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THE SENATE                              S.B. NO.           
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 oncontracting or
 
15           services at the highest rate.
 
16 For the purposes of this section, the seller or person rendering
 
17 the contracting or services exported and resold, consumed or used
 
18 outside the State shall take from the purchaser, a certificate
 
19 (or an equivalent), in the form as the department shall
 

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

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

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

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

 
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 1           visitor's departure from the State);
 
 2      (2)  Use by the taxpayer of property acquired by the
 
 3           taxpayer solely by way of gift;
 
 4      (3)  Use which is limited to the receipt of articles and the
 
 5           return thereof, to the person from whom acquired,
 
 6           immediately or within a reasonable time either after
 
 7           temporary trial or without trial;
 
 8      (4)  Use of goods imported into the State by the owner of a
 
 9           vessel or vessels engaged in interstate or foreign
 
10           commerce and held for and used only as ship stores for
 
11           the vessels;
 
12      (5)  The use or keeping for use of household goods, personal
 
13           effects, and private automobiles imported into the
 
14           State for nonbusiness use by a person who (A) acquired
 
15           them in another state, territory, district, or country,
 
16           (B) at the time of the acquisition was a bona fide
 
17           resident of another state, territory, district, or
 
18           country, (C) acquired the property for use outside the
 
19           State, and (D) made actual and substantial use thereof
 
20           outside this State; provided that as to an article
 
21           acquired less than three months prior to the time of
 
22           its importation into the State it shall be presumed,
 
23           until and unless clearly proved to the contrary, that
 

 
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 1           it was acquired for use in the State and that its use
 
 2           outside the State was not actual and substantial;
 
 3      (6)  The leasing or renting of any aircraft or the keeping
 
 4           of any aircraft solely for leasing or renting to
 
 5           lessees or renters using the aircraft for commercial
 
 6           transportation of passengers and goods;
 
 7      (7)  The use of oceangoing vehicles for passenger or
 
 8           passenger and goods transportation from one point to
 
 9           another within the State as a public utility as defined
 
10           in chapter 269; and
 
11      (8)  The use of material, parts, or tools imported or
 
12           purchased by a person licensed under chapter 237 which
 
13           are used for aircraft service and maintenance, or the
 
14           construction of an aircraft service and maintenance
 
15           facility as those terms are defined in section 237-
 
16           24.9.
 
17      With regard to purchases made and distributed under the
 
18 authority of chapter 421, a cooperative association shall be
 
19 deemed the user thereof."
 
20      SECTION 4.  Section 238-3, Hawaii Revised Statutes, is
 
21 amended as follows:
 
22      1.  By amending subsections (a), (b), (c), and (d) to read
 
23 as follows:
 

 
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 1      "(a)  The tax imposed by this chapter shall not apply to any
 
 2 property[,] or services, or to any use of the property[,] or
 
 3 services, which cannot legally be so taxed under the Constitution
 
 4 or laws of the United States, but only so long as, and only to
 
 5 the extent to which the State is without power to impose the tax.
 
 6      Any provision of law to the contrary notwithstanding,
 
 7 exemptions or exclusions from tax under this chapter allowed on
 
 8 or before April 1, 1978 under the provisions of the Constitution
 
 9 of the United States or an act of the Congress of the United
 
10 States to persons or common carriers engaged in interstate or
 
11 foreign commerce, or both, whether ocean-going or air, shall
 
12 continue undiminished and be available thereafter.
 
13      (b)  The tax imposed by this chapter shall not apply to any
 
14 use of property or services the transfer of which property or
 
15 services to, or the acquisition of which by, the person so using
 
16 the same, has actually been or actually is taxed under chapter
 
17 237.
 
18      (c)  The tax imposed by this chapter shall be paid only once
 
19 upon or in respect of the same property[;] or services; provided
 
20 that nothing in this chapter contained shall be construed to
 
21 exempt any property or services or the use thereof from taxation
 
22 under any other law of the State.
 
23      (d)  The tax imposed by this chapter shall be in addition to
 

 
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 1 any other taxes imposed by any other laws of the State, except as
 
 2 otherwise specifically provided herein; provided that if it be
 
 3 finally held by any court of competent jurisdiction, that the tax
 
 4 imposed by this chapter may not legally be imposed in addition to
 
 5 any other tax or taxes imposed by any other law or laws with
 
 6 respect to the same property or services or the use thereof, then
 
 7 this chapter shall be deemed not to apply to the property or
 
 8 services and the use thereof under such specific circumstances,
 
 9 but such other laws shall be given full effect with respect to
 
10 the property or services and use."
 
11      2.  By amending subsections (i) and (j) to read as follows:
 
12      "(i)  Each taxpayer liable for the tax imposed by this
 
13 chapter on tangible personal property or services shall be
 
14 entitled to full credit for the combined amount or amounts of
 
15 legally imposed sales or use taxes paid by the taxpayer with
 
16 respect to the same transaction and property or services to
 
17 another state and any subdivision thereof, but such credit shall
 
18 not exceed the amount of the use tax imposed under this chapter
 
19 on account of the transaction and property[.] or services.  The
 
20 director of taxation may require the taxpayer to produce the
 
21 necessary receipts or vouchers indicating the payment of the
 
22 sales or use tax to another state or subdivision as a condition
 
23 for the allowance of the credit.
 

 
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 1      (j)  The tax imposed by this chapter shall not apply to any
 
 2 use of property or services exempted by section 237-26 or section
 
 3 237-29."
 
 4      SECTION 5.  Section 238-5, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (a) to read as follows:
 
 6      "(a)  On or before the last day of each calendar month, any
 
 7 person who has become liable for the payment of a tax under this
 
 8 chapter during the preceding calendar month in respect of any
 
 9 property or services or the use thereof, shall file a return with
 
10 the assessor of the taxation district in which the property was
 
11 held or the services were received when the tax first became
 
12 payable, or with the director of taxation at Honolulu, setting
 
13 forth a description of the property or services and the character
 
14 and quantity thereof in sufficient detail to identify the same or
 
15 otherwise in such reasonable detail as the director by rule shall
 
16 require, and the purchase price or value thereof as the case may
 
17 be.  The return shall be accompanied by a remittance in full of
 
18 the tax, computed at the rate specified in section 238-2 upon the
 
19 price or value so returned.  Any tax remaining unpaid after the
 
20 last day following the end of the calendar month during which the
 
21 tax first became payable shall become delinquent; provided that a
 
22 receipt from a seller required or authorized to collect the tax,
 
23 given to a taxpayer in accordance with section 238-6, shall be
 

 
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 1 sufficient to relieve the taxpayer from further liability for the
 
 2 tax to which the receipt may refer, or for the return thereof."
 
 3      SECTION 6.  Section 238-6, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (a) to read as follows:
 
 5      "(a)  For purposes of the taxes due under sections 238-2(3)
 
 6 [and], 238-2.5, and 238-   , every seller having in the State,
 
 7 regularly or intermittently, any property, tangible or
 
 8 intangible, any place of business, or any representation as
 
 9 hereinabove defined, (and irrespective of the seller's having or
 
10 not having qualified to do business in the State) shall, if the
 
11 seller makes sales of property or services for use in the State
 
12 (whether or not the sales are made in the State) collect from the
 
13 purchaser the taxes imposed by sections 238-2(3) [and], 238-2.5,
 
14 and 238-   , on the use of the property or services so sold by
 
15 the seller.  The collection shall be made within twenty days
 
16 after the accrual of the tax or within such other period as shall
 
17 be fixed by the director of taxation upon the application of the
 
18 seller, and the seller shall give to the purchaser a receipt
 
19 therefor in the manner and form prescribed by the director;
 
20 provided that this subsection shall not apply to vehicles
 
21 registered under section 286-50."
 
22      SECTION 7.  Section 238-9, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "§238-9  Records.  Every person who is engaged in any
 
 2 business in the State and who is required under this chapter to
 
 3 make returns, shall keep in the English language in the State and
 
 4 preserve for a period of three years, books of account or other
 
 5 records in sufficient detail to enable the director of taxation,
 
 6 as far as reasonably practicable, to determine whether or not any
 
 7 taxes imposed by this chapter are payable in respect of the
 
 8 property or services concerned, and if so payable, the amount
 
 9 thereof."
 
10      SECTION 8.  Statutory material to be repealed is bracketed.
 
11 New statutory material is underscored.
 
12      SECTION 9.  This Act, upon its approval, shall apply to
 
13 services exported out of state and services imported or purchased
 
14 from an unlicensed seller for use in this State after
 
15 December 31, 1999.
 
16 
 
17                           INTRODUCED BY:  _______________________
 

 
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