Report Title:

General Excise Tax; Education

Description:

Exempts transactions involving department of education capital improvement projects and purchases of goods and services from the general excise tax.

HOUSE OF REPRESENTATIVES

H.B. NO.

1823

TWENTY-THIRD LEGISLATURE, 2006

  

STATE OF HAWAII

  

 

A BILL FOR AN ACT

 

RELATING TO GENERAL EXCISE TAX.

 

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

SECTION 1. The legislature finds that, despite optimistic state revenue projections, the State must continue to find new and innovative cost-cutting measures to reduce government waste and provide for the efficient expenditure of state funds.

One example of an inefficient expenditure of state funds concerns the payment of the general excise tax paid by the State for goods, services, and other contracted projects provided by private companies. These tax payments would appear to be circular and of no economic consequence since general excise tax collections are generally deposited back into the state treasury. But the cost of the general excise tax not only increases the cost of doing business and decreases the buying power of the State, but also affects other state costs as well.

For instance, because the state pays the general excise tax for state capital improvement projects, the payments not only increase the cost of the capital improvement project itself, but also increases the cost of the resulting debt service -- which means that the State is unwittingly increasing the cost of its own debt by paying the four cent general excise tax. In other words, if a project is estimated at a cost of $1,000,000 plus tax, the amount borrowed is $1,000,000 plus 4.16 per cent (general excise tax), or $1,041,600. Thus, instead of borrowing $1,000,000 for this project, the State needs to borrow, and pay back -- $1,041,600, plus interest costs, which is increased because of the increased total cost of the project due to the general excise tax.

The general excise tax payment also reduces the capacity of the State's capital improvement project ceiling, which logically is reduced by four per cent -- the cost of the general excise tax.

Thus, to maximize efficient state spending, amounts paid by the State for capital improvement projects as well as amounts paid for goods and services should be exempted from the general excise tax. To test the efficacy of this method of reducing state spending, the scope of the Act is limited to capital improvement projects and goods and services transactions made by the department of education.

SECTION 2. Section 237-24, Hawaii Revised Statutes, is amended to read as follows:

"§237-24 Amounts not taxable. This chapter shall not apply to the following amounts:

(1) Amounts received under life insurance policies and contracts paid by reason of the death of the insured;

(2) Amounts received (other than amounts paid by reason of death of the insured) under life insurance, endowment, or annuity contracts, either during the term or at maturity or upon surrender of the contract;

(3) Amounts received under any accident insurance or health insurance policy or contract or under workers' compensation acts or employers' liability acts, as compensation for personal injuries, death, or sickness, including also the amount of any damages or other compensation received, whether as a result of action or by private agreement between the parties on account of the personal injuries, death, or sickness;

(4) The value of all property of every kind and sort acquired by gift, bequest, or devise, and the value of all property acquired by descent or inheritance;

(5) Amounts received by any person as compensatory damages for any tort injury to the person, or to the person's character reputation, or received as compensatory damages for any tort injury to or destruction of property, whether as the result of action or by private agreement between the parties (provided that amounts received as punitive damages for tort injury or breach of contract injury shall be included in gross income);

(6) Amounts received as salaries or wages for services rendered by an employee to an employer;

(7) Amounts received as alimony and other similar payments and settlements;

(8) Amounts collected by distributors as fuel taxes on "liquid fuel" imposed by chapter 243, and the amounts collected by such distributors as a fuel tax imposed by any Act of the Congress of the United States;

(9) Taxes on liquor imposed by chapter 244D on dealers holding permits under that chapter;

(10) The amounts of taxes on cigarettes and tobacco products imposed by chapter 245 on wholesalers or dealers holding licenses under that chapter and selling the products at wholesale;

(11) Federal excise taxes imposed on articles sold at retail and collected from the purchasers thereof and paid to the federal government by the retailer;

(12) The amounts of federal taxes under chapter 37 of the Internal Revenue Code, or similar federal taxes, imposed on sugar manufactured in the State, paid by the manufacturer to the federal government;

(13) An amount up to, but not in excess of, $2,000 a year of gross income received by any blind, deaf, or totally disabled person engaging, or continuing, in any business, trade, activity, occupation, or calling within the State; a corporation all of whose outstanding shares are owned by an individual or individuals who are blind, deaf, or totally disabled; a general, limited, or limited liability partnership, all of whose partners are blind, deaf, or totally disabled; or a limited liability company, all of whose members are blind, deaf, or totally disabled;

(14) Amounts received by a producer of sugarcane from the manufacturer to whom the producer sells the sugarcane, where:

(A) The producer is an independent cane farmer, so classed by the Secretary of Agriculture under the Sugar Act of 1948 (61 Stat. 922, Chapter 519) as the Act may be amended or supplemented;

(B) The value or gross proceeds of sale of the sugar, and other products manufactured from the sugarcane, is included in the measure of the tax levied on the manufacturer under section 237-13(1) or (2);

(C) The producer's gross proceeds of sales are dependent upon the actual value of the products manufactured therefrom or the average value of all similar products manufactured by the manufacturer; and

(D) The producer's gross proceeds of sales are reduced by reason of the tax on the value or sale of the manufactured products;

(15) Money paid by the State or eleemosynary child-placing organizations to foster parents for their care of children in foster homes; [and]

(16) Amounts received by a cooperative housing corporation from its shareholders in reimbursement of funds paid by such corporation for lease rental, real property taxes, and other expenses of operating and maintaining the cooperative land and improvements; provided that such a cooperative corporation is a corporation:

(A) Having one and only one class of stock outstanding;

(B) Each of the stockholders of which is entitled solely by reason of the stockholder's ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building owned or leased by the corporation; and

(C) No stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except in a complete or partial liquidation of the corporation[.]; and

(17) Amounts paid by the department of education for capital improvement projects and all of the value or gross proceeds arising from the sale of goods or services to the department of education."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2006, and shall apply to taxable years beginning after December 31, 2005.

INTRODUCED BY:

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