REPORT TITLE:
GET; Income Tax; Pyramiding


DESCRIPTION:
Eliminates personal income tax beginning 1/1/2001.  Accelerates
the de-pyramiding of the GET.  Exempts food and health care
services from general excise tax.  Increases general excise tax
rate from 4% to 8%.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2780
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
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 purpose of this Act is to repeal the
 
 2 personal income tax for taxable years beginning after December
 
 3 31, 2000, accelerate the de-pyramiding of the general excise tax,
 
 4 increase the retail rate of general excise tax from four per cent
 
 5 to eight per cent, and exempt food and health care services from
 
 6 the general excise tax. 
 
 7      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
 8 by adding a new section to be appropriately designated and to
 
 9 read as follows:
 
10      "§235-     Individuals exempt from this chapter.  Beginning
 
11 January 1, 2001, individuals with gross income shall be exempt
 
12 from the taxes levied and assessed under this chapter."
 
13      SECTION 3.  Section 237-4, Hawaii Revised Statutes, is
 
14 amended by amending subsection (a) to read as follows:
 
15      "(a)  "Wholesaler" or "jobber" applies only to a person
 
16 making sales at wholesale.  Only the following are sales at
 
17 wholesale:
 
18      (1)  Sales to a licensed retail merchant, jobber, or other
 
19           licensed seller for purposes of resale;
 

 
Page 2                                                     2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 3                                                     2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           contractor into the finished work or project required
 
 2           by the contract and that will remain in such finished
 
 3           work or project in such form as to be perceptible to
 
 4           the senses;
 
 5      (5)  Sales to a licensed producer, or to a cooperative
 
 6           association described in section 237-23(a)(7) for sale
 
 7           to a licensed producer, or to a licensed person
 
 8           operating a feed lot, of poultry or animal feed,
 
 9           hatching eggs, semen, replacement stock, breeding
 
10           services for the purpose of raising or producing animal
 
11           or poultry products for disposition as described in
 
12           section 237-5 or for incorporation into a manufactured
 
13           product as described in paragraph (2) or for the
 
14           purpose of breeding, hatching, milking, or egg laying
 
15           other than for the customer's own consumption of the
 
16           meat, poultry, eggs, or milk so produced; provided that
 
17           in the case of a feed lot operator, only the segregated
 
18           cost of the feed furnished by the feed lot operator as
 
19           part of the feed lot operator's service to a licensed
 
20           producer of poultry or animals to be butchered or to a
 
21           cooperative association described in section
 
22           237-23(a)(7) of such licensed producers shall be deemed
 
23           to be a sale at wholesale; and provided further that
 

 
Page 4                                                     2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           any amount derived from the furnishing of feed lot
 
 2           services, other than the segregated cost of feed, shall
 
 3           be deemed taxable at the service business rate.  This
 
 4           paragraph shall not apply to the sale of feed for
 
 5           poultry or animals to be used for hauling,
 
 6           transportation, or sports purposes;
 
 7      (6)  Sales to a licensed producer, or to a cooperative
 
 8           association described in section 237-23(a)(7) for sale
 
 9           to the producer, of seed for producing agricultural
 
10           products, or bait for catching fish (including the
 
11           catching of bait for catching fish), which agricultural
 
12           products or fish are to be disposed of as described in
 
13           section 237-5 or to be incorporated in a manufactured
 
14           product as described in paragraph (2);
 
15      (7)  Sales to a licensed producer, or to a cooperative
 
16           association described in section 237-23(a)(7) for sale
 
17           to such producer; of polypropylene shade cloth; of
 
18           polyfilm; of polyethylene film; of cartons and such
 
19           other containers, wrappers, and sacks, and binders to
 
20           be used for packaging eggs, vegetables, fruits, and
 
21           other agricultural products; of seedlings and cuttings
 
22           for producing nursery plants; or of chick containers;
 
23           which cartons and such other containers, wrappers, and
 

 
Page 5                                                     2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           sacks, binders, seedlings, cuttings, and containers are
 
 2           to be used as described in section 237-5, or to be
 
 3           incorporated in a manufactured product as described in
 
 4           paragraph (2);
 
 5                                                   6           (A)  To] to a licensed seller engaged in a service
 
 7                business or calling; provided that:
 
 8               [(i)  The property is not consumed or incidental to
 
 9                     the performance of the services;
 
10               (ii)  There is a resale of the article at the
 
11                     retail rate of four per cent; and
 
12              (iii)  The resale of the article is separately
 
13                     charged or billed by the person rendering the
 
14                     services; and
 
15           (B)  Where:
 
16                (i)  Tangible personal] (A) The property is sold
 
17                     upon the order or request of [a] the licensed
 
18                     seller for the purpose of rendering a service
 
19                     in the course of the person's service
 
20                     business or calling [or upon the order or
 
21                     request of a person, subject to tax under
 
22                     section 237D-2, for the purpose of furnishing
 
23                     transient accommodations]; and
 

 
 
 
Page 6                                                     2780
                                     H.B. NO.           
                                                        
                                                        

 
 1              [(ii)] (B) The property becomes or is used as an
 
 2                     [identifiable element] integral part of the
 
 3                     service rendered; [and
 
 4              (iii)  The cost of the property does not constitute
 
 5                     overhead to the licensed seller;]
 
 6           the sale shall be subject to section 237-13.3.
 
 7           Where the taxpayer is subject to both subparagraphs (A)
 
 8           and (B), then the taxpayer shall be taxed under
 
 9           subparagraph (A).  Subparagraph (A) shall be repealed
 
10           on January 1, [2006.] 2003.
 
11      (9)  Sales to a licensed leasing company of capital goods
 
12           that have a depreciable life, are purchased by the
 
13           leasing company for lease to its customers, and are
 
14           thereafter leased as a service to others;
 
15     (10)  Sales of services to a licensed seller engaging in a
 
16           business or calling whenever:
 
17           (A)  Either:
 
18                (i)  In the context of a service-to-service
 
19                     transaction, a service is rendered upon the
 
20                     order or request of a licensed seller for the
 
21                     purpose of rendering another service in the
 
22                     course of the seller's service business or
 
23                     calling; or
 

 
Page 7                                                     2780
                                     H.B. NO.           
                                                        
                                                        

 
 1               (ii)  In the context of a service-to-goods
 
 2                     transaction, a service is rendered upon the
 
 3                     order or request of a licensed seller for the
 
 4                     purpose of manufacturing, producing,
 
 5                     preparing, or acquiring tangible personal
 
 6                     property to be sold; and
 
 7             [(iii)  In the context of a services-to-contracting
 
 8                     transaction, a service is rendered upon the
 
 9                     order or request of a licensed contractor as
 
10                     defined in section 237-6 for the purpose of
 
11                     assisting that licensed contractor in
 
12                     executing a contract; or
 
13               (iv)  In the context of a services-to-transient
 
14                     accommodations rental transaction, a service
 
15                     is rendered upon the order or request of a
 
16                     person subject to tax under section 237D-2
 
17                     for the purpose of furnishing transient
 
18                     accommodations;]
 
19           (B)  The benefit of the service passes to the customer
 
20                of the licensed seller[, licensed contractor, or
 
21                person furnishing transient accommodations as an
 
22                identifiable element of the other service or
 
23                property to be sold, the contracting, or the
 

 
Page 8                                                     2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                furnishing of transient accommodations; and
 
 2           (C)  The cost of the service does not constitute
 
 3                overhead to the licensed seller, licensed
 
 4                contractor, or person furnishing transient
 
 5                accommodations.
 
 6           Sales subject to this paragraph shall be subject to
 
 7           section 237-13.3;] as an integral part of the other
 
 8           service or property to be sold.
 
 9     (11)  Sales to a licensed retail merchant, jobber, or other
 
10           licensed seller of bulk condiments or prepackaged
 
11           single-serving packets of condiments that are provided
 
12           to customers by the licensed retail merchant, jobber,
 
13           or other licensed seller; and
 
14     (12)  Sales to a licensed retail merchant, jobber, or other
 
15           licensed seller of tangible personal property that will
 
16           be incorporated or processed by the licensed retail
 
17           merchant, jobber, or other licensed seller into a
 
18           finished or saleable product during the course of its
 
19           preparation for market (including disposable,
 
20           nonreturnable containers, packages, or wrappers, in
 
21           which the product is contained and that are generally
 
22           known and most commonly used to contain food or
 
23           beverage for transfer or delivery), and which finished
 

 
Page 9                                                     2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 10                                                    2780
                                     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 to points outside 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 11                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                products into interstate or foreign commerce,
 
 2                whether the products are then sold or not.  The
 
 3                department shall determine the basis for
 
 4                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 12                                                    2780
                                     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; and
 
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 13                                                    2780
                                     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] eight per
 
12                cent of the gross proceeds of sales of the
 
13                business; provided that insofar as certain
 
14                retailing is taxed by section 237-16, the tax
 
15                shall be that levied by section 237-16, and in the
 
16                case of a wholesaler, the tax shall be equal to
 
17                one-half of one per cent of the gross proceeds of
 
18                sales of the business and provided that insofar as
 
19                the sales of tangible personal property is a
 
20                wholesale sale under section 237-4(a)(8)(B) the
 
21                sale shall be subject to section 237-13.3.  Upon
 
22                every person engaging or continuing within this
 
23                State in the business of a producer, the tax shall
 

 
Page 14                                                    2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 15                                                    2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 16                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 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.
 
22           (F)  The department, by rule, may require that a seller
 
23                take from the purchaser of tangible personal
 

 
Page 17                                                    2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 18                                                    2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 19                                                    2780
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 20                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                disposition of the land or improvements, even if
 
 2                the work was not done pursuant to a contract,
 
 3                shall be liable to the same tax as if engaged in
 
 4                the business of contracting, unless the person
 
 5                shows that at the time the person was engaged in
 
 6                making the improvements the person intended, and
 
 7                for the period of at least one year after
 
 8                completion of the building, structure, or other
 
 9                improvements the person continued to intend to
 
10                hold and not sell or otherwise dispose of the land
 
11                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                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 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 gross income shall be
 
 8                taxable under paragraph (9); provided that insofar
 
 9                as the business of renting or leasing real
 
10                property under a lease is taxed under section
 
11                237-16.5, the tax shall be levied by section
 
12                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] eight per cent of the gross income of
 
21           the business.
 
22      (5)  Tax upon sales representatives, etc.  Upon every person
 
23           classified as a representative or purchasing agent
 

 
Page 22                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 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] eight per cent of the commissions and
 
 6           other compensation attributable to the services so
 
 7           rendered 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
 
11                including professional services [not otherwise
 
12                specifically taxed under this chapter,] there is
 
13                likewise hereby levied and shall be assessed and
 
14                collected a tax equal to four per cent of the
 
15                gross income of the business, and in the case of a
 
16                wholesaler under section 237-4(a)(10), the tax
 
17                shall be equal to one-half of one per cent of the
 
18                gross income of the business.  Sales subject to
 
19                this subparagraph shall be subject to section 237-
 
20                13.3.
 
21           (B)  The department, by rule, may require that the
 
22                person rendering a service at wholesale take from
 
23                the licensed seller a certificate, in a form
 

 
Page 23                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                prescribed by the department, certifying that the
 
 2                sale is a sale at wholesale; provided that:
 
 3                (i)  Any licensed seller who furnishes a
 
 4                     certificate shall be obligated to pay to the
 
 5                     person rendering the service, upon demand,
 
 6                     the amount of additional tax that is imposed
 
 7                     upon the seller whenever the sale is not at
 
 8                     wholesale; and
 
 9               (ii)  The absence of a certificate in itself shall
 
10                     give rise to the presumption that the sale is
 
11                     not at wholesale unless the person rendering
 
12                     the sale is exclusively rendering services at
 
13                     wholesale.
 
14           (C)  Where any person engaging or continuing within the
 
15                State in any service business or calling renders
 
16                those services upon the order of or at the request
 
17                of another taxpayer who is engaged in the service
 
18                business and who, in fact, acts as or acts in the
 
19                nature of an intermediary between the person
 
20                rendering those services and the ultimate
 
21                recipient of the benefits of those services, so
 
22                much of the gross income as is received by the
 
23                person rendering the services shall be subjected
 

 
Page 24                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                to the tax at the rate of one-half of one per cent
 
 2                and all of the gross income received by the
 
 3                intermediary from the principal shall be subjected
 
 4                to a tax at the rate of four per cent.  Where the
 
 5                taxpayer is subject to both this subparagraph and
 
 6                to the lowest tax rate under subparagraph (A), the
 
 7                taxpayer shall be taxed under this subparagraph.
 
 8                This subparagraph shall be repealed on January 1,
 
 9                [2006.] 2003.
 
10           [(D) Where any person is engaged in the business of
 
11                selling interstate or foreign common carrier
 
12                telecommunication services within and without the
 
13                State, the tax shall be imposed on that portion of
 
14                gross income received by a person from service
 
15                which is originated or terminated in this State
 
16                and is charged to a telephone number, customer, or
 
17                account in this State notwithstanding any other
 
18                state law (except for the exemption under section
 
19                237-23(a)(1)) to the contrary.  If, under the
 
20                Constitution and laws of the United States, the
 
21                entire gross income as determined under this
 
22                paragraph of a business selling interstate or
 
23                foreign common carrier telecommunication services
 

 
Page 25                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                cannot be included in the measure of the tax, the
 
 2                gross income shall be apportioned as provided in
 
 3                section 237-21; provided that the apportionment
 
 4                factor and formula shall be the same for all
 
 5                persons providing those services in the State.]
 
 6      (7)  Tax on insurance solicitors and agents.  Upon every
 
 7           person engaged as a licensed solicitor, general agent,
 
 8           or subagent pursuant to chapter 431, there is hereby
 
 9           levied and shall be assessed and collected a tax equal
 
10           to .15 per cent of the commissions due to that
 
11           activity.
 
12      (8)  Tax on receipts of sugar benefit payments.  Upon the
 
13           amounts received from the United States government by
 
14           any producer of sugar (or the producer's legal
 
15           representative or heirs), as defined under and by
 
16           virtue of the Sugar Act of 1948, as amended, or other
 
17           Acts of the Congress of the United States relating
 
18           thereto, there is hereby levied a tax of one-half of
 
19           one per cent of the gross amount received; provided
 
20           that the tax levied hereunder on any amount so received
 
21           and actually disbursed to another by a producer in the
 
22           form of a benefit payment shall be paid by the person
 
23           or persons to whom the amount is actually disbursed,
 

 
Page 26                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           and the producer actually making a benefit payment to
 
 2           another shall be entitled to claim on the producer's
 
 3           return a deduction from the gross amount taxable
 
 4           hereunder in the sum of the amount so disbursed.  The
 
 5           amounts taxed under this paragraph shall not be taxable
 
 6           under any other paragraph, subsection, or section of
 
 7           this chapter.
 
 8      (9)  Tax on other business.  Upon every person engaging or
 
 9           continuing within the State in any business, trade,
 
10           activity, occupation, or calling not included in the
 
11           preceding paragraphs or any other provisions of this
 
12           chapter, there is likewise hereby levied and shall be
 
13           assessed and collected, a tax equal to [four] eight per
 
14           cent of the gross income thereof.  In addition, the
 
15           rate prescribed by this paragraph shall apply to a
 
16           business taxable under one or more of the preceding
 
17           paragraphs or other provisions of this chapter, as to
 
18           any gross income thereof not taxed thereunder as gross
 
19           income or gross proceeds of sales or by taxing an
 
20           equivalent value of products, unless specifically
 
21           exempted."
 
22      SECTION 5.  Section 237-13.3, Hawaii Revised Statutes, is
 
23 amended by amending subsection (a) to read as follows:
 

 
Page 27                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                                                                      2 the contrary notwithstanding, instead of the tax levied under
 
 3 sections 237-4 and 237-13(6)(A) at one-half of one per cent,
 
 4 during the period January 1, 2000, to December 31, [2005,] 2002,
 
 5 the tax shall be as follows:
 
 6      (1)  In calendar year 2000, [3.5 per cent;
 
 7      (2)  In calendar year 2001,] 3.0 per cent;
 
 8     [(3)] (2)  In calendar year [2002, 2.5 per cent;
 
 9      (4)  In calendar year 2003,] 2001, 2.0 per cent;
 
10     [(5)  In calendar year 2004, 1.5 per cent;
 
11      (6)  In calendar year 2005, 1.0 per cent;] and
 
12     [(7)] (3)  In calendar year [2006] 2002 and thereafter, 0.5
 
13           per cent."
 
14      SECTION 6.  Section 237-16, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      1.   By amending subsection (b) to read as follows:
 
17      "(b)  There is hereby levied, and shall be assessed and
 
18 collected annually, a privilege tax against persons engaging or
 
19 continuing within the State in the retailing to which this
 
20 section relates, on account of such retailing activities, as set
 
21 forth in subsection (a), equal to [four] eight per cent of the
 
22 gross proceeds of sale or gross income received or derived from
 
23 such retailing.  Persons on whom a tax is imposed by this section
 

 
 
 
Page 28                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 hereinafter are called "retailers".
 
 2      2.   By amending subsections (d) and (e) to read as follows:
 
 3      "(d)  This section shall not cause the tax upon a taxpayer,
 
 4 with respect to any item of the taxpayer's gross income, to
 
 5 exceed [four] eight per cent.
 
 6      (e)  This section shall not apply to:
 
 7      (1)  Sales of tangible personal property treated as a
 
 8           wholesale sale under section [237-4(a)(8)(B)] 237-
 
 9           4(a)(8) to a licensed seller engaged in a service
 
10           business or calling [or a person furnishing transient
 
11           accommodations]; or
 
12      (2)  Sales of services treated as a wholesale sale under
 
13           section 237-4(a)(10) to a licensed seller engaged in a
 
14           business or calling[, a contractor as defined in
 
15           section 237-6, or a person furnishing transient
 
16           accommodations]."
 
17      SECTION 7.  Section 237-16.5, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      1.   By amending subsection (a) to read as follows:
 
20      "(a)  This section relates to the leasing of real property
 
21 by a lessor to a lessee.  There is hereby levied, and shall be
 
22 assessed and collected annually, a privilege tax against persons
 
23 engaging or continuing within the State in the business of
 

 
Page 29                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 leasing real property to another, equal to [four] eight per cent
 
 2 of the gross proceeds or gross income received or derived from
 
 3 the leasing; provided that where real property is subleased by a
 
 4 lessee to a sublessee, the lessee, as provided in this section,
 
 5 shall be allowed a deduction from the amount of gross proceeds or
 
 6 gross income received from its sublease of the real property.
 
 7 The deduction shall be in the amount allowed under this section.
 
 8      All deductions under this section and the name and general
 
 9 excise tax number of the lessee's lessor shall be reported on the
 
10 general excise tax return.  Any deduction allowed under this
 
11 section shall only be allowed with respect to leases and
 
12 subleases in writing and relating to the same real property.
 
13      2.   By amending subsection (g) to read as follows:
 
14      "(g)  After allocation under subsection (c), if necessary,
 
15 the deduction under this section shall be allowed from the gross
 
16 proceeds or gross income of the lessee received from its sublease
 
17 in an amount calculated by multiplying the gross proceeds or
 
18 gross income paid by the lessee to its lessor for the lease of
 
19 the real property by the following amount:
 
20      (1)  In calendar year 1998, .125;
 
21      (2)  In calendar year 1999, .25;
 
22      (3)  In calendar year 2000, .375;
 
23      (4)  In calendar year 2001, [.50;
 

 
Page 30                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1      (5)  In calendar year 2002, .625;
 
 2      (6)  In calendar year 2003,] .75; and
 
 3     [(7)] (5)  In calendar year [2004,] 2002, and thereafter,
 
 4           .875.
 
 5      The amount calculated under paragraphs (1) to [(7)] (5)
 
 6 shall be deducted by the lessee from the lessee's total reported
 
 7 gross proceeds or gross income.  The deduction allowed by this
 
 8 subsection may be taken by the fiscal and calendar year lessees." 
 
 9      SECTION 8.  Section 237-18, Hawaii Revised Statutes, is
 
10 amended by amending subsection (f) to read as follows:
 
11      "(f)  Where tourism related services are furnished through
 
12 arrangements made by a travel agency or tour packager and the
 
13 gross income is divided between the provider of the services and
 
14 the travel agency or tour packager, the tax imposed by this
 
15 chapter shall apply to each such person with respect to such
 
16 person's respective portion of the proceeds, and no more.
 
17      As used in this subsection "tourism related services" means
 
18 catamaran cruises, canoe rides, dinner cruises, lei greetings,
 
19 transportation included in a tour package, sightseeing tours not
 
20 subject to chapter 239, admissions to luaus, dinner shows,
 
21 extravaganzas, cultural and educational facilities, and other
 
22 services rendered directly to the customer or tourist, but only
 
23 if the providers of the services other than air transportation
 

 
Page 31                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 are subject to a [four] eight per cent tax under this chapter or
 
 2 chapter 239."
 
 3      SECTION 9. Section 237-24.3, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§237-24.3  Additional amounts not taxable.  In addition to
 
 6 the amounts not taxable under section 237-24, this chapter shall
 
 7 not apply to:
 
 8      (1)  Amounts received from the loading, transportation, and
 
 9           unloading of agricultural commodities shipped for a
 
10           producer or produce dealer on one island of this State
 
11           to a person, firm, or organization on another island of
 
12           this State.  The terms "agricultural commodity",
 
13           "producer", and "produce dealer" shall be defined in
 
14           the same manner as they are defined in section 147-1;
 
15           provided that agricultural commodities need not have
 
16           been produced in the State;
 
17      (2)  Amounts received from sales of:
 
18           (A)  Intoxicating liquor as the term "liquor" is
 
19                defined in chapter 244D;
 
20           (B)  Cigarettes and tobacco products as defined in
 
21                chapter 245; and
 
22           (C)  Agricultural, meat, or fish products grown,
 
23                raised, or caught in Hawaii, to any person or
 

 
Page 32                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                common carrier in interstate or foreign commerce,
 
 2                or both, whether ocean-going or air, for
 
 3                consumption out-of-state on the shipper's vessels
 
 4                or airplanes;
 
 5      (3)  Amounts received by the manager or board of directors
 
 6           of:
 
 7           (A)  An association of apartment owners of a
 
 8                condominium property regime established in
 
 9                accordance with chapter 514A; or
 
10           (B)  A nonprofit homeowners or community association
 
11                incorporated in accordance with chapter 415B or
 
12                any predecessor thereto and existing pursuant to
 
13                covenants running with the land,
 
14           in reimbursement of sums paid for common expenses;
 
15      (4)  Amounts received or accrued from:
 
16           (A)  The loading or unloading of cargo from ships,
 
17                barges, vessels, or aircraft, whether or not the
 
18                ships, barges, vessels, or aircraft travel between
 
19                the State and other states or countries or between
 
20                the islands of the State;
 
21           (B)  Tugboat services including pilotage fees performed
 
22                within the State, and the towage of ships, barges,
 
23                or vessels in and out of state harbors, or from
 

 
Page 33                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                one pier to another; and
 
 2           (C)  The transportation of pilots or governmental
 
 3                officials to ships, barges, or vessels offshore;
 
 4                rigging gear; checking freight and similar
 
 5                services; standby charges; and use of moorings and
 
 6                running mooring lines;
 
 7      (5)  Amounts received by an employee benefit plan by way of
 
 8           contributions, dividends, interest, and other income;
 
 9           and amounts received by a nonprofit organization or
 
10           office, as payments for costs and expenses incurred for
 
11           the administration of an employee benefit plan;
 
12           provided that this exemption shall not apply to any
 
13           gross rental income or gross rental proceeds received
 
14           after June 30, 1994, as income from investments in real
 
15           property in this State; and provided further that gross
 
16           rental income or gross rental proceeds from investments
 
17           in real property received by an employee benefit plan
 
18           after June 30, 1994, under written contracts executed
 
19           prior to July 1, 1994, shall not be taxed until the
 
20           contracts are renegotiated, renewed, or extended, or
 
21           until after December 31, 1998, whichever is earlier.
 
22           For the purposes of this paragraph, "employee benefit
 
23           plan" means any plan as defined in section 1002(3) of
 

 
Page 34                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           title 29 of the United States Code, as amended;
 
 2      (6)  Amounts received for purchases [made with United States
 
 3           Department of Agriculture food coupons under the
 
 4           federal food stamp program, and amounts received for
 
 5           purchases made with United States Department of
 
 6           Agriculture food vouchers under the Special
 
 7           Supplemental Foods Program for Women, Infants and
 
 8           Children;] of food.
 
 9           "Food" means the same as defined in 7 United States
 
10           Code Section 2012(g), as amended, and includes:
 
11           (A)  Any food or food product for home consumption
 
12                except alcoholic beverages, tobacco, and hot foods
 
13                or hot food products ready for immediate
 
14                consumption other than those authorized;
 
15           (B)  Seeds and plants for use in gardens to produce
 
16                food for the personal household consumption;
 
17           (C)  In the case of those persons who are sixty years
 
18                of age or over or who receive supplemental
 
19                security income benefits or disability or
 
20                blindness payments under title I, II, X, XIV, or
 
21                XVI, of the Social Security Act (42 U.S.C.A. §301
 
22                et seq., 401 et seq., 1201 et seq., 1351 et seq.,
 
23                or 1381 et seq.), and their spouses, meals
 

 
Page 35                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                prepared by and served in senior citizens'
 
 2                centers, apartment buildings occupied primarily by
 
 3                such persons, public or private nonprofit
 
 4                establishments (eating or otherwise) that feed
 
 5                such persons, private establishments that contract
 
 6                with the appropriate agency of the State to offer
 
 7                meals for such persons at concessional prices, and
 
 8                meals prepared for and served to residents of
 
 9                federally subsidized housing for the elderly;
 
10           (D)  In the case of persons sixty years of age or over
 
11                and persons who are physically or mentally
 
12                handicapped or otherwise so disabled that they are
 
13                unable adequately to prepare all of their meals,
 
14                meals prepared for and delivered to them (and
 
15                their spouses) at their home by a public or
 
16                private nonprofit organization or by a private
 
17                establishment that contracts with the appropriate
 
18                state agency to perform such services at
 
19                concessional prices;
 
20           (E)  In the case of narcotics addicts or alcoholics,
 
21                and their children, served by drug addiction or
 
22                alcoholic treatment and rehabilitation programs,
 
23                meals prepared and served under such programs;
 

 
Page 36                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           (F)  In the case of disabled or blind recipients of
 
 2                benefits under title I, II, X, XIV, or XVI of the
 
 3                Social Security Act (42 U.S.C.A. §301 et seq., 401
 
 4                et seq., 1201 et seq., 1351 et seq., or 1381 et
 
 5                seq.), or residents in a public or private
 
 6                nonprofit group living arrangement that serves no
 
 7                more than sixteen residents and is certified by
 
 8                the appropriate state agency meals prepared and
 
 9                served under such arrangement;
 
10           (G)  In the case of women and children temporarily
 
11                residing in public or private nonprofit shelters
 
12                for battered women and children, meals prepared
 
13                and served, by such shelters; and
 
14           (H)  In the case of households that do not reside in
 
15                permanent dwellings and households that have no
 
16                fixed mailing addresses, meals prepared for and
 
17                served by a public or private nonprofit
 
18                establishment (approved by an appropriate state
 
19                agency) that feeds such individuals and by private
 
20                establishments that contract with the appropriate
 
21                agency of the State to offer meals for such
 
22                individuals at concessional prices.
 
23      (7)  Amounts received by a hospital, infirmary, medical
 

 
Page 37                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1           clinic, health care facility, pharmacy, or a licensed
 
 2           practitioner [licensed to administer the drug to an
 
 3           individual for selling prescription drugs or prosthetic
 
 4           devices to an individual; provided that this paragraph
 
 5           shall not apply to any] for health care services
 
 6           rendered including amounts received for services
 
 7           provided in selling prescription drugs or prosthetic
 
 8           devices.  As used in this paragraph:
 
 9           (A)  "Prescription drugs" are those drugs defined under
 
10                section [[]328-1[]] and dispensed by filling or
 
11                refilling a written or oral prescription by a
 
12                practitioner licensed under law to administer the
 
13                drug and sold by a licensed pharmacist under
 
14                section 328-16 or practitioners licensed to
 
15                administer drugs; and
 
16           (B)  "Prosthetic device" means any artificial device or
 
17                appliance, instrument, apparatus, or contrivance,
 
18                including their components, parts, accessories,
 
19                and replacements thereof, used to replace a
 
20                missing or surgically removed part of the human
 
21                body, which is prescribed by a licensed
 
22                practitioner of medicine, osteopathy, or podiatry
 
23                and which is sold by the practitioner or which is
 

 
Page 38                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                dispensed and sold by a dealer of prosthetic
 
 2                devices; provided that "prosthetic device" shall
 
 3                not mean any auditory, ophthalmic, dental, or
 
 4                ocular device or appliance, instrument, apparatus,
 
 5                or contrivance;
 
 6      (8)  Taxes on transient accommodations imposed by chapter
 
 7           237D and passed on and collected by operators holding
 
 8           certificates of registration under that chapter;
 
 9      (9)  Amounts received as dues by an unincorporated merchants
 
10           association from its membership for advertising media,
 
11           promotional, and advertising costs for the promotion of
 
12           the association for the benefit of its members as a
 
13           whole and not for the benefit of an individual member
 
14           or group of members less than the entire membership;
 
15           and
 
16     (10)  Amounts received by a labor organization for real
 
17           property leased to:
 
18           (A)  A labor organization; or
 
19           (B)  A trust fund established by a labor organization
 
20                for the benefit of its members, families, and
 
21                dependents for medical or hospital care, pensions
 
22                on retirement or death of employees,
 
23                apprenticeship and training, and other membership
 

 
Page 39                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                service programs.
 
 2           As used in this paragraph, "labor organization" means a
 
 3           labor organization exempt from federal income tax under
 
 4           section 501(c)(5) of the Internal Revenue Code, as
 
 5           amended."
 
 6      SECTION 10.  Section 238-2, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "§238-2 Imposition of tax; exemptions.  There is hereby
 
 9 levied an excise tax on the use in this State of tangible
 
10 personal property which is imported, or purchased from an
 
11 unlicensed seller, for use in this State.  The tax imposed by
 
12 this chapter shall accrue when the property is acquired by the
 
13 importer or purchaser and becomes subject to the taxing
 
14 jurisdiction of the State.  The rates of the tax hereby imposed
 
15 and the exemptions thereof are as follows:
 
16      (1)  If the importer or purchaser is licensed under chapter
 
17           237 and is:
 
18           (A)  A wholesaler or jobber importing or purchasing for
 
19                purposes of resale; or
 
20           (B)  A manufacturer importing or purchasing material or
 
21                commodities which are to be incorporated by the
 
22                manufacturer into a finished or saleable product
 
23                (including the container or package in which the
 

 
Page 40                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                product is contained) wherein it will remain in
 
 2                such form as to be perceptible to the senses, and
 
 3                which finished or saleable product is to be sold
 
 4                in such manner as to result in a further tax on
 
 5                the activity of the manufacturer as the
 
 6                manufacturer or as a wholesaler, and not as a
 
 7                retailer,
 
 8           there shall be no tax; provided that if the wholesaler,
 
 9           jobber, or manufacturer is also engaged in business as
 
10           a retailer (so classed under chapter 237), paragraph
 
11           (2) shall apply to the wholesaler, jobber, or
 
12           manufacturer, but the director of taxation shall refund
 
13           to the wholesaler, jobber, or manufacturer, in the
 
14           manner provided under section 231-23(c) such amount of
 
15           tax as the wholesaler, jobber, or manufacturer shall,
 
16           to the satisfaction of the director, establish to have
 
17           been paid by the wholesaler, jobber, or manufacturer to
 
18           the director with respect to property which has been
 
19           used by the wholesaler, jobber, or manufacturer for the
 
20           purposes stated in this paragraph;
 
21      (2)  If the importer or purchaser is licensed under chapter
 
22           237 and is:
 
23           (A)  A retailer or other person importing or purchasing
 

 
Page 41                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                for purposes of resale, not exempted by paragraph
 
 2                (1);
 
 3           (B)  A manufacturer importing or purchasing material or
 
 4                commodities which are to be incorporated by the
 
 5                manufacturer into a finished or saleable product
 
 6                (including the container or package in which the
 
 7                product is contained) wherein it will remain in
 
 8                such form as to be perceptible to the senses, and
 
 9                which finished or saleable product is to be sold
 
10                at retail in this State, in such manner as to
 
11                result in a further tax on the activity of the
 
12                manufacturer in selling such products at retail;
 
13           (C)  A contractor importing or purchasing material or
 
14                commodities which are to be incorporated by the
 
15                contractor into the finished work or project
 
16                required by the contract and which will remain in
 
17                such finished work or project in such form as to
 
18                be perceptible to the senses; or
 
19           (D)  A person engaged in a service business or calling
 
20                as defined in section 237-7, or a person
 
21                furnishing transient accommodations subject to the
 
22                tax imposed by section 237D-2, in which the import
 
23                or purchase of tangible personal property would
 

 
Page 42                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1                have qualified as a sale at wholesale as defined
 
 2                in section 237-4(a)(8) had the seller of the
 
 3                property been subject to the tax in chapter 237,
 
 4           the tax shall be one-half of one per cent of the
 
 5           purchase price of the property, if the purchase and
 
 6           sale are consummated in Hawaii; or, if there is no
 
 7           purchase price applicable thereto, or if the purchase
 
 8           or a person furnishing transient accommodations subject
 
 9           to the tax imposed by section 237D-2, or sale is
 
10           consummated outside of Hawaii, then one-half of one per
 
11           cent of the value of such property; and
 
12      (3)  In all other cases, [four] eight per cent of the value
 
13           of the property."
 
14      SECTION 11.  Section 238-3, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "§238-3 Application of tax, etc.(a)  The tax imposed by
 
17 this chapter shall not apply to any property or services, or to
 
18 any use of the property or services, which cannot legally be so
 
19 taxed under the Constitution or laws of the United States, but
 
20 only so long as, and only to the extent to which the State is
 
21 without power to impose the tax.
 
22      Any provision of law to the contrary notwithstanding,
 
23 exemptions or exclusions from tax under this chapter allowed on
 

 
Page 43                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 or before April 1, 1978, under the provisions of the Constitution
 
 2 of the United States or an act of the Congress of the United
 
 3 States to persons or common carriers engaged in interstate or
 
 4 foreign commerce, or both, whether ocean-going or air, shall
 
 5 continue undiminished and be available thereafter.
 
 6      (b)  The tax imposed by this chapter shall not apply to any
 
 7 use of property or services the transfer of which property or
 
 8 services to, or the acquisition of which by, the person so using
 
 9 the same, has actually been or actually is taxed under chapter
 
10 237.
 
11      (c)  The tax imposed by this chapter shall be paid only once
 
12 upon or in respect of the same property or services; provided
 
13 that nothing in this chapter contained shall be construed to
 
14 exempt any property or services or the use thereof from taxation
 
15 under any other law of the State.
 
16      (d)  The tax imposed by this chapter shall be in addition to
 
17 any other taxes imposed by any other laws of the State, except as
 
18 otherwise specifically provided herein; provided that if it be
 
19 finally held by any court of competent jurisdiction, that the tax
 
20 imposed by this chapter may not legally be imposed in addition to
 
21 any other tax or taxes imposed by any other law or laws with
 
22 respect to the same property or services or the use thereof, then
 
23 this chapter shall be deemed not to apply to the property or
 

 
Page 44                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 services and the use thereof under such specific circumstances,
 
 2 but such other laws shall be given full effect with respect to
 
 3 the property or services and use.
 
 4      (e)  The tax imposed by this chapter shall not apply to any
 
 5 use of property exempted by section 238-4.
 
 6      (f)  The tax imposed by this chapter shall not apply to any
 
 7 use or consumption of aircraft and vessels, the transfer of which
 
 8 aircraft or vessel to, or the acquisition of which by, the person
 
 9 so using or consuming the same, or the rental for the use of the
 
10 aircraft or vessel, has actually been or actually is taxed under
 
11 chapter 237.
 
12      (g)  The tax imposed by this chapter shall not apply to any
 
13 intoxicating liquor as defined in chapter 244D and cigarettes and
 
14 tobacco products as defined in chapter 245, imported into the
 
15 State and sold to any person or common carrier in interstate
 
16 commerce, whether ocean-going or air, for consumption out-of-
 
17 state by the person, crew, or passengers on the shipper's vessels
 
18 or airplanes.
 
19      (h)  The tax imposed by this chapter shall not apply to any
 
20 use of vessels constructed under section 189-25 prior to July 1,
 
21 1969.
 
22      (i)  Each taxpayer liable for the tax imposed by this
 
23 chapter on tangible personal property or services shall be
 

 
Page 45                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 entitled to full credit for the combined amount or amounts of
 
 2 legally imposed sales or use taxes paid by the taxpayer with
 
 3 respect to the same transaction and property or services to
 
 4 another state and any subdivision thereof, but such credit shall
 
 5 not exceed the amount of the use tax imposed under this chapter
 
 6 on account of the transaction and property or services.  The
 
 7 director of taxation may require the taxpayer to produce the
 
 8 necessary receipts or vouchers indicating the payment of the
 
 9 sales or use tax to another state or subdivision as a condition
 
10 for the allowance of the credit.
 
11      (j)  The tax imposed by this chapter shall not apply to any
 
12 use of property or services exempted by section 237-26 or section
 
13 237-29.
 
14      (k)  The tax imposed by this chapter shall not apply to any
 
15 use of air pollution control facility exempted by section
 
16 237-27.5.
 
17      (l)  The tax imposed by this chapter shall not apply to food
 
18 exempt from general excise tax under paragraph 237-24.3(6)."
 
19      SECTION 12.  Section 239-6, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "§239-6 Airlines, certain carriers.  There shall be levied
 
22 and assessed upon each airline a tax of [four] eight per cent of
 
23 its gross income each year from the airline business; provided
 

 
Page 46                                                    2780
                                     H.B. NO.           
                                                        
                                                        

 
 1 that if an airline adopts a rate schedule for students in grade
 
 2 twelve or below travelling in school groups providing such
 
 3 students at reasonable hours a rate less than one-half of the
 
 4 regular adult fare, the tax shall be three per cent of its gross
 
 5 income each year from the airline business.  There shall be
 
 6 levied and assessed upon each motor carrier, each common carrier
 
 7 by water, and upon each contract carrier other than a motor
 
 8 carrier, a tax of [four] eight per cent of its gross income each
 
 9 year from the motor carrier or contract carrier business.  The
 
10 tax imposed by this section is a means of taxing the personal
 
11 property of the airline or other carrier, tangible and
 
12 intangible, including going concern value, and is in lieu of the
 
13 tax imposed by chapter 237 but is not in lieu of any other tax."
 
14      SECTION 13.  The department of taxation shall make
 
15 recommendations for statutory amendments necessary to carry out
 
16 section 2 of this Act.  The director of taxation shall report to
 
17 the legislature, no later than twenty days before the convening
 
18 of the regular session of 2001.
 
19      SECTION 14.  Statutory material to be repealed is bracketed.
 
20 New statutory material is underscored.
 

 
 
 
 
 
 
 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      SECTION 15.  This Act shall take effect on January 1, 2001.
 
 2 
 
 3                           INTRODUCED BY:  _______________________