STAND. COM. REP. NO. 1007-04
Honolulu, Hawaii
, 2004
RE: S.B. No. 2994
S.D. 1
H.D. 1
Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twenty-Second State Legislature
Regular Session of 2004
State of Hawaii
Sir:
Your Committee on Judiciary, to which was referred S.B. No. 2994, S.D. 1, entitled:
"A BILL FOR AN ACT RELATING TO THE USE TAX,"
begs leave to report as follows:
The purpose of this bill is to, among other things, clarify the use tax law in light of the Hawaii Supreme Court decision of In the matter of Baker & Taylor, Inc. v. Director of Taxation (Baker & Taylor). Specifically, this bill:
(1) Clarifies that a seller of goods imported into Hawaii for purposes of resale is subject to the 0.5 per cent use tax even if title to the goods passes to the buyer outside of Hawaii; and
(2) Requires a seller who is not subject to the use tax on the importation of property into the state to collect the use tax from the purchaser.
The Department of Taxation (DoTax) testified in support of this bill. The Tax Foundation of Hawaii provided comments. A concerned individual opposed this measure.
Your Committee finds that the decision of the Hawaii Supreme Court in Baker & Taylor requires an amendment to the existing use tax statutes to remove any ambiguity that may exist between the language and the consistent interpretation of the use tax by DoTax. In Baker & Taylor, the court held, in part, that the out-of-state seller was subject to payment of general excise taxes for library materials imported into the state, but was not subject to the half percent use tax because the seller was not importing the goods from an unlicensed seller or for resale in Hawaii. Your Committee questioned whether the changes proposed by DoTax were adequate to cover the issues raised by the court. In response, DoTax submitted further revisions to this bill to ensure that any importer of goods into Hawaii for purposes of sale or resale is subject to the use tax, unless specifically exempted under the law.
Your Committee further finds that DoTax has consistently enforced its use tax laws against sellers, such as Baker & Taylor, regardless of whether the importation of goods was for sale or resale in Hawaii and whether title passed outside of Hawaii. Hence, even though the statutory revisions are necessary to address the Hawaii Supreme Court ruling, they are not substantive changes to DoTax's interpretation of the use tax. Therefore, retroactive application of this measure to taxable years after December 31, 1998, is appropriate to ensure that no taxpayer can avoid the use tax as interpreted by DoTax prior to the Hawaii Supreme Court's ruling.
Your Committee has amended this bill to include the following changes requested by DoTax:
(1) Amending the definitions of "import" (in any form) and "purchaser" to clarify that a purchase of tangible property from an unlicensed seller regardless of where title passes is subject to the 0.5 percent use tax;
(2) Amending the definition of "use" to include control over property by a seller who is or should be licensed for general excise tax payment and who directs the import of the property into Hawaii, regardless of where title to the property passes;
(3) Clarifying that the use tax applies to tangible personal property imported by a taxpayer in the state, whether owned or however acquired from an out-of-state seller for use in the state;
(4) Clarifying that the use tax applies to property imported into the state for purposes of sale or resale; and
(5) Making technical, nonsubstantive changes for style, consistency, and clarity.
As affirmed by the record of votes of the members of your Committee on Judiciary that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2994, S.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2994,
S.D. 1, H.D. 1, and be referred to the Committee on Finance.
Respectfully submitted on behalf of the members of the Committee on Judiciary,
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____________________________ ERIC G. HAMAKAWA, Chair |
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