REPORT TITLE:
Taxation


DESCRIPTION:
Imposes the use tax on contracting imported for resale or use in
Hawaii.  Provides pyramiding relief from the general excise tax
for the sale of amusements.  Provides a lower public service
company tax rate on telecommunications services and
transportation services that are resold.  Clarifies Acts 70 and
71, Session Laws of Hawaii 1999.  (SB2945 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2945
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 1
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.  Section 237-4, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  "Wholesaler" or "jobber" applies only to a person
 
 4 making sales at wholesale.  Only the following are sales at
 
 5 wholesale:
 
 6      (1)  Sales to a licensed retail merchant, jobber, or other
 
 7           licensed seller for purposes of resale;
 
 8      (2)  Sales to a licensed manufacturer of materials or
 
 9           commodities that are to be incorporated by the
 
10           manufacturer into a finished or saleable product
 
11           (including the container or package in which the
 
12           product is contained) during the course of its
 
13           preservation, manufacture, or processing, including
 
14           preparation for market, and that will remain in such
 
15           finished or saleable product in such form as to be
 
16           perceptible to the senses, which finished or saleable
 
17           product is to be sold and not otherwise used by the
 
18           manufacturer;
 

 
Page 2                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 3                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 4                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 5                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1              (iii)  The resale of the article is separately
 
 2                     charged or billed by the person rendering the
 
 3                     services; [and]
 
 4           (B)  Where:
 
 5                (i)  Tangible personal property is sold upon the
 
 6                     order or request of a licensed seller for the
 
 7                     purpose of rendering a service in the course
 
 8                     of the person's service business or calling,
 
 9                     or upon the order or request of a person[,]
 
10                     subject to tax under section 237D-2[,] for
 
11                     the purpose of furnishing transient
 
12                     accommodations;
 
13               (ii)  The tangible personal property becomes or is
 
14                     used as an identifiable element of the
 
15                     service rendered; and
 
16              (iii)  The cost of the tangible personal property
 
17                     does not constitute overhead to the licensed
 
18                     seller;
 
19                the sale shall be subject to section 237-13.3[.];
 
20                or
 
21           (C)  Where the taxpayer is subject to both
 
22                subparagraphs (A) and (B), then the taxpayer shall
 
23                be taxed under subparagraph (A).  [Subparagraph]
 

 
Page 6                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                Subparagraphs (A) and (C) shall be repealed on
 
 2                January 1, 2006[.];
 
 3      (9)  Sales to a licensed leasing company of capital goods
 
 4           that have a depreciable life, are purchased by the
 
 5           leasing company for lease to its customers, and are
 
 6           thereafter leased as a service to others;
 
 7     (10)  Sales of services to a licensed seller engaging in a
 
 8           business or calling whenever:
 
 9           (A)  Either:
 
10                (i)  In the context of a service-to-service
 
11                     transaction, a service is rendered upon the
 
12                     order or request of a licensed seller for the
 
13                     purpose of rendering another service in the
 
14                     course of the seller's service business or
 
15                     calling;
 
16               (ii)  In the context of a [service-to-goods]
 
17                     service-to-tangible personal property
 
18                     transaction, a service is rendered upon the
 
19                     order or request of a licensed seller for the
 
20                     purpose of manufacturing, producing, or
 
21                     preparing[, or acquiring] tangible personal
 
22                     property to be sold;
 

 
 
 
Page 7                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1              (iii)  In the context of a services-to-contracting
 
 2                     transaction, a service is rendered upon the
 
 3                     order or request of a licensed contractor as
 
 4                     defined in section 237-6 for the purpose of
 
 5                     assisting that licensed contractor [in
 
 6                     executing a contract]; or
 
 7               (iv)  In the context of a services-to-transient
 
 8                     accommodations rental transaction, a service
 
 9                     is rendered upon the order or request of a
 
10                     person subject to tax under section 237D-2
 
11                     for the purpose of furnishing transient
 
12                     accommodations;
 
13           (B)  The benefit of the service passes to the customer
 
14                of the licensed seller, licensed contractor, or
 
15                person furnishing transient accommodations as an
 
16                identifiable element of the other service or
 
17                property to be sold, the contracting, or the
 
18                furnishing of transient accommodations; [and]
 
19           (C)  The cost of the service does not constitute
 
20                overhead to the licensed seller, licensed
 
21                contractor, or person furnishing transient
 
22                accommodations[.];
 

 
 
 
Page 8                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           (D)  The gross income of the licensed seller is not
 
 2                divided between the licensed seller and another
 
 3                licensed seller, contractor, or person furnishing
 
 4                transient accommodations for imposition of the tax
 
 5                under this chapter;
 
 6           (E)  The gross income of the licensed seller is not
 
 7                subject to a deduction under this chapter or
 
 8                chapter 237D; and
 
 9           (F)  The resale of the service, tangible personal
 
10                property, contracting, or transient accommodations
 
11                is subject to the tax imposed under this chapter
 
12                at the highest tax rate.
 
13           Sales subject to this paragraph shall be subject to
 
14           section 237-13.3;
 
15     (11)  Sales to a licensed retail merchant, jobber, or other
 
16           licensed seller of bulk condiments or prepackaged
 
17           single-serving packets of condiments that are provided
 
18           to customers by the licensed retail merchant, jobber,
 
19           or other licensed seller; [and]
 
20     (12)  Sales to a licensed retail merchant, jobber, or other
 
21           licensed seller of tangible personal property that will
 
22           be incorporated or processed by the licensed retail
 
23           merchant, jobber, or other licensed seller into a
 

 
Page 9                                                     2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           finished or saleable product during the course of its
 
 2           preparation for market (including disposable,
 
 3           nonreturnable containers, packages, or wrappers, in
 
 4           which the product is contained and that are generally
 
 5           known and most commonly used to contain food or
 
 6           beverage for transfer or delivery), and which finished
 
 7           or saleable product is to be sold and not otherwise
 
 8           used by the licensed retail merchant, jobber, or other
 
 9           licensed seller[.]; and
 
10     (13)  Sales of amusements subject to taxation under section
 
11           237-13(4) to a licensed seller engaging in a business
 
12           or calling whenever:
 
13           (A)  Either:
 
14                (i)  In the context of an amusement-to-service
 
15                     transaction, an amusement is rendered upon
 
16                     the order or request of a licensed seller for
 
17                     the purpose of rendering another service in
 
18                     the course of the seller's service business
 
19                     or calling;
 
20               (ii)  In the context of an amusement-to-tangible
 
21                     personal property transaction, an amusement
 
22                     is rendered upon the order or request of a
 
23                     licensed seller for the purpose of selling
 
24                     tangible personal property; or
 

 
Page 10                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1              (iii)  In the context of an amusement-to-amusement
 
 2                     transaction, an amusement is rendered upon
 
 3                     the order or request of a licensed seller for
 
 4                     the purpose of rendering another amusement in
 
 5                     the course of the person's amusement
 
 6                     business;
 
 7           (B)  The benefit of the amusement passes to the
 
 8                customer of the licensed seller as an identifiable
 
 9                element of the other service, tangible personal
 
10                property to be sold, or amusement;
 
11           (C)  The cost of the amusement does not constitute
 
12                overhead to the licensed seller;
 
13           (D)  The gross income of the licensed seller is not
 
14                divided between the licensed seller and another
 
15                licensed seller, person furnishing transient
 
16                accommodations, or person rendering an amusement
 
17                for imposition of the tax under chapter 237;
 
18           (E)  The gross income of the licensed seller is not
 
19                subject to a deduction under this chapter; and
 
20           (F)  The resale of the service, tangible personal
 
21                property, or amusement is subject to the tax
 
22                imposed under this chapter at the highest rate.
 

 
 
 
Page 11                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           As used in this paragraph, "amusement" means
 
 2           entertainment provided as part of a show for which
 
 3           there is an admission charge.  Sales subject to this
 
 4           paragraph shall be subject to section 237-13.3."
 
 5      SECTION 2.  Section 237-6, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "§237-6 "Contractor", "contracting", "federal cost-plus
 
 8 contractor", defined.  "Contracting" means the business
 
 9 activities of a contractor.
 
10      "Contractor" includes, for purposes of this chapter: 
 
11      (1)  Every person engaging in the business of contracting to
 
12           erect, construct, repair, or improve buildings or
 
13           structures, of any kind or description, including any
 
14           portion thereof, or to make any installation therein,
 
15           or to make, construct, repair, or improve any highway,
 
16           road, street, sidewalk, ditch, excavation, fill,
 
17           bridge, shaft, well, culvert, sewer, water system,
 
18           drainage system, dredging or harbor improvement
 
19           project, electric or steam rail, lighting or power
 
20           system, transmission line, tower, dock, wharf, or other
 
21           improvements; 
 
22      (2)  Every person engaging in the practice of architecture,
 
23           professional engineering, land surveying, and landscape
 
24           architecture, as defined in section 464-1; and 
 

 
Page 12                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (3)  Every person engaged in the practice of pest control or
 
 2           fumigation as a pest control operator as defined in
 
 3           section 460J-1. 
 
 4      "Federal cost-plus contractor" means a contractor having a
 
 5 contract with the United States or an instrumentality thereof,
 
 6 excluding national banks, where, by the terms of the contract,
 
 7 the United States or such instrumentality, excluding national
 
 8 banks, agrees to reimburse the contractor for the cost of
 
 9 material, plant, or equipment used in the performance of the
 
10 contract and for taxes which the contractor may be required to
 
11 pay with respect to such material, plant, or equipment, whether
 
12 the contractor's profit is computed in the form of a fixed fee or
 
13 on a percentage basis; and also means a subcontractor under such
 
14 a contract, who also operates on a cost-plus basis."
 
15      SECTION 3.  Section 237-13, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "§237-13  Imposition of tax.  There is hereby levied and
 
18 shall be assessed and collected annually privilege taxes against
 
19 persons on account of their business and other activities in the
 
20 State measured by the application of rates against values of
 
21 products, gross proceeds of sales, or gross income, whichever is
 
22 specified, as follows:
 

 
 
 
Page 13                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
 
 
Page 14                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 15                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 16                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                     may be considered when they constitute the
 
 2                     best available data.  The department shall
 
 3                     prescribe uniform and equitable rules for
 
 4                     ascertaining the values;
 
 5              (iii)  At the election of the taxpayer and with the
 
 6                     approval of the department, the taxpayer may
 
 7                     make the taxpayer's returns under clause (i)
 
 8                     even though the products have not been sold
 
 9                     at the time of their entry into interstate or
 
10                     foreign commerce; and
 
11               (iv)  In all cases in which products leave the
 
12                     State in an unfinished condition, the basis
 
13                     for assessment shall be adjusted so as to
 
14                     deduct the portion of the value as is
 
15                     attributable to the finishing of the goods
 
16                     outside the State.
 
17      (2)  Tax on business of selling tangible personal property;
 
18           producing.
 
19           (A)  Upon every person engaging or continuing in the
 
20                business of selling any tangible personal property
 
21                whatsoever (not including, however, bonds or other
 
22                evidence of indebtedness, or stocks), there is
 
23                likewise hereby levied, and shall be assessed and
 

 
Page 17                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 18                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
 
 
Page 19                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           (D)  When a manufacturer or producer, engaged in such
 
 2                business in the State, also is engaged in selling
 
 3                the manufacturer's or producer's products in the
 
 4                State at wholesale, retail, or in any other
 
 5                manner, the tax for the privilege of engaging in
 
 6                the business of selling the products in the State
 
 7                shall apply to the manufacturer or producer as
 
 8                well as the tax for the privilege of manufacturing
 
 9                or producing in the State, and the manufacturer or
 
10                producer shall make the returns of the gross
 
11                proceeds of the wholesale, retail, or other sales
 
12                required for the privilege of selling in the
 
13                State, as well as making the returns of the value
 
14                or gross proceeds of sales of the products
 
15                required for the privilege of manufacturing or
 
16                producing in the State.  The manufacturer or
 
17                producer shall pay the tax imposed in this chapter
 
18                for the privilege of selling its products in the
 
19                State, and the value or gross proceeds of sales of
 
20                the products, thus subjected to tax, may be
 
21                deducted insofar as duplicated as to the same
 
22                products by the measure of the tax upon the
 
23                manufacturer or producer for the privilege of
 

 
Page 20                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                manufacturing or producing in the State; [except]
 
 2                provided that no producer of agricultural products
 
 3                who sells the products to a purchaser who will
 
 4                process the products outside the State shall be
 
 5                required to pay the tax imposed in this chapter
 
 6                for the privilege of producing or selling those
 
 7                products.
 
 8           (E)  A taxpayer selling to a federal cost-plus
 
 9                contractor may make the election provided for by
 
10                paragraph (3)(C), and in that case the tax shall
 
11                be computed pursuant to the election,
 
12                notwithstanding this paragraph or paragraph (1) to
 
13                the contrary.
 
14           (F)  The department, by rule, may require that a seller
 
15                take from the purchaser of tangible personal
 
16                property a certificate, in a form prescribed by
 
17                the department, certifying that the sale is a sale
 
18                at wholesale; provided that:
 
19                (i)  Any purchaser who furnishes a certificate
 
20                     shall be obligated to pay to the seller, upon
 
21                     demand, the amount of the additional tax that
 
22                     is imposed upon the seller whenever the sale
 
23                     in fact is not at wholesale; and
 

 
Page 21                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1               (ii)  The absence of a certificate in itself shall
 
 2                     give rise to the presumption that the sale is
 
 3                     not at wholesale unless the sales of the
 
 4                     business are exclusively at wholesale.
 
 5      (3)  Tax upon contractors.
 
 6           (A)  Upon every person engaging or continuing within
 
 7                the State in the business of contracting, the tax
 
 8                shall be equal to four per cent of the gross
 
 9                income of the business; provided that insofar as
 
10                the business of contracting is taxed by section
 
11                237-16, which relates to certain retailing, the
 
12                tax shall be that levied by section 237-16.
 
13           (B)  In computing the tax levied under this paragraph
 
14                or section 237-16, there shall be deducted from
 
15                the gross income of the taxpayer so much thereof
 
16                as has been included in the measure of the tax
 
17                levied under subparagraph (A) or section 237-16,
 
18                on:
 
19                (i)  Another taxpayer who is a contractor, as
 
20                     defined in section 237-6;
 
21               (ii)  A specialty contractor, duly licensed by the
 
22                     department of commerce and consumer affairs
 
23                     pursuant to section 444-9, in respect of the
 
24                     specialty contractor's business; or
 

 
Page 22                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1              (iii)  A specialty contractor who is not licensed by
 
 2                     the department of commerce and consumer
 
 3                     affairs pursuant to section 444-9, but who
 
 4                     performs contracting activities on federal
 
 5                     military installations and nowhere else in
 
 6                     this State;
 
 7                [but] provided that any person claiming a
 
 8                deduction under this paragraph shall be required
 
 9                to show in the person's return the name and
 
10                general excise number of the person paying the tax
 
11                on the amount deducted by the person.
 
12           (C)  In computing the tax levied under this paragraph
 
13                against any federal cost-plus contractor, there
 
14                shall be excluded from the gross income of the
 
15                contractor so much thereof as fulfills the
 
16                following requirements:
 
17                (i)  The gross income exempted shall constitute
 
18                     reimbursement of costs incurred for
 
19                     materials, plant, or equipment purchased from
 
20                     a taxpayer licensed under this chapter, not
 
21                     exceeding the gross proceeds of sale of the
 
22                     taxpayer on account of the transaction; and
 

 
 
 
Page 23                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 24                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                hold and not sell or otherwise dispose of the land
 
 2                or improvements.  The tax in respect of the
 
 3                improvements shall be measured by the amount of
 
 4                the proceeds of the sale or other disposition that
 
 5                is attributable to the erection, construction, or
 
 6                improvement of such building or structure, or the
 
 7                making, constructing, or improving of the road,
 
 8                street, sidewalk, sewer, or water system, or other
 
 9                improvements.  The measure of tax in respect of
 
10                the improvements shall not exceed the amount which
 
11                would have been taxable had the work been
 
12                performed by another, subject as in other cases to
 
13                the deductions allowed by subparagraph (B).  Upon
 
14                the election of the taxpayer, this paragraph may
 
15                be applied notwithstanding that the improvements
 
16                were not made by the taxpayer, or were not made as
 
17                a business or as a part of a business, or were
 
18                made with the intention of holding the same.
 
19                However, this paragraph shall not apply in respect
 
20                of any proceeds that constitute or are in the
 
21                nature of rent; all such gross income shall be
 
22                taxable under paragraph (9); provided that insofar
 
23                as the business of renting or leasing real
 

 
Page 25                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                property under a lease is taxed under section 237-
 
 2                16.5, the tax shall be levied by section 237-16.5.
 
 3      (4)  Tax upon theaters, amusements, radio broadcasting
 
 4           stations, etc.
 
 5           (A)  Upon every person engaging or continuing within
 
 6                the State in the business of operating a theater,
 
 7                opera house, moving picture show, vaudeville,
 
 8                amusement park, dance hall, skating rink, radio
 
 9                broadcasting station, or any other place at which
 
10                amusements are offered to the public, the tax
 
11                shall be equal to four per cent of the gross
 
12                income of the business[.], and in the case of a
 
13                sale of an amusement at wholesale under section
 
14                237-4(a)(13), the tax shall be subject to section
 
15                237-13.3.
 
16           (B)  The department may require that the person
 
17                rendering an amusement at wholesale take from the
 
18                licensed seller a certificate, in a form
 
19                prescribed by the department, certifying that the
 
20                sale is a sale at wholesale; provided that:
 
21                (i)  Any licensed seller who furnishes a
 
22                     certificate shall be obligated to pay to the
 
23                     person rendering the amusement, upon demand,
 

 
Page 26                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                     the amount of additional tax that is imposed
 
 2                     upon the seller whenever the sale is not at
 
 3                     wholesale; and
 
 4               (ii)  The absence of a certificate in itself shall
 
 5                     give rise to the presumption that the sale is
 
 6                     not at wholesale unless the person rendering
 
 7                     the sale is exclusively rendering the
 
 8                     amusement at wholesale.
 
 9      (5)  Tax upon sales representatives, etc. Upon every person
 
10           classified as a representative or purchasing agent
 
11           under section 237-1, engaging or continuing within the
 
12           State in the business of performing services for
 
13           another, other than as an employee, there is likewise
 
14           hereby levied and shall be assessed and collected a tax
 
15           equal to four per cent of the commissions and other
 
16           compensation attributable to the services so rendered
 
17           by the person.
 
18      (6)  Tax on service business.
 
19           (A)  Upon every person engaging or continuing within
 
20                the State in any service business or calling
 
21                including professional services not otherwise
 
22                specifically taxed under this chapter, there is
 
23                likewise hereby levied and shall be assessed and
 

 
Page 27                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 28                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 29                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 30                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

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

 
Page 31                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           the gross income thereof.  In addition, the rate
 
 2           prescribed by this paragraph shall apply to a business
 
 3           taxable under one or more of the preceding paragraphs
 
 4           or other provisions of this chapter, as to any gross
 
 5           income thereof not taxed thereunder as gross income or
 
 6           gross proceeds of sales or by taxing an equivalent
 
 7           value of products, unless specifically exempted."
 
 8      SECTION 4.  Section 237-13.3, Hawaii Revised Statutes, is
 
 9 amended by amending its title and subsection (a) to read as
 
10 follows:
 
11      "[[]§237-13.3[]]  Application of sections 237-4(a)(8), 237-
 
12 4(a)(10), 237-4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-
 
13 13(6)(A).(a)  Sections 237-4(a)(8), 237-4(a)(10), 237-
 
14 4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-13(6)(A) to the
 
15 contrary notwithstanding, instead of the tax levied under
 
16 [sections 237-4 and] section 237-13(2)(A) on wholesale sales
 
17 subject to section 237-4(a)(8)(B), under section 237-13(4)(A) on
 
18 a wholesaler subject to section 237-4(a)(13), and under section
 
19 237-13(6)(A) on a wholesaler subject to section 237-4(a)(10) at
 
20 one-half of one per cent, during the period January 1, 2000, to
 
21 December 31, 2005, the tax shall be as follows:
 
22      (1)  In calendar year 2000, 3.5 per cent;
 
23      (2)  In calendar year 2001, 3.0 per cent;
 

 
Page 32                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (3)  In calendar year 2002, 2.5 per cent;
 
 2      (4)  In calendar year 2003, 2.0 per cent;
 
 3      (5)  In calendar year 2004, 1.5 per cent;
 
 4      (6)  In calendar year 2005, 1.0 per cent; and
 
 5      (7)  In calendar year 2006 and thereafter, the tax shall be
 
 6           0.5 per cent."
 
 7      SECTION 5.  Section 237-16, Hawaii Revised Statutes, is
 
 8 amended by amending subsection (e) to read as follows:
 
 9      "(e)  This section shall not apply to:
 
10      (1)  Sales of tangible personal property treated as a
 
11           wholesale sale under section 237-4(a)(8)(B) to a
 
12           licensed seller engaged in a service business or
 
13           calling or a licensed person furnishing transient
 
14           accommodations; or
 
15      (2)  Sales of services treated as a wholesale sale under
 
16           section 237-4(a)(10) to a licensed seller engaged in a
 
17           service business or calling, a licensed contractor as
 
18           defined in section 237-6, or a licensed person
 
19           furnishing transient accommodations."
 
20      SECTION 6.  Section 237-29.53, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§237-29.53  Exemption for contracting or services exported
 
23 out of State.(a)  There shall be exempted from, and excluded
 

 
Page 33                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 from the measure of, taxes imposed by this chapter, all of the
 
 2 value or gross income derived from contracting (as defined under
 
 3 section 237-6) or services performed by a person engaged in a
 
 4 service business or calling in the State for [a customer located]
 
 5 use outside the State where:
 
 6      (1)  The contracting or services are for resale,
 
 7           consumption, or use outside the State; and
 
 8      (2)  The value or gross income derived from the contracting
 
 9           or services performed would otherwise be subject to the
 
10           tax imposed under this chapter on contracting or
 
11           services at the highest rate.
 
12 For the purposes of this subsection, the seller or person
 
13 rendering the contracting or services exported and resold,
 
14 consumed, or used outside the State shall take from the customer,
 
15 a certificate or an equivalent, in a form the department
 
16 prescribes, certifying that the contracting or service purchased
 
17 is to be otherwise resold, consumed, or used outside the State.
 
18 Any customer who furnishes this certificate or an equivalent
 
19 shall be obligated to pay the seller or person rendering the
 
20 contracting or services, upon demand, if the contracting or
 
21 service purchased is not resold or otherwise consumed or used
 
22 outside the State, the amount of the additional tax which by
 
23 reason thereof is imposed upon the seller or person rendering the
 
24 contracting or service.
 

 
Page 34                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (b)  There shall be exempted from, and excluded from the
 
 2 measure of, taxes imposed by this chapter, all of the value or
 
 3 gross income derived from contracting (as defined in section 237-
 
 4 6) or services performed by a person engaged in a service
 
 5 business or calling in the State for a purchaser who resells all
 
 6 of the contracting or services for resale, consumption, or use
 
 7 outside the State pursuant to subsection (a).  For the purposes
 
 8 of this subsection, the seller or person rendering the
 
 9 contracting or services for a purchaser who resells the
 
10 contracting or services for resale, consumption, or use outside
 
11 the State shall take from the purchaser, a certificate or an
 
12 equivalent, in a form that the department prescribes, certifying
 
13 that the contracting or services purchased is to be [resold to a
 
14 customer of the purchaser who has complied with] for resale,
 
15 consumption, or use outside the State pursuant to subsection (a).
 
16 Any purchaser who furnishes this certificate or an equivalent
 
17 shall be obligated to pay the seller or person rendering the
 
18 contracting or services, upon demand, if the contracting or
 
19 services purchased is not resold in its entirety to a customer of
 
20 the purchaser who has complied with subsection (a), the amount of
 
21 the additional tax which by reason thereof is imposed upon the
 
22 seller or the person rendering the contracting or service.
 

 
 
 
Page 35                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      [(c)  For purposes of this section, "service business or
 
 2 calling" includes all activities engaged in for other persons for
 
 3 a consideration that involve the rendering of a service as
 
 4 distinguished from the sale of tangible personal property or the
 
 5 production and sale of tangible personal property.  "Service
 
 6 business or calling" includes professional services, but does not
 
 7 include service rendered by an employee to the employee's
 
 8 employer.]"
 
 9      SECTION 7.  Section 238-1, Hawaii Revised Statutes, is
 
10 amended as follows:
 
11      1.  By amending the definition of "price" to read:
 
12      ""Price" means the total amount for which tangible personal
 
13 property [or], services, or contracting are purchased, valued in
 
14 money, whether paid in money or otherwise, and wheresoever paid;
 
15 provided that cash discounts allowed and taken on sales shall not
 
16 be included."
 
17      2.  By amending the definitions of "purchase", "purchaser",
 
18 "representation", and "seller" to read:
 
19      ""Purchase" and "sale" means any transfer, exchange, or
 
20 barter, conditional or otherwise, in any manner or by any means,
 
21 wheresoever consummated, of tangible personal property [or],
 
22 services, or contracting for a consideration.
 

 
 
 
Page 36                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      "Purchaser" means any person purchasing property [or],
 
 2 services, or contracting and "importer" means any person
 
 3 importing property [or], services[;], or contracting; provided
 
 4 that the terms "purchaser" and "importer" shall not include the
 
 5 State, its political subdivisions, or wholly owned agencies or
 
 6 instrumentalities of the State or a political subdivision; or the
 
 7 United States, its wholly owned agencies or instrumentalities, or
 
 8 any person immune from the tax imposed by this chapter under the
 
 9 Constitution and laws of the United States but the terms shall
 
10 include national banks.
 
11      "Representation" refers to any or all of the following:
 
12      (1)  A seller being present in the State;
 
13      (2)  A seller having in the State a salesperson, commission
 
14           agent, manufacturer's representative, broker, or other
 
15           person who is authorized or employed by the seller to
 
16           assist the seller in selling property [or], services,
 
17           or contracting for use or consumption in the State, by
 
18           procuring orders for the sales, making collections or
 
19           deliveries, or otherwise; and
 
20      (3)  A seller having in the State a person upon whom process
 
21           directed to the seller from the courts of the State may
 
22           be served, including the director of commerce and
 
23           consumer affairs and the deputy director in the cases
 
24           provided in section 415-14.
 

 
Page 37                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      "Seller" means any person engaged in the business of selling
 
 2 tangible personal property [or], services, or contracting,
 
 3 wheresoever engaged, but does not include the United States or
 
 4 its wholly owned agencies or instrumentalities other than
 
 5 national banks, the State or a political subdivision thereof, or
 
 6 wholly owned agencies or instrumentalities of the State or a
 
 7 political subdivision."
 
 8      3.  By amending the definition of "use" to read:
 
 9      ""Use" (and any nounal, verbal, adjectival, adverbial, and
 
10 other equivalent form of the term) herein used interchangeably
 
11 means any use, whether the use is of such nature as to cause the
 
12 property [or], services, or contracting to be appreciably
 
13 consumed or not, or the keeping of the property or services for
 
14 such use or for sale, and shall include the exercise of any right
 
15 or power over tangible or intangible personal property incident
 
16 to the ownership of that property, but the term "use" shall not
 
17 include:
 
18      (1)  Temporary use of property, not of a perishable or
 
19           quickly consumable nature, where the property is
 
20           imported into the State for temporary use (not sale)
 
21           therein by the person importing the same and is not
 
22           intended to be, and is not, kept permanently in the
 
23           State [(as for].  For example, without limiting the
 
24           generality of the foregoing language:
 

 
Page 38                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           (A)  In the case of a contractor importing permanent
 
 2                equipment for the performance of a construction
 
 3                contract, with intent to remove, and who does
 
 4                remove, the equipment out of the State upon
 
 5                completing the contract;
 
 6           (B)  In the case of moving picture films imported for
 
 7                use in theaters in the State with intent or under
 
 8                contract to transport the same out of the State
 
 9                after completion of such use; and
 
10           (C)  In the case of a transient visitor importing an
 
11                automobile or other belongings into the State to
 
12                be used by the transient visitor while therein but
 
13                which are to be used and are removed upon the
 
14                transient visitor's departure from the State[)];
 
15      (2)  Use by the taxpayer of property acquired by the
 
16           taxpayer solely by way of gift;
 
17      (3)  Use which is limited to the receipt of articles and the
 
18           return thereof, to the person from whom acquired,
 
19           immediately or within a reasonable time either after
 
20           temporary trial or without trial;
 
21      (4)  Use of goods imported into the State by the owner of a
 
22           vessel or vessels engaged in interstate or foreign
 
23           commerce and held for and used only as ship stores for
 
24           the vessels;
 

 
Page 39                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (5)  The use or keeping for use of household goods, personal
 
 2           effects, and private automobiles imported into the
 
 3           State for nonbusiness use by a person who:
 
 4           (A)  Acquired them in another state, territory,
 
 5                district, or country;
 
 6           (B)  At the time of the acquisition was a bona fide
 
 7                resident of another state, territory, district, or
 
 8                country;
 
 9           (C)  Acquired the property for use outside the State;
 
10                and
 
11           (D)  Made actual and substantial use thereof outside
 
12                this State;
 
13           provided that as to an article acquired less than three
 
14           months prior to the time of its importation into the
 
15           State it shall be presumed, until and unless clearly
 
16           proved to the contrary, that it was acquired for use in
 
17           the State and that its use outside the State was not
 
18           actual and substantial;
 
19      (6)  The leasing or renting of any aircraft or the keeping
 
20           of any aircraft solely for leasing or renting to
 
21           lessees or renters using the aircraft for commercial
 
22           transportation of passengers and goods;
 

 
 
 
Page 40                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (7)  The use of oceangoing vehicles for passenger or
 
 2           passenger and goods transportation from one point to
 
 3           another within the State as a public utility as defined
 
 4           in chapter 269;
 
 5      (8)  The use of material, parts, or tools imported or
 
 6           purchased by a person licensed under chapter 237 which
 
 7           are used for aircraft service and maintenance, or the
 
 8           construction of an aircraft service and maintenance
 
 9           facility as those terms are defined in section 237-
 
10           24.9; and
 
11      (9)  The use of services or contracting imported for resale
 
12           [to a foreign customer located outside the State to the
 
13           extent the services are resold, consumed, or used by
 
14           that foreign customer] where the contracting or
 
15           services are for resale, consumption, or use outside
 
16           the State pursuant to section 237-29.53(a)[.];
 
17     (10)  The use of contracting imported or purchased by a
 
18           contractor as defined in section 237-6 who is:
 
19           (A)  Licensed under chapter 237;
 
20           (B)  Engaged in business as a contractor; and
 
21           (C)  Subject to the tax imposed under section 238-2.3;
 
22           and
 

 
 
 
Page 41                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1     (11)  The use of financial services imported or purchased by
 
 2           a financial institution as defined in 237-24.8 who is:
 
 3           (A)  Licensed under chapter 237;
 
 4           (B)  Engaged in business as a financial institution;
 
 5                and
 
 6           (C)  Subject to the tax imposed under chapter 241;
 
 7           provided that this paragraph shall be repealed on June
 
 8           30, 2004.
 
 9      With regard to purchases made and distributed under the
 
10 authority of chapter 421, a cooperative association shall be
 
11 deemed the user thereof."
 
12      4.  By repealing the definition of "foreign customer."
 
13      [""Foreign customer" means a nonresident person who:
 
14      (1)  Is not subject to chapter 237;
 
15      (2)  Has not been physically present in the State for more
 
16           than thirty days in the six months prior to entering
 
17           into a written exported contracting or services
 
18           agreement with a person licensed under chapter 237
 
19           engaged in contracting (as defined in section 237-6) or
 
20           a service business or calling; and
 
21      (3)  Is the sole recipient of the exported contracting or
 
22           services provided through a person in Hawaii engaged in
 
23           contracting or a service business or calling and
 
24           licensed under chapter 237."]
 

 
Page 42                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      SECTION 8.  Section 238-2, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§238-2  Imposition of tax; exemptions.  There is hereby
 
 4 levied an excise tax on the use in this State of tangible
 
 5 personal property which is imported, or purchased from an
 
 6 unlicensed seller, for use in this State.  The tax imposed by
 
 7 this chapter shall accrue when the property is acquired by the
 
 8 importer or purchaser and becomes subject to the taxing
 
 9 jurisdiction of the State.  The rates of the tax hereby imposed
 
10 and the exemptions thereof are as follows:
 
11      (1)  If the importer or purchaser is licensed under chapter
 
12           237 and is:
 
13           (A)  A wholesaler or jobber importing or purchasing for
 
14                purposes of resale; or
 
15           (B)  A manufacturer importing or purchasing material or
 
16                commodities which are to be incorporated by the
 
17                manufacturer into a finished or saleable product
 
18                (including the container or package in which the
 
19                product is contained) wherein it will remain in
 
20                such form as to be perceptible to the senses, and
 
21                which finished or saleable product is to be sold
 
22                in such manner as to result in a further tax on
 
23                the activity of the manufacturer as the
 

 
Page 43                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                manufacturer or as a wholesaler, and not as a
 
 2                retailer,
 
 3           there shall be no tax; provided that if the wholesaler,
 
 4           jobber, or manufacturer is also engaged in business as
 
 5           a retailer (so classed under chapter 237), paragraph
 
 6           (2) shall apply to the wholesaler, jobber, or
 
 7           manufacturer, but the director of taxation shall refund
 
 8           to the wholesaler, jobber, or manufacturer, in the
 
 9           manner provided under section 231-23(c) such amount of
 
10           tax as the wholesaler, jobber, or manufacturer shall,
 
11           to the satisfaction of the director, establish to have
 
12           been paid by the wholesaler, jobber, or manufacturer to
 
13           the director with respect to property which has been
 
14           used by the wholesaler, jobber, or manufacturer for the
 
15           purposes stated in this paragraph;
 
16      (2)  If the importer or purchaser is licensed under chapter
 
17           237 and is:
 
18           (A)  A retailer or other person importing or purchasing
 
19                for purposes of resale, not exempted by paragraph
 
20                (1);
 
21           (B)  A manufacturer importing or purchasing material or
 
22                commodities which are to be incorporated by the
 
23                manufacturer into a finished or saleable product
 

 
Page 44                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                (including the container or package in which the
 
 2                product is contained) wherein it will remain in
 
 3                such form as to be perceptible to the senses, and
 
 4                which finished or saleable product is to be sold
 
 5                at retail in this State, in such manner as to
 
 6                result in a further tax on the activity of the
 
 7                manufacturer in selling such products at retail;
 
 8           (C)  A contractor importing or purchasing material or
 
 9                commodities which are to be incorporated by the
 
10                contractor into the finished work or project
 
11                required by the contract and which will remain in
 
12                such finished work or project in such form as to
 
13                be perceptible to the senses; or
 
14           (D)  A person engaged in a service business or calling
 
15                as defined in section 237-7, or a person
 
16                furnishing transient accommodations subject to the
 
17                tax imposed by section 237D-2, in which the import
 
18                or purchase of tangible personal property would
 
19                have qualified as a sale at wholesale as defined
 
20                in section 237-4(a)(8) had the seller of the
 
21                property been subject to the tax in chapter 237,
 
22                the tax shall be one-half of one per cent of the
 
23                purchase price of the property, if the purchase
 

 
Page 45                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                and sale are consummated in Hawaii; or, if there
 
 2                is no purchase price applicable thereto, or if the
 
 3                purchase [or a person furnishing transient
 
 4                accommodations subject to the tax imposed by
 
 5                section 237D-2,] or sale is consummated outside of
 
 6                Hawaii, then one-half of one per cent of the value
 
 7                of such property;
 
 8           and
 
 9      (3)  In all other cases, four per cent of the value of the
 
10           property."
 
11      SECTION 9.  Section 238-2.3, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "§238-2.3  Imposition of tax on imported services;
 
14 exemptions.  [(a)] There is hereby levied an excise tax on the
 
15 value of services or contracting as defined in section 237-6 that
 
16 are performed by an unlicensed seller at a point outside the
 
17 State and imported or purchased for use in this State.  The tax
 
18 imposed by this chapter shall accrue when the service or
 
19 contracting as defined in section 237-6 is received by the
 
20 importer or purchaser and becomes subject to the taxing
 
21 jurisdiction of the State.  The rates of the tax hereby imposed
 
22 and the exemptions from the tax are as follows:
 

 
 
 
Page 46                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (1)  If the importer or purchaser is licensed under chapter
 
 2           237 and is:
 
 3           (A)  Engaged in a service business or calling in which
 
 4                the imported or purchased services or contracting
 
 5                become identifiable elements, excluding overhead,
 
 6                of the services rendered[,] by the importer or
 
 7                purchaser, and the gross income of the importer or
 
 8                purchaser is subject to the tax imposed under
 
 9                chapter 237 on services at the rate of one-half of
 
10                one per cent[;] or the rate of tax imposed under
 
11                section 237-13.3; or
 
12           (B)  A manufacturer importing or purchasing services or
 
13                contracting that become identifiable elements,
 
14                excluding overhead, of a finished or saleable
 
15                product (including the container or package in
 
16                which the product is contained) and the finished
 
17                or saleable product is to be sold in a manner that
 
18                results in a further tax on the activity of the
 
19                manufacturer as a wholesaler, and not a retailer;
 
20           there shall be no tax imposed on the value of the
 
21           imported or purchased services[;] or contracting;
 
22           provided that if the manufacturer is also engaged in
 
23           business as a retailer as classified under chapter 237,
 

 
Page 47                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           paragraph (2) shall apply to the manufacturer, but the
 
 2           director of taxation shall refund to the manufacturer,
 
 3           in the manner provided under section 231-23(c), that
 
 4           amount of tax that the manufacturer, to the
 
 5           satisfaction of the director, shall establish to have
 
 6           been paid by the manufacturer to the director with
 
 7           respect to services that have been used by the
 
 8           manufacturer for the purposes stated in this paragraph.
 
 9      (2)  If the importer or purchaser is a person licensed under
 
10           chapter 237 and is:
 
11           (A)  Engaged in a service business or calling in which
 
12                the imported or purchased services or contracting
 
13                become identifiable elements, excluding overhead,
 
14                of the services rendered[,] by the importer or
 
15                purchaser, and the gross income from those
 
16                services when sold by the importer or purchaser is
 
17                subject to the tax imposed under chapter 237 at
 
18                the highest rate; [or]
 
19           (B)  A manufacturer importing or purchasing services or
 
20                contracting that become identifiable elements,
 
21                excluding overhead, of the finished or saleable
 
22                manufactured product (including the container or
 
23                package in which the product is contained) and the
 

 
Page 48                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                finished or saleable product is to be sold in a
 
 2                manner that results in a further tax under chapter
 
 3                237 on the activity of the manufacturer as a
 
 4                retailer; or
 
 5           (C)  A contractor importing or purchasing services or
 
 6                contracting that become identifiable elements,
 
 7                excluding overhead, of the finished work or
 
 8                project required, under the contract, and where
 
 9                the gross proceeds derived by the contractor are
 
10                subject to the tax under section 237-13(3) or 237-
 
11                16 as a contractor[;],
 
12           the tax shall be one-half of one per cent of the value
 
13           of the imported or purchased services[.] or
 
14           contracting; and
 
15      (3)  In all other cases, the importer or purchaser is
 
16           subject to the tax at the rate of four per cent on the
 
17           value of the imported or purchased services[.] or
 
18           contracting."
 
19      SECTION 10.  Section 238-3, Hawaii Revised Statutes, is
 
20 amended as follows:
 
21      1.  By amending subsections (a), (b), (c), and (d) to read
 
22 as follows:
 

 
 
 
Page 49                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      "(a)  The tax imposed by this chapter shall not apply to any
 
 2 property [or], services, or contracting or to any use of the
 
 3 property [or], services, or contracting [which] that cannot
 
 4 legally be so taxed under the Constitution or laws of the United
 
 5 States, but only so long as, and only to the extent to which the
 
 6 State is without power to impose the tax.
 
 7      To the extent that any exemption, exclusion, or
 
 8 apportionment is necessary to comply with the preceding sentence,
 
 9 the director of taxation shall:
 
10      (1)  Exempt or exclude from the tax under this chapter,
 
11           property, services, or contracting or the use of
 
12           property, services, or contracting exempted under
 
13           chapter 237; or
 
14      (2)  Apportion the gross value of services or contracting
 
15           sold to customers within the State by persons engaged
 
16           in business both within and without the State to
 
17           determine the value of that portion of the services or
 
18           contracting that is subject to taxation under chapter
 
19           237 for the purposes of section 237-21.
 
20      Any provision of law to the contrary notwithstanding,
 
21 exemptions or exclusions from tax under this chapter allowed on
 
22 or before April 1, 1978, under the provisions of the Constitution
 
23 of the United States or an act of the Congress of the United
 

 
Page 50                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 States to persons or common carriers engaged in interstate or
 
 2 foreign commerce, or both, whether ocean-going or air, shall
 
 3 continue undiminished and be available thereafter.
 
 4      (b)  The tax imposed by this chapter shall not apply to any
 
 5 use of property [or], services, or contracting the transfer of
 
 6 which property [or], services, or contracting to, or the
 
 7 acquisition of which by, the person so using the same, has
 
 8 actually been or actually is taxed under chapter 237.
 
 9      (c)  The tax imposed by this chapter shall be paid only once
 
10 upon or in respect of the same property [or], services[;], or
 
11 contracting; provided that nothing in this chapter contained
 
12 shall be construed to exempt any property [or], services, or
 
13 contracting, or the use thereof from taxation under any other law
 
14 of the State.
 
15      (d)  The tax imposed by this chapter shall be in addition to
 
16 any other taxes imposed by any other laws of the State, except as
 
17 otherwise specifically provided herein; provided that if it be
 
18 finally held by any court of competent jurisdiction, that the tax
 
19 imposed by this chapter may not legally be imposed in addition to
 
20 any other tax or taxes imposed by any other law or laws with
 
21 respect to the same property [or], services, or contracting, or
 
22 the use thereof, then this chapter shall be deemed not to apply
 
23 to the property [or], services, or contracting, [and] or the use
 

 
Page 51                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 thereof under such specific circumstances, but such other laws
 
 2 shall be given full effect with respect to the property [or],
 
 3 services, or contracting, [and] or use."
 
 4      2.  By amending subsections (i) and (j) to read as follows:
 
 5      "(i)  Each taxpayer liable for the tax imposed by this
 
 6 chapter on tangible personal property [or], services, or
 
 7 contracting shall be entitled to full credit for the combined
 
 8 amount or amounts of legally imposed sales or use taxes paid by
 
 9 the taxpayer with respect to the same transaction and property
 
10 [or], services, or contracting to another state and any
 
11 subdivision thereof, but such credit shall not exceed the amount
 
12 of the use tax imposed under this chapter on account of the
 
13 transaction and property [or], services[.], or contracting.  The
 
14 director of taxation may require the taxpayer to produce the
 
15 necessary receipts or vouchers indicating the payment of the
 
16 sales or use tax to another state or subdivision as a condition
 
17 for the allowance of the credit.
 
18      (j)  The tax imposed by this chapter shall not apply to any
 
19 use of property [or], services, or contracting exempted by
 
20 section 237-26 or section 237-29."
 
21      SECTION 11.  Section 238-5, Hawaii Revised Statutes, is
 
22 amended by amending subsection (a) to read as follows:
 

 
 
 
Page 52                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      "(a)  On or before the last day of each calendar month, any
 
 2 person who has become liable for the payment of a tax under this
 
 3 chapter during the preceding calendar month in respect of any
 
 4 property [or], services, or contracting, or the use thereof,
 
 5 shall file a return with the assessor of the taxation district in
 
 6 which the property was held or the services or contracting were
 
 7 received when the tax first became payable, or with the director
 
 8 of taxation at Honolulu, setting forth a description of the
 
 9 property [or], services, or contracting and the character and
 
10 quantity thereof in sufficient detail to identify the same or
 
11 otherwise in such reasonable detail as the director by rule shall
 
12 require, and the purchase price or value thereof as the case may
 
13 be.  The return shall be accompanied by a remittance in full of
 
14 the tax, computed at the rate specified in section 238-2 or 238-
 
15 2.3 upon the price or value so returned.  Any tax remaining
 
16 unpaid after the last day following the end of the calendar month
 
17 during which the tax first became payable shall become
 
18 delinquent; provided that a receipt from a seller required or
 
19 authorized to collect the tax, given to a taxpayer in accordance
 
20 with section 238-6, shall be sufficient to relieve the taxpayer
 
21 from further liability for the tax to which the receipt may
 
22 refer, or for the return thereof."
 

 
 
 
Page 53                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      SECTION 12.  Section 238-6, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  For purposes of the taxes due under sections 238-2(3),
 
 4 238-2.5, and 238-2.3, every seller having in the State, regularly
 
 5 or intermittently, any property, tangible or intangible, any
 
 6 place of business, or any representation as hereinabove defined,
 
 7 (and irrespective of the seller's having or not having qualified
 
 8 to do business in the State) shall, if the seller makes sales of
 
 9 property [or], services, or contracting for use in the State
 
10 (whether or not the sales are made in the State), collect from
 
11 the purchaser the taxes imposed by sections 238-2(3), 238-2.5,
 
12 and 238-2.3, on the use of the property [or], services, or
 
13 contracting so sold by the seller.  The collection shall be made
 
14 within twenty days after the accrual of the tax or within such
 
15 other period as shall be fixed by the director of taxation upon
 
16 the application of the seller, and the seller shall give to the
 
17 purchaser a receipt therefor in the manner and form prescribed by
 
18 the director; provided that this subsection shall not apply to
 
19 vehicles registered under section 286-50."
 
20      SECTION 13.  Section 238-9, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§238-9  Records.  Every person who is engaged in any
 
23 business in the State and who is required under this chapter to
 

 
Page 54                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 make returns, shall keep in the English language in the State and
 
 2 preserve for a period of three years, books of account or other
 
 3 records in sufficient detail to enable the director of taxation,
 
 4 as far as reasonably practicable, to determine whether or not any
 
 5 taxes imposed by this chapter are payable in respect of the
 
 6 property [or], services, or contracting concerned, and if so
 
 7 payable, the amount thereof."
 
 8      SECTION 14.  Section 239-5, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (c) to read as follows:
 
10      "(c)  Notwithstanding subsection (a), the rate of tax upon
 
11 the portion of the gross income of [a]:
 
12      (1)  A public utility [which] that consists of the receipts
 
13           from the sale of its products or services to another
 
14           public utility [which] that resells such products or
 
15           services shall be one-half of one per cent[,]; or
 
16      (2)  A public utility engaged in the business of selling
 
17           telecommunication services to a person defined in
 
18           section 237-13(6)(D) who resells such products or
 
19           services, shall be as follows:
 
20           (A)  In calendar year 2000,     per cent;
 
21           (B)  In calendar year 2001,     per cent;
 
22           (C)  In calendar year 2002,     per cent;
 
23           (D)  In calendar year 2003,     per cent;
 

 
Page 55                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           (E)  In calendar year 2004,     per cent;
 
 2           (F)  In calendar year 2005,     per cent;
 
 3           (G)  In calendar year 2006,     per cent; and
 
 4           (H)  In calendar year 2007, and thereafter,     per
 
 5                cent;
 
 6 provided that the resale of the products, services, or
 
 7 telecommunication services is subject to taxation under this
 
 8 section[,] or subject to taxation at the highest rate under
 
 9 section 237-13(6); and provided further that the public utility's
 
10 exemption from real property taxes imposed by chapter 246 shall
 
11 be reduced by the proportion that its public utility gross income
 
12 described herein bears to its total public utility gross income.
 
13 Whenever the public utility has other public utility gross
 
14 income, the gross income from the sale of its products or
 
15 services to another public utility or a person subject to section
 
16 237-13(6)(D) shall be included in applying subsection (a) in
 
17 determining the rate of tax upon the other public utility gross
 
18 income.  The department shall have the authority to implement the
 
19 tax rate changes in paragraph (2) by prescribing tax forms and
 
20 instructions that require tax reporting and payment by deduction,
 
21 allocation, or any other method to determine tax liability with
 
22 due regard to the tax rate changes."
 

 
 
 
Page 56                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      SECTION 15.  Section 239-6, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§239-6  Airlines, certain carriers.  (a)  There shall be
 
 4 levied and assessed upon each airline a tax of four per cent of
 
 5 its gross income each year from the airline business; provided
 
 6 that if an airline adopts a rate schedule for students in grade
 
 7 twelve or below traveling in school groups providing such
 
 8 students at reasonable hours a rate less than one-half of the
 
 9 regular adult fare, the tax shall be three per cent of its gross
 
10 income each year from the airline business.
 
11      (b)  There shall be levied and assessed upon each motor
 
12 carrier, each common carrier by water, and upon each contract
 
13 carrier other than a motor carrier, a tax of four per cent of its
 
14 gross income each year from the motor carrier or contract carrier
 
15 business.
 
16      (c)  The tax imposed by this section is a means of taxing
 
17 the personal property of the airline or other carrier, tangible
 
18 and intangible, including going concern value, and is in lieu of
 
19 the tax imposed by chapter 237 but is not in lieu of any other
 
20 tax.
 
21      (d)  Notwithstanding subsections (a), (b), and (c), the rate
 
22 of tax upon the portion of the gross income of a motor carrier or
 
23 contract carrier which consists of the receipts from the sale of
 
24 its products or services to a contractor shall be as follows:
 

 
Page 57                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (1)  In calendar year 2000,     per cent;
 
 2      (2)  In calendar year 2001,     per cent;
 
 3      (3)  In calendar year 2002,     per cent;
 
 4      (4)  In calendar year 2003,     per cent;
 
 5      (5)  In calendar year 2004,     per cent;
 
 6      (6)  In calendar year 2005,     per cent; and
 
 7      (7)  In calendar year 2006, and thereafter,     per cent;
 
 8 provided that there is a resale of the products or services and
 
 9 the resale by the contractor is subject to taxation at the
 
10 highest rate under section 237-13 or 237-16; the gross income of
 
11 the motor carrier or contract carrier is not divided as provided
 
12 in the definition of "gross income" in section 239-2 for the tax
 
13 imposed under this chapter or chapter 237; and the gross income
 
14 of the motor carrier or contract carrier from the sale of its
 
15 products or services to the contractor is not subject to a
 
16 deduction under chapter 237 by the contractor; and in the case of
 
17 services provided by the motor carrier or contract carrier, the
 
18 benefit of the service passes to the customer of the contractor
 
19 as an identifiable element of the contracting or service provided
 
20 by the contractor and does not constitute overhead as defined in
 
21 section 237-1.
 
22      The department shall have the authority to implement the tax
 
23 rate changes in paragraphs (1) through (7) by prescribing tax
 

 
Page 58                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 forms and instructions that require tax reporting and payment by
 
 2 deduction, allocation, or any other method to determine tax
 
 3 liability with due regard to the tax rate changes.
 
 4      For purposes of this subsection, "contractor" has the same
 
 5 meaning as defined in section 237-6."
 
 6      SECTION 16.  The auditor shall conduct a study on whether or
 
 7 not debit card, credit card, merchant card draft, and trust
 
 8 administration services can be or are being performed in the
 
 9 state.  The auditor shall submit a report of the findings and
 
10 recommendations to the legislature prior to the repeal of the
 
11 provision relating to the use tax exemption for the use of
 
12 financial services imported or purchased by a financial
 
13 institution on June 30, 2004.
 
14      SECTION 17.  Statutory material to be repealed is bracketed.
 
15 New statutory material is underscored.
 
16      SECTION 18.  This Act, upon its approval, shall apply to
 
17 gross income or gross proceeds received after December 31, 1999;
 
18 provided that:
 
19      (1)  Sections 1 and 9 to 15 shall apply to taxes accruing
 
20           after December 31, 1999; and
 
21      (2)  Sections 13 and 14 shall take effect on January 1,
 
22           2001, so that the amendments made by sections 13 and 14
 
23           shall apply to the entire gross income received by a
 

 
Page 59                                                    2945
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           public service company for the calendar year preceding
 
 2           January 1, 2001, and for the calendar years thereafter.
 
 3           In the case of a public service company operating on a
 
 4           fiscal year basis, the amendments made by sections 13
 
 5           and 14 shall apply to the entire gross income received
 
 6           for the fiscal year in which January 1, 2001, occurs
 
 7           and for fiscal years thereafter.