Hawaii Supreme Court Rules on Tax Administrative Rules

The Hawaii Supreme Court issued a significant ruling on August 7, 2026, clarifying the validity of tax administrative rules and their challenge process. The case, Booking.com B.V. v. Suganuma, SCWC-22-0000441, primarily affects online businesses operating in Hawaii, particularly those involved in accommodation bookings. The court's decision is important as it establishes how businesses can contest tax rules that may impact their operations.

The dispute arose when Booking.com, an online accommodation reservation platform based in Amsterdam, Netherlands, challenged the Hawaii Department of Taxation's (DoTax) administrative rule regarding general excise taxes (GET) on fees collected for bookings in the state. The ruling clarifies that businesses can seek declaratory relief regarding the validity of such rules, even when they relate to tax matters.

Background

Booking.com B.V. is an online platform that allows users to make reservations for accommodations. In 2018, DoTax implemented a new rule, HAR § 18-237-29.53-10(a)(3), which stated that services related to transient accommodations are considered used or consumed where the accommodation is located, not where the booking agent is based. This rule effectively subjected Booking.com to Hawaii's GET on fees collected for bookings made in the state.

In 2019, Booking.com sought a declaratory judgment in the Circuit Court of the First Circuit, arguing that the new rule violated the federal Internet Tax Free Act (ITFA) and the U.S. Constitution's Commerce and Supremacy Clauses. The case escalated when DoTax issued a GET assessment of over $19 million to Booking.com for the years 2010 to 2020, prompting the company to appeal the assessment to the tax appeal court.

In 2022, DoTax filed a motion to dismiss Booking.com's declaratory relief action, claiming that the ongoing tax assessment appeal rendered the lawsuit a controversy regarding taxes, which was prohibited under Hawaii Revised Statutes (HRS) § 632-1. The circuit court agreed, dismissing the case, and the Intermediate Court of Appeals (ICA) affirmed this decision, leading to Booking.com's appeal to the Hawaii Supreme Court.

The Ruling

The Hawaii Supreme Court, led by Justice Sabrina McKenna, ruled in favor of Booking.com, stating that HRS § 91-7 allows any interested person to seek declaratory relief regarding the validity of an agency rule, including tax rules. The court emphasized that the prohibition on declaratory judgments in tax controversies under HRS § 632-1 does not apply to actions challenging the validity of tax administrative rules.

The court ruled, "We hold that HRS § 632-1’s prohibition on declaratory judgments for controversies with respect to taxes does not prohibit a HRS § 91-7 action for declaratory relief regarding the validity of a tax administrative rule."

Furthermore, the court overruled a previous decision in Hawaii Home Infusion Associates v. Befitel, which had limited the ability of out-of-state plaintiffs to seek relief under HRS § 91-7. The court clarified that the language of HRS § 91-7 pertains to venue rather than subject matter jurisdiction, allowing Booking.com to file its lawsuit in the First Circuit.

Impact

This ruling has significant implications for online businesses operating in Hawaii and for the state's tax regulations. It establishes that companies can challenge the validity of tax administrative rules without being barred by tax-related restrictions. This decision provides a clearer pathway for businesses to contest rules that they believe may unfairly impact their operations.

Moreover, the ruling may encourage more companies to engage in legal challenges against administrative rules that they find problematic, potentially leading to changes in how such rules are formulated and enforced. The decision also underscores the importance of providing clarity and fairness in tax regulations, especially for businesses that operate across state lines.

What's Next

The case has been remanded to the circuit court for further proceedings consistent with the Supreme Court's opinion. While the ruling cannot be appealed further, it sets a precedent for future cases involving the challenge of tax administrative rules in Hawaii.