THE SENATE
S.B. NO.
3301
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO THE PROCEDURE FOR PAYMENT UNDER PROTEST LAWSUITS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that in Grace Business Development Corporation v. Kamikawa, 92 Haw. 608, 994 P.2d 540 (2000), the supreme court of Hawaii held that if a taxpayer pays money to the State under protest but sues for a refund before the applicable agency has formally taken a position on whether the money is due, there is no actual dispute for purposes of section 40-35, Hawaii Revised Statutes, and the appeal must be dismissed.
The legislature recognizes that, as result of this interpretation of section 40-35, Hawaii Revised Statutes, after it is too late for the person to refile the claim, situations may arise in which a person's lawsuit is dismissed, but the agency subsequently decides, that the person does indeed owe tax to the State. This potentially allows the State to keep the disputed money without allowing the person an opportunity to obtain a judicial ruling on the merits of the person's claim.
The legislature believes that action is necessary to prevent the possibility of these injustices from occurring, and to ensure that courts can evaluate the merits of payments made to the State under protest, even if a claim for a refund is filed prior to the agency's final determination.
Accordingly, the purpose of this Act is to clarify and add procedural safeguards to section 40-35, Hawaii Revised Statutes.
SECTION 2. Section 40-35, Hawaii Revised Statutes, is amended to read as follows:
"§40-35 Payment to State under protest. (a) Any disputed portion of moneys representing a claim in favor of the State may be paid under protest to a public accountant of the department, board, bureau, commission, or other agency of the State with which the claimant has the dispute. The protest shall be in writing, signed by the person making the payment, or by the person's agent, and shall set forth the grounds of protest. If any payment, or any portion of any payment, is made under protest, the public accountant to whom the payment is made shall hold that portion of the moneys paid under protest in a trust account in the state treasury for a period of thirty days from the date of payment.
(b) Action to recover moneys paid under protest or proceedings to adjust the claim may be commenced by the payer or claimant against the public accountant to whom the payment was made, in a court of competent jurisdiction, [[Struck through: within]] [Underlined: no later than] thirty days from the date of payment. If no suit or proceeding is brought within the [[Struck through: thirty-day period,]] [Underlined: that time,] the money paid under protest shall be deposited into the appropriate account in the treasury of the State by the accountant and the amount deposited shall thereupon become a government realization. Any action to recover payment of taxes under protest shall be commenced in the tax appeal court.
(c) If action to recover the money paid under protest or a proceeding to adjust the claim is [Underlined: timely] commenced [[Struck through: within the thirty-day period]], the amount paid under protest shall, pending final decision of the cause, be deposited by the public accountant into the state treasury, in a fund to be known as the "litigated claims fund", together with subsequent payments or portions thereof, made to the accountant under the same protest. If judgment is rendered in favor of the claimant, the claimant shall be paid the amount of the judgment out of the litigated claims fund by warrants signed by the comptroller upon vouchers approved by the head of the department, board, bureau, commission, or other agency with which the claimant had the dispute. If the amount of money in the litigated claims fund is insufficient to pay the judgment the head of the department, board, bureau, commission, or other agency with which the claimant had the dispute shall include in their respective budget requests to the department of budget and finance an amount necessary to pay the judgment, plus interest, as provided herein. Interest [[Struck through: at the rate of two per cent a year]] [Underlined: earned on the payment by the litigated claims fund] from the date of each payment under protest shall also be paid out of the amount appropriated for the judgment payable to the claimant; provided that if the claim is for the recovery of taxes paid under protest by the claimant, the rate of interest and the overpayment of taxes shall be refunded in the manner provided in section 231-23(c) and (d). The amount of the judgment to be paid to the claimant shall be ascertained by the head of the department, board, bureau, commission, or other agency with which the claimant had the dispute from a certified copy of the judgment, which shall be the authority for making payment to the claimant. If judgment is rendered against the claimant, the amount of money paid by the claimant under protest which is in the litigated claims fund shall be deposited into the appropriate account in the treasury of the State and the amount shall become a government realization. [Underlined: If the court determines that the claimant's suit has been brought prematurely because the agency had not rendered a final decision when the suit was filed, the claimant's payment shall be retained in the litigated claims fund; provided that:]
[Underlined: (1)] [Underlined: If the agency subsequently renders a final decision, the claimant may, within thirty days after notice of the decision, refile the action for a refund of the payment that is in the litigated claims fund, whereupon the court shall have jurisdiction over the action;]
[Underlined: (2)] [Underlined: If no action is filed within thirty days after notice of the decision, the payment shall become a government realization; or]
[Underlined: (3)] [Underlined: If the agency has not rendered a final decision within one hundred eighty days after the date of the claimant's payment, the agency shall refund the payment to the claimant with interest the same as if judgment had been rendered for the claimant, and shall certify to the court that it has done so.]"
SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect upon its approval.
INTRODUCED BY:
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Report Title:
Lawsuits; Disputes; Courts; Appeals; Payment to State; Protest
Description:
Clarifies and adds procedural safeguards to section 40-35, HRS, which relates to payments to the State under protest.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.