REPORT TITLE: 
General excise tax on services


DESCRIPTION:
Establishes a general excise tax structure for services similar
to that of goods.  The new structure retains the four per cent
tax on the final service provided and gradually over a period of
four years lowers the tax on intermediary services to half a per
cent, the same as applied to the sale of wholesale goods. (HB232
HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        232
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.  Section 237-1, Hawaii Revised Statutes, is
 
 2 amended by adding a new definition to be appropriately inserted
 
 3 and to read as follows:
 
 4      ""Overhead" means continuous or general costs of property or
 
 5 services that are not specifically or directly associated with
 
 6 the manufacture, preparation, production, or acquisition of
 
 7 identifiable goods or services to be sold."
 
 8      SECTION 2.  Section 237-4, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "§237-4 "Wholesaler", "jobber", defined.  (a)  "Wholesaler"
 
11 or "jobber" applies only to a person making sales at wholesale.
 
12 Only the following are sales at wholesale:
 
13      (1)  Sales to a licensed retail merchant, jobber, or other
 
14           licensed seller for purposes of resale;
 
15      (2)  Sales to a licensed manufacturer of [material]
 
16           materials or commodities [which] that are to be
 
17           incorporated by the manufacturer into a finished or
 
18           saleable product (including the container or package in
 
19           which the product is contained) during the course of
 

 
Page 2                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           its preservation, manufacture, or processing, including
 
 2           preparation for market, and [which] that will remain in
 
 3           [such] the finished or saleable product in such form as
 
 4           to be perceptible to the senses, which finished or
 
 5           saleable product is to be sold and not otherwise used
 
 6           by the manufacturer;
 
 7      (3)  Sales to a licensed producer or cooperative association
 
 8           of materials or commodities [which] that are to be
 
 9           incorporated by the producer or by the cooperative
 
10           association into a finished or saleable product [which]
 
11           that is to be sold and not otherwise used by the
 
12           producer or cooperative association, including
 
13           specifically materials or commodities expended as
 
14           essential to the planting, growth, nurturing, and
 
15           production of commodities [which] that are sold by the
 
16           producer or by the cooperative association;
 
17      (4)  Sales to a licensed contractor, of [material] materials
 
18           or commodities [which] that are to be incorporated by
 
19           the contractor into the finished work or project
 
20           required by the contract and [which] that will remain
 
21           in [such] the finished work or project in such form as
 
22           to be perceptible to the senses;
 

 
 
 
Page 3                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (5)  Sales to a licensed producer, or to a cooperative
 
 2           association described in section 237-23(a)(7) for sale
 
 3           to [such] a licensed producer, or to a licensed person
 
 4           operating a feed lot, of poultry or animal feed,
 
 5           hatching eggs, semen, replacement stock, breeding
 
 6           services for the purpose of raising or producing animal
 
 7           or poultry products for disposition as described in
 
 8           section 237-5 or [to be incorporated in] for
 
 9           incorporation into a manufactured product as described
 
10           in paragraph (2) or for the purpose of breeding,
 
11           hatching, milking, or egg laying other than for the
 
12           customer's own consumption of the meat, poultry, eggs,
 
13           or milk so produced; provided that in the case of a
 
14           feed lot operator, only the segregated cost of the feed
 
15           furnished by the feed lot operator as part of the feed
 
16           lot operator's service to a licensed producer of
 
17           poultry or animals to be butchered or to a cooperative
 
18           association described in section 237-23(a)(7) of such
 
19           licensed producers shall be deemed to be a sale at
 
20           wholesale; and provided further that any amount derived
 
21           from the furnishing of feed lot services, other than
 
22           the segregated cost of feed, shall be deemed taxable at
 
23           the service business rate.  This paragraph shall not
 

 
Page 4                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           apply to the sale of feed for poultry or animals to be
 
 2           used for hauling, transportation, or sports purposes;
 
 3      (6)  Sales to a licensed producer, or to a cooperative
 
 4           association described in section 237-23(a)(7) for sale
 
 5           to the producer, of seed for producing agricultural
 
 6           products, or bait for catching fish (including the
 
 7           catching of bait for catching fish), which agricultural
 
 8           products or fish are to be disposed of as described in
 
 9           section 237-5 or to be incorporated in a manufactured
 
10           product as described in paragraph (2);
 
11      (7)  Sales to a licensed producer, or to a cooperative
 
12           association described in section 237-23(a)(7) for sale
 
13           to such producer[;] of polypropylene shade cloth[; of],
 
14           polyfilm[; of], polyethylene film[; of], cartons and
 
15           such other containers, wrappers, and sacks, and binders
 
16           to be used for packaging eggs, vegetables, fruits, and
 
17           other agricultural products[; of], seedlings and
 
18           cuttings for producing nursery plants[; or of], or
 
19           chick containers[;], which cartons and such other
 
20           containers, wrappers, and sacks, binders, seedlings,
 
21           cuttings, and containers are to be used as described in
 
22           section 237-5, or to be incorporated in a manufactured
 
23           product as described in paragraph (2);
 

 
Page 5                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (8)  Sales of tangible personal property to a licensed
 
 2           [person] seller engaged in [the] a service business[;]
 
 3           or calling; provided that [(A) the property is not
 
 4           consumed or incidental to the performance of the
 
 5           services; (B) there is a resale of the article at the
 
 6           retail rate of four per cent; and (C) the resale of the
 
 7           article is separately charged or billed by the person
 
 8           rendering the services;]:
 
 9           (A)  The property is sold upon the order or request of
 
10                the licensed seller for the purpose of rendering a
 
11                service in the course of the seller's service
 
12                business or calling;
 
13           (B)  The property becomes or is used as an integral
 
14                part of the service rendered; and
 
15           (C)  The cost of the property does not constitute
 
16                overhead to the licensed seller;
 
17      (9)  Sales to a licensed leasing company of capital goods
 
18           [which] that have a depreciable life, are purchased by
 
19           the leasing company for lease to its customers, and are
 
20           thereafter leased as a service to others[.  Capital
 
21           goods means goods which have a depreciable life and
 
22           which are purchased by the leasing company for lease to
 
23           its customers.]; and
 

 
Page 6                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1     (10)  Sales of services to a licensed seller engaged in a
 
 2           business or calling whenever:
 
 3           (A)  Either:
 
 4                (i)  In the context of a service-to-service
 
 5                     transaction, a service is rendered upon the
 
 6                     order or request of a licensed seller for the
 
 7                     purpose of rendering another service in the
 
 8                     course of the seller's service business or
 
 9                     calling; or
 
10               (ii)  In the context of a service-to-goods
 
11                     transaction, a service is rendered upon the
 
12                     order or request of a licensed seller for the
 
13                     purpose of manufacturing, producing,
 
14                     preparing, or acquiring tangible personal
 
15                     property to be sold;
 
16           (B)  The benefit of the service passes to the customer
 
17                of the licensed seller as an integral part of the
 
18                other service or property to be sold; and
 
19           (C)  The cost of the service rendered does not
 
20                constitute overhead to the licensed seller.
 
21     (b)  If the use tax law is finally held by a court of
 
22 competent jurisdiction to be unconstitutional or invalid insofar
 
23 as it purports to tax the use or consumption of tangible personal
 

 
Page 7                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 property imported into the State in interstate or foreign
 
 2 commerce or both, wholesalers and jobbers shall be taxed
 
 3 thereafter under this chapter in accordance with the following
 
 4 definition (which shall supersede the preceding paragraph
 
 5 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
 6 "jobber" means a person, or a definitely organized division
 
 7 thereof, definitely organized to render and rendering a general
 
 8 distribution service [which] that buys and maintains at the
 
 9 person's place of business a stock or lines of merchandise
 
10 [which] that the person distributes[;], and [which,] that the
 
11 person, through salespersons, advertising, or sales promotion
 
12 devices, sells to licensed retailers, to institutional or
 
13 licensed commercial or industrial users, in wholesale quantities
 
14 and at wholesale rates.  A corporation deemed not to be carrying
 
15 on a trade or business in this State under section 235-6 shall
 
16 nevertheless be deemed to be a wholesaler and shall be subject to
 
17 the tax imposed by this chapter."
 
18     SECTION 3.  Section 237-7, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20     "§237-7 "Service business or calling", defined."Service
 
21 business or calling" includes all activities engaged in for other
 
22 persons for a consideration [which] that involve the rendering of
 
23 a service, such as professional and transient accommodation
 

 
Page 8                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 services, as distinguished from the sale of tangible property or
 
 2 the production and sale of tangible property.  "Service business
 
 3 or calling" does not include the services rendered by an employee
 
 4 to the employee's employer."
 
 5     SECTION 4.  Section 237-13, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7     "§237-13  Imposition of tax.  There is hereby levied and
 
 8 shall be assessed and collected annually privilege taxes against
 
 9 persons on account of their business and other activities in the
 
10 State measured by the application of rates against values of
 
11 products, gross proceeds of sales, or gross income, whichever is
 
12 specified, as follows:
 
13     (1)   Tax on manufacturers.
 
14           (A)  Upon every person engaging or continuing within
 
15                the State in the business of manufacturing,
 
16                including compounding, canning, preserving,
 
17                packing, printing, publishing, milling,
 
18                processing, refining, or preparing for sale,
 
19                profit, or commercial use, either directly or
 
20                through the activity of others, in whole or in
 
21                part, any article or articles, substance or
 
22                substances, commodity or commodities, the amount
 
23                of the tax to be equal to the value of the
 

 
Page 9                                                     232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 10                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 11                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
 
 
Page 12                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 13                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                to a licensed seller engaged in a service business
 
 2                or calling, the tax shall be equal to:
 
 3                (i)  Beginning January 1, 2000, three per cent of
 
 4                     the gross proceeds of sales of the business;
 
 5               (ii)  Beginning January 1, 2001, two per cent of
 
 6                     the gross proceeds of sales of the business;
 
 7              (iii)  Beginning January 1, 2002, one per cent of
 
 8                     the gross proceeds of the sales of the
 
 9                     business; and
 
10               (iv)  Beginning January 1, 2003, one-half of one
 
11                     per cent of the gross proceeds of the sales
 
12                     of the business.
 
13                Upon every person engaging or continuing within
 
14                this State in the business of a producer, the tax
 
15                shall be equal to one-half of one per cent of the
 
16                gross proceeds of sales of the business, or the
 
17                value of the products, for sale, if sold for
 
18                delivery outside the State or shipped or
 
19                transported out of the State, and the value of the
 
20                products shall be determined in the same manner as
 
21                the value of manufactured products covered in the
 
22                cases under paragraph (1)(C).
 

 
 
 
Page 14                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
 
 
Page 15                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 16                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 17                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                     demand, [if the sale in fact is not at
 
 2                     wholesale,] the amount of the additional tax
 
 3                     [which by reason thereof] that is imposed
 
 4                     upon the seller[;] whenever the sale in fact
 
 5                     is not at wholesale; and
 
 6               (ii)  The absence of a certificate[, unless the
 
 7                     sales of the business are exclusively at
 
 8                     wholesale,] in itself shall give rise to the
 
 9                     presumption that the sale is not at
 
10                     wholesale[.] unless the sales of the business
 
11                     are exclusively at 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 18                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 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
 

 
 
 
Page 19                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 20                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 21                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 22                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           under section 237-1, engaging or continuing within the
 
 2           State in the business of performing services for
 
 3           another, other than as an employee, there is likewise
 
 4           hereby levied and shall be assessed and collected a tax
 
 5           equal to four per cent of the commissions and other
 
 6           compensation attributable to the services so rendered
 
 7           by the person.
 
 8     (6)   Tax on service business.
 
 9           (A)  Upon every person engaging or continuing within
 
10                the State in any service business or calling [not
 
11                otherwise specifically taxed under this chapter],
 
12                there is likewise hereby levied and shall be
 
13                assessed and collected a tax equal to four per
 
14                cent of the gross income of the business[;
 
15                provided that where any person engaging or
 
16                continuing within the State in any service
 
17                business or calling renders those services upon
 
18                the order of or at the request of another taxpayer
 
19                who is engaged in the service business and who, in
 
20                fact, acts as or acts in the nature of an
 
21                intermediary between the person rendering those
 
22                services and the ultimate recipient of the
 
23                benefits of those services, so much of the gross
 

 
Page 23                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                income as is received by the person rendering the
 
 2                services shall be subjected to the tax at the rate
 
 3                of one-half of one per cent and all of the gross
 
 4                income received by the intermediary from the
 
 5                principal shall be subjected to a tax at the rate
 
 6                of four per cent; and provided that where], and in
 
 7                the case of a wholesaler, the tax shall be equal
 
 8                to:
 
 9                (i)  Beginning January 1, 2000, three per cent of
 
10                     the gross income of the business;
 
11               (ii)  Beginning January 1, 2001, two per cent of
 
12                     the gross income of the business;
 
13              (iii)  Beginning January 1, 2002, one per cent of
 
14                     the gross income of the business; and
 
15               (iv)  Beginning January 1, 2003, one-half of one
 
16                     per cent of the gross income of the business.
 
17           (B)  The department, by rule, may require that the
 
18                person rendering the service take from the
 
19                licensed seller a certificate, in a form
 
20                prescribed by the department, certifying that the
 
21                sale is a sale at wholesale; provided that:
 
22                (i)  Any licensed seller who furnishes a
 
23                     certificate shall be obligated to pay to the
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                     person rendering the service, upon demand,
 
 2                     the amount of the additional tax that is
 
 3                     imposed upon the person rendering the service
 
 4                     whenever the sale in fact is not at
 
 5                     wholesale; and
 
 6               (ii)  The absence of a certificate in itself shall
 
 7                     give rise to the presumption that the sale is
 
 8                     not at wholesale unless the person rendering
 
 9                     the service is exclusively rendering service
 
10                     at wholesale.
 
11           (C)  Where any person is engaged in the business of
 
12                selling interstate or foreign common carrier
 
13                telecommunication services within and without the
 
14                State, the tax shall be imposed on that portion of
 
15                gross income received by a person from service
 
16                which is originated or terminated in this State
 
17                and is charged to a telephone number, customer, or
 
18                account in this State notwithstanding any other
 
19                state law (except for the exemption under section
 
20                237-23(a)(1)) to the contrary.  If, under the
 
21                Constitution and laws of the United States, the
 
22                entire gross income as determined under this
 
23                paragraph of a business selling interstate or
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                foreign common carrier telecommunication services
 
 2                cannot be included in the measure of the tax, the
 
 3                gross income shall be apportioned as provided in
 
 4                section 237-21; provided that the apportionment
 
 5                factor and formula shall be the same for all
 
 6                persons providing those services in the State.
 
 7     (7)   Tax on insurance solicitors and agents.  Upon every
 
 8           person engaged as a licensed solicitor, general agent,
 
 9           or subagent pursuant to chapter 431, there is hereby
 
10           levied and shall be assessed and collected a tax equal
 
11           to .15 per cent of the commissions due to that
 
12           activity.
 
13    [(8)   Professions.  Upon every person engaging or continuing
 
14           within the State in the practice of a profession,
 
15           including those expounding the religious doctrines of
 
16           any church, there is likewise hereby levied and shall
 
17           be assessed and collected a tax equal to four per cent
 
18           of the gross income on the practice or exposition.
 
19     (9)]  (8)  Tax on receipts of sugar benefit payments.  Upon
 
20           the amounts received from the United States government
 
21           by any producer of sugar (or the producer's legal
 
22           representative or heirs), as defined under and by
 
23           virtue of the Sugar Act of 1948, as amended, or other
 

 
Page 26                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           Acts of the Congress of the United States relating
 
 2           thereto, there is hereby levied a tax of one-half of
 
 3           one per cent of the gross amount received[,]; provided
 
 4           that the tax levied hereunder on any amount so received
 
 5           and actually disbursed to another by a producer in the
 
 6           form of a benefit payment shall be paid by the person
 
 7           or persons to whom the amount is actually disbursed,
 
 8           and the producer actually making a benefit payment to
 
 9           another shall be entitled to claim on the producer's
 
10           return a deduction from the gross amount taxable
 
11           hereunder in the sum of the amount so disbursed.  The
 
12           amounts taxed under this paragraph shall not be taxable
 
13           under any other paragraph, subsection, or section of
 
14           this chapter.
 
15   [(10)]  (9)  Tax on other business.  Upon every person engaging
 
16           or continuing within the State in any business, trade,
 
17           activity, occupation, or calling not included in the
 
18           preceding paragraphs or any other provisions of this
 
19           chapter, there is likewise hereby levied and shall be
 
20           assessed and collected, a tax equal to four per cent of
 
21           the gross income thereof.  In addition, the rate
 
22           prescribed by this paragraph shall apply to a business
 
23           taxable under one or more of the preceding paragraphs
 

 
Page 27                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           or other provisions of this chapter, as to any gross
 
 2           income thereof not taxed thereunder as gross income or
 
 3           gross proceeds of sales or by taxing an equivalent
 
 4           value of products, unless specifically exempted."
 
 5      SECTION 5.  Section 237-16, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "§237-16  Tax on certain retailing.(a)  This section
 
 8 relates to certain retailing in the State as follows:
 
 9      (1)  This section relates to the sale of tangible personal
 
10           property, for consumption or use by the purchaser and
 
11           not for resale, the renting of tangible personal
 
12           property, and the rendering of services by one engaged
 
13           in a service business or calling, as defined, to a
 
14           person who is not purchasing the services for resale,
 
15           but does not relate to the sale or rental of tangible
 
16           personal property or the rendering of services to the
 
17           State, its political subdivisions, or agencies or
 
18           instrumentalities of the State or a political
 
19           subdivision, or to the United States or its agencies or
 
20           instrumentalities (other than national banks), or to a
 
21           corporation, organization, or other person designated
 
22           in section 237-23 who is not subject to the tax imposed
 

 
 
 
Page 28                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           by this chapter, or to a person licensed under this
 
 2           chapter in connection with the person's business.
 
 3      (2)  This section relates to the business of a contractor,
 
 4           as defined, but does not relate to contracting with, or
 
 5           any gross income or proceeds of a subcontractor if the
 
 6           principal contract is with the State, its political
 
 7           subdivisions, or agencies or instrumentalities of the
 
 8           State or a political subdivision, or with the United
 
 9           States or its agencies or instrumentalities (other than
 
10           national banks), or with a person designated in section
 
11           237-23 who is not subject to the tax imposed by this
 
12           chapter, or with a person licensed under this chapter
 
13           in connection with the person's business.
 
14      (3)  This section relates to furnishing of transient
 
15           accommodations in a hotel, apartment hotel, or other
 
16           place in which lodgings are regularly furnished to
 
17           transients for a consideration which includes the
 
18           rendering of services.
 
19      (b)  There is hereby levied, and shall be assessed and
 
20 collected annually, a privilege tax against persons engaging or
 
21 continuing within the State in the retailing to which this
 
22 section relates, on account of such retailing activities, as set
 
23 forth in subsection (a), equal to four per cent of the gross
 

 
Page 29                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 proceeds of sale or gross income received or derived from such
 
 2 retailing.  Persons on whom a tax is imposed by this section
 
 3 hereinafter are called "retailers".
 
 4      (c)  No retailer shall advertise or hold out to the public
 
 5 in any manner, directly or indirectly, that the tax imposed by
 
 6 this section is not considered as an element in the price to the
 
 7 consumer.  Any person violating this subsection shall be fined
 
 8 not more than $50 for each offense.
 
 9      (d)  This section shall not cause the tax upon a taxpayer,
 
10 with respect to any item of the taxpayer's gross income, to
 
11 exceed four per cent.
 
12      (e)  This section shall not apply to:
 
13      (1)  Sales of tangible personal property to a licensed
 
14           seller engaged in a service business or calling as
 
15           defined in section 237-4(a)(8); or
 
16      (2)  Sales of services to a licensed seller engaged in a
 
17           business or calling as defined in section 237-
 
18           4(a)(10)."
 
19      SECTION 6.  Section 238-2, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "§238-2 Imposition of tax; exemptions.  There is hereby
 
22 levied an excise tax on the use in this State of tangible
 
23 personal property which is imported, or purchased from an
 

 
Page 30                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 unlicensed seller, for use in this State.  The tax imposed by
 
 2 this chapter shall accrue when the property is acquired by the
 
 3 importer or purchaser and becomes subject to the taxing
 
 4 jurisdiction of the State.  The rates of the tax hereby imposed
 
 5 and the exemptions thereof are as follows:
 
 6      (1)  If the importer or purchaser is licensed under chapter
 
 7           237 and is [(A) a]:
 
 8           (A)  A wholesaler or jobber importing or purchasing for
 
 9                purposes of resale[,] or; [(B) a]
 
10           (B)  A manufacturer importing or purchasing [material]
 
11                materials or commodities [which] that are to be
 
12                incorporated by the manufacturer into a finished
 
13                or saleable product (including the container or
 
14                package in which the product is contained) wherein
 
15                it will remain in such form as to be perceptible
 
16                to the senses, and which finished or saleable
 
17                product is to be sold in such manner as to result
 
18                in a further tax on the activity of the
 
19                manufacturer as the manufacturer or as a
 
20                wholesaler, and not as a retailer, 
 
21           there shall be no tax[,]; provided that if the
 
22           wholesaler, jobber, or manufacturer is also engaged in
 
23           business as a retailer ([so classed] as defined under
 

 
Page 31                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           chapter 237), paragraph (2) shall apply to the
 
 2           wholesaler, jobber, or manufacturer, but the director
 
 3           of taxation shall refund to the wholesaler, jobber, or
 
 4           manufacturer, in the manner provided under section
 
 5           231-23(c) such amount of tax as the wholesaler, jobber,
 
 6           or manufacturer shall, to the satisfaction of the
 
 7           director, establish to have been paid by the
 
 8           wholesaler, jobber, or manufacturer to the director
 
 9           with respect to property which has been used by the
 
10           wholesaler, jobber, or manufacturer for the purposes
 
11           stated in this paragraph[.];
 
12      (2)  If the importer or purchaser is licensed under chapter
 
13           237 and is [(A) a]:
 
14           (A)  A retailer or other person importing or purchasing
 
15                for purposes of resale, not exempted by paragraph
 
16                (1)[, or (B) a];
 
17           (B)  A manufacturer importing or purchasing [material]
 
18                materials or commodities [which] that are to be
 
19                incorporated by the manufacturer into a finished
 
20                or saleable product (including the container or
 
21                package in which the product is contained)
 
22                [wherein it] and that will remain in the finished
 
23                or saleable product in such form as to be
 

 
Page 32                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                perceptible to the senses, and which finished or
 
 2                saleable product is to be sold at retail in this
 
 3                State, in such manner as to result in a further
 
 4                tax on the activity of the manufacturer in selling
 
 5                such products at retail[, or (C) a];
 
 6           (C)  A contractor importing or purchasing [material]
 
 7                materials or commodities [which] that are to be
 
 8                incorporated by the contractor into the finished
 
 9                work or project required by the contract and
 
10                [which] that will remain in [such] the finished
 
11                work or project in such form as to be perceptible
 
12                to the senses[,]; or
 
13           (D)  A person engaged in a service business or calling
 
14                as defined in section 237-7, in which the import
 
15                or purchase of tangible personal property would
 
16                have qualified as a sale at wholesale as defined
 
17                in section 237-4(a)(8) had the seller of the
 
18                property been subject to tax under chapter 237,
 
19           the tax shall be one-half of one per cent of the
 
20           purchase price of the property, if the purchase and
 
21           sale are consummated in Hawaii; or, if there is no
 
22           purchase price applicable thereto, or if the purchase
 

 
 
 
Page 33                                                    232
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           or sale is consummated outside of Hawaii, then one-half
 
 2           of one per cent of the value of such property[.]; and
 
 3      (3)  In all other cases, four per cent of the value of the
 
 4           property."
 
 5      SECTION 7.  Statutory material to be repealed is bracketed.
 
 6 New statutory material is underscored.
 
 7      SECTION 8.  This Act shall take effect upon its approval and
 
 8 shall apply to gross receipts received on or after January 1,
 
 9 2000.