REPORT TITLE:
GET Exemption; Lessors



DESCRIPTION:
Provides a GET exemption to lessors that contractually require
their lessees to pay the real property tax.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2714
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO THE GENERAL EXCISE TAX.



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

 1      SECTION 1.  Section 237-16.5, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "[[]§237-16.5[]]  Tax on written real property leases;
 
 4 deduction or exemption allowed.(a)  [This] Except as provided
 
 5 in subsection (h), this section relates to the leasing of real
 
 6 property by a lessor to a lessee.  There is hereby levied, and
 
 7 shall be assessed and collected annually, a privilege tax against
 
 8 persons engaging or continuing within the State in the business
 
 9 of leasing real property to another, equal to four per cent of
 
10 the gross proceeds or gross income received or derived from the
 
11 leasing; provided that where real property is subleased by a
 
12 lessee to a sublessee, the lessee, as provided in this section,
 
13 shall be allowed a deduction from the amount of gross proceeds or
 
14 gross income received from its sublease of the real property.
 
15 The deduction shall be in the amount allowed under this section.
 
16      All deductions under this section and the name and general
 
17 excise tax number of the lessee's lessor shall be reported on the
 
18 general excise tax return.  Any deduction allowed under this
 
19 section shall only be allowed with respect to leases and
 

 
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                                     S.B. NO.           2714
                                                        
                                                        

 
 1 subleases in writing and relating to the same real property.
 
 2 B    (b)  The lessee shall obtain from its lessor a certificate, in the
 3 form as the department shall prescribe, certifying that the
 
 4 lessor is subject to tax under this chapter on the gross proceeds
 
 5 or gross income received from the lessee.  The absence of the
 
 6 certificate in itself shall give rise to the presumption that the
 
 7 lessee is not allowed the deduction or exemption under this
 
 8 section.
 
 9      (c)  If various real property or space leased to the lessee
 
10 have different rental values, then the total monetary gross
 
11 proceeds or gross income paid to a lessor for all real property
 
12 or space shall first be allocated to the fair rental value for
 
13 each real property or space.  If the lessee leases less than one
 
14 hundred per cent of real property or space that was leased from
 
15 the lessor to a sublessee, then the total monetary gross proceeds
 
16 or gross income paid by the lessee for that real property or
 
17 space to its lessor shall be allocated.  The percentage of real
 
18 property or space subleased shall be multiplied by the monetary
 
19 gross proceeds or gross income paid for the real property or
 
20 space by the lessee to its lessor.  The product of the preceding
 
21 multiplication shall be deducted from the monetary gross proceeds
 
22 or gross income received for real property or space by the
 
23 lessee.
 

 
 
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                                     S.B. NO.           2714
                                                        
                                                        

 
 1      Once the allocations are made, the appropriate deduction
 
 2 under subsection (g) shall be made.
 
 3      (d)  The lessor shall make allocations under this section at
 
 4 the time the sublease is entered into and the allocations shall
 
 5 not be changed during the term of the sublease.  There shall be a
 
 6 reasonable basis for the allocations, taking into consideration
 
 7 the size, quality, and location of the real property or space
 
 8 subleased.  In no event shall the total amount allocated to all
 
 9 subleases exceed the total monetary gross proceeds paid by the
 
10 lessee to its lessor.  The director may redetermine the amount of
 
11 the deduction under this section if the director finds that the
 
12 basis for allocation is not reasonable or that redetermination is
 
13 necessary to prevent the avoidance of taxes.
 
14      (e)  As used in this section:
 
15      "Lease" means the rental of real property under an
 
16 instrument in writing by which one conveys real property for a
 
17 specified term and for a specified consideration, and includes
 
18 the written extension or renegotiation of a lease, and any
 
19 holdover tenancy.
 
20      "Lessee" means one who holds real property under lease, and
 
21 includes a sublessee.
 
22      "Lessor" means one who conveys real property by lease, and
 
23 includes a sublessor.
 

 
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                                     S.B. NO.           2714
                                                        
                                                        

 
 1      "Real property or space" means the area actually rented and
 
 2 used by the lessee, and includes common elements as defined in
 
 3 section 514A-3.
 
 4      "Sublease" includes the rental of real property which is
 
 5 held under a lease and is made in a written document by which one
 
 6 conveys real property for a specified term and for a specified
 
 7 consideration.  Sublease includes the written extension or
 
 8 renegotiation of a sublease and any holdover tenancy under the
 
 9 written sublease.
 
10      "Sublessee" means one who holds real property under a
 
11 sublease.
 
12      "Sublessor" means one who conveys real property by sublease.
 
13      (f)  This section shall not cause the tax upon a lessor,
 
14 with respect to any item of the lessor's gross proceeds or gross
 
15 income, to exceed four per cent.
 
16      (g)  After allocation under subsection (c), if necessary,
 
17 the deduction under this section shall be allowed from the gross
 
18 proceeds or gross income of the lessee received from its sublease
 
19 in an amount calculated by multiplying the gross proceeds or
 
20 gross income paid by the lessee to its lessor for the lease of
 
21 the real property by the following amount:
 
22      (1)  In calendar year 1998, .125;
 
23      (2)  In calendar year 1999, .25;
 

 
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                                     S.B. NO.           2714
                                                        
                                                        

 
 1      (3)  In calendar year 2000, .375;
 
 2      (4)  In calendar year 2001, .50;
 
 3      (5)  In calendar year 2002, .625;
 
 4      (6)  In calendar year 2003, .75; and
 
 5      (7)  In calendar year 2004, and thereafter, .875.
 
 6      The amount calculated under paragraphs (1) to (7) shall be
 
 7 deducted by the lessee from the lessee's total reported gross
 
 8 proceeds or gross income.  The deduction allowed by this
 
 9 subsection may be taken by the fiscal and calendar year lessees.
 
10      (h)  Notwithstanding any other law or provision of this
 
11 section to the contrary, gross proceeds or gross income received
 
12 by a lessor as payment for the lease shall be exempt from the tax
 
13 imposed by this section; provided that the lessee is obligated
 
14 contractually to pay the real property taxes for the property
 
15 leased."
 
16      SECTION 2.  Statutory material to be repealed is bracketed.
 
17 New statutory material is underscored.
 
18      SECTION 3.  This Act shall take effect upon its approval and
 
19 shall apply to taxable years beginning after December 31, 1999.
 
20 
 
21                       INTRODUCED BY:  ___________________________