant and is not in the possession of affiant or the state of Hawai`i.”
Environment Hawai`i asked Watson if he had in fact made any effort to track down any tax identification number. He acknowledged that he had not.
— Patricia Tummons
Volume 5, Number 10 April 1995