REPORT TITLE:
Taxation


DESCRIPTION:
Expands treatment of wholesale sales of services by clarifying
the cost of services, and speeds up implementation.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2472
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.  In spite of attempts by the 1999 legislature to
 
 2 alleviate the pyramiding problems of the general excise tax on
 
 3 businesses, it is becoming increasingly clear that the tax relief
 
 4 enacted in the previous session fell far short of providing
 
 5 meaningful tax relief.  The business community, especially small
 
 6 businesses which are less vertically integrated and must contract
 
 7 out many services, firmly believes that the mere expansion of the
 
 8 definition of wholesale services and the phase-in of the 1999 Act
 
 9 over a seven year period has done little to provide any
 
10 significant relief in reducing the cost of doing business in
 
11 Hawaii.
 
12      The purpose of this Act is to expand the treatment of
 
13 wholesale sales of services by eliminating the requirement that
 
14 the cost of services provided to a licensed seller, licensed
 
15 contractor, or person furnishing transient accommodations does
 
16 not constitute overhead.  The present distinction between what is
 
17 consumed as overhead and what is an identifiable element
 
18 benefitting the customer of the licensed seller, licensed
 
19 contractor, or person furnishing transient accommodations is
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1 creating arbitrary interpretations, enforcement, and compliance
 
 2 problems in addition to costly accounting changes for the
 
 3 negligible tax relief received.  Furthermore, the fact that
 
 4 "identifiable element" is not defined in the statute creates
 
 5 inconsistent and arbitrary treatment of what constitutes
 
 6 wholesale services.
 
 7      Finally, since the revenue loss to the State is estimated to
 
 8 be far less than $100,000,000 if the amendments in this Act are
 
 9 enacted, a shorter phase-in down to four years is proposed.
 
10      SECTION 2.  Section 237-1, Hawaii Revised Statutes, is
 
11 amended by adding a new definition to be appropriately inserted
 
12 and to read as follows:
 
13      ""Identifiable element" means direct and indirect costs of
 
14 tangible personal property that must be capitalized with respect
 
15 to property that is produced, manufactured, or acquired for
 
16 resale.  Direct costs of tangible personal property include costs
 
17 that become an integral part of the subject matter that is
 
18 produced, manufactured, or acquired for resale and are not
 
19 consumed as overhead.  Indirect costs of tangible personal
 
20 property include all costs of tangible personal property other
 
21 than direct costs and include parts, supplies, office supplies,
 
22 fuel, and other indirect costs subject to the uniform
 
23 capitalization rules of section 263A (with respect to
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1 capitalization and inclusion in inventory costs of certain
 
 2 expenses) of the Internal Revenue Code of 1986, as amended."
 
 3      SECTION 3.  Section 237-4, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (a) to read as follows:
 
 5      "(a)  "Wholesaler" or "jobber" applies only to a person
 
 6 making sales at wholesale.  Only the following are sales at
 
 7 wholesale:
 
 8      (1)  Sales to a licensed retail merchant, jobber, or other
 
 9           licensed seller for purposes of resale;
 
10      (2)  Sales to a licensed manufacturer of materials or
 
11           commodities that are to be incorporated by the
 
12           manufacturer into a finished or saleable product
 
13           (including the container or package in which the
 
14           product is contained) during the course of its
 
15           preservation, manufacture, or processing, including
 
16           preparation for market, and that will remain in such
 
17           finished or saleable product in such form as to be
 
18           perceptible to the senses, which finished or saleable
 
19           product is to be sold and not otherwise used by the
 
20           manufacturer;
 
21      (3)  Sales to a licensed producer or cooperative association
 
22           of materials or commodities that are to be incorporated
 
23           by the producer or by the cooperative association into
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1           a finished or saleable product that is to be sold and
 
 2           not otherwise used by the producer or cooperative
 
 3           association, including specifically materials or
 
 4           commodities expended as essential to the planting,
 
 5           growth, nurturing, and production of commodities that
 
 6           are sold by the producer or by the cooperative
 
 7           association;
 
 8      (4)  Sales to a licensed contractor, of materials or
 
 9           commodities that are to be incorporated by the
 
10           contractor into the finished work or project required
 
11           by the contract and that will remain in such finished
 
12           work or project in such form as to be perceptible to
 
13           the senses;
 
14      (5)  Sales to a licensed producer, or to a cooperative
 
15           association described in section 237-23(a)(7) for sale
 
16           to a licensed producer, or to a licensed person
 
17           operating a feed lot, of poultry or animal feed,
 
18           hatching eggs, semen, replacement stock, breeding
 
19           services for the purpose of raising or producing animal
 
20           or poultry products for disposition as described in
 
21           section 237-5 or for incorporation into a manufactured
 
22           product as described in paragraph (2) or for the
 
23           purpose of breeding, hatching, milking, or egg laying
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1           other than for the customer's own consumption of the
 
 2           meat, poultry, eggs, or milk so produced; provided that
 
 3           in the case of a feed lot operator, only the segregated
 
 4           cost of the feed furnished by the feed lot operator as
 
 5           part of the feed lot operator's service to a licensed
 
 6           producer of poultry or animals to be butchered or to a
 
 7           cooperative association described in section
 
 8           237-23(a)(7) of such licensed producers shall be deemed
 
 9           to be a sale at wholesale; and provided further that
 
10           any amount derived from the furnishing of feed lot
 
11           services, other than the segregated cost of feed, shall
 
12           be deemed taxable at the service business rate.  This
 
13           paragraph shall not apply to the sale of feed for
 
14           poultry or animals to be used for hauling,
 
15           transportation, or sports purposes;
 
16      (6)  Sales to a licensed producer, or to a cooperative
 
17           association described in section 237-23(a)(7) for sale
 
18           to the producer, of seed for producing agricultural
 
19           products, or bait for catching fish (including the
 
20           catching of bait for catching fish), which agricultural
 
21           products or fish are to be disposed of as described in
 
22           section 237-5 or to be incorporated in a manufactured
 
23           product as described in paragraph (2);
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1      (7)  Sales to a licensed producer, or to a cooperative
 
 2           association described in section 237-23(a)(7) for sale
 
 3           to such producer; of polypropylene shade cloth; of
 
 4           polyfilm; of polyethylene film; of cartons and such
 
 5           other containers, wrappers, and sacks, and binders to
 
 6           be used for packaging eggs, vegetables, fruits, and
 
 7           other agricultural products; of seedlings and cuttings
 
 8           for producing nursery plants; or of chick containers;
 
 9           which cartons and such other containers, wrappers, and
 
10           sacks, binders, seedlings, cuttings, and containers are
 
11           to be used as described in section 237-5, or to be
 
12           incorporated in a manufactured product as described in
 
13           paragraph (2);
 
14      (8)  Sales of tangible personal property:
 
15           (A)  To a licensed seller engaged in a service business
 
16                or calling; provided that:
 
17                (i)  The property is not consumed or incidental to
 
18                     the performance of the services;
 
19               (ii)  There is a resale of the article at the
 
20                     retail rate of four per cent; and
 
21              (iii)  The resale of the article is separately
 
22                     charged or billed by the person rendering the
 
23                     services; and
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1     (10)  Sales of services to a licensed seller engaging in a
 
 2           business or calling whenever:
 
 3           (A)  Either:
 
 4                (i)  In the context of a service-to-service
 
 5                     transaction, a service is rendered upon the
 
 6                     order or request of a licensed seller for the
 
 7                     purpose of rendering another service in the
 
 8                     course of the seller's service business or
 
 9                     calling;
 
10               (ii)  In the context of a service-to-goods
 
11                     transaction, a service is rendered upon the
 
12                     order or request of a licensed seller for the
 
13                     purpose of manufacturing, producing,
 
14                     preparing, or acquiring tangible personal
 
15                     property to be sold;
 
16              (iii)  In the context of a services-to-contracting
 
17                     transaction, a service is rendered upon the
 
18                     order or request of a licensed contractor as
 
19                     defined in section 237-6 for the purpose of
 
20                     assisting that licensed contractor in
 
21                     executing a contract; or
 
22               (iv)  In the context of a services-to-transient
 
23                     accommodations rental transaction, a service
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                     is rendered upon the order or request of a
 
 2                     person subject to tax under section 237D-2
 
 3                     for the purpose of furnishing transient
 
 4                     accommodations; and
 
 5           (B)  The benefit of the service directly or indirectly
 
 6                passes to the customer of the licensed seller,
 
 7                licensed contractor, or person furnishing
 
 8                transient accommodations [as an identifiable
 
 9                element of the other service or property to be
 
10                sold, the contracting, or the furnishing of
 
11                transient accommodations; and
 
12           (C)  The cost of the service does not constitute]; or
 
13                the benefit of the service is consumed as overhead
 
14                to the licensed seller, licensed contractor, or
 
15                person furnishing transient accommodations.
 
16           Sales subject to this paragraph shall be subject to
 
17           section 237-13.3;
 
18     (11)  Sales to a licensed retail merchant, jobber, or other
 
19           licensed seller of bulk condiments or prepackaged
 
20           single-serving packets of condiments that are provided
 
21           to customers by the licensed retail merchant, jobber,
 
22           or other licensed seller; and
 
23     (12)  Sales to a licensed retail merchant, jobber, or other
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1           licensed seller of tangible personal property that will
 
 2           be incorporated or processed by the licensed retail
 
 3           merchant, jobber, or other licensed seller into a
 
 4           finished or saleable product during the course of its
 
 5           preparation for market (including disposable,
 
 6           nonreturnable containers, packages, or wrappers, in
 
 7           which the product is contained and that are generally
 
 8           known and most commonly used to contain food or
 
 9           beverage for transfer or delivery), and which finished
 
10           or saleable product is to be sold and not otherwise
 
11           used by the licensed retail merchant, jobber, or other
 
12           licensed seller."
 
13      SECTION 4.  Section 237-13, Hawaii Revised Statutes, is
 
14 amended to read as follows:
 
15      "§237-13  Imposition of tax.  There is hereby levied and
 
16 shall be assessed and collected annually privilege taxes against
 
17 persons on account of their business and other activities in the
 
18 State measured by the application of rates against values of
 
19 products, gross proceeds of sales, or gross income, whichever is
 
20 specified, as follows:
 
21      (1)  Tax on manufacturers.
 
22           (A)  Upon every person engaging or continuing within
 
23                the State in the business of manufacturing,
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                levied by section 237-16, and in the case of a
 
 2                wholesaler, the tax shall be equal to one-half of
 
 3                one per cent of the gross proceeds of sales of the
 
 4                business and provided that insofar as the sales of
 
 5                tangible personal property is a wholesale sale
 
 6                under section 237-4(a)(8)(B) the sale shall be
 
 7                subject to section 237-13.3.  Upon every person
 
 8                engaging or continuing within this State in the
 
 9                business of a producer, the tax shall be equal to
 
10                one-half of one per cent of the gross proceeds of
 
11                sales of the business, or the value of the
 
12                products, for sale, if sold for delivery outside
 
13                the State or shipped or transported out of the
 
14                State, and the value of the products shall be
 
15                determined in the same manner as the value of
 
16                manufactured products covered in the cases under
 
17                paragraph (1)(C).
 
18           (B)  Gross proceeds of sales of tangible property in
 
19                interstate and foreign commerce shall constitute a
 
20                part of the measure of the tax imposed on persons
 
21                in the business of selling tangible personal
 
22                property, to the extent, under the conditions, and
 
23                in accordance with the provisions of the
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                Constitution of the United States and the Acts of
 
 2                the Congress of the United States which may be now
 
 3                in force or may be hereafter adopted, and whenever
 
 4                there occurs in the State an activity to which,
 
 5                under the Constitution and Acts of Congress, there
 
 6                may be attributed gross proceeds of sales, the
 
 7                gross proceeds shall be so attributed.
 
 8           (C)  No manufacturer or producer, engaged in such
 
 9                business in the State and selling the
 
10                manufacturer's or producer's products for delivery
 
11                outside of the State (for example, consigned to a
 
12                mainland purchaser via common carrier f.o.b.
 
13                Honolulu), shall be required to pay the tax
 
14                imposed in this chapter for the privilege of so
 
15                selling the products, and the value or gross
 
16                proceeds of sales of the products shall be
 
17                included only in determining the measure of the
 
18                tax imposed upon the manufacturer or producer.
 
19           (D)  When a manufacturer or producer, engaged in such
 
20                business in the State, also is engaged in selling
 
21                the manufacturer's or producer's products in the
 
22                State at wholesale, retail, or in any other
 
23                manner, the tax for the privilege of engaging in
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                the business of selling the products in the State
 
 2                shall apply to the manufacturer or producer as
 
 3                well as the tax for the privilege of manufacturing
 
 4                or producing in the State, and the manufacturer or
 
 5                producer shall make the returns of the gross
 
 6                proceeds of the wholesale, retail, or other sales
 
 7                required for the privilege of selling in the
 
 8                State, as well as making the returns of the value
 
 9                or gross proceeds of sales of the products
 
10                required for the privilege of manufacturing or
 
11                producing in the State.  The manufacturer or
 
12                producer shall pay the tax imposed in this chapter
 
13                for the privilege of selling its products in the
 
14                State, and the value or gross proceeds of sales of
 
15                the products, thus subjected to tax, may be
 
16                deducted insofar as duplicated as to the same
 
17                products by the measure of the tax upon the
 
18                manufacturer or producer for the privilege of
 
19                manufacturing or producing in the State; except
 
20                that no producer of agricultural products who
 
21                sells the products to a purchaser who will process
 
22                the products outside the State shall be required
 
23                to pay the tax imposed in this chapter for the
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                privilege of producing or selling those products.
 
 2           (E)  A taxpayer selling to a federal cost-plus
 
 3                contractor may make the election provided for by
 
 4                paragraph (3)(C), and in that case the tax shall
 
 5                be computed pursuant to the election,
 
 6                notwithstanding this paragraph or paragraph (1) to
 
 7                the contrary.
 
 8           (F)  The department, by rule, may require that a seller
 
 9                take from the purchaser of tangible personal
 
10                property a certificate, in a form prescribed by
 
11                the department, certifying that the sale is a sale
 
12                at wholesale; provided that:
 
13                (i)  Any purchaser who furnishes a certificate
 
14                     shall be obligated to pay to the seller, upon
 
15                     demand, the amount of the additional tax that
 
16                     is imposed upon the seller whenever the sale
 
17                     in fact is not at wholesale; and
 
18               (ii)  The absence of a certificate in itself shall
 
19                     give rise to the presumption that the sale is
 
20                     not at wholesale unless the sales of the
 
21                     business are exclusively at wholesale.
 
22      (3)  Tax upon contractors.
 
23           (A)  Upon every person engaging or continuing within
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

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

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                making, constructing, or improving of the road,
 
 2                street, sidewalk, sewer, or water system, or other
 
 3                improvements.  The measure of tax in respect of
 
 4                the improvements shall not exceed the amount which
 
 5                would have been taxable had the work been
 
 6                performed by another, subject as in other cases to
 
 7                the deductions allowed by subparagraph (B).  Upon
 
 8                the election of the taxpayer, this paragraph may
 
 9                be applied notwithstanding that the improvements
 
10                were not made by the taxpayer, or were not made as
 
11                a business or as a part of a business, or were
 
12                made with the intention of holding the same.
 
13                However, this paragraph shall not apply in respect
 
14                of any proceeds that constitute or are in the
 
15                nature of rent; all such gross income shall be
 
16                taxable under paragraph (9); provided that insofar
 
17                as the business of renting or leasing real
 
18                property under a lease is taxed under section
 
19                237-16.5, the tax shall be levied by section 237-
 
20                16.5.
 
21      (4)  Tax upon theaters, amusements, radio broadcasting
 
22           stations, etc.  Upon every person engaging or
 
23           continuing within the State in the business of
 

 
Page 23                                                    
                                     S.B. NO.           2472
                                                        
                                                        

 
 1           operating a theater, opera house, moving picture show,
 
 2           vaudeville, amusement park, dance hall, skating rink,
 
 3           radio broadcasting station, or any other place at which
 
 4           amusements are offered to the public, the tax shall be
 
 5           equal to four per cent of the gross income of the
 
 6           business.
 
 7      (5)  Tax upon sales representatives, etc.  Upon every person
 
 8           classified as a representative or purchasing agent
 
 9           under section 237-1, engaging or continuing within the
 
10           State in the business of performing services for
 
11           another, other than as an employee, there is likewise
 
12           hereby levied and shall be assessed and collected a tax
 
13           equal to four per cent of the commissions and other
 
14           compensation attributable to the services so rendered
 
15           by the person.
 
16      (6)  Tax on service business.
 
17           (A)  Upon every person engaging or continuing within
 
18                the State in any service business or calling
 
19                including professional services not otherwise
 
20                specifically taxed under this chapter, there is
 
21                likewise hereby levied and shall be assessed and
 
22                collected a tax equal to four per cent of the
 
23                gross income of the business, and in the case of a
 

 
Page 24                                                    
                                     S.B. NO.           2472
                                                        
                                                        

 
 1                wholesaler under section 237-4(a)(10), the tax
 
 2                shall be equal to one-half of one per cent of the
 
 3                gross income of the business.  Sales subject to
 
 4                this subparagraph shall be subject to section
 
 5                237-13.3.
 
 6           (B)  The department, by rule, may require that the
 
 7                person rendering a service at wholesale take from
 
 8                the licensed seller a certificate, in a form
 
 9                prescribed by the department, certifying that the
 
10                sale is a sale at wholesale; provided that:
 
11                (i)  Any licensed seller who furnishes a
 
12                     certificate shall be obligated to pay to the
 
13                     person rendering the service, upon demand,
 
14                     the amount of additional tax that is imposed
 
15                     upon the seller whenever the sale is not at
 
16                     wholesale; and
 
17               (ii)  The absence of a certificate in itself shall
 
18                     give rise to the presumption that the sale is
 
19                     not at wholesale unless the person rendering
 
20                     the sale is exclusively rendering services at
 
21                     wholesale.
 
22           (C)  Where any person engaging or continuing within the
 
23                State in any service business or calling renders
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                those services upon the order of or at the request
 
 2                of another taxpayer who is engaged in the service
 
 3                business and who, in fact, acts as or acts in the
 
 4                nature of an intermediary between the person
 
 5                rendering those services and the ultimate
 
 6                recipient of the benefits of those services, so
 
 7                much of the gross income as is received by the
 
 8                person rendering the services shall be subjected
 
 9                to the tax at the rate of one-half of one per cent
 
10                and all of the gross income received by the
 
11                intermediary from the principal shall be subjected
 
12                to a tax at the rate of four per cent.  Where the
 
13                taxpayer is subject to both this subparagraph and
 
14                to the lowest tax rate under subparagraph (A), the
 
15                taxpayer shall be taxed under this subparagraph.
 
16                This subparagraph shall be repealed on January 1,
 
17                [2006.] 2003.
 
18           (D)  Where any person is engaged in the business of
 
19                selling interstate or foreign common carrier
 
20                telecommunication services within and without the
 
21                State, the tax shall be imposed on that portion of
 
22                gross income received by a person from service
 
23                which is originated or terminated in this State
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1                and is charged to a telephone number, customer, or
 
 2                account in this State notwithstanding any other
 
 3                state law (except for the exemption under section
 
 4                237-23(a)(1)) to the contrary.  If, under the
 
 5                Constitution and laws of the United States, the
 
 6                entire gross income as determined under this
 
 7                paragraph of a business selling interstate or
 
 8                foreign common carrier telecommunication services
 
 9                cannot be included in the measure of the tax, the
 
10                gross income shall be apportioned as provided in
 
11                section 237-21; provided that the apportionment
 
12                factor and formula shall be the same for all
 
13                persons providing those services in the State.
 
14      (7)  Tax on insurance solicitors and agents.  Upon every
 
15           person engaged as a licensed solicitor, general agent,
 
16           or subagent pursuant to chapter 431, there is hereby
 
17           levied and shall be assessed and collected a tax equal
 
18           to .15 per cent of the commissions due to that
 
19           activity.
 
20      (8)  Tax on receipts of sugar benefit payments.  Upon the
 
21           amounts received from the United States government by
 
22           any producer of sugar (or the producer's legal
 
23           representative or heirs), as defined under and by
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1           virtue of the Sugar Act of 1948, as amended, or other
 
 2           Acts of the Congress of the United States relating
 
 3           thereto, there is hereby levied a tax of one-half of
 
 4           one per cent of the gross amount received; provided
 
 5           that the tax levied hereunder on any amount so received
 
 6           and actually disbursed to another by a producer in the
 
 7           form of a benefit payment shall be paid by the person
 
 8           or persons to whom the amount is actually disbursed,
 
 9           and the producer actually making a benefit payment to
 
10           another shall be entitled to claim on the producer's
 
11           return a deduction from the gross amount taxable
 
12           hereunder in the sum of the amount so disbursed.  The
 
13           amounts taxed under this paragraph shall not be taxable
 
14           under any other paragraph, subsection, or section of
 
15           this chapter.
 
16      (9)  Tax on other business.  Upon every person engaging or
 
17           continuing within the State in any business, trade,
 
18           activity, occupation, or calling not included in the
 
19           preceding paragraphs or any other provisions of this
 
20           chapter, there is likewise hereby levied and shall be
 
21           assessed and collected, a tax equal to four per cent of
 
22           the gross income thereof.  In addition, the rate
 
23           prescribed by this paragraph shall apply to a business
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1           taxable under one or more of the preceding paragraphs
 
 2           or other provisions of this chapter, as to any gross
 
 3           income thereof not taxed thereunder as gross income or
 
 4           gross proceeds of sales or by taxing an equivalent
 
 5           value of products, unless specifically exempted."
 
 6      SECTION 5.  Section 237-13.3, Hawaii Revised Statutes, is
 
 7 amended by amending subsection (a) to read as follows:
 
 8      "(a)  Sections 237-4(a)(8), 237-4(a)(10), and 237-13(6)(A)
 
 9 to the contrary notwithstanding, instead of the tax levied under
 
10 sections 237-4 and 237-13(6)(A) at one-half of one per cent,
 
11 during the period January 1, 2000, to December 31, 2005, the tax
 
12 shall be as follows:
 
13      (1)  In calendar year 2000, [3.5] 3.0 per cent;
 
14      (2)  In calendar year 2001, [3.0] 2.0 per cent;
 
15      (3)  In calendar year 2002, [2.5] 1.0 per cent;
 
16      (4)  In calendar year 2003, [2.0 per cent;
 
17      (5)  In calendar year 2004, 1.5 per cent;
 
18      (6)  In calendar year 2005, 1.0 per cent; and
 
19      (7)  In calendar year 2006] and thereafter, 0.5 per cent."
 
20      SECTION 6.  Statutory material to be repealed is bracketed.
 
21 New statutory material is underscored.
 
22      SECTION 7.  This Act shall take effect on approval and shall
 
23 be retroactive to January 1, 2000, and shall apply to gross
 

 
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                                     S.B. NO.           2472
                                                        
                                                        

 
 1 proceeds or gross income received after December 31, 1999.
 
 2 
 
 3                       INTRODUCED BY:  ___________________________