A chaotic scene broke out last month at the Kailua Open Market when tax agents clamped down on so-called "cash economy" businesses, leading to cancellation of the 36th annual Mayor’s Craft and Country Fair Saturday and prompting state tax officials to meet with vendors this afternoon at Makiki Park.

The crackdown by the state Tax Department’s year-old Special Enforcement Unit comes as dozens of vendors and small businesses across the islands have begun holding holiday craft fairs in homes, parking lots and large halls. The tighter enforcement requires sellers to show proof of general excise tax licenses, keep records of sales and provide sales receipts to tax agents to comply with Hawaii law.

The city Parks Department Monday announced that the fair at the Blaisdell Exhibition Hall had been called off.

Randy Yasuhara, a recreation specialist for the department, said the decision was made because the state is more strictly enforcing laws on vendor sales, and that vendors without general excise tax licenses could be liable for fines.

Tax officials have been invited by city parks officials to speak to market vendors at a meeting today at Makiki Park, said state Tax Director Stanley Shiraki.

Sakhone and Griffin Twigg, owners of West Valley Farms in Waianae, were issued a $670 citation at the Kailua Open Market on Oct. 28, allegedly for failing to produce records of transactions for their produce sales that day.

The fine essentially wiped out two weeks of profits they normally would earn at back-to-back markets in Waimanalo, Kailua and Kaneohe every Thursday morning.

For holiday craft sellers confronted by the new Special Enforcement Unit agents, "they’re going to have no clue," Sakhone Twigg said yesterday. "This is going to be huge."

The five investigators and field auditor who comprise the unit have gone to restaurants, gas stations, contractors, farmers markets and shopping centers on the Big Island, Maui and Oahu in their first full year since Gov. Linda Lingle approved a bill in June 2009 aimed at making "cash economy" operators comply with tax laws.

On Oahu, the agents have investigated storefronts, vendors and mom-and-pop businesses in Ewa Beach, Chinatown, Fort Street Mall, the Aloha Stadium swap meet, flower growers in Mililani and farmers markets in urban Honolulu.

They’re soon going to target bed-and-breakfast operations, especially in Kailua, Shiraki said yesterday.

The agents have issued 88 citations totaling about $36,000 worth of fines, of which $11,000 has been collected so far, said Ronald Randall, who is in charge of the Tax Department’s compliance division.

"We’re not out there to get money from fines," Shiraki said. "We’re trying to get people to comply with their taxes."

A contentious scene broke out in Kailua last month when police were called after a flower vendor and the Twiggs were cited by two tax unit agents, Shiraki said.

Kailua shoppers yelled at the agents, who then called police for the first time in the unit’s short history — and a customer was issued a $2,000 citation allegedly for telling other vendors not to provide information to the agents.

"It got kind of threatening," Shiraki said. "We’ve never seen anything like this, with shoppers swearing."

"Women were yelling at the tax guy, the cops were called and a guy was detained for running around telling people, ‘The tax guy is here,’" said Scott Ritchie, who was helping the Twiggs that day.

The customer — a man from Kailua who asked yesterday that his name not be used because of his wife’s ill health — was issued a $2,000 citation that said, "individual went to each seller and told them to not give over information. No vendors would give information after this."

The man said he has no money to pay the fine and has requested representation from a public advocate lawyer.

Although other shoppers also yelled at the agents, Shiraki said, the man was cited because he was "the most egregious person that was wrong."

Sakhone Twigg’s parents have sold produce on Oahu for 30 years from their tiny, two-acre farm under the name "Xam’s Farm," Twigg said.

She and her husband took over the farm three years ago and renamed it West Valley Farms, acquired a GET license and tracked their sales by taking an inventory of their produce Thursday mornings and again at the end of the day.

Because the markets in Waimanalo, Kailua and Kaneohe are only open for an hour each, it’s too time-consuming to record every transaction before packing up and moving to the next market, Sakhone said.

"We’re really, really small," Twigg said. "This farm is our only source of income."

On Oct. 28, a nearby flower vendor at the Kailua Open Market "came running over to me, frantic, saying, ‘Get your paperwork ready, get your paperwork ready. The tax guy is here,’" Twigg said. "He just got cited for $675 for not having proper paper work."

When one of the agents came to their stall, the Twiggs showed proof they had a GET license but could not produce receipts and were issued a $670 citation, Twigg said.

"I was really shocked," she said. "He told us that ignorance of the law is no excuse. We asked for a warning and said we will be in compliance next week. He said, ‘Ignorance of the law is no excuse.’ Six hundred and seventy dollars is a really big hit. It wiped us out for two weeks."

The next Thursday, the Twiggs returned to the Waimanalo, Kailua and Kaneohe markets with two new sales machines that cost a total of $200 and produce duplicate receipts for them and for their customers.

"For us," Twigg said, "that $200 stung."

Producing duplicate receipts for every transaction delayed helping other customers, she said.

"Sales were down 30 percent that day," she said. "People walked away in disgust because we were taking too long."