City hits tax mess with Kunia tract

The city intends to refund nearly $500,000 in property taxes that it inappropriately collected over two years from farmers for a controversial off-the-grid agriculture development in Kunia.

It has since sent new bills to the nonprofit landowner for the same years.

Who gets the roughly $453,000 in refunds is at the heart of a lawsuit the city filed last year against Kunia Loa Ridge Farmlands, the nonprofit owner of the development by the same name, and its members.

The city expects to issue refunds; it just isn’t sure to whom.

The tax confusion arose after the city discovered that the way it had billed Kunia Loa’s property taxes — based on information provided by the developer — for the 2014-15 and 2015-16 tax years was incorrect, according to the city.

The misstep is the latest example of the city’s difficulty in dealing with Kunia Loa, an ag project with an unusual and complex ownership structure. The development is owned by a nonprofit cooperative, and the co-op members have proprietary lease rights to specific parcels but don’t actually own the lots.

Nelson Koyanagi, the city’s director of the Department of Budget and Fiscal Services, said the ownership structure is “difficult to understand for even the most sophisticated real estate investors and attorneys.”

Tucked along the foothills above Waipahu, Kunia Loa has been in the news in recent years because of illegal land uses, including the building of residences. The remote development has no paved roads, street names or postal addresses and is not connected to the island’s water, sewer, phone and power grids.

Changes in state law creating building code exemptions for certain ag structures also have contributed to the city’s initial difficulties in cracking down on Kunia Loa violations. The city opposed the 2012 changes, citing enforcement concerns.

“Yet the city uses its best efforts to enforce that law and other applicable laws,” Koyanagi said in written responses to the Honolulu Star-Advertiser.

The Kunia Loa tax problems began after the city, at the request of the developer, assigned tax map key numbers — commonly called TMKs — to more than 100 parcels within the 854-acre development and sent property-tax bills for 2014 and 2015 to the individuals or entities that held the rights to each of those lots.

Prior to those two years, the city had treated the property as one giant parcel, assigned it a single TMK and sent one bill (paid in two installments) to the landowner.

In 2015, however, the city determined that the information provided by the developer did not support assessing property taxes based on 100-plus lots, prompting the return to a single TMK and billing the landowner, according to Koyanagi.

Because the city has received conflicting information about who should get the refunds, it filed what is called an interpleader complaint, according to Koyanagi.

In interpleader cases involving potential money disputes, the funds are deposited with the court and a judge decides how they are allocated.

In the Kunia Loa case, the city also has asked that its attorney fees and costs be paid from the refund money — a request that has riled some tenants.

“The city created this ‘mess’ … and therefore should pay for (its) own attorney’s costs,” retired engineer Mike Shimamoto, who is farming a one-acre lot in Kunia Loa, wrote in a court filing responding to the city’s lawsuit. “Lot owners who have paid their bills in earnest and on time should not be penalized with costs, which could amount to in essence ‘double payment.’”

Alan Okamoto, attorney for Glad’s Landscaping and Tree Trimming and The Tree People LLC, two members of the nonprofit, also questioned the city’s seeking of attorney fees.

The city can’t be awarded such fees based on actions stemming from its own negligence, Okamoto said in court documents.

Requesting attorney fees and costs is standard in a lawsuit, and the court will decide the matter, Koyanagi said.

Attorney Christopher Shea Goodwin, who represents the landowner, declined comment for this story, citing the pending litigation.

In court documents, Goodwin argued that the city properly collected the two years of taxes and that revoking the TMKs for the individual lots was improper.

If any money is refunded, all those funds should go to Kunia Loa, rather than individuals, so the nonprofit can pay the tax tab, according to the organization’s January court filing, which included a list showing that more than 60 percent of the lot holders have signed documents waiving claims to the money.

Shimamoto told the Star-Advertiser he doesn’t expect Kunia Loa’s tax problem to be resolved any time soon.

“It’s not going to be quick or easy,” he said.