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 HD2)

 
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                                                        2945
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 2
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;
 

 
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 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
 

 
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 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
 

 
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 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
 

 
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 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]
 

 
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 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;
 
23              (iii)  In the context of a services-to-contracting
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 
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 1                the State in the business of operating a theater,
 
 2                opera house, moving picture show, vaudeville,
 
 3                amusement park, dance hall, skating rink, radio
 
 4                broadcasting station, or any other place at which
 
 5                amusements are offered to the public, the tax
 
 6                shall be equal to four per cent of the gross
 
 7                income of the business[.], and in the case of a
 
 8                sale of an amusement at wholesale under section
 
 9                237-4(a)(13), the tax shall be subject to section
 
10                237-13.3.
 
11           (B)  The department may require that the person
 
12                rendering an amusement at wholesale take from the
 
13                licensed seller a certificate, in a form
 
14                prescribed by the department, certifying that the
 
15                sale is a sale at wholesale; provided that:
 
16                (i)  Any licensed seller who furnishes a
 
17                     certificate shall be obligated to pay to the
 
18                     person rendering the amusement, upon demand,
 
19                     the amount of additional tax that is imposed
 
20                     upon the seller whenever the sale is not at
 
21                     wholesale; and
 
22               (ii)  The absence of a certificate in itself shall
 
23                     give rise to the presumption that the sale is
 

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

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

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

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

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

 
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 1           income thereof not taxed thereunder as gross income or
 
 2           gross proceeds of sales or by taxing an equivalent
 
 3           value of products, unless specifically exempted."
 
 4      SECTION 4.  Section 237-13.3, Hawaii Revised Statutes, is
 
 5 amended by amending its title and subsection (a) to read as
 
 6 follows:
 
 7      "[[]§237-13.3[]]  Application of sections 237-4(a)(8), 237-
 
 8 4(a)(10), 237-4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-
 
 9 13(6)(A).(a)  Sections 237-4(a)(8), 237-4(a)(10), 237-
 
10 4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-13(6)(A) to the
 
11 contrary notwithstanding, instead of the tax levied under
 
12 [sections 237-4 and] section 237-13(2)(A) on wholesale sales
 
13 subject to section 237-4(a)(8)(B), under section 237-13(4)(A) on
 
14 a wholesaler subject to section 237-4(a)(13), and under section
 
15 237-13(6)(A) on a wholesaler subject to section 237-4(a)(10) at
 
16 one-half of one per cent, during the period January 1, 2000, to
 
17 December 31, 2005, the tax shall be as follows:
 
18      (1)  In calendar year 2000, 3.5 per cent;
 
19      (2)  In calendar year 2001, 3.0 per cent;
 
20      (3)  In calendar year 2002, 2.5 per cent;
 
21      (4)  In calendar year 2003, 2.0 per cent;
 
22      (5)  In calendar year 2004, 1.5 per cent;
 
23      (6)  In calendar year 2005, 1.0 per cent; and
 

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

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

 
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 1 6) or services performed by a person engaged in a service
 
 2 business or calling in the State for a purchaser who resells all
 
 3 of the contracting or services for resale, consumption, or use
 
 4 outside the State pursuant to subsection (a).  For the purposes
 
 5 of this subsection, the seller or person rendering the
 
 6 contracting or services for a purchaser who resells the
 
 7 contracting or services for resale, consumption, or use outside
 
 8 the State shall take from the purchaser, a certificate or an
 
 9 equivalent, in a form that the department prescribes, certifying
 
10 that the contracting or services purchased is to be [resold to a
 
11 customer of the purchaser who has complied with] for resale,
 
12 consumption, or use outside the State pursuant to subsection (a).
 
13 Any purchaser who furnishes this certificate or an equivalent
 
14 shall be obligated to pay the seller or person rendering the
 
15 contracting or services, upon demand, if the contracting or
 
16 services purchased is not resold in its entirety to a customer of
 
17 the purchaser who has complied with subsection (a), the amount of
 
18 the additional tax which by reason thereof is imposed upon the
 
19 seller or the person rendering the contracting or service.
 
20      [(c)  For purposes of this section, "service business or
 
21 calling" includes all activities engaged in for other persons for
 
22 a consideration that involve the rendering of a service as
 
23 distinguished from the sale of tangible personal property or the
 

 
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 1 production and sale of tangible personal property.  "Service
 
 2 business or calling" includes professional services, but does not
 
 3 include service rendered by an employee to the employee's
 
 4 employer.]"
 
 5      SECTION 7.  Section 238-1, Hawaii Revised Statutes, is
 
 6 amended as follows:
 
 7      1.  By amending the definition of "price" to read:
 
 8      ""Price" means the total amount for which tangible personal
 
 9 property [or], services, or contracting are purchased, valued in
 
10 money, whether paid in money or otherwise, and wheresoever paid;
 
11 provided that cash discounts allowed and taken on sales shall not
 
12 be included."
 
13      2.  By amending the definitions of "purchase", "purchaser",
 
14 "representation", and "seller" to read:
 
15      ""Purchase" and "sale" means any transfer, exchange, or
 
16 barter, conditional or otherwise, in any manner or by any means,
 
17 wheresoever consummated, of tangible personal property [or],
 
18 services, or contracting for a consideration.
 
19      "Purchaser" means any person purchasing property [or],
 
20 services, or contracting and "importer" means any person
 
21 importing property [or], services[;], or contracting; provided
 
22 that the terms "purchaser" and "importer" shall not include the
 
23 State, its political subdivisions, or wholly owned agencies or
 

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

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

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

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

 
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 1           in chapter 269;
 
 2      (8)  The use of material, parts, or tools imported or
 
 3           purchased by a person licensed under chapter 237 which
 
 4           are used for aircraft service and maintenance, or the
 
 5           construction of an aircraft service and maintenance
 
 6           facility as those terms are defined in section 237-
 
 7           24.9; and
 
 8      (9)  The use of services or contracting imported for resale
 
 9           [to a foreign customer located outside the State to the
 
10           extent the services are resold, consumed, or used by
 
11           that foreign customer] where the contracting or
 
12           services are for resale, consumption, or use outside
 
13           the State pursuant to section 237-29.53(a)[.];
 
14     (10)  The use of contracting imported or purchased by a
 
15           contractor as defined in section 237-6 who is:
 
16           (A)  Licensed under chapter 237;
 
17           (B)  Engaged in business as a contractor; and
 
18           (C)  Subject to the tax imposed under section 238-2.3.
 
19      With regard to purchases made and distributed under the
 
20 authority of chapter 421, a cooperative association shall be
 
21 deemed the user thereof."
 
22      4.  By repealing the definition of "foreign customer."
 
23      [""Foreign customer" means a nonresident person who:
 

 
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 1      (1)  Is not subject to chapter 237;
 
 2      (2)  Has not been physically present in the State for more
 
 3           than thirty days in the six months prior to entering
 
 4           into a written exported contracting or services
 
 5           agreement with a person licensed under chapter 237
 
 6           engaged in contracting (as defined in section 237-6) or
 
 7           a service business or calling; and
 
 8      (3)  Is the sole recipient of the exported contracting or
 
 9           services provided through a person in Hawaii engaged in
 
10           contracting or a service business or calling and
 
11           licensed under chapter 237."]
 
12      SECTION 8.  Section 238-2, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§238-2  Imposition of tax; exemptions.  There is hereby
 
15 levied an excise tax on the use in this State of tangible
 
16 personal property which is imported, or purchased from an
 
17 unlicensed seller, for use in this State.  The tax imposed by
 
18 this chapter shall accrue when the property is acquired by the
 
19 importer or purchaser and becomes subject to the taxing
 
20 jurisdiction of the State.  The rates of the tax hereby imposed
 
21 and the exemptions thereof are as follows:
 
22      (1)  If the importer or purchaser is licensed under chapter
 
23           237 and is:
 

 
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 1           (A)  A wholesaler or jobber importing or purchasing for
 
 2                purposes of resale; or
 
 3           (B)  A manufacturer importing or purchasing material or
 
 4                commodities which are to be incorporated by the
 
 5                manufacturer into a finished or saleable product
 
 6                (including the container or package in which the
 
 7                product is contained) wherein it will remain in
 
 8                such form as to be perceptible to the senses, and
 
 9                which finished or saleable product is to be sold
 
10                in such manner as to result in a further tax on
 
11                the activity of the manufacturer as the
 
12                manufacturer or as a wholesaler, and not as a
 
13                retailer,
 
14           there shall be no tax; provided that if the wholesaler,
 
15           jobber, or manufacturer is also engaged in business as
 
16           a retailer (so classed under chapter 237), paragraph
 
17           (2) shall apply to the wholesaler, jobber, or
 
18           manufacturer, but the director of taxation shall refund
 
19           to the wholesaler, jobber, or manufacturer, in the
 
20           manner provided under section 231-23(c) such amount of
 
21           tax as the wholesaler, jobber, or manufacturer shall,
 
22           to the satisfaction of the director, establish to have
 
23           been paid by the wholesaler, jobber, or manufacturer to
 

 
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 1           the director with respect to property which has been
 
 2           used by the wholesaler, jobber, or manufacturer for the
 
 3           purposes stated in this paragraph;
 
 4      (2)  If the importer or purchaser is licensed under chapter
 
 5           237 and is:
 
 6           (A)  A retailer or other person importing or purchasing
 
 7                for purposes of resale, not exempted by paragraph
 
 8                (1);
 
 9           (B)  A manufacturer importing or purchasing material or
 
10                commodities which are to be incorporated by the
 
11                manufacturer into a finished or saleable product
 
12                (including the container or package in which the
 
13                product is contained) wherein it will remain in
 
14                such form as to be perceptible to the senses, and
 
15                which finished or saleable product is to be sold
 
16                at retail in this State, in such manner as to
 
17                result in a further tax on the activity of the
 
18                manufacturer in selling such products at retail;
 
19           (C)  A contractor importing or purchasing material or
 
20                commodities which are to be incorporated by the
 
21                contractor into the finished work or project
 
22                required by the contract and which will remain in
 
23                such finished work or project in such form as to
 

 
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 1                be perceptible to the senses; or
 
 2           (D)  A person engaged in a service business or calling
 
 3                as defined in section 237-7, or a person
 
 4                furnishing transient accommodations subject to the
 
 5                tax imposed by section 237D-2, in which the import
 
 6                or purchase of tangible personal property would
 
 7                have qualified as a sale at wholesale as defined
 
 8                in section 237-4(a)(8) had the seller of the
 
 9                property been subject to the tax in chapter 237,
 
10                the tax shall be one-half of one per cent of the
 
11                purchase price of the property, if the purchase
 
12                and sale are consummated in Hawaii; or, if there
 
13                is no purchase price applicable thereto, or if the
 
14                purchase [or a person furnishing transient
 
15                accommodations subject to the tax imposed by
 
16                section 237D-2,] or sale is consummated outside of
 
17                Hawaii, then one-half of one per cent of the value
 
18                of such property;
 
19           and
 
20      (3)  In all other cases, four per cent of the value of the
 
21           property."
 
22      SECTION 9.  Section 238-2.3, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "§238-2.3  Imposition of tax on imported services;
 
 2 exemptions.  [(a)] There is hereby levied an excise tax on the
 
 3 value of services or contracting as defined in section 237-6 that
 
 4 are performed by an unlicensed seller at a point outside the
 
 5 State and imported or purchased for use in this State.  The tax
 
 6 imposed by this chapter shall accrue when the service or
 
 7 contracting as defined in section 237-6 is received 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 from the tax are as follows:
 
11      (1)  If the importer or purchaser is licensed under chapter
 
12           237 and is:
 
13           (A)  Engaged in a service business or calling in which
 
14                the imported or purchased services or contracting
 
15                become identifiable elements, excluding overhead,
 
16                of the services rendered[,] by the importer or
 
17                purchaser, and the gross income of the importer or
 
18                purchaser is subject to the tax imposed under
 
19                chapter 237 on services at the rate of one-half of
 
20                one per cent[;] or the rate of tax imposed under
 
21                section 237-13.3; or
 
22           (B)  A manufacturer importing or purchasing services or
 
23                contracting that become identifiable elements,
 

 
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 1                excluding overhead, of a finished or saleable
 
 2                product (including the container or package in
 
 3                which the product is contained) and the finished
 
 4                or saleable product is to be sold in a manner that
 
 5                results in a further tax on the activity of the
 
 6                manufacturer as a wholesaler, and not a retailer;
 
 7           there shall be no tax imposed on the value of the
 
 8           imported or purchased services[;] or contracting;
 
 9           provided that if the manufacturer is also engaged in
 
10           business as a retailer as classified under chapter 237,
 
11           paragraph (2) shall apply to the manufacturer, but the
 
12           director of taxation shall refund to the manufacturer,
 
13           in the manner provided under section 231-23(c), that
 
14           amount of tax that the manufacturer, to the
 
15           satisfaction of the director, shall establish to have
 
16           been paid by the manufacturer to the director with
 
17           respect to services that have been used by the
 
18           manufacturer for the purposes stated in this paragraph.
 
19      (2)  If the importer or purchaser is a person licensed under
 
20           chapter 237 and is:
 
21           (A)  Engaged in a service business or calling in which
 
22                the imported or purchased services or contracting
 
23                become identifiable elements, excluding overhead,
 

 
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 1                of the services rendered[,] by the importer or
 
 2                purchaser, and the gross income from those
 
 3                services when sold by the importer or purchaser is
 
 4                subject to the tax imposed under chapter 237 at
 
 5                the highest rate; [or]
 
 6           (B)  A manufacturer importing or purchasing services or
 
 7                contracting that become identifiable elements,
 
 8                excluding overhead, of the finished or saleable
 
 9                manufactured product (including the container or
 
10                package in which the product is contained) and the
 
11                finished or saleable product is to be sold in a
 
12                manner that results in a further tax under chapter
 
13                237 on the activity of the manufacturer as a
 
14                retailer; or
 
15           (C)  A contractor importing or purchasing services or
 
16                contracting that become identifiable elements,
 
17                excluding overhead, of the finished work or
 
18                project required, under the contract, and where
 
19                the gross proceeds derived by the contractor are
 
20                subject to the tax under section 237-13(3) or 237-
 
21                16 as a contractor[;],
 
22           the tax shall be one-half of one per cent of the value
 
23           of the imported or purchased services[.] or
 

 
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 1           contracting; and
 
 2      (3)  In all other cases, the importer or purchaser is
 
 3           subject to the tax at the rate of four per cent on the
 
 4           value of the imported or purchased services[.] or
 
 5           contracting."
 
 6      SECTION 10.  Section 238-3, Hawaii Revised Statutes, is
 
 7 amended as follows:
 
 8      1.  By amending subsections (a), (b), (c), and (d) to read
 
 9 as follows:
 
10      "(a)  The tax imposed by this chapter shall not apply to any
 
11 property [or], services, or contracting or to any use of the
 
12 property [or], services, or contracting [which] that cannot
 
13 legally be so taxed under the Constitution or laws of the United
 
14 States, but only so long as, and only to the extent to which the
 
15 State is without power to impose the tax.
 
16      To the extent that any exemption, exclusion, or
 
17 apportionment is necessary to comply with the preceding sentence,
 
18 the director of taxation shall:
 
19      (1)  Exempt or exclude from the tax under this chapter,
 
20           property, services, or contracting or the use of
 
21           property, services, or contracting exempted under
 
22           chapter 237; or
 
23      (2)  Apportion the gross value of services or contracting
 

 
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 1           sold to customers within the State by persons engaged
 
 2           in business both within and without the State to
 
 3           determine the value of that portion of the services or
 
 4           contracting that is subject to taxation under chapter
 
 5           237 for the purposes of section 237-21.
 
 6      Any provision of law to the contrary notwithstanding,
 
 7 exemptions or exclusions from tax under this chapter allowed on
 
 8 or before April 1, 1978, under the provisions of the Constitution
 
 9 of the United States or an act of the Congress of the United
 
10 States to persons or common carriers engaged in interstate or
 
11 foreign commerce, or both, whether ocean-going or air, shall
 
12 continue undiminished and be available thereafter.
 
13      (b)  The tax imposed by this chapter shall not apply to any
 
14 use of property [or], services, or contracting the transfer of
 
15 which property [or], services, or contracting to, or the
 
16 acquisition of which by, the person so using the same, has
 
17 actually been or actually is taxed under chapter 237.
 
18      (c)  The tax imposed by this chapter shall be paid only once
 
19 upon or in respect of the same property [or], services[;], or
 
20 contracting; provided that nothing in this chapter contained
 
21 shall be construed to exempt any property [or], services, or
 
22 contracting, or the use thereof from taxation under any other law
 
23 of the State.
 

 
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 1      (d)  The tax imposed by this chapter shall be in addition to
 
 2 any other taxes imposed by any other laws of the State, except as
 
 3 otherwise specifically provided herein; provided that if it be
 
 4 finally held by any court of competent jurisdiction, that the tax
 
 5 imposed by this chapter may not legally be imposed in addition to
 
 6 any other tax or taxes imposed by any other law or laws with
 
 7 respect to the same property [or], services, or contracting, or
 
 8 the use thereof, then this chapter shall be deemed not to apply
 
 9 to the property [or], services, or contracting, [and] or the use
 
10 thereof under such specific circumstances, but such other laws
 
11 shall be given full effect with respect to the property [or],
 
12 services, or contracting, [and] or use."
 
13      2.  By amending subsections (i) and (j) to read as follows:
 
14      "(i)  Each taxpayer liable for the tax imposed by this
 
15 chapter on tangible personal property [or], services, or
 
16 contracting shall be entitled to full credit for the combined
 
17 amount or amounts of legally imposed sales or use taxes paid by
 
18 the taxpayer with respect to the same transaction and property
 
19 [or], services, or contracting to another state and any
 
20 subdivision thereof, but such credit shall not exceed the amount
 
21 of the use tax imposed under this chapter on account of the
 
22 transaction and property [or], services[.], or contracting.  The
 
23 director of taxation may require the taxpayer to produce the
 

 
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 1 necessary receipts or vouchers indicating the payment of the
 
 2 sales or use tax to another state or subdivision as a condition
 
 3 for the allowance of the credit.
 
 4      (j)  The tax imposed by this chapter shall not apply to any
 
 5 use of property [or], services, or contracting exempted by
 
 6 section 237-26 or section 237-29."
 
 7      SECTION 11.  Section 238-5, Hawaii Revised Statutes, is
 
 8 amended by amending subsection (a) to read as follows:
 
 9      "(a)  On or before the last day of each calendar month, any
 
10 person who has become liable for the payment of a tax under this
 
11 chapter during the preceding calendar month in respect of any
 
12 property [or], services, or contracting, or the use thereof,
 
13 shall file a return with the assessor of the taxation district in
 
14 which the property was held or the services or contracting were
 
15 received when the tax first became payable, or with the director
 
16 of taxation at Honolulu, setting forth a description of the
 
17 property [or], services, or contracting and the character and
 
18 quantity thereof in sufficient detail to identify the same or
 
19 otherwise in such reasonable detail as the director by rule shall
 
20 require, and the purchase price or value thereof as the case may
 
21 be.  The return shall be accompanied by a remittance in full of
 
22 the tax, computed at the rate specified in section 238-2 or 238-
 
23 2.3 upon the price or value so returned.  Any tax remaining
 

 
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 1 unpaid after the last day following the end of the calendar month
 
 2 during which the tax first became payable shall become
 
 3 delinquent; provided that a receipt from a seller required or
 
 4 authorized to collect the tax, given to a taxpayer in accordance
 
 5 with section 238-6, shall be sufficient to relieve the taxpayer
 
 6 from further liability for the tax to which the receipt may
 
 7 refer, or for the return thereof."
 
 8      SECTION 12.  Section 238-6, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (a) to read as follows:
 
10      "(a)  For purposes of the taxes due under sections 238-2(3),
 
11 238-2.5, and 238-2.3, every seller having in the State, regularly
 
12 or intermittently, any property, tangible or intangible, any
 
13 place of business, or any representation as hereinabove defined,
 
14 (and irrespective of the seller's having or not having qualified
 
15 to do business in the State) shall, if the seller makes sales of
 
16 property [or], services, or contracting for use in the State
 
17 (whether or not the sales are made in the State), collect from
 
18 the purchaser the taxes imposed by sections 238-2(3), 238-2.5,
 
19 and 238-2.3, on the use of the property [or], services, or
 
20 contracting so sold by the seller.  The collection shall be made
 
21 within twenty days after the accrual of the tax or within such
 
22 other period as shall be fixed by the director of taxation upon
 
23 the application of the seller, and the seller shall give to the
 

 
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 1 purchaser a receipt therefor in the manner and form prescribed by
 
 2 the director; provided that this subsection shall not apply to
 
 3 vehicles registered under section 286-50."
 
 4      SECTION 13.  Section 238-9, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "§238-9  Records.  Every person who is engaged in any
 
 7 business in the State and who is required under this chapter to
 
 8 make returns, shall keep in the English language in the State and
 
 9 preserve for a period of three years, books of account or other
 
10 records in sufficient detail to enable the director of taxation,
 
11 as far as reasonably practicable, to determine whether or not any
 
12 taxes imposed by this chapter are payable in respect of the
 
13 property [or], services, or contracting concerned, and if so
 
14 payable, the amount thereof."
 
15      SECTION 14.  Section 239-5, Hawaii Revised Statutes, is
 
16 amended by amending subsection (c) to read as follows:
 
17      "(c)  Notwithstanding subsection (a), the rate of tax upon
 
18 the portion of the gross income of [a]:
 
19      (1)  A public utility [which] that consists of the receipts
 
20           from the sale of its products or services to another
 
21           public utility [which] that resells such products or
 
22           services shall be one-half of one per cent[,]; or
 
23      (2)  A public utility engaged in the business of selling
 

 
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 1           telecommunication services to a person defined in
 
 2           section 237-13(6)(D) who resells such products or
 
 3           services, shall be as follows:
 
 4           (A)  In calendar year 2000, 5.5 per cent;
 
 5           (B)  In calendar year 2001, 5.0 per cent;
 
 6           (C)  In calendar year 2002, 4.5 per cent;
 
 7           (D)  In calendar year 2003, 4.0 per cent;
 
 8           (E)  In calendar year 2004, 3.5 per cent;
 
 9           (F)  In calendar year 2005, 3.0 per cent;
 
10           (G)  In calendar year 2006, 2.5 per cent; and
 
11           (H)  In calendar year 2007, and thereafter, 0.5 per
 
12                cent;
 
13 provided that the resale of the products, services, or
 
14 telecommunication services is subject to taxation under this
 
15 section[,] or subject to taxation at the highest rate under
 
16 section 237-13(6); and provided further that the public utility's
 
17 exemption from real property taxes imposed by chapter 246 shall
 
18 be reduced by the proportion that its public utility gross income
 
19 described herein bears to its total public utility gross income.
 
20 Whenever the public utility has other public utility gross
 
21 income, the gross income from the sale of its products or
 
22 services to another public utility or a person subject to section
 
23 237-13(6)(D) shall be included in applying subsection (a) in
 

 
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 1 determining the rate of tax upon the other public utility gross
 
 2 income.  The department shall have the authority to implement the
 
 3 tax rate changes in paragraph (2) by prescribing tax forms and
 
 4 instructions that require tax reporting and payment by deduction,
 
 5 allocation, or any other method to determine tax liability with
 
 6 due regard to the tax rate changes."
 
 7      SECTION 15.  Section 239-6, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "§239-6  Airlines, certain carriers.  (a)  There shall be
 
10 levied and assessed upon each airline a tax of four per cent of
 
11 its gross income each year from the airline business; provided
 
12 that if an airline adopts a rate schedule for students in grade
 
13 twelve or below traveling in school groups providing such
 
14 students at reasonable hours a rate less than one-half of the
 
15 regular adult fare, the tax shall be three per cent of its gross
 
16 income each year from the airline business.
 
17      (b)  There shall be levied and assessed upon each motor
 
18 carrier, each common carrier by water, and upon each contract
 
19 carrier other than a motor carrier, a tax of four per cent of its
 
20 gross income each year from the motor carrier or contract carrier
 
21 business.
 
22      (c)  The tax imposed by this section is a means of taxing
 
23 the personal property of the airline or other carrier, tangible
 

 
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 1 and intangible, including going concern value, and is in lieu of
 
 2 the tax imposed by chapter 237 but is not in lieu of any other
 
 3 tax.
 
 4      (d)  Notwithstanding subsections (a), (b), and (c), the rate
 
 5 of tax upon the portion of the gross income of a motor carrier or
 
 6 contract carrier which consists of the receipts from the sale of
 
 7 its products or services to a contractor shall be as follows:
 
 8      (1)  In calendar year 2000, 3.5 per cent;
 
 9      (2)  In calendar year 2001, 3.0 per cent;
 
10      (3)  In calendar year 2002, 2.5 per cent;
 
11      (4)  In calendar year 2003, 2.0 per cent;
 
12      (5)  In calendar year 2004, 1.5 per cent;
 
13      (6)  In calendar year 2005, 1.0 per cent; and
 
14      (7)  In calendar year 2006, and thereafter, 0.5 per cent;
 
15 provided that there is a resale of the products or services and
 
16 the resale by the contractor is subject to taxation at the
 
17 highest rate under section 237-13 or 237-16; the gross income of
 
18 the motor carrier or contract carrier is not divided as provided
 
19 in the definition of "gross income" in section 239-2 for the tax
 
20 imposed under this chapter or chapter 237; and the gross income
 
21 of the motor carrier or contract carrier from the sale of its
 
22 products or services to the contractor is not subject to a
 
23 deduction under chapter 237 by the contractor; and in the case of
 

 
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 1 services provided by the motor carrier or contract carrier, the
 
 2 benefit of the service passes to the customer of the contractor
 
 3 as an identifiable element of the contracting or service provided
 
 4 by the contractor and does not constitute overhead as defined in
 
 5 section 237-1.
 
 6      The department shall have the authority to implement the tax
 
 7 rate changes in paragraphs (1) through (7) by prescribing tax
 
 8 forms and instructions that require tax reporting and payment by
 
 9 deduction, allocation, or any other method to determine tax
 
10 liability with due regard to the tax rate changes.
 
11      For purposes of this subsection, "contractor" has the same
 
12 meaning as defined in section 237-6."
 
13      SECTION 16.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored.
 
15      SECTION 17.  This Act, upon its approval, shall apply to
 
16 gross income or gross proceeds received after December 31, 1999;
 
17 provided that:
 
18      (1)  Sections 1 and 9 to 15 shall apply to taxes accruing
 
19           after December 31, 1999; and
 
20      (2)  Sections 13 and 14 shall take effect on January 1,
 
21           2001, so that the amendments made by sections 13 and 14
 
22           shall apply to the entire gross income received by a
 
23           public service company for the calendar year preceding
 

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

 
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