REPORT TITLE:
Travel agents; GET


DESCRIPTION:
Reduces the general excise tax on certain travel agent
commissions.  (HB1692 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1692
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.




BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that the commissions
 
 2 travel agents receive are taxed at the four per cent rate.  The
 
 3 legislature finds, however, that in the case of sales of air
 
 4 travel tickets, the travel agent industry is experiencing
 
 5 difficulty.  Between January 1994, and September 1997, Hawaii
 
 6 experienced a decrease of forty-three agency locations while the
 
 7 rest of the country experienced growth.  In addition, major
 
 8 United States airlines instituted $50 commission caps, which
 
 9 reduced Hawaii travel agency income by an estimated $2,160,000 in
 
10 1995 and $2,820,000 in 1996.  This represents dollars that were
 
11 taken from the Hawaii economy and contributed to Hawaii's
 
12 economic problems.  In September 1997, the airline industry
 
13 instituted a reduction in commissions from ten per cent to eight
 
14 per cent in addition to the $50 cap.  It is estimated that this
 
15 commission reduction will take another $3,000,000 out of Hawaii's
 
16 economy.
 
17      The legislature finds that travel agents pay four per cent
 
18 on all commissions received and that commissions from airline
 
19 ticket sales comprise sixty per cent of all travel agent
 

 
Page 2                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 commissions and result in approximately $1,800,000 in state
 
 2 general excise tax revenues.  On the other hand, the legislature
 
 3 finds that under federal law, Hawaii is prohibited from levying
 
 4 taxes on the airline industry, yet the airline industry is taking
 
 5 revenues out of Hawaii through its caps and reductions in
 
 6 commissions.  The legislature further finds that the travel agent
 
 7 business is being squeezed by the airline industry and by the
 
 8 general excise tax.
 
 9      The legislature finds that the main industry in Hawaii is
 
10 tourism.  To remain competitive, Hawaii must encourage the growth
 
11 of all parts of the tourism industry.  Travel agents serve an
 
12 important function in the industry by putting visitors and
 
13 residents together with airline travel and other Hawaii
 
14 activities.
 
15      The legislature finds that to stimulate the economy and
 
16 protect the travel agent industry, a reduction in the general
 
17 excise tax rate on airline ticket commissions should be
 
18 instituted.  This reduction will keep money in the hands of the
 
19 travel agents, instead of the State.  With this money in hand,
 
20 many of the travel agents will be able to survive in today's
 
21 Hawaii economy and growth and employment will be encouraged.  The
 
22 legislature finds that the appropriate general excise tax rate on
 
23 these commissions is        per cent.
 

 
Page 3                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 2.  Section 237-13, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§237-13  Imposition of tax.  There is hereby levied and
 
 4 shall be assessed and collected annually privilege taxes against
 
 5 persons on account of their business and other activities in the
 
 6 State measured by the application of rates against values of
 
 7 products, gross proceeds of sales, or gross income, whichever is
 
 8 specified, as follows:
 
 9      (1)  Tax on manufacturers.
 
10           (A)  Upon every person engaging or continuing within
 
11                the State in the business of manufacturing,
 
12                including compounding, canning, preserving,
 
13                packing, printing, publishing, milling,
 
14                processing, refining, or preparing for sale,
 
15                profit, or commercial use, either directly or
 
16                through the activity of others, in whole or in
 
17                part, any article or articles, substance or
 
18                substances, commodity or commodities, the amount
 
19                of the tax to be equal to the value of the
 
20                articles, substances, or commodities,
 
21                manufactured, compounded, canned, preserved,
 
22                packed, printed, milled, processed, refined, or
 

 
 
 
Page 4                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                prepared, for sale, as shown by the gross proceeds
 
 2                derived from the sale thereof by the manufacturer
 
 3                or person compounding, preparing, or printing
 
 4                them, multiplied by one-half of one per cent.
 
 5           (B)  The measure of the tax on manufacturers is the
 
 6                value of the entire product for sale, regardless
 
 7                of the place of sale or the fact that deliveries
 
 8                may be made to points outside the State.
 
 9           (C)  If any person liable for the tax on manufacturers
 
10                ships or transports the person's product, or any
 
11                part thereof, out of the State, whether in a
 
12                finished or unfinished condition, or sells the
 
13                same for delivery outside of the State (for
 
14                example, consigned to a mainland purchaser via
 
15                common carrier f.o.b. Honolulu), the value of the
 
16                products in the condition or form in which they
 
17                exist immediately before entering interstate or
 
18                foreign commerce, determined as hereinafter
 
19                provided, shall be the basis for the assessment of
 
20                the tax imposed by this paragraph.  This tax shall
 
21                be due and payable as of the date of entry of the
 
22                products into interstate or foreign commerce,
 

 
 
 
Page 5                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                whether the products are then sold or not.  The
 
 2                department of taxation shall determine the basis
 
 3                for assessment, as provided by this paragraph, as
 
 4                follows:
 
 5                (i)  If the products at the time of their entry
 
 6                     into interstate or foreign commerce already
 
 7                     have been sold, the gross proceeds of sale,
 
 8                     less the transportation expenses, if any,
 
 9                     incurred in realizing the gross proceeds for
 
10                     transportation from the time of entry of the
 
11                     products into interstate or foreign commerce,
 
12                     including insurance and storage in transit,
 
13                     shall be the measure of the value of the
 
14                     products.
 
15               (ii)  If the products have not been sold at the
 
16                     time of their entry into interstate or
 
17                     foreign commerce, and in cases governed by
 
18                     clause (i) in which the products are sold
 
19                     under circumstances such that the gross
 
20                     proceeds of sale are not indicative of the
 
21                     true value of the products, the value of the
 
22                     products constituting the basis for
 

 
 
 
Page 6                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                     assessment shall correspond as nearly as
 
 2                     possible to the gross proceeds of sales for
 
 3                     delivery outside the State, adjusted as
 
 4                     provided in clause (i), or if sufficient data
 
 5                     are not available, sales in the State, of
 
 6                     similar products of like quality and
 
 7                     character and in similar quantities, made by
 
 8                     the taxpayer (unless not indicative of the
 
 9                     true value) or by others.  Sales outside the
 
10                     State, adjusted as provided in clause (i),
 
11                     may be considered when they constitute the
 
12                     best available data.  The department shall
 
13                     prescribe uniform and equitable rules for
 
14                     ascertaining the values.
 
15              (iii)  At the election of the taxpayer and with the
 
16                     approval of the department, the taxpayer may
 
17                     make the taxpayer's returns under clause (i)
 
18                     even though the products have not been sold
 
19                     at the time of their entry into interstate or
 
20                     foreign commerce.
 
21               (iv)  In all cases in which products leave the
 
22                     State in an unfinished condition, the basis
 

 
 
 
Page 7                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                     for assessment shall be adjusted so as to
 
 2                     deduct the portion of the value as is
 
 3                     attributable to the finishing of the goods
 
 4                     outside the State.
 
 5      (2)  Tax on business of selling tangible personal property;
 
 6           producing.
 
 7           (A)  Upon every person engaging or continuing in the
 
 8                business of selling any tangible personal property
 
 9                whatsoever (not including, however, bonds or other
 
10                evidence of indebtedness, or stocks), there is
 
11                likewise hereby levied, and shall be assessed and
 
12                collected, a tax equivalent to four per cent of
 
13                the gross proceeds of sales of the business;
 
14                provided that insofar as certain retailing is
 
15                taxed by section 237-16, the tax shall be that
 
16                levied by section 237-16, and in the case of a
 
17                wholesaler, the tax shall be equal to one-half of
 
18                one per cent of the gross proceeds of sales of the
 
19                business.  Upon every person engaging or
 
20                continuing within this State in the business of a
 
21                producer, the tax shall be equal to one-half of
 
22                one per cent of the gross proceeds of sales of the
 

 
 
 
Page 8                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                business, or the value of the products, for sale,
 
 2                if sold for delivery outside the State or shipped
 
 3                or transported out of the State, and the value of
 
 4                the products shall be determined in the same
 
 5                manner as the value of manufactured products
 
 6                covered in the cases under paragraph (1)(C).
 
 7           (B)  Gross proceeds of sales of tangible property in
 
 8                interstate and foreign commerce shall constitute a
 
 9                part of the measure of the tax imposed on persons
 
10                in the business of selling tangible personal
 
11                property, to the extent, under the conditions, and
 
12                in accordance with the provisions of the
 
13                Constitution of the United States and the Acts of
 
14                the Congress of the United States which may be now
 
15                in force or may be hereafter adopted, and whenever
 
16                there occurs in the State an activity to which,
 
17                under the Constitution and Acts of Congress, there
 
18                may be attributed gross proceeds of sales, the
 
19                gross proceeds shall be so attributed.
 
20           (C)  No manufacturer or producer, engaged in such
 
21                business in the State and selling the
 
22                manufacturer's or producer's products for delivery
 

 
 
 
Page 9                                                     1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                outside of the State (for example, consigned to a
 
 2                mainland purchaser via common carrier f.o.b.
 
 3                Honolulu), shall be required to pay the tax
 
 4                imposed in this chapter for the privilege of so
 
 5                selling the products, and the value or gross
 
 6                proceeds of sales of the products shall be
 
 7                included only in determining the measure of the
 
 8                tax imposed upon the manufacturer or producer.
 
 9           (D)  When a manufacturer or producer, engaged in such
 
10                business in the State, also is engaged in selling
 
11                the manufacturer's or producer's products in the
 
12                State at wholesale, retail, or in any other
 
13                manner, the tax for the privilege of engaging in
 
14                the business of selling the products in the State
 
15                shall apply to the manufacturer or producer as
 
16                well as the tax for the privilege of manufacturing
 
17                or producing in the State, and the manufacturer or
 
18                producer shall make the returns of the gross
 
19                proceeds of the wholesale, retail, or other sales
 
20                required for the privilege of selling in the
 
21                State, as well as making the returns of the value
 
22                or gross proceeds of sales of the products
 

 
 
 
Page 10                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                required for the privilege of manufacturing or
 
 2                producing in the State.  The manufacturer or
 
 3                producer shall pay the tax imposed in this chapter
 
 4                for the privilege of selling its products in the
 
 5                State, and the value or gross proceeds of sales of
 
 6                the products, thus subjected to tax, may be
 
 7                deducted insofar as duplicated as to the same
 
 8                products by the measure of the tax upon the
 
 9                manufacturer or producer for the privilege of
 
10                manufacturing or producing in the State; except
 
11                that no producer of agricultural products who
 
12                sells the products to a purchaser who will process
 
13                the products outside the State shall be required
 
14                to pay the tax imposed in this chapter for the
 
15                privilege of producing or selling those products.
 
16           (E)  A taxpayer selling to a federal cost-plus
 
17                contractor may make the election provided for by
 
18                paragraph (3)(C), and in that case the tax shall
 
19                be computed pursuant to the election,
 
20                notwithstanding this paragraph or paragraph (1) to
 
21                the contrary.
 

 
 
 
 
 
Page 11                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (F)  The department, by rule, may provide that a seller
 
 2                may take from the purchaser of tangible personal
 
 3                property a certificate, in a form as the
 
 4                department shall prescribe, certifying that the
 
 5                sale is a sale at wholesale.  If the certificate
 
 6                is so provided for by rule of the department:
 
 7                (i)  Any purchaser who furnishes a certificate
 
 8                     shall be obligated to pay to the seller, upon
 
 9                     demand, if the sale in fact is not at
 
10                     wholesale, the amount of the additional tax
 
11                     which by reason thereof is imposed upon the
 
12                     seller; and
 
13               (ii)  The absence of a certificate, unless the
 
14                     sales of the business are exclusively at
 
15                     wholesale, in itself shall give rise to the
 
16                     presumption that the sale is not at
 
17                     wholesale.
 
18      (3)  Tax upon contractors.
 
19           (A)  Upon every person engaging or continuing within
 
20                the State in the business of contracting, the tax
 
21                shall be equal to four per cent of the gross
 
22                income of the business; provided that insofar as
 

 
 
 
Page 12                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                the business of contracting is taxed by section
 
 2                237-16, which relates to certain retailing, the
 
 3                tax shall be that levied by section 237-16.
 
 4           (B)  In computing the tax levied under this paragraph
 
 5                or section 237-16, there shall be deducted from
 
 6                the gross income of the taxpayer so much thereof
 
 7                as has been included in the measure of the tax
 
 8                levied under subparagraph (A) or section 237-16,
 
 9                on:
 
10                (i)  Another taxpayer who is a contractor, as
 
11                     defined in section 237-6;
 
12               (ii)  A specialty contractor, duly licensed by the
 
13                     department of commerce and consumer affairs
 
14                     pursuant to section 444-9, in respect of the
 
15                     specialty contractor's business; or
 
16              (iii)  A specialty contractor who is not licensed by
 
17                     the department of commerce and consumer
 
18                     affairs pursuant to section 444-9, but who
 
19                     performs contracting activities on federal
 
20                     military installations and nowhere else in
 
21                     this State;
 

 
 
 
 
 
Page 13                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                but any person claiming a deduction under this
 
 2                paragraph shall be required to show in the
 
 3                person's return the name and general excise number
 
 4                of the person paying the tax on the amount
 
 5                deducted by the person.
 
 6           (C)  In computing the tax levied under this paragraph
 
 7                against any federal cost-plus contractor, there
 
 8                shall be excluded from the gross income of the
 
 9                contractor so much thereof as fulfills the
 
10                following requirements:
 
11                (i)  The gross income exempted shall constitute
 
12                     reimbursement of costs incurred for
 
13                     materials, plant, or equipment purchased from
 
14                     a taxpayer licensed under this chapter, not
 
15                     exceeding the gross proceeds of sale of the
 
16                     taxpayer on account of the transaction; and
 
17               (ii)  The taxpayer making the sale shall have
 
18                     certified to the department that the taxpayer
 
19                     is taxable with respect to the gross proceeds
 
20                     of the sale, and that the taxpayer elects to
 
21                     have the tax on gross income computed the
 
22                     same as upon a sale to the state government.
 

 
 
 
Page 14                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (D)  A person who, as a business or as a part of a
 
 2                business in which the person is engaged, erects,
 
 3                constructs, or improves any building or structure,
 
 4                of any kind or description, or makes, constructs,
 
 5                or improves any road, street, sidewalk, sewer, or
 
 6                water system, or other improvements on land held
 
 7                by the person (whether held as a leasehold, fee
 
 8                simple, or otherwise), upon the sale or other
 
 9                disposition of the land or improvements, even if
 
10                the work was not done pursuant to a contract,
 
11                shall be liable to the same tax as if engaged in
 
12                the business of contracting, unless the person
 
13                shows that at the time the person was engaged in
 
14                making the improvements it was, and for the period
 
15                of at least one year after completion of the
 
16                building, structure, or other improvements, it
 
17                continued to be the person's purpose to hold and
 
18                not sell or otherwise dispose of the land or
 
19                improvements.  The tax in respect of the
 
20                improvements shall be measured by the amount of
 
21                the proceeds of the sale or other disposition that
 
22                is attributable to the erection, construction, or
 

 
 
 
Page 15                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                improvement of such building or structure, or the
 
 2                making, constructing, or improving of the road,
 
 3                street, sidewalk, sewer, or water system, or other
 
 4                improvements.  The measure of tax in respect of
 
 5                the improvements shall not exceed the amount which
 
 6                would have been taxable had the work been
 
 7                performed by another, subject as in other cases to
 
 8                the deductions allowed by subparagraph (B).  Upon
 
 9                the election of the taxpayer, this paragraph may
 
10                be applied notwithstanding the improvements were
 
11                not made by the taxpayer, or were not made as a
 
12                business or as a part of a business, or were made
 
13                with the intention of holding the same.  However,
 
14                this paragraph shall not apply in respect of any
 
15                proceeds that constitute or are in the nature of
 
16                rent; all such gross income shall be taxable under
 
17                paragraph [(10);] (11); provided that insofar as
 
18                the business of renting or leasing real property
 
19                under a lease is taxed under section 237-16.5, the
 
20                tax shall be levied by section 237-16.5.
 
21      (4)  Tax upon theaters, amusements, radio broadcasting
 
22           stations, etc.  Upon every person engaging or
 

 
 
 
Page 16                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           continuing within the State in the business of
 
 2           operating a theater, opera house, moving picture show,
 
 3           vaudeville, amusement park, dance hall, skating rink,
 
 4           radio broadcasting station, or any other place at which
 
 5           amusements are offered to the public, the tax shall be
 
 6           equal to four per cent of the gross income of the
 
 7           business.
 
 8      (5)  Tax upon sales representatives, etc.  Upon every person
 
 9           classified as a representative or purchasing agent
 
10           under section 237-1, engaging or continuing within the
 
11           State in the business of performing services for
 
12           another, other than as an employee, there is likewise
 
13           hereby levied and shall be assessed and collected a tax
 
14           equal to four per cent of the commissions and other
 
15           compensation attributable to the services so rendered
 
16           by the person.
 
17      (6)  Tax on service business.  Upon every person engaging or
 
18           continuing within the State in any service business or
 
19           calling not otherwise specifically taxed under this
 
20           chapter, there is likewise hereby levied and shall be
 
21           assessed and collected a tax equal to four per cent of
 
22           the gross income of the business; provided that where
 

 
 
 
Page 17                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           any person engaging or continuing within the State in
 
 2           any service business or calling renders those services
 
 3           upon the order of or at the request of another taxpayer
 
 4           who is engaged in the service business and who, in
 
 5           fact, acts as or acts in the nature of an intermediary
 
 6           between the person rendering those services and the
 
 7           ultimate recipient of the benefits of those services,
 
 8           so much of the gross income as is received by the
 
 9           person rendering the services shall be subjected to the
 
10           tax at the rate of one-half of one per cent and all of
 
11           the gross income received by the intermediary from the
 
12           principal shall be subjected to a tax at the rate of
 
13           four per cent; and provided that where any person is
 
14           engaged in the business of selling interstate or
 
15           foreign common carrier telecommunication services
 
16           within and without the State, the tax shall be imposed
 
17           on that portion of gross income received by a person
 
18           from service which is originated or terminated in this
 
19           State and is charged to a telephone number, customer,
 
20           or account in this State notwithstanding any other
 
21           state law (except for the exemption under section
 
22           237-23(a)(1)) to the contrary.  If, under the
 

 
 
 
Page 18                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           Constitution and laws of the United States, the entire
 
 2           gross income as determined under this paragraph of a
 
 3           business selling interstate or foreign common carrier
 
 4           telecommunication services cannot be included in the
 
 5           measure of the tax, the gross income shall be
 
 6           apportioned as provided in section 237-21; provided
 
 7           that the apportionment factor and formula shall be the
 
 8           same for all persons providing those services in the
 
 9           State.
 
10      (7)  Tax on insurance solicitors and agents.  Upon every
 
11           person engaged as a licensed solicitor, general agent,
 
12           or subagent pursuant to chapter 431, there is hereby
 
13           levied and shall be assessed and collected a tax equal
 
14           to .15 per cent of the commissions due to that
 
15           activity.
 
16      (8)  Professions.  Upon every person engaging or continuing
 
17           within the State in the practice of a profession,
 
18           including those expounding the religious doctrines of
 
19           any church, there is likewise hereby levied and shall
 
20           be assessed and collected a tax equal to four per cent
 
21           of the gross income on the practice or exposition.
 

 
 
 
 
 
Page 19                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (9)  Tax on receipts of sugar benefit payments.  Upon the
 
 2           amounts received from the United States government by
 
 3           any producer of sugar (or the producer's legal
 
 4           representative or heirs), as defined under and by
 
 5           virtue of the Sugar Act of 1948, as amended, or other
 
 6           Acts of the Congress of the United States relating
 
 7           thereto, there is hereby levied a tax of one-half of
 
 8           one per cent of the gross amount received, provided
 
 9           that the tax levied hereunder on any amount so received
 
10           and actually disbursed to another by a producer in the
 
11           form of a benefit payment shall be paid by the person
 
12           or persons to whom the amount is actually disbursed,
 
13           and the producer actually making a benefit payment to
 
14           another shall be entitled to claim on the producer's
 
15           return a deduction from the gross amount taxable
 
16           hereunder in the sum of the amount so disbursed.  The
 
17           amounts taxed under this paragraph shall not be taxable
 
18           under any other paragraph, subsection, or section of
 
19           this chapter.
 
20     (10)  Tax on travel agents and agencies.  Upon every travel
 
21           agency or travel agent registered under chapter 468L
 
22           engaged or continuing within the State in the business
 

 
 
 
Page 20                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           of performing travel services, there is likewise levied
 
 2           and shall be assessed and collected:
 
 3           (A)  A tax equal to         per cent on all gross
 
 4                commission income received from the sale of
 
 5                airline tickets; and
 
 6           (B)  A tax equal to four per cent on all other gross
 
 7                commission income.
 
 8    [(10)] (11)  Tax on other business.  Upon every person
 
 9           engaging or continuing within the State in any
 
10           business, trade, activity, occupation, or calling not
 
11           included in the preceding paragraphs or any other
 
12           provisions of this chapter, there is likewise hereby
 
13           levied and shall be assessed and collected, a tax equal
 
14           to four per cent of the gross income thereof.  In
 
15           addition, the rate prescribed by this paragraph shall
 
16           apply to a business taxable under one or more of the
 
17           preceding paragraphs or other provisions of this
 
18           chapter, as to any gross income thereof not taxed
 
19           thereunder as gross income or gross proceeds of sales
 
20           or by taxing an equivalent value of products, unless
 
21           specifically exempted."
 

 
 
 
 
 
Page 21                                                    1692
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      SECTION 3.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 4.  This Act shall take effect on July 1, 1999, and
 
 4 shall apply to gross income and gross proceeds received after
 
 5 June 30, 1999.