REPORT TITLE:
GET; Taxes Due


DESCRIPTION:
Protects the seller for GET purposes from a purchaser's tax
liability due to the purchaser's mistaken claim to a wholesale
rate of one-half of one per cent instead of the four per cent tax
rate.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2716
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.  The legislature finds that a grave injustice
 
 2 exists with respect to the collection of general excise taxes in
 
 3 Hawaii.  Presently, businesses in Hawaii are responsible for
 
 4 collecting the general excise tax on the sale of their goods or
 
 5 services to other businesses.  The amount of the tax collected is
 
 6 dependent on the purchaser's tax status and is either at the
 
 7 wholesale rate of one-half of one per cent, or four per cent of
 
 8 the amount transacted.  To verify that a purchaser is a
 
 9 wholesaler, a certificate prescribed by the department of
 
10 taxation is presented by the purchaser to the seller.
 
11      If, however, a purchaser mistakenly misrepresents itself as
 
12 a wholesaler and pays less than the prescribed four per cent
 
13 rate, the purchaser is obligated to pay the seller the difference
 
14 in the taxes due.  But in the event the purchaser defaults, or
 
15 worse yet, goes out of business and fails to pay the full amount
 
16 owed, the seller is unfairly and illogically held responsible for
 
17 the purchaser's tax liability.
 
18      The purpose of this Act is to protect the seller, for
 
19 general excise tax purposes, from a purchaser's tax liability due
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1 to the purchaser's mistaken claim to a wholesale general excise
 
 2 tax rate instead of the four per cent rate.
 
 3      SECTION 2.  Section 237-13, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "§237-13  Imposition of tax.  There is hereby levied and
 
 6 shall be assessed and collected annually privilege taxes against
 
 7 persons on account of their business and other activities in the
 
 8 State measured by the application of rates against values of
 
 9 products, gross proceeds of sales, or gross income, whichever is
 
10 specified, as follows:
 
11      (1)  Tax on manufacturers.
 
12           (A)  Upon every person engaging or continuing within
 
13                the State in the business of manufacturing,
 
14                including compounding, canning, preserving,
 
15                packing, printing, publishing, milling,
 
16                processing, refining, or preparing for sale,
 
17                profit, or commercial use, either directly or
 
18                through the activity of others, in whole or in
 
19                part, any article or articles, substance or
 
20                substances, commodity or commodities, the amount
 
21                of the tax to be equal to the value of the
 
22                articles, substances, or commodities,
 
23                manufactured, compounded, canned, preserved,
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                packed, printed, milled, processed, refined, or
 
 2                prepared for sale, as shown by the gross proceeds
 
 3                derived from the sale thereof by the manufacturer
 
 4                or person compounding, preparing, or printing
 
 5                them, multiplied by one-half of one per cent.
 
 6           (B)  The measure of the tax on manufacturers is the
 
 7                value of the entire product for sale, regardless
 
 8                of the place of sale or the fact that deliveries
 
 9                may be made to points outside the State.
 
10           (C)  If any person liable for the tax on manufacturers
 
11                ships or transports the person's product, or any
 
12                part thereof, out of the State, whether in a
 
13                finished or unfinished condition, or sells the
 
14                same for delivery to points outside the State (for
 
15                example, consigned to a mainland purchaser via
 
16                common carrier f.o.b. Honolulu), the value of the
 
17                products in the condition or form in which they
 
18                exist immediately before entering interstate or
 
19                foreign commerce, determined as hereinafter
 
20                provided, shall be the basis for the assessment of
 
21                the tax imposed by this paragraph.  This tax shall
 
22                be due and payable as of the date of entry of the
 
23                products into interstate or foreign commerce,
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                whether the products are then sold or not.  The
 
 2                department shall determine the basis for
 
 3                assessment, as provided by this paragraph, as
 
 4                follows:
 
 5                (i)  If the products at the time of their entry
 
 6                     into interstate or foreign commerce already
 
 7                     have been sold, the gross proceeds of sale,
 
 8                     less the transportation expenses, if any,
 
 9                     incurred in realizing the gross proceeds for
 
10                     transportation from the time of entry of the
 
11                     products into interstate or foreign commerce,
 
12                     including insurance and storage in transit,
 
13                     shall be the measure of the value of the
 
14                     products;
 
15               (ii)  If the products have not been sold at the
 
16                     time of their entry into interstate or
 
17                     foreign commerce, and in cases governed by
 
18                     clause (i) in which the products are sold
 
19                     under circumstances such that the gross
 
20                     proceeds of sale are not indicative of the
 
21                     true value of the products, the value of the
 
22                     products constituting the basis for
 
23                     assessment shall correspond as nearly as
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                     possible to the gross proceeds of sales for
 
 2                     delivery outside the State, adjusted as
 
 3                     provided in clause (i), or if sufficient data
 
 4                     are not available, sales in the State, of
 
 5                     similar products of like quality and
 
 6                     character and in similar quantities, made by
 
 7                     the taxpayer (unless not indicative of the
 
 8                     true value) or by others.  Sales outside the
 
 9                     State, adjusted as provided in clause (i),
 
10                     may be considered when they constitute the
 
11                     best available data.  The department shall
 
12                     prescribe uniform and equitable rules for
 
13                     ascertaining the values;
 
14              (iii)  At the election of the taxpayer and with the
 
15                     approval of the department, the taxpayer may
 
16                     make the taxpayer's returns under clause (i)
 
17                     even though the products have not been sold
 
18                     at the time of their entry into interstate or
 
19                     foreign commerce; and
 
20               (iv)  In all cases in which products leave the
 
21                     State in an unfinished condition, the basis
 
22                     for assessment shall be adjusted so as to
 
23                     deduct the portion of the value as is
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                     attributable to the finishing of the goods
 
 2                     outside the State.
 
 3      (2)  Tax on business of selling tangible personal property;
 
 4           producing.
 
 5           (A)  Upon every person engaging or continuing in the
 
 6                business of selling any tangible personal property
 
 7                whatsoever (not including, however, bonds or other
 
 8                evidence of indebtedness, or stocks), there is
 
 9                likewise hereby levied, and shall be assessed and
 
10                collected, a tax equivalent to four per cent of
 
11                the gross proceeds of sales of the business;
 
12                provided that insofar as certain retailing is
 
13                taxed by section 237-16, the tax shall be that
 
14                levied by section 237-16, and in the case of a
 
15                wholesaler, the tax shall be equal to one-half of
 
16                one per cent of the gross proceeds of sales of the
 
17                business and provided that insofar as the sales of
 
18                tangible personal property is a wholesale sale
 
19                under section 237-4(a)(8)(B) the sale shall be
 
20                subject to section 237-13.3.  Upon every person
 
21                engaging or continuing within this State in the
 
22                business of a producer, the tax shall be equal to
 
23                one-half of one per cent of the gross proceeds of
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                sales of the business, or the value of the
 
 2                products, for sale, if sold for delivery outside
 
 3                the State or shipped or transported out of the
 
 4                State, and the value of the products shall be
 
 5                determined in the same manner as the value of
 
 6                manufactured products covered in the cases under
 
 7                paragraph (1)(C).
 
 8           (B)  Gross proceeds of sales of tangible property in
 
 9                interstate and foreign commerce shall constitute a
 
10                part of the measure of the tax imposed on persons
 
11                in the business of selling tangible personal
 
12                property, to the extent, under the conditions, and
 
13                in accordance with the provisions of the
 
14                Constitution of the United States and the Acts of
 
15                the Congress of the United States which may be now
 
16                in force or may be hereafter adopted, and whenever
 
17                there occurs in the State an activity to which,
 
18                under the Constitution and Acts of Congress, there
 
19                may be attributed gross proceeds of sales, the
 
20                gross proceeds shall be so attributed.
 
21           (C)  No manufacturer or producer, engaged in such
 
22                business in the State and selling the
 
23                manufacturer's or producer's products for delivery
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                outside of the State (for example, consigned to a
 
 2                mainland purchaser via common carrier f.o.b.
 
 3                Honolulu), shall be required to pay the tax
 
 4                imposed in this chapter for the privilege of so
 
 5                selling the products, and the value or gross
 
 6                proceeds of sales of the products shall be
 
 7                included only in determining the measure of the
 
 8                tax imposed upon the manufacturer or producer.
 
 9           (D)  When a manufacturer or producer, engaged in such
 
10                business in the State, also is engaged in selling
 
11                the manufacturer's or producer's products in the
 
12                State at wholesale, retail, or in any other
 
13                manner, the tax for the privilege of engaging in
 
14                the business of selling the products in the State
 
15                shall apply to the manufacturer or producer as
 
16                well as the tax for the privilege of manufacturing
 
17                or producing in the State, and the manufacturer or
 
18                producer shall make the returns of the gross
 
19                proceeds of the wholesale, retail, or other sales
 
20                required for the privilege of selling in the
 
21                State, as well as making the returns of the value
 
22                or gross proceeds of sales of the products
 
23                required for the privilege of manufacturing or
 

 
Page 9                                                     
                                     S.B. NO.           2716
                                                        
                                                        

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

 
Page 10                                                    
                                     S.B. NO.           2716
                                                        
                                                        

 
 1                the department, certifying that the sale is a sale
 
 2                at wholesale; provided that:
 
 3                (i)  Any purchaser who furnishes a certificate
 
 4                     shall be obligated to pay to the seller, upon
 
 5                     demand, the amount of the additional tax that
 
 6                     is imposed upon the seller whenever the sale
 
 7                     in fact is not at wholesale; [and] provided
 
 8                     that the seller shall not be held liable for
 
 9                     any taxes due from the purchaser when the
 
10                     sale is not in fact at wholesale; and
 
11               (ii)  The absence of a certificate in itself shall
 
12                     give rise to the presumption that the sale is
 
13                     not at wholesale unless the sales of the
 
14                     business are exclusively at wholesale.
 
15      (3)  Tax upon contractors.
 
16           (A)  Upon every person engaging or continuing within
 
17                the State in the business of contracting, the tax
 
18                shall be equal to four per cent of the gross
 
19                income of the business; provided that insofar as
 
20                the business of contracting is taxed by section
 
21                237-16, which relates to certain retailing, the
 
22                tax shall be that levied by section 237-16.
 
23           (B)  In computing the tax levied under this paragraph
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

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

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                against any federal cost-plus contractor, there
 
 2                shall be excluded from the gross income of the
 
 3                contractor so much thereof as fulfills the
 
 4                following requirements:
 
 5                (i)  The gross income exempted shall constitute
 
 6                     reimbursement of costs incurred for
 
 7                     materials, plant, or equipment purchased from
 
 8                     a taxpayer licensed under this chapter, not
 
 9                     exceeding the gross proceeds of sale of the
 
10                     taxpayer on account of the transaction; and
 
11               (ii)  The taxpayer making the sale shall have
 
12                     certified to the department that the taxpayer
 
13                     is taxable with respect to the gross proceeds
 
14                     of the sale, and that the taxpayer elects to
 
15                     have the tax on gross income computed the
 
16                     same as upon a sale to the state government.
 
17           (D)  A person who, as a business or as a part of a
 
18                business in which the person is engaged, erects,
 
19                constructs, or improves any building or structure,
 
20                of any kind or description, or makes, constructs,
 
21                or improves any road, street, sidewalk, sewer, or
 
22                water system, or other improvements on land held
 
23                by the person (whether held as a leasehold, fee
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

 
 1                simple, or otherwise), upon the sale or other
 
 2                disposition of the land or improvements, even if
 
 3                the work was not done pursuant to a contract,
 
 4                shall be liable to the same tax as if engaged in
 
 5                the business of contracting, unless the person
 
 6                shows that at the time the person was engaged in
 
 7                making the improvements the person intended, and
 
 8                for the period of at least one year after
 
 9                completion of the building, structure, or other
 
10                improvements the person continued to intend to
 
11                hold and not sell or otherwise dispose of the land
 
12                or improvements.  The tax in respect of the
 
13                improvements shall be measured by the amount of
 
14                the proceeds of the sale or other disposition that
 
15                is attributable to the erection, construction, or
 
16                improvement of such building or structure, or the
 
17                making, constructing, or improving of the road,
 
18                street, sidewalk, sewer, or water system, or other
 
19                improvements.  The measure of tax in respect of
 
20                the improvements shall not exceed the amount which
 
21                would have been taxable had the work been
 
22                performed by another, subject as in other cases to
 
23                the deductions allowed by subparagraph (B).  Upon
 

 
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                                     S.B. NO.           2716
                                                        
                                                        

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

 
Page 15                                                    
                                     S.B. NO.           2716
                                                        
                                                        

 
 1           classified as a representative or purchasing agent
 
 2           under section 237-1, engaging or continuing within the
 
 3           State in the business of performing services for
 
 4           another, other than as an employee, there is likewise
 
 5           hereby levied and shall be assessed and collected a tax
 
 6           equal to four per cent of the commissions and other
 
 7           compensation attributable to the services so rendered
 
 8           by the person.
 
 9      (6)  Tax on service business.
 
10           (A)  Upon every person engaging or continuing within
 
11                the State in any service business or calling
 
12                including professional services not otherwise
 
13                specifically taxed under this chapter, there is
 
14                likewise hereby levied and shall be assessed and
 
15                collected a tax equal to four per cent of the
 
16                gross income of the business, and in the case of a
 
17                wholesaler under section 237-4(a)(10), the tax
 
18                shall be equal to one-half of one per cent of the
 
19                gross income of the business.  Sales subject to
 
20                this subparagraph shall be subject to section
 
21                237-13.3.
 
22           (B)  The department, by rule, may require that the
 
23                person rendering a service at wholesale take from
 

 
Page 16                                                    
                                     S.B. NO.           2716
                                                        
                                                        

 
 1                the licensed seller a certificate, in a form
 
 2                prescribed by the department, certifying that the
 
 3                sale is a sale at wholesale; provided that:
 
 4                (i)  Any licensed seller who furnishes a
 
 5                     certificate shall be obligated to pay to the
 
 6                     person rendering the service, upon demand,
 
 7                     the amount of additional tax that is imposed
 
 8                     upon the seller whenever the sale is not at
 
 9                     wholesale; [and] provided that the seller
 
10                     shall not be held liable for any taxes due
 
11                     from the purchaser when the sale is not in
 
12                     fact at wholesale; and
 
13               (ii)  The absence of a certificate in itself shall
 
14                     give rise to the presumption that the sale is
 
15                     not at wholesale unless the person rendering
 
16                     the sale is exclusively rendering services at
 
17                     wholesale.
 
18           (C)  Where any person engaging or continuing within the
 
19                State in any service business or calling renders
 
20                those services upon the order of or at the request
 
21                of another taxpayer who is engaged in the service
 
22                business and who, in fact, acts as or acts in the
 
23                nature of an intermediary between the person
 

 
Page 17                                                    
                                     S.B. NO.           2716
                                                        
                                                        

 
 1                rendering those services and the ultimate
 
 2                recipient of the benefits of those services, so
 
 3                much of the gross income as is received by the
 
 4                person rendering the services shall be subjected
 
 5                to the tax at the rate of one-half of one per cent
 
 6                and all of the gross income received by the
 
 7                intermediary from the principal shall be subjected
 
 8                to a tax at the rate of four per cent.  Where the
 
 9                taxpayer is subject to both this subparagraph and
 
10                to the lowest tax rate under subparagraph (A), the
 
11                taxpayer shall be taxed under this subparagraph.
 
12                This subparagraph shall be repealed on January 1,
 
13                2006.
 
14           (D)  Where any person is engaged in the business of
 
15                selling interstate or foreign common carrier
 
16                telecommunication services within and without the
 
17                State, the tax shall be imposed on that portion of
 
18                gross income received by a person from service
 
19                which is originated or terminated in this State
 
20                and is charged to a telephone number, customer, or
 
21                account in this State notwithstanding any other
 
22                state law (except for the exemption under section
 
23                237-23(a)(1)) to the contrary.  If, under the
 

 
Page 18                                                    
                                     S.B. NO.           2716
                                                        
                                                        

 
 1                Constitution and laws of the United States, the
 
 2                entire gross income as determined under this
 
 3                paragraph of a business selling interstate or
 
 4                foreign common carrier telecommunication services
 
 5                cannot be included in the measure of the tax, the
 
 6                gross income shall be apportioned as provided in
 
 7                section 237-21; provided that the apportionment
 
 8                factor and formula shall be the same for all
 
 9                persons providing those services in the State.
 
10      (7)  Tax on insurance solicitors and agents.  Upon every
 
11           person engaged as a licensed solicitor, general agent,
 
12           or subagent pursuant to chapter 431, there is hereby
 
13           levied and shall be assessed and collected a tax equal
 
14           to .15 per cent of the commissions due to that
 
15           activity.
 
16      (8)  Tax on receipts of sugar benefit payments.  Upon the
 
17           amounts received from the United States government by
 
18           any producer of sugar (or the producer's legal
 
19           representative or heirs), as defined under and by
 
20           virtue of the Sugar Act of 1948, as amended, or other
 
21           Acts of the Congress of the United States relating
 
22           thereto, there is hereby levied a tax of one-half of
 
23           one per cent of the gross amount received; provided
 

 
Page 19                                                    
                                     S.B. NO.           2716
                                                        
                                                        

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

 
Page 20                                                    
                                     S.B. NO.           2716
                                                        
                                                        

 
 1           value of products, unless specifically exempted."
 
 2      SECTION 2.  Statutory material to be repealed is bracketed.
 
 3 New statutory material is underscored.
 
 4      SECTION 3.  This Act shall take effect upon its approval.
 
 5 
 
 6                       INTRODUCED BY: ____________________________