REPORT TITLE:
General Excise Tax


DESCRIPTION:
Eliminates intermediaries general excise tax application and
substitutes resale of services at one-half per cent.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           16
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
 
 2 amended by adding a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "§237-    Treatment of wholesale services.  (a)  This
 
 5 section relates to the wholesale sale of services and applies to
 
 6 all service businesses under section 237-7.
 
 7      (b)  A wholesale sale of services by a taxpayer occurs
 
 8 where:
 
 9      (1)  The services are acquired by the taxpayer from a
 
10           licensed person on behalf of the ultimate recipient or
 
11           in connection with the rendering of services by the
 
12           taxpayer to the ultimate recipient.  The services may
 
13           or may not be furnished pursuant to an existing
 
14           contract between the licensed person and the taxpayer;
 
15      (2)  The taxpayer has not consumed the services; provided
 
16           that the taxpayer must bill the ultimate recipient
 
17           separately for those services; and
 
18      (3)  The licensed person furnishing the taxpayer with
 
19           services is subject to the four per cent tax rate under
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1           this chapter upon the gross income or gross proceeds
 
 2           received by the licensed person for the services
 
 3           furnished to the taxpayer.
 
 4      (c)  A deduction shall be allowed from the gross proceeds or
 
 5 gross income of the taxpayer in an amount calculated by
 
 6 multiplying the gross amount paid by the taxpayer for the
 
 7 services acquired from the licensed person by .875.
 
 8      The amount calculated shall be deducted from the taxpayer's
 
 9 total reported gross proceeds or gross income.  The deduction
 
10 allowed by this subsection may be taken by fiscal and calendar
 
11 year taxpayers.  All deductions claimed under this section shall
 
12 be accompanied by the name and general excise tax number of the
 
13 licensed person furnishing the services to the taxpayer.
 
14      (d)  The taxpayer shall obtain from the licensed person a
 
15 certificate in a form that the department prescribes certifying
 
16 that the licensed person is subject to tax at the rate of four
 
17 per cent under this chapter on the gross proceeds or gross income
 
18 received from the taxpayer.  The absence of the certificate, if
 
19 required, is itself a presumption that the taxpayer is not
 
20 allowed a deduction under this section.
 
21      (e)  A wholesale sale of services does not occur when the
 
22 business activity involves the production or sale of tangible
 
23 personal property, contracting, or retailing.  Any services
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1 involved in those business activities shall not be severable and
 
 2 shall not qualify for a deduction under this section.
 
 3      (f)  As used in this section:
 
 4      "Licensed person" means a person licensed under this chapter
 
 5 to engage in a service business or calling under section 237-7.
 
 6      "Taxpayer" means any person subject to taxation under
 
 7 section 237-13(6).
 
 8      "Ultimate recipient" means a person who receives the
 
 9 services or the benefits of the services and who uses or consumes
 
10 the services."
 
11       SECTION 2.  Section 237-13, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "§237-13  Imposition of tax.  There is hereby levied and
 
14 shall be assessed and collected annually privilege taxes against
 
15 persons on account of their business and other activities in the
 
16 State measured by the application of rates against values of
 
17 products, gross proceeds of sales, or gross income, whichever is
 
18 specified, as follows:
 
19      (1)  Tax on manufacturers.
 
20           (A)  Upon every person engaging or continuing within
 
21                the State in the business of manufacturing,
 
22                including compounding, canning, preserving,
 
23                packing, printing, publishing, milling,
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                processing, refining, or preparing for sale,
 
 2                profit, or commercial use, either directly or
 
 3                through the activity of others, in whole or in
 
 4                part, any article or articles, substance or
 
 5                substances, commodity or commodities, the amount
 
 6                of the tax to be equal to the value of the
 
 7                articles, substances, or commodities,
 
 8                manufactured, compounded, canned, preserved,
 
 9                packed, printed, milled, processed, refined, or
 
10                prepared, for sale, as shown by the gross proceeds
 
11                derived from the sale thereof by the manufacturer
 
12                or person compounding, preparing, or printing
 
13                them, multiplied by one-half of one per cent.
 
14           (B)  The measure of the tax on manufacturers is the
 
15                value of the entire product for sale, regardless
 
16                of the place of sale or the fact that deliveries
 
17                may be made to points outside the State.
 
18           (C)  If any person liable for the tax on manufacturers
 
19                ships or transports the person's product, or any
 
20                part thereof, out of the State, whether in a
 
21                finished or unfinished condition, or sells the
 
22                same for delivery outside of the State (for
 
23                example, consigned to a mainland purchaser via
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                common carrier f.o.b. Honolulu), the value of the
 
 2                products in the condition or form in which they
 
 3                exist immediately before entering interstate or
 
 4                foreign commerce, determined as hereinafter
 
 5                provided, shall be the basis for the assessment of
 
 6                the tax imposed by this paragraph.  This tax shall
 
 7                be due and payable as of the date of entry of the
 
 8                products into interstate or foreign commerce,
 
 9                whether the products are then sold or not.  The
 
10                department of taxation shall determine the basis
 
11                for assessment, as provided by this paragraph, as
 
12                follows:
 
13                (i)  If the products at the time of their entry
 
14                     into interstate or foreign commerce already
 
15                     have been sold, the gross proceeds of sale,
 
16                     less the transportation expenses, if any,
 
17                     incurred in realizing the gross proceeds for
 
18                     transportation from the time of entry of the
 
19                     products into interstate or foreign commerce,
 
20                     including insurance and storage in transit,
 
21                     shall be the measure of the value of the
 
22                     products.
 
23               (ii)  If the products have not been sold at the
 

 
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                                     S.B. NO.           16
                                                        
                                                        

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

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

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                one per cent of the gross proceeds of sales of the
 
 2                business.  Upon every person engaging or
 
 3                continuing within this State in the business of a
 
 4                producer, the tax shall be equal to one-half of
 
 5                one per cent of the gross proceeds of sales of the
 
 6                business, or the value of the products, for sale,
 
 7                if sold for delivery outside the State or shipped
 
 8                or transported out of the State, and the value of
 
 9                the products shall be determined in the same
 
10                manner as the value of manufactured products
 
11                covered in the cases under paragraph (1)(C).
 
12           (B)  Gross proceeds of sales of tangible property in
 
13                interstate and foreign commerce shall constitute a
 
14                part of the measure of the tax imposed on persons
 
15                in the business of selling tangible personal
 
16                property, to the extent, under the conditions, and
 
17                in accordance with the provisions of the
 
18                Constitution of the United States and the Acts of
 
19                the Congress of the United States which may be now
 
20                in force or may be hereafter adopted, and whenever
 
21                there occurs in the State an activity to which,
 
22                under the Constitution and Acts of Congress, there
 
23                may be attributed gross proceeds of sales, the
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                gross proceeds shall be so attributed.
 
 2           (C)  No manufacturer or producer, engaged in such
 
 3                business in the State and selling the
 
 4                manufacturer's or producer's products for delivery
 
 5                outside of the State (for example, consigned to a
 
 6                mainland purchaser via common carrier f.o.b.
 
 7                Honolulu), shall be required to pay the tax
 
 8                imposed in this chapter for the privilege of so
 
 9                selling the products, and the value or gross
 
10                proceeds of sales of the products shall be
 
11                included only in determining the measure of the
 
12                tax imposed upon the manufacturer or producer.
 
13           (D)  When a manufacturer or producer, engaged in such
 
14                business in the State, also is engaged in selling
 
15                the manufacturer's or producer's products in the
 
16                State at wholesale, retail, or in any other
 
17                manner, the tax for the privilege of engaging in
 
18                the business of selling the products in the State
 
19                shall apply to the manufacturer or producer as
 
20                well as the tax for the privilege of manufacturing
 
21                or producing in the State, and the manufacturer or
 
22                producer shall make the returns of the gross
 
23                proceeds of the wholesale, retail, or other sales
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                required for the privilege of selling in the
 
 2                State, as well as making the returns of the value
 
 3                or gross proceeds of sales of the products
 
 4                required for the privilege of manufacturing or
 
 5                producing in the State.  The manufacturer or
 
 6                producer shall pay the tax imposed in this chapter
 
 7                for the privilege of selling its products in the
 
 8                State, and the value or gross proceeds of sales of
 
 9                the products, thus subjected to tax, may be
 
10                deducted insofar as duplicated as to the same
 
11                products by the measure of the tax upon the
 
12                manufacturer or producer for the privilege of
 
13                manufacturing or producing in the State; except
 
14                that no producer of agricultural products who
 
15                sells the products to a purchaser who will process
 
16                the products outside the State shall be required
 
17                to pay the tax imposed in this chapter for the
 
18                privilege of producing or selling those products.
 
19           (E)  A taxpayer selling to a federal cost-plus
 
20                contractor may make the election provided for by
 
21                paragraph (3)(C), and in that case the tax shall
 
22                be computed pursuant to the election,
 
23                notwithstanding this paragraph or paragraph (1) to
 

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                the contrary.
 
 2           (F)  The department, by rule, may provide that a seller
 
 3                may take from the purchaser of tangible personal
 
 4                property a certificate, in a form as the
 
 5                department shall prescribe, certifying that the
 
 6                sale is a sale at wholesale.  If the certificate
 
 7                is so provided for by rule of the department:
 
 8                (i)  Any purchaser who furnishes a certificate
 
 9                     shall be obligated to pay to the seller, upon
 
10                     demand, if the sale in fact is not at
 
11                     wholesale, the amount of the additional tax
 
12                     which by reason thereof is imposed upon the
 
13                     seller; and
 
14               (ii)  The absence of a certificate, unless the
 
15                     sales of the business are exclusively at
 
16                     wholesale, in itself shall give rise to the
 
17                     presumption that the sale is not at
 
18                     wholesale.
 
19      (3)  Tax upon contractors.
 
20           (A)  Upon every person engaging or continuing within
 
21                the State in the business of contracting, the tax
 
22                shall be equal to four per cent of the gross
 
23                income of the business; provided that insofar as
 

 
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                                     S.B. NO.           16
                                                        
                                                        

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

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1                person's return the name and general excise number
 
 2                of the person paying the tax on the amount
 
 3                deducted by the person.
 
 4           (C)  In computing the tax levied under this paragraph
 
 5                against any federal cost-plus contractor, there
 
 6                shall be excluded from the gross income of the
 
 7                contractor so much thereof as fulfills the
 
 8                following requirements:
 
 9                (i)  The gross income exempted shall constitute
 
10                     reimbursement of costs incurred for
 
11                     materials, plant, or equipment purchased from
 
12                     a taxpayer licensed under this chapter, not
 
13                     exceeding the gross proceeds of sale of the
 
14                     taxpayer on account of the transaction; and
 
15               (ii)  The taxpayer making the sale shall have
 
16                     certified to the department that the taxpayer
 
17                     is taxable with respect to the gross proceeds
 
18                     of the sale, and that the taxpayer elects to
 
19                     have the tax on gross income computed the
 
20                     same as upon a sale to the state government.
 
21           (D)  A person who, as a business or as a part of a
 
22                business in which the person is engaged, erects,
 
23                constructs, or improves any building or structure,
 

 
Page 14                                                    
                                     S.B. NO.           16
                                                        
                                                        

 
 1                of any kind or description, or makes, constructs,
 
 2                or improves any road, street, sidewalk, sewer, or
 
 3                water system, or other improvements on land held
 
 4                by the person (whether held as a leasehold, fee
 
 5                simple, or otherwise), upon the sale or other
 
 6                disposition of the land or improvements, even if
 
 7                the work was not done pursuant to a contract,
 
 8                shall be liable to the same tax as if engaged in
 
 9                the business of contracting, unless the person
 
10                shows that at the time the person was engaged in
 
11                making the improvements it was, and for the period
 
12                of at least one year after completion of the
 
13                building, structure, or other improvements, it
 
14                continued to be the person's purpose to hold and
 
15                not sell or otherwise dispose of the land or
 
16                improvements.  The tax in respect of the
 
17                improvements shall be measured by the amount of
 
18                the proceeds of the sale or other disposition that
 
19                is attributable to the erection, construction, or
 
20                improvement of such building or structure, or the
 
21                making, constructing, or improving of the road,
 
22                street, sidewalk, sewer, or water system, or other
 
23                improvements.  The measure of tax in respect of
 

 
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                                     S.B. NO.           16
                                                        
                                                        

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

 
Page 16                                                    
                                     S.B. NO.           16
                                                        
                                                        

 
 1           equal to four per cent of the gross income of the
 
 2           business.
 
 3      (5)  Tax upon sales representatives, etc.  Upon every person
 
 4           classified as a representative or purchasing agent
 
 5           under section 237-1, engaging or continuing within the
 
 6           State in the business of performing services for
 
 7           another, other than as an employee, there is likewise
 
 8           hereby levied and shall be assessed and collected a tax
 
 9           equal to four per cent of the commissions and other
 
10           compensation attributable to the services so rendered
 
11           by the person.
 
12      (6)  Tax on service business.  Upon every person engaging or
 
13           continuing within the State in any service business or
 
14           calling, including those engaging or continuing within
 
15           the State in the practice of a profession and those
 
16           expounding the religious doctrines of any church, not
 
17           otherwise specifically taxed under this chapter, there
 
18           is likewise hereby levied and shall be assessed and
 
19           collected a tax equal to four per cent of the gross
 
20           income of the business; [provided that where any person
 
21           engaging or continuing within the State in any service
 
22           business or calling renders those services upon the
 
23           order of or at the request of another taxpayer who is
 

 
Page 17                                                    
                                     S.B. NO.           16
                                                        
                                                        

 
 1           engaged in the service business and who, in fact, acts
 
 2           as or acts in the nature of an intermediary between the
 
 3           person rendering those services and the ultimate
 
 4           recipient of the benefits of those services, so much of
 
 5           the gross income as is received by the person rendering
 
 6           the services shall be subjected to the tax at the rate
 
 7           of one-half of one per cent and all of the gross income
 
 8           received by the intermediary from the principal shall
 
 9           be subjected to a tax at the rate of four per cent;
 
10           and] provided that where any person is engaged in the
 
11           business of selling interstate or foreign common
 
12           carrier telecommunication services within and without
 
13           the State, the tax shall be imposed on that portion of
 
14           gross income received by a person from service which is
 
15           originated or terminated in this State and is charged
 
16           to a telephone number, customer, or account in this
 
17           State notwithstanding any other state law (except for
 
18           the exemption under section 237-23(a)(1)) to the
 
19           contrary.  If, under the Constitution and laws of the
 
20           United States, the entire gross income as determined
 
21           under this paragraph of a business selling interstate
 
22           or foreign common carrier telecommunication services
 
23           cannot be included in the measure of the tax, the gross
 

 
Page 18                                                    
                                     S.B. NO.           16
                                                        
                                                        

 
 1           income shall be apportioned as provided in
 
 2           section 237-21; provided that the apportionment factor
 
 3           and formula shall be the same for all persons providing
 
 4           those services in the State.
 
 5      (7)  Tax on insurance solicitors and agents.  Upon every
 
 6           person engaged as a licensed solicitor, general agent,
 
 7           or subagent pursuant to chapter 431, there is hereby
 
 8           levied and shall be assessed and collected a tax equal
 
 9           to .15 per cent of the commissions due to that
 
10           activity.
 
11     [(8)  Professions.  Upon every person engaging or continuing
 
12           within the State in the practice of a profession,
 
13           including those expounding the religious doctrines of
 
14           any church, there is likewise hereby levied and shall
 
15           be assessed and collected a tax equal to four per cent
 
16           of the gross income on the practice or exposition.
 
17      (9)] (8)  Tax on receipts of sugar benefit payments.  Upon
 
18           the amounts received from the United States government
 
19           by any producer of sugar (or the producer's legal
 
20           representative or heirs), as defined under and by
 
21           virtue of the Sugar Act of 1948, as amended, or other
 
22           Acts of the Congress of the United States relating
 
23           thereto, there is hereby levied a tax of one-half of
 

 
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                                     S.B. NO.           16
                                                        
                                                        

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

 
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                                     S.B. NO.           16
                                                        
                                                        

 
 1           gross proceeds of sales or by taxing an equivalent
 
 2           value of products, unless specifically exempted."
 
 3      SECTION 3.  Statutory material to be repealed is bracketed.
 
 4 New statutory material is underscored.
 
 5      SECTION 4.  This Act shall take effect on July 1, 1999, and
 
 6 shall apply to gross proceeds or gross income received after
 
 7 June 30, 1999.
 
 8 
 
 9                           INTRODUCED BY:  _______________________