REPORT TITLE:
Taxation


DESCRIPTION:
Creates a general excise tax exemption for contracting or
services exported out of the state.  Imposes a use tax on out-of-
state services imported or purchased for use in Hawaii. (HB375
HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        375
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.  Chapter 237, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "§237-    Exemption for contracting or services exported out
 
 5 of state.  (a)  There shall be exempted from, and excluded from
 
 6 the measure of, taxes imposed by this chapter, all of the value
 
 7 or gross income derived from contracting (as defined under
 
 8 section 237-6) or services performed in the State for a customer
 
 9 located outside the State where:
 
10      (1)  The contracting or services are for resale, consumption
 
11           or use outside the State; and
 
12      (2)  The value or gross income derived from the contracting
 
13           or services performed would otherwise be subject to the
 
14           tax imposed under this chapter on contracting or
 
15           services at the highest rate.
 
16      (b)  For the purposes of this section, the seller or person
 
17 rendering the contracting or services exported and resold,
 
18 consumed or used outside the State shall take from the purchaser,
 
19 a certificate (or an equivalent), in the form as the department
 

 
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 1 shall prescribe, certifying that the contracting or service
 
 2 purchased is to be otherwise resold, consumed or used outside the
 
 3 State.  Any purchaser who shall furnish this certificate (or an
 
 4 equivalent specified by the department) shall be obligated to pay
 
 5 the seller or person rendering the contracting or services, upon
 
 6 demand, if the contracting or service purchased is not resold or
 
 7 otherwise consumed or used outside the State, the amount of the
 
 8 additional tax which by reason thereof is imposed upon the seller
 
 9 or person rendering the contracting or service."
 
10      SECTION 2.  Chapter 238, Hawaii Revised Statutes, is amended
 
11 by adding a new section to be appropriately designated and to
 
12 read as follows:
 
13      "§238-    Imposition of tax on imported services;
 
14 exemptions.  (a)  There is hereby levied an excise tax on the
 
15 value of services that are performed by an unlicensed seller at a
 
16 point outside the State and imported or purchased for use in this
 
17 State.  The rates of the tax hereby imposed and the exemptions
 
18 from the tax are as follows:
 
19      (1)  If the importer or purchaser is licensed under chapter
 
20           237 and is:
 
21           (A)  Rendering services in which the imported or
 
22                purchased services become an identifiable element,
 
23                excluding overhead, of the services rendered and
 

 
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 1                the gross income is subject to the tax imposed
 
 2                under chapter 237 on services at the rate of one-
 
 3                half per cent; or
 
 4           (B)  A manufacturer importing or purchasing services
 
 5                which are to be incorporated by the manufacturer
 
 6                into a finished or saleable product (including the
 
 7                container or package in which the product is
 
 8                contained) and which the finished or saleable
 
 9                product is to be sold in a manner as to result in
 
10                a further tax on the activity of the manufacturer
 
11                as the manufacturer or as a wholesaler, and not as
 
12                a retailer,
 
13           there shall be no tax imposed on the value of the
 
14           imported or purchased services; provided that if the
 
15           manufacturer also is engaged in business as a retailer
 
16           as classified under chapter 237, paragraph (2) shall
 
17           apply; and
 
18      (2)  If the importer or purchaser is a person licensed under
 
19           chapter 237 and is:
 
20           (A)  Engaged in a service business in which the
 
21                imported services become an identifiable element,
 
22                excluding overhead, of the services rendered, and
 
23                the gross income is subject to the tax imposed
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                under chapter 237 on services at the highest rate;
 
 2           (B)  A manufacturer importing or purchasing services
 
 3                which becomes an identifiable element, excluding
 
 4                overhead, of the finished or saleable product
 
 5                (including the container or package in which the
 
 6                product is contained) and which the finished or
 
 7                saleable product is to be sold in a manner as to
 
 8                result in a further tax on the activity of the
 
 9                manufacturer as the manufacturer or as a retailer;
 
10                or
 
11           (C)  A contractor importing or purchasing services
 
12                which becomes an identifiable element, excluding
 
13                overhead, of the finished work or project required
 
14                under the contract, and where the gross proceeds
 
15                derived by the contractor are subject to taxation
 
16                under section 237-13(3) or 237-16,
 
17           the tax shall be one-half of one per cent of the value
 
18           of the imported or purchased services.
 
19      (b)  In all other cases, the importer or purchaser is
 
20 subject to the tax at the rate of four per cent on the value of
 
21 the imported or purchased services."
 
22      SECTION 3.  Section 238-1, Hawaii Revised Statutes, is
 
23 amended as follows:
 

 
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 1      1.  By adding three new definitions to be appropriately
 
 2 inserted and to read:
 
 3      ""Identifiable element" means:
 
 4      (1)  In the context of a service-to-service transaction, a
 
 5           service that is embedded in the service that is resold;
 
 6           or
 
 7      (2)  In the context of a service-to-finished or saleable
 
 8           product transaction, a service that is embedded in that
 
 9           tangible personal property.
 
10      "Overhead" means continuous or general costs occurring in
 
11 the normal course of a business, including but not limited to
 
12 costs for labor, rent, taxes, royalties, interest, discounts
 
13 paid, insurance, lighting, heating, cooling, accounting, legal
 
14 fees, equipment and facilities, telephone systems, depreciation,
 
15 and amortization.
 
16      "Services" includes all activities engaged in by a service
 
17 business or calling, or other business for other persons for a
 
18 consideration, which involve the rendering of a service, as
 
19 distinguished from the sale of tangible personal property or the
 
20 production and sale of tangible property.  "Services" do not
 
21 include services rendered by an employee to the employee's
 
22 employer."
 

 
 
 
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 1      2.  By amending the definitions of "price", "purchase" and
 
 2 "sale", "purchaser", "representation", "seller", and "use" to
 
 3 read:
 
 4      ""Price" means the total amount for which tangible personal
 
 5 property [is] or services are purchased, valued in money, whether
 
 6 paid in money or otherwise, and wheresoever paid, provided that
 
 7 cash discounts allowed and taken on sales shall not be included."
 
 8      "Purchase" and "sale" [mean] means and refer to any
 
 9 transfer, exchange, or barter, conditional or otherwise, in any
 
10 manner or by any means, wheresoever consummated, of tangible
 
11 personal property or services for a consideration.
 
12      "Purchaser" means any person purchasing property or services
 
13 and "importer" means any person importing property[;] or
 
14 services; provided that the term "purchaser" and "importer" shall
 
15 not include the State, its political subdivisions, or wholly
 
16 owned agencies or instrumentalities of the State or a political
 
17 subdivision; or the United States, its wholly owned agencies or
 
18 instrumentalities, or any person immune from the tax imposed by
 
19 this chapter under the Constitution and laws of the United States
 
20 but the terms shall include national banks.
 
21      "Representation" refers to any or all of the following:
 
22      (1)  A seller being present in the State;
 

 
 
 
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 1      (2)  A seller having in the State a salesperson, commission
 
 2           agent, manufacturer's representative, broker, or other
 
 3           person who is authorized or employed by the seller to
 
 4           assist the seller in selling property or services for
 
 5           use or consumption in the State, by procuring orders
 
 6           for the sales, making collections or deliveries, or
 
 7           otherwise; and
 
 8      (3)  A seller having in the State a person upon whom process
 
 9           directed to the seller from the courts of the State may
 
10           be served, including the director of commerce and
 
11           consumer affairs and the deputy director in the cases
 
12           provided in section 415-14.
 
13      "Seller" means any person engaged in the business of selling
 
14 tangible personal property[,] or services, wheresoever engaged,
 
15 but does not include the United States or its wholly owned
 
16 agencies or instrumentalities other than national banks, the
 
17 State or a political subdivision thereof, or wholly owned
 
18 agencies or instrumentalities of the State or a political
 
19 subdivision.
 
20      "Use" (and any nounal, verbal, adjective, adverbial, and
 
21 other equivalent form of the term) herein used interchangeably
 
22 means any use, whether the use is of such nature as to cause the
 
23 property or services to be appreciably consumed or not, or the
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 keeping of the property or services for such use or for sale, and
 
 2 shall include the exercise of any right or power over tangible or
 
 3 intangible personal property incident to the ownership of that
 
 4 property, but the term "use" shall not include:
 
 5      (1)  Temporary use of property, not of a perishable or
 
 6           quickly consumable nature, where the property is
 
 7           imported into the State for temporary use (not sale)
 
 8           therein by the person importing the same and is not
 
 9           intended to be, and is not, kept permanently in the
 
10           State (as for example without limiting the generality
 
11           of the foregoing language: 
 
12           (A)  [in] In the case of a contractor importing
 
13                permanent equipment for the performance of a
 
14                construction contract, with intent to remove, and
 
15                who does remove, the equipment out of the State
 
16                upon completing the contract;
 
17           (B)  [in] In the case of moving picture films imported
 
18                for use in theaters in the State with intent or
 
19                under contract to transport the same out of the
 
20                State after completion of such use; and
 
21           (C)  [in] In the case of a transient visitor importing
 
22                an automobile or other belongings into the State
 
23                to be used by the transient visitor while therein
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1                but which are to be used and are removed upon the
 
 2                transient visitor's departure from the State);
 
 3      (2)  Use by the taxpayer of property acquired by the
 
 4           taxpayer solely by way of gift;
 
 5      (3)  Use which is limited to the receipt of articles and the
 
 6           return thereof, to the person from whom acquired,
 
 7           immediately or within a reasonable time either after
 
 8           temporary trial or without trial;
 
 9      (4)  Use of goods imported into the State by the owner of a
 
10           vessel or vessels engaged in interstate or foreign
 
11           commerce and held for and used only as ship stores for
 
12           the vessels;
 
13      (5)  The use or keeping for use of household goods, personal
 
14           effects, and private automobiles imported into the
 
15           State for nonbusiness use by a person who:
 
16           (A)  [acquired] Acquired them in another state,
 
17                territory, district, or country[,];
 
18           (B)  [at] At the time of the acquisition was a bona
 
19                fide resident of another state, territory,
 
20                district, or country[,];
 
21           (C)  [acquired] Acquired the property for use outside
 
22                the State[,]; and
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (D)  [made] Made actual and substantial use thereof
 
 2                outside this State;
 
 3           provided that as to an article acquired less than three
 
 4           months prior to the time of its importation into the
 
 5           State it shall be presumed, until and unless clearly
 
 6           proved to the contrary, that it was acquired for use in
 
 7           the State and that its use outside the State was not
 
 8           actual and substantial;
 
 9      (6)  The leasing or renting of any aircraft or the keeping
 
10           of any aircraft solely for leasing or renting to
 
11           lessees or renters using the aircraft for commercial
 
12           transportation of passengers and goods;
 
13      (7)  The use of oceangoing vehicles for passenger or
 
14           passenger and goods transportation from one point to
 
15           another within the State as a public utility as defined
 
16           in chapter 269; and
 
17      (8)  The use of material, parts, or tools imported or
 
18           purchased by a person licensed under chapter 237 which
 
19           are used for aircraft service and maintenance, or the
 
20           construction of an aircraft service and maintenance
 
21           facility as those terms are defined in section 237-
 
22           24.9.
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      With regard to purchases made and distributed under the
 
 2 authority of chapter 421, a cooperative association shall be
 
 3 deemed the user thereof."
 
 4      SECTION 4.  Section 238-3, Hawaii Revised Statutes, is
 
 5 amended as follows:
 
 6      1.  By amending subsections (a), (b), (c), and (d) to read:
 
 7      "(a)  The tax imposed by this chapter shall not apply to any
 
 8 property[,] or services, or to any use of the property[,] or
 
 9 services, which cannot legally be so taxed under the Constitution
 
10 or laws of the United States, but only so long as, and only to
 
11 the extent to which the State is without power to impose the tax.
 
12      Any provision of law to the contrary notwithstanding,
 
13 exemptions or exclusions from tax under this chapter allowed on
 
14 or before April 1, 1978 under the provisions of the Constitution
 
15 of the United States or an act of the Congress of the United
 
16 States to persons or common carriers engaged in interstate or
 
17 foreign commerce, or both, whether ocean-going or air, shall
 
18 continue undiminished and be available thereafter.
 
19      (b)  The tax imposed by this chapter shall not apply to any
 
20 use of property or services the transfer of which property or
 
21 services to, or the acquisition of which by, the person so using
 

 
 
 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 the same, has actually been or actually is taxed under chapter
 
 2 237.
 
 3      (c)  The tax imposed by this chapter shall be paid only once
 
 4 upon or in respect of the same property[;] or services; provided
 
 5 that nothing in this chapter contained shall be construed to
 
 6 exempt any property or services or the use thereof from taxation
 
 7 under any other law of the State.
 
 8      (d)  The tax imposed by this chapter shall be in addition to
 
 9 any other taxes imposed by any other laws of the State, except as
 
10 otherwise specifically provided herein; provided that if it be
 
11 finally held by any court of competent jurisdiction, that the tax
 
12 imposed by this chapter may not legally be imposed in addition to
 
13 any other tax or taxes imposed by any other law or laws with
 
14 respect to the same property or services or the use thereof, then
 
15 this chapter shall be deemed not to apply to the property or
 
16 services and the use thereof under such specific circumstances,
 
17 but such other laws shall be given full effect with respect to
 
18 the property or services and use."
 
19      2.  By amending subsections (i) and (j) to read:
 
20      "(i)  Each taxpayer liable for the tax imposed by this
 
21 chapter on tangible personal property or services shall be
 
22 entitled to full credit for the combined amount or amounts of
 
23 legally imposed sales or use taxes paid by the taxpayer with
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 respect to the same transaction and property or services to
 
 2 another state and any subdivision thereof, but such credit shall
 
 3 not exceed the amount of the use tax imposed under this chapter
 
 4 on account of the transaction and property[.] or services.  The
 
 5 director of taxation may require the taxpayer to produce the
 
 6 necessary receipts or vouchers indicating the payment of the
 
 7 sales or use tax to another state or subdivision as a condition
 
 8 for the allowance of the credit.
 
 9      (j)  The tax imposed by this chapter shall not apply to any
 
10 use of property or services exempted by section 237-26 or section
 
11 237-29."
 
12      SECTION 5.  Section 238-5, Hawaii Revised Statutes, is
 
13 amended by amending subsection (a) to read as follows:
 
14      "(a)  On or before the last day of each calendar month, any
 
15 person who has become liable for the payment of a tax under this
 
16 chapter during the preceding calendar month in respect of any
 
17 property or services or the use thereof, shall file a return with
 
18 the assessor of the taxation district in which the property was
 
19 held or the services were received when the tax first became
 
20 payable, or with the director of taxation at Honolulu, setting
 
21 forth a description of the property or services and the character
 
22 and quantity thereof in sufficient detail to identify the same or
 
23 otherwise in such reasonable detail as the director by rule shall
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 require, and the purchase price or value thereof as the case may
 
 2 be.  The return shall be accompanied by a remittance in full of
 
 3 the tax, computed at the rate specified in section 238-2 upon the
 
 4 price or value so returned.  Any tax remaining unpaid after the
 
 5 last day following the end of the calendar month during which the
 
 6 tax first became payable shall become delinquent; provided that a
 
 7 receipt from a seller required or authorized to collect the tax,
 
 8 given to a taxpayer in accordance with section 238-6, shall be
 
 9 sufficient to relieve the taxpayer from further liability for the
 
10 tax to which the receipt may refer, or for the return thereof."
 
11      SECTION 6.  Section 238-6, Hawaii Revised Statutes, is
 
12 amended by amending subsection (a) to read as follows:
 
13      "(a)  For purposes of the taxes due under sections 238-2(3)
 
14 [and], 238-2.5, and 238-   , every seller having in the State,
 
15 regularly or intermittently, any property, tangible or
 
16 intangible, any place of business, or any representation as
 
17 hereinabove defined, (and irrespective of the seller's having or
 
18 not having qualified to do business in the State) shall, if the
 
19 seller makes sales of property or services for use in the State
 
20 (whether or not the sales are made in the State) collect from the
 
21 purchaser the taxes imposed by sections 238-2(3) [and], 238-2.5,
 
22 and 238-   , on the use of the property or services so sold by
 
23 the seller.  The collection shall be made within twenty days
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 after the accrual of the tax or within such other period as shall
 
 2 be fixed by the director of taxation upon the application of the
 
 3 seller, and the seller shall give to the purchaser a receipt
 
 4 therefor in the manner and form prescribed by the director;
 
 5 provided that this subsection shall not apply to vehicles
 
 6 registered under section 286-50."
 
 7      SECTION 7.  Section 238-9, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "§238-9  Records.  Every person who is engaged in any
 
10 business in the State and who is required under this chapter to
 
11 make returns, shall keep in the English language in the State and
 
12 preserve for a period of three years, books of account or other
 
13 records in sufficient detail to enable the director of taxation,
 
14 as far as reasonably practicable, to determine whether or not any
 
15 taxes imposed by this chapter are payable in respect of the
 
16 property or services concerned, and if so payable, the amount
 
17 thereof."
 
18      SECTION 8.  Statutory material to be repealed is bracketed.
 
19 New statutory material is underscored.
 
20      SECTION 9.  This Act, upon its approval, shall apply to
 
21 services exported out of state and services imported or purchased
 
22 from an unlicensed seller for use in this State after
 
23 December 31, 1999.