REPORT TITLE:
RELATING TO GENERAL EXCISE TAX


DESCRIPTION:
Reduces the general excise tax rate on businesses not covered
under other provisions of section 237-13(10), HRS, from four per
cent to three per cent.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                            190         
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE GENERAL EXCISE TAX.


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

 1      SECTION 1.  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,
 

 
Page 2                                         190         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 3                                         190         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 4                                         190         
                                     H.B. NO.           
                                                        
                                                        

 
 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
 
23                     for assessment shall be adjusted so as to
 

 
Page 5                                         190         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 6                                         190         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 7                                         190         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 8                                         190         
                                     H.B. NO.           
                                                        
                                                        

 
 1                State, and the value or gross proceeds of sales of
 
 2                the products, thus subjected to tax, may be
 
 3                deducted insofar as duplicated as to the same
 
 4                products by the measure of the tax upon the
 
 5                manufacturer or producer for the privilege of
 
 6                manufacturing or producing in the State; except
 
 7                that no producer of agricultural products who
 
 8                sells the products to a purchaser who will process
 
 9                the products outside the State shall be required
 
10                to pay the tax imposed in this chapter for the
 
11                privilege of producing or selling those products.
 
12           (E)  A taxpayer selling to a federal cost-plus
 
13                contractor may make the election provided for by
 
14                paragraph (3)(C), and in that case the tax shall
 
15                be computed pursuant to the election,
 
16                notwithstanding this paragraph or paragraph (1) to
 
17                the contrary.
 
18           (F)  The department, by rule, may provide that a seller
 
19                may take from the purchaser of tangible personal
 
20                property a certificate, in a form as the
 
21                department shall prescribe, certifying that the
 
22                sale is a sale at wholesale.  If the certificate
 
23                is so provided for by rule of the department:
 

 
Page 9                                         190         
                                     H.B. NO.           
                                                        
                                                        

 
 1                (i)  Any purchaser who furnishes a certificate
 
 2                     shall be obligated to pay to the seller, upon
 
 3                     demand, if the sale in fact is not at
 
 4                     wholesale, the amount of the additional tax
 
 5                     which by reason thereof is imposed upon the
 
 6                     seller; and
 
 7               (ii)  The absence of a certificate, unless the
 
 8                     sales of the business are exclusively at
 
 9                     wholesale, in itself shall give rise to the
 
10                     presumption that the sale is not at
 
11                     wholesale.
 
12      (3)  Tax upon contractors.
 
13           (A)  Upon every person engaging or continuing within
 
14                the State in the business of contracting, the tax
 
15                shall be equal to four per cent of the gross
 
16                income of the business; provided that insofar as
 
17                the business of contracting is taxed by section
 
18                237-16, which relates to certain retailing, the
 
19                tax shall be that levied by section 237-16.
 
20           (B)  In computing the tax levied under this paragraph
 
21                or section 237-16, there shall be deducted from
 
22                the gross income of the taxpayer so much thereof
 
23                as has been included in the measure of the tax
 

 
Page 10                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1                levied under subparagraph (A) or section 237-16,
 
 2                on:
 
 3                (i)  Another taxpayer who is a contractor, as
 
 4                     defined in section 237-6;
 
 5               (ii)  A specialty contractor, duly licensed by the
 
 6                     department of commerce and consumer affairs
 
 7                     pursuant to section 444-9, in respect of the
 
 8                     specialty contractor's business; or
 
 9              (iii)  A specialty contractor who is not licensed by
 
10                     the department of commerce and consumer
 
11                     affairs pursuant to section 444-9, but who
 
12                     performs contracting activities on federal
 
13                     military installations and nowhere else in
 
14                     this State;
 
15                but any person claiming a deduction under this
 
16                paragraph shall be required to show in the
 
17                person's return the name and general excise number
 
18                of the person paying the tax on the amount
 
19                deducted by the person.
 
20           (C)  In computing the tax levied under this paragraph
 
21                against any federal cost-plus contractor, there
 
22                shall be excluded from the gross income of the
 
23                contractor so much thereof as fulfills the
 

 
Page 11                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1                following requirements:
 
 2                (i)  The gross income exempted shall constitute
 
 3                     reimbursement of costs incurred for
 
 4                     materials, plant, or equipment purchased from
 
 5                     a taxpayer licensed under this chapter, not
 
 6                     exceeding the gross proceeds of sale of the
 
 7                     taxpayer on account of the transaction; and
 
 8               (ii)  The taxpayer making the sale shall have
 
 9                     certified to the department that the taxpayer
 
10                     is taxable with respect to the gross proceeds
 
11                     of the sale, and that the taxpayer elects to
 
12                     have the tax on gross income computed the
 
13                     same as upon a sale to the state government.
 
14           (D)  A person who, as a business or as a part of a
 
15                business in which the person is engaged, erects,
 
16                constructs, or improves any building or structure,
 
17                of any kind or description, or makes, constructs,
 
18                or improves any road, street, sidewalk, sewer, or
 
19                water system, or other improvements on land held
 
20                by the person (whether held as a leasehold, fee
 
21                simple, or otherwise), upon the sale or other
 
22                disposition of the land or improvements, even if
 
23                the work was not done pursuant to a contract,
 
24                shall be liable to the same tax as if engaged in
 

 
Page 12                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1                the business of contracting, unless the person
 
 2                shows that at the time the person was engaged in
 
 3                making the improvements it was, and for the period
 
 4                of at least one year after completion of the
 
 5                building, structure, or other improvements, it
 
 6                continued to be the person's purpose to hold and
 
 7                not sell or otherwise dispose of the land or
 
 8                improvements.  The tax in respect of the
 
 9                improvements shall be measured by the amount of
 
10                the proceeds of the sale or other disposition that
 
11                is attributable to the erection, construction, or
 
12                improvement of such building or structure, or the
 
13                making, constructing, or improving of the road,
 
14                street, sidewalk, sewer, or water system, or other
 
15                improvements.  The measure of tax in respect of
 
16                the improvements shall not exceed the amount which
 
17                would have been taxable had the work been
 
18                performed by another, subject as in other cases to
 
19                the deductions allowed by subparagraph (B).  Upon
 
20                the election of the taxpayer, this paragraph may
 
21                be applied notwithstanding the improvements were
 
22                not made by the taxpayer, or were not made as a
 
23                business or as a part of a business, or were made
 

 
Page 13                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1                with the intention of holding the same.  However,
 
 2                this paragraph shall not apply in respect of any
 
 3                proceeds that constitute or are in the nature of
 
 4                rent; all such gross income shall be taxable under
 
 5                paragraph (10); provided that insofar as the
 
 6                business of renting or leasing real property under
 
 7                a lease is taxed under section 237-16.5, the tax
 
 8                shall be levied by section 237-16.5.
 
 9      (4)  Tax upon theaters, amusements, radio broadcasting
 
10           stations, etc.  Upon every person engaging or
 
11           continuing within the State in the business of
 
12           operating a theater, opera house, moving picture show,
 
13           vaudeville, amusement park, dance hall, skating rink,
 
14           radio broadcasting station, or any other place at which
 
15           amusements are offered to the public, the tax shall be
 
16           equal to four per cent of the gross income of the
 
17           business.
 
18      (5)  Tax upon sales representatives, etc.  Upon every person
 
19           classified as a representative or purchasing agent
 
20           under section 237-1, engaging or continuing within the
 
21           State in the business of performing services for
 
22           another, other than as an employee, there is likewise
 
23           hereby levied and shall be assessed and collected a tax
 

 
Page 14                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1           equal to four per cent of the commissions and other
 
 2           compensation attributable to the services so rendered
 
 3           by the person.
 
 4      (6)  Tax on service business.  Upon every person engaging or
 
 5           continuing within the State in any service business or
 
 6           calling not otherwise specifically taxed under this
 
 7           chapter, there is likewise hereby levied and shall be
 
 8           assessed and collected a tax equal to four per cent of
 
 9           the gross income of the business; provided that where
 
10           any person engaging or continuing within the State in
 
11           any service business or calling renders those services
 
12           upon the order of or at the request of another taxpayer
 
13           who is engaged in the service business and who, in
 
14           fact, acts as or acts in the nature of an intermediary
 
15           between the person rendering those services and the
 
16           ultimate recipient of the benefits of those services,
 
17           so much of the gross income as is received by the
 
18           person rendering the services shall be subjected to the
 
19           tax at the rate of one-half of one per cent and all of
 
20           the gross income received by the intermediary from the
 
21           principal shall be subjected to a tax at the rate of
 
22           four per cent; and provided that where any person is
 
23           engaged in the business of selling interstate or
 

 
Page 15                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1           foreign common carrier telecommunication services
 
 2           within and without the State, the tax shall be imposed
 
 3           on that portion of gross income received by a person
 
 4           from service which is originated or terminated in this
 
 5           State and is charged to a telephone number, customer,
 
 6           or account in this State notwithstanding any other
 
 7           state law (except for the exemption under section
 
 8           237-23(a)(1)) to the contrary.  If, under the
 
 9           Constitution and laws of the United States, the entire
 
10           gross income as determined under this paragraph of a
 
11           business selling interstate or foreign common carrier
 
12           telecommunication services cannot be included in the
 
13           measure of the tax, the gross income shall be
 
14           apportioned as provided in section 237-21; provided
 
15           that the apportionment factor and formula shall be the
 
16           same for all persons providing those services in the
 
17           State.
 
18      (7)  Tax on insurance solicitors and agents.  Upon every
 
19           person engaged as a licensed solicitor, general agent,
 
20           or subagent pursuant to chapter 431, there is hereby
 
21           levied and shall be assessed and collected a tax equal
 
22           to .15 per cent of the commissions due to that
 
23           activity.
 

 
Page 16                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1      (8)  Professions.  Upon every person engaging or continuing
 
 2           within the State in the practice of a profession,
 
 3           including those expounding the religious doctrines of
 
 4           any church, there is likewise hereby levied and shall
 
 5           be assessed and collected a tax equal to four per cent
 
 6           of the gross income on the practice or exposition.
 
 7      (9)  Tax on receipts of sugar benefit payments.  Upon the
 
 8           amounts received from the United States government by
 
 9           any producer of sugar (or the producer's legal
 
10           representative or heirs), as defined under and by
 
11           virtue of the Sugar Act of 1948, as amended, or other
 
12           Acts of the Congress of the United States relating
 
13           thereto, there is hereby levied a tax of one-half of
 
14           one per cent of the gross amount received, provided
 
15           that the tax levied hereunder on any amount so received
 
16           and actually disbursed to another by a producer in the
 
17           form of a benefit payment shall be paid by the person
 
18           or persons to whom the amount is actually disbursed,
 
19           and the producer actually making a benefit payment to
 
20           another shall be entitled to claim on the producer's
 
21           return a deduction from the gross amount taxable
 
22           hereunder in the sum of the amount so disbursed.  The
 
23           amounts taxed under this paragraph shall not be taxable
 

 
Page 17                                        190         
                                     H.B. NO.           
                                                        
                                                        

 
 1           under any other paragraph, subsection, or section of
 
 2           this chapter.
 
 3     (10)  Tax on other business.  Upon every person engaging or
 
 4           continuing within the State in any business, trade,
 
 5           activity, occupation, or calling not included in the
 
 6           preceding paragraphs or any other provisions of this
 
 7           chapter, there is likewise hereby levied and shall be
 
 8           assessed and collected, a tax equal to [four] three per
 
 9           cent of the gross income thereof.  In addition, the
 
10           rate prescribed by this paragraph shall apply to a
 
11           business taxable under one or more of the preceding
 
12           paragraphs or other provisions of this chapter, as to
 
13           any gross income thereof not taxed thereunder as gross
 
14           income or gross proceeds of sales or by taxing an
 
15           equivalent value of products, unless specifically
 
16           exempted." 
 
17      SECTION 2.  Statutory material to be repealed is bracketed.
 
18 New statutory material is underscored.
 
19      SECTION 3.  This Act shall take effect upon its approval.
 
20 
 
21                           INTRODUCED BY:  _______________________