REPORT TITLE:
Public Service Company Tax


DESCRIPTION:
Allows the counties to collect a part of the public service
company tax in exchange for not assessing the real property tax
on utility companies.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2683
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC SERVICE COMPANY TAX.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 239, Hawaii Revised Statutes, was
 
 2 enacted to impose the public service company tax on certain
 
 3 public utilities in lieu of other taxes and as a means of taxing
 
 4 the real property (owned by a public utility or leased to it by a
 
 5 lease under which the public utility is required to pay the taxes
 
 6 upon the property) and the personal property of the public
 
 7 utility.  Specifically, section 239-3, Hawaii Revised Statutes,
 
 8 provides that public utilities are exempt from the counties' real
 
 9 property taxes.  At the time of the enactment of chapter 239, the
 
10 power to tax real property was held by the State.  As a result of
 
11 the 1978 Constitutional Convention, the power to tax real
 
12 property was transferred to the counties.  Nonetheless the same
 
13 amendment that effected this transfer of taxing authority also
 
14 prescribed that for a period of eleven years following the
 
15 transfer, the various counties would follow the same real
 
16 property taxing system and continue to recognize real property
 
17 tax exemptions that had previously existed under the state
 
18 system.  That eleven-year transition period ended in 1989 giving
 
19 rise to a potential challenge to the continued operation of the
 

 
Page 2                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 exemption from real property taxation set forth in chapter 239.
 
 2      In 1999, the county of Hawaii amended its real property
 
 3 taxing ordinances and in January 2000 the county of Hawaii
 
 4 rejected the applications of public utilities for exemptions from
 
 5 real property taxation.  This has lead to the possibility that
 
 6 those public utilities will be forced to pay two different taxes
 
 7 on real property, one tax embedded in the existing chapter 239
 
 8 and the other tax directly to the county of Hawaii.  Ultimately,
 
 9 the customers of those public utilities will pay for this two-
 
10 tiered taxation in the form of higher utility bills.
 
11      In order to avoid having consumers bear the ultimate burden
 
12 of two-tiered taxation, this legislature finds that it would be
 
13 equitable for the State to offer to share a part of the public
 
14 service company tax revenues with the counties to compensate them
 
15 for unrealized real property tax revenues.  This tax revenue
 
16 sharing would also avoid the significant additional
 
17 administrative costs and burdens that the counties would face in
 
18 individually administering the direct assessment and collection
 
19 of real property taxes upon public utilities.
 
20      The purpose of this Act is to provide the respective
 
21 counties with the option of either sharing revenues collected
 
22 under the public service company tax which are in lieu of real
 

 
 
 
Page 3                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 property taxes or forgoing the revenue sharing and collecting
 
 2 real property taxes.  That portion of a public utility's gross
 
 3 income from public utility business generated in any county which
 
 4 elects to forgo revenue sharing shall be subject to a public
 
 5 service company tax rate equal to the maximum general excise tax
 
 6 rate under chapter 237 (which is currently four per cent).
 
 7      SECTION 2.  Section 239-5, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "§239-5 Public utilities, generally.(a)  There shall be
 
10 levied and assessed upon each public utility, except airlines,
 
11 motor carriers, common carriers by water, and contract carriers
 
12 taxed by section 239-6, a tax of such rate per cent of its gross
 
13 income each year from its public utility business as shall be
 
14 determined in the manner hereinafter provided.  The tax imposed
 
15 by this section is in lieu of all taxes other than those below
 
16 set out, and is a means of taxing, on behalf of and as the agent
 
17 for those counties that elect to participate in the revenue
 
18 sharing provided for in section 239-10, the real property (owned
 
19 by the public utility or leased to it by a lease under which the
 
20 public utility is required to pay the taxes upon the property),
 
21 and the personal property of the public utility, tangible and
 
22 intangible, including going concern value.  In addition to the
 

 
 
 
Page 4                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 tax imposed by this chapter there also are imposed income taxes,
 
 2 the specific taxes imposed by chapter 249, the fees prescribed by
 
 3 chapter 269, any tax specifically imposed by the terms of the
 
 4 public utility's franchise or under chapter 240, the use or
 
 5 consumption tax imposed by chapter 238, and employment taxes.
 
 6      The rate of the tax upon the gross income of the public
 
 7 utility shall be determined as follows:
 
 8      If the ratio of the net income of the company to its gross
 
 9 income is fifteen per cent or less, the rate of the tax on gross
 
10 income shall be 5.885 per cent; for all companies having net
 
11 income in excess of fifteen per cent of the gross, the rate of
 
12 the tax on gross income shall increase continuously in proportion
 
13 to the increase in ratio of net income to gross, at such rate
 
14 that for each increase of one per cent in the ratio of net income
 
15 to gross, there shall be an increase of .2675 per cent in the
 
16 rate of the tax.
 
17      The following formula may be used to determine the rate, in
 
18 which formula the term "R" is the ratio of net income to gross
 
19 income, and "X" is the required rate of the tax on gross income
 
20 for the utility in question:
 
21                        X=(1.8725+26.75R)%;
 
22 provided that in no case governed by the formula shall "X" be
 

 
 
 
Page 5                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 less than 5.885 per cent or more than 8.2 per cent.
 
 2      However, if the gross income is apportioned under section
 
 3 239-8(b) or (c), there shall be no adjustment of the rate of tax
 
 4 on the amount of gross income so apportioned to the State on
 
 5 account of the ratio of the net income to the gross income being
 
 6 in excess of fifteen per cent, and it shall be assumed in such
 
 7 case that the ratio is fifteen per cent or less.
 
 8      (b)  Notwithstanding subsection (a), the rate of the tax
 
 9 upon the portion of the gross income of a carrier of passengers
 
10 by land which consists in passenger fares for transportation
 
11 between points on a scheduled route, shall be 5.35 per cent.
 
12 However, if the carrier has other public utility gross income the
 
13 fares nevertheless shall be included in applying subsection (a)
 
14 in determining the rate of tax upon the other public utility
 
15 gross income.
 
16      (c)  Notwithstanding subsection (a), the rate of tax upon
 
17 the portion of the gross income of a public utility which
 
18 consists of the receipts from the sale of its products or
 
19 services to another public utility which resells such products or
 
20 services shall be one-half of one per cent, provided that the
 
21 resale is subject to taxation under this section, and provided
 
22 further that the public utility's exemption from real property
 

 
 
 
Page 6                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 taxes imposed by chapter 246 shall be reduced by the proportion
 
 2 that its public utility gross income described herein bears to
 
 3 its total public utility gross income.  Whenever the public
 
 4 utility has other public utility gross income the gross income
 
 5 from the sale of its products or services to another public
 
 6 utility shall be included in applying subsection (a) in
 
 7 determining the rate of tax upon the other public utility gross
 
 8 income.
 
 9      (d)  Notwithstanding subsection (a) and subject to
 
10 subsection (c), the rate of taxation upon that portion of a
 
11 public utility's gross income from its public utility business
 
12 generated in a county which elects not to participate in the
 
13 revenue sharing described in section 239-10 shall be the maximum
 
14 tax rate imposed under chapter 237."
 
15      SECTION 3.  Section 239-10, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "§239-10  Disposition of revenues.  (a)  All taxes collected
 
18 under this chapter shall be state realizations[.]; provided that
 
19 after June 30, 2001, the amount of taxes collected under section
 
20 239-5(a) from levy and assessment after June 30, 2000, in excess
 
21 of the maximum tax rate imposed under chapter 237 on a public
 
22 utility's gross income, shall be kept in the state treasury by
 

 
 
 
Page 7                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 the state director of finance in special accounts for each county
 
 2 (except Kalawao).  The state director of finance may deduct any
 
 3 reasonable costs with respect to administering this section
 
 4 before paying the remaining balance to participating counties as
 
 5 provided for in this section.  The payments shall be made within
 
 6 five months of the end of the fiscal year.
 
 7      (b)  The director of taxation shall apportion and pay into
 
 8 the special accounts, the taxes collected during the previous
 
 9 fiscal year under subsection (a) before August 1 of each year.
 
10 The apportionment to the special accounts shall be based upon the
 
11 proportional contribution of actual tax receipts generated under
 
12 this chapter within each county, less projected taxpayer refunds
 
13 and other contingent liabilities such as tax appeals.
 
14      (c)  Each county shall have until January 1, 2001, to make a
 
15 one-time irrevocable election to participate in the revenue
 
16 sharing provided for in this section.  Each county shall notify
 
17 the state director of finance in writing of its election to
 
18 either participate in revenue sharing or not.
 
19      (d)  No county shall have the right to appeal any assessment
 
20 of the public service company tax on a public utility subject to
 
21 this chapter, nor shall any county have any access to any tax
 
22 returns or tax return information submitted to the department of
 

 
 
 
Page 8                                                     
                                     S.B. NO.           2683
                                                        
                                                        

 
 1 taxation under this chapter.
 
 2      (e)  Any county that elects not to participate in the
 
 3 revenue sharing as provided herein shall not receive any tax
 
 4 moneys under this section.  All taxes kept in a non-participating
 
 5 county's special account shall be refunded to the appropriate
 
 6 public utility.
 
 7      (f)  Any county that elects to participate in the revenue
 
 8 sharing provided for in this section shall not directly levy or
 
 9 collect any real property tax from those public utilities subject
 
10 to taxation under section 239-5(a)."
 
11      SECTION 4.  If any provision of this Act, or the application
 
12 thereof to any person or circumstance is held invalid, the
 
13 invalidity does not affect other provisions or applications of
 
14 the Act which can be given effect without the invalid provision
 
15 or application, and to this end the provisions of this Act are
 
16 severable.
 
17      SECTION 5.  Statutory material to be repealed is bracketed.
 
18 New statutory material is underscored.
 
19      SECTION 6.  This Act shall take effect upon its approval.
 
20 
 
21                           INTRODUCED BY:_________________________
 
22