Report Title:

GET; Appropriations; Excise Tax/Food Credit; Standard Deduction

Description:

Increases general excise and use tax to 5% on 1/1/07 only if city & county of Honolulu adopts resolution stating intent to begin county mass transit project. Appropriates funds to the counties for transit projects. Creates excise/food tax credit. Changes amount of standard deduction for state income tax. (SD2)

THE SENATE

S.B. NO.

1366

TWENTY-THIRD LEGISLATURE, 2005

S.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to taxation.

 

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

Part I

SECTION 1. The history in Hawaii of mass transportation financing by taxation has been one of high hopes and dreams, only to be extinguished by failure in implementation. This Act is a turning point in that history.

Act 300, Session Laws of Hawaii 1967, enacted chapter 51, Hawaii Revised Statutes, relating to mass transit to grant the counties condemnation powers to acquire, condemn, purchase, lease, construct, extend, own, maintain, and operate mass transit systems, including motor buses, street railroads, fixed rail facilities, such as monorails or subways, and other forms of mass transit.

Act 183, Session Laws of Hawaii 1990, enacted chapter 51D, Hawaii Revised Statutes, relating to the transit capital development fund. The fund was intended as a receptacle, in part, for tax moneys raised by the counties pursuant to Act 184, Session Laws of Hawaii 1990, which authorized the counties to establish a general excise and use tax surcharge of one-half per cent. Act 184 granted the counties that authority until December 31, 2002. Pursuant to that enabling legislation, the Honolulu city council narrowly defeated a measure by a five-to-four vote to pass an ordinance in the early 1990s that would have established the tax. No county adopted an ordinance to enact a general excise or use tax surcharge, and the taxing authority was repealed by Act 135, Session Laws of Hawaii 2003.

Act 184 recognized the inherent difficulties and disparities in mass transit planning and other funding priorities among the counties by providing that the city and county of Honolulu develop a fixed rail rapid transit system and the counties of Kauai, Maui, and Hawaii develop public transportation systems, including mass transportation, sewage, or water development, and parks, including park operation, maintenance, infrastructure, and purchase.

Act 180, Session Laws of Hawaii 1975, enacted chapter 279E, Hawaii Revised Statutes, relating to the establishment of the metropolitan planning organization to provide for comprehensive planning transportation improvements, as required by federal law.

S.B. No. 2052, regular session of 2004, would have established a mass transit excise tax and created a mass transit special fund. According to senate standing committee report no. 2051 of the senate committee on transportation and intergovernmental affairs on that measure, "Your Committee estimates that this measure would bring in $130 million a year. Within ten years, the tax would generate $1.3 billion, or half the cost of the rail system. This measure will demonstrate to Congress the seriousness of Hawaii's intentions regarding mass transit, and that Hawaii is willing to put in $1.3 billion. Federal officials have informed your Chair that Hawaii should not bother to ask for federal funds without a mechanism in place to fund the local government's portion."

On February 7, 2005, in a joint hearing before the senate committees on transportation and government operations and intergovernmental affairs, the Honorable Neil Abercrombie, United States Representative for the first congressional district in urban Honolulu, urged the legislature to pass a "local funding initiative" to have a "funding mechanism in place" to demonstrate to the Federal Transit Administration that Hawaii is serious about constructing a rail mass transit system. Hawaii is competing with the other states to secure federal moneys to subsidize the costs of construction of a mass transit system. There are currently two hundred twenty-six projects nationwide seeking to have their projects accepted for federal funding. Hawaii may be able to obtain half of the cost of the system paid with federal moneys. However, there is a deadline of March 3, 2005, in the United States House of Representatives to pass out of the House Transportation and Infrastructure Committee a federal mass transit appropriations bill covering a six-year period, and a deadline of June 1, 2005 for a conference committee to act on this measure. Mr. Abercrombie is confident the Federal Transit Authority stands ready to include Hawaii in its list of favored mass transit projects if this Act is passed. The Honorable Congressman told your Committees, "You're doing something that will shape the future of urban Honolulu for the next 100 years." Mr. Abercrombie further stated:

"I want to be explicitly clear to the people of the First District of Hawaii, the Governor, the Mayor of the City and County of Honolulu, the State Legislature, and the Honolulu City Council that final authorization of our transit project is directly related to the passage of a local funding initiative. I believe that the hearing today and the legislation under consideration sends a strong signal to Washington that there is a will and a way to fund the local share. ...

Federal transit officials have acknowledged that the traffic congestion in Honolulu is, to use their words, unparalleled in the United States."

The capital costs for a fixed rail system with an initial trunk line extending from Kapolei in West Oahu to Iwilei in the central business district was estimated in 2004 to be in excess of $2,000,000,000 by the department of transportation. A major portion of the costs is anticipated to be paid with federal funds. The legislature further finds that a fixed rail mass transit system is not possible without additional dedicated funding from a county mass transit surcharge.

The legislature further finds that the apparent haphazard development of mass transit development and financing plans over the years is due to the fact that a solution to transportation problems on all islands has eluded the State for many years. Every attempt has fallen short, despite the best efforts of many informed and knowledgeable people, including a multitude of experts. Bigger highways, more buses, and ferries are inadequate over the long term to serve transportation needs and are unsuitable for many areas of the largest county. In contrast, a fixed light rail system has possibilities but the costs are prohibitive without a heavy investment of revenues. Nevertheless, light rail is not suitable for every county.

The legislature is reluctant to, in effect, provide for a raise in taxes. However, the legislature believes that there is no alternative if mass transit is to become a reality. The costs are simply prohibitive. The time is now, following fifteen years in the making, to decide to implement light rail or not. The legislature further finds that the past unsuccessful attempts by the counties to levy an excise tax surcharge were due not to the lack of adequate planning, but rather to ambivalent attitudes of policymakers at that time. Testimony by the mayor of the city and county of Honolulu and two Honolulu city council members indicates that the time is now ripe for the city and county of Honolulu to pass such a measure.

The legislature is concerned whether, in the long run, a rail transit system can become self-supporting. The legislature further finds that, in cities having a rail transit system, the fare box revenues do in fact exceed the operating costs of the system.

The necessity for the right level of mass transit, ranging from bus to fixed rail, appears to correlate directly with county population. The most populous county, Honolulu, needs to be able to raise more taxes to pay for a more expensive fixed rail system. For the residents of Honolulu, who will benefit from a rail system, an added excise tax may not be an unreasonable burden when considered from a cost benefit analysis of tax imposition. Even if some residents do not ride the rail, the resulting decrease in traffic congestion from such a mass transit system is a benefit by itself. For example, the daily morning commute to work and the afternoon commute from work from West Oahu and Central Oahu can amount to up to one-and-one-half hours each way for a total of three hours of sitting in traffic. This time could be reduced dramatically to allow time for people to do other things in their lives, including being with their families. The Honorable Mufi Hannemann, Mayor of the city and county of Honolulu, called traffic congestion the "number one quality of life issue in Honolulu," and said "the only long-term thing we can offer to help is rail." A rail system that would allow Central Oahu commuters to board a rail car originating from West Oahu would meet the expectations of the legislature.

The legislature urges the counties to contemplate carefully if an excise tax ordinance is justified for their respective counties. This entails adequate planning of a mass transit system suitable for the particular county. The legislature further urges the department of transportation to provide advice, insight, and expertise to assist the counties in making the right decisions in planning for mass transit. For example, Hawaii county could probably best be served by an efficient, timely, and integrated bus system within and between towns.

The intent of the legislature is to provide the counties with assistance in mass transit design and planning and with construction financing ability. The department of transportation as well as the Honolulu department of transportation services have assured the legislature that in fact they are working collaboratively to that end.

The purpose of this Act is to conditionally increase the state general excise and use tax, appropriate funds for county public rail transit or other transportation improvements, implement an excise/food tax credit, and change the amounts of the standard deduction for the state income tax.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237-    Rate increase; condition. The rate of tax to be imposed under this chapter beginning on January 1, 2007, shall be increased from four to five per cent; provided that the council of the city and county of Honolulu adopts a resolution no later than January 1, 2006, by super majority, stating that the city and county of Honolulu will begin the process of establishing a mass transit system."

SECTION 3. Chapter 238, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§238-    Rate increase; condition. The rate of tax to be imposed under this chapter beginning on January 1, 2007, shall be increased from four to five per cent; provided that the council of the city and county of Honolulu adopts a resolution no later than January 1, 2006, by super majority, stating that the city and county of Honolulu will begin the process of establishing a mass transit system."

SECTION 4. Section 237-13, Hawaii Revised Statutes, is

amended to read as follows:

"§237-13 Imposition of tax. There is hereby levied and shall be assessed and collected annually privilege taxes against persons on account of their business and other activities in the State measured by the application of rates against values of products, gross proceeds of sales, or gross income, whichever is specified, as follows:

(1) Tax on manufacturers.

(A) Upon every person engaging or continuing within the State in the business of manufacturing, including compounding, canning, preserving, packing, printing, publishing, milling, processing, refining, or preparing for sale, profit, or commercial use, either directly or through the activity of others, in whole or in part, any article or articles, substance or substances, commodity or commodities, the amount of the tax to be equal to the value of the articles, substances, or commodities, manufactured, compounded, canned, preserved, packed, printed, milled, processed, refined, or prepared for sale, as shown by the gross proceeds derived from the sale thereof by the manufacturer or person compounding, preparing, or printing them, multiplied by one-half of one per cent.

(B) The measure of the tax on manufacturers is the value of the entire product for sale, regardless of the place of sale or the fact that deliveries may be made to points outside the State.

(C) If any person liable for the tax on manufacturers ships or transports the person's product, or any part thereof, out of the State, whether in a finished or unfinished condition, or sells the same for delivery to points outside the State (for example, consigned to a mainland purchaser via common carrier f.o.b. Honolulu), the value of the products in the condition or form in which they exist immediately before entering interstate or foreign commerce, determined as hereinafter provided, shall be the basis for the assessment of the tax imposed by this paragraph. This tax shall be due and payable as of the date of entry of the products into interstate or foreign commerce, whether the products are then sold or not. The department shall determine the basis for assessment, as provided by this paragraph, as follows:

(i) If the products at the time of their entry into interstate or foreign commerce already have been sold, the gross proceeds of sale, less the transportation expenses, if any, incurred in realizing the gross proceeds for transportation from the time of entry of the products into interstate or foreign commerce, including insurance and storage in transit, shall be the measure of the value of the products;

(ii) If the products have not been sold at the time of their entry into interstate or foreign commerce, and in cases governed by clause (i) in which the products are sold under circumstances such that the gross proceeds of sale are not indicative of the true value of the products, the value of the products constituting the basis for assessment shall correspond as nearly as possible to the gross proceeds of sales for delivery outside the State, adjusted as provided in clause (i), or if sufficient data are not available, sales in the State, of similar products of like quality and character and in similar quantities, made by the taxpayer (unless not indicative of the true value) or by others. Sales outside the State, adjusted as provided in clause (i), may be considered when they constitute the best available data. The department shall prescribe uniform and equitable rules for ascertaining the values;

(iii) At the election of the taxpayer and with the approval of the department, the taxpayer may make the taxpayer's returns under clause (i) even though the products have not been sold at the time of their entry into interstate or foreign commerce; and

(iv) In all cases in which products leave the State in an unfinished condition, the basis for assessment shall be adjusted so as to deduct the portion of the value as is attributable to the finishing of the goods outside the State.

(2) Tax on business of selling tangible personal property; producing.

(A) [Upon] From January 1, 2007, contingent upon the condition in section 237-    being met, upon every person engaging or continuing in the business of selling any tangible personal property whatsoever (not including, however, bonds or other evidence of indebtedness, or stocks), there is likewise hereby levied, and shall be assessed and collected, a tax equivalent to [four] five per cent of the gross proceeds of sales of the business; provided that insofar as the sale of tangible personal property is a wholesale sale under section 237-4(a)(8)(B), the sale shall be subject to section 237-13.3. Upon every person engaging or continuing within this State in the business of a producer, the tax shall be equal to one-half of one per cent of the gross proceeds of sales of the business, or the value of the products, for sale, if sold for delivery outside the State or shipped or transported out of the State, and the value of the products shall be determined in the same manner as the value of manufactured products covered in the cases under paragraph (1)(C).

(B) Gross proceeds of sales of tangible property in interstate and foreign commerce shall constitute a part of the measure of the tax imposed on persons in the business of selling tangible personal property, to the extent, under the conditions, and in accordance with the provisions of the Constitution of the United States and the Acts of the Congress of the United States which may be now in force or may be hereafter adopted, and whenever there occurs in the State an activity to which, under the Constitution and Acts of Congress, there may be attributed gross proceeds of sales, the gross proceeds shall be so attributed.

(C) No manufacturer or producer, engaged in such business in the State and selling the manufacturer's or producer's products for delivery outside of the State (for example, consigned to a mainland purchaser via common carrier f.o.b. Honolulu), shall be required to pay the tax imposed in this chapter for the privilege of so selling the products, and the value or gross proceeds of sales of the products shall be included only in determining the measure of the tax imposed upon the manufacturer or producer.

(D) When a manufacturer or producer, engaged in such business in the State, also is engaged in selling the manufacturer's or producer's products in the State at wholesale, retail, or in any other manner, the tax for the privilege of engaging in the business of selling the products in the State shall apply to the manufacturer or producer as well as the tax for the privilege of manufacturing or producing in the State, and the manufacturer or producer shall make the returns of the gross proceeds of the wholesale, retail, or other sales required for the privilege of selling in the State, as well as making the returns of the value or gross proceeds of sales of the products required for the privilege of manufacturing or producing in the State. The manufacturer or producer shall pay the tax imposed in this chapter for the privilege of selling its products in the State, and the value or gross proceeds of sales of the products, thus subjected to tax, may be deducted insofar as duplicated as to the same products by the measure of the tax upon the manufacturer or producer for the privilege of manufacturing or producing in the State; provided that no producer of agricultural products who sells the products to a purchaser who will process the products outside the State shall be required to pay the tax imposed in this chapter for the privilege of producing or selling those products.

(E) A taxpayer selling to a federal cost-plus contractor may make the election provided for by paragraph (3)(C), and in that case the tax shall be computed pursuant to the election, notwithstanding this paragraph or paragraph (1) to the contrary.

(F) The department, by rule, may require that a seller take from the purchaser of tangible personal property a certificate, in a form prescribed by the department, certifying that the sale is a sale at wholesale; provided that:

(i) Any purchaser who furnishes a certificate shall be obligated to pay to the seller, upon demand, the amount of the additional tax that is imposed upon the seller whenever the sale in fact is not at wholesale; and

(ii) The absence of a certificate in itself shall give rise to the presumption that the sale is not at wholesale unless the sales of the business are exclusively at wholesale.

(3) Tax upon contractors.

(A) [Upon] From January 1, 2007, contingent upon the condition in section 237-    being met, upon every person engaging or continuing within the State in the business of contracting, the tax shall be equal to [four] five per cent of the gross income of the business.

(B) In computing the tax levied under this paragraph, there shall be deducted from the gross income of the taxpayer so much thereof as has been included in the measure of the tax levied under subparagraph (A), on:

(i) Another taxpayer who is a contractor, as defined in section 237-6;

(ii) A specialty contractor, duly licensed by the department of commerce and consumer affairs pursuant to section 444-9, in respect of the specialty contractor's business; or

(iii) A specialty contractor who is not licensed by the department of commerce and consumer affairs pursuant to section 444-9, but who performs contracting activities on federal military installations and nowhere else in this State;

provided that any person claiming a deduction under this paragraph shall be required to show in the person's return the name and general excise number of the person paying the tax on the amount deducted by the person.

(C) In computing the tax levied under this paragraph against any federal cost-plus contractor, there shall be excluded from the gross income of the contractor so much thereof as fulfills the following requirements:

(i) The gross income exempted shall constitute reimbursement of costs incurred for materials, plant, or equipment purchased from a taxpayer licensed under this chapter, not exceeding the gross proceeds of sale of the taxpayer on account of the transaction; and

(ii) The taxpayer making the sale shall have certified to the department that the taxpayer is taxable with respect to the gross proceeds of the sale, and that the taxpayer elects to have the tax on gross income computed the same as upon a sale to the state government.

(D) A person who, as a business or as a part of a business in which the person is engaged, erects, constructs, or improves any building or structure, of any kind or description, or makes, constructs, or improves any road, street, sidewalk, sewer, or water system, or other improvements on land held by the person (whether held as a leasehold, fee simple, or otherwise), upon the sale or other disposition of the land or improvements, even if the work was not done pursuant to a contract, shall be liable to the same tax as if engaged in the business of contracting, unless the person shows that at the time the person was engaged in making the improvements the person intended, and for the period of at least one year after completion of the building, structure, or other improvements the person continued to intend to hold and not sell or otherwise dispose of the land or improvements. The tax in respect of the improvements shall be measured by the amount of the proceeds of the sale or other disposition that is attributable to the erection, construction, or improvement of such building or structure, or the making, constructing, or improving of the road, street, sidewalk, sewer, or water system, or other improvements. The measure of tax in respect of the improvements shall not exceed the amount which would have been taxable had the work been performed by another, subject as in other cases to the deductions allowed by subparagraph (B). Upon the election of the taxpayer, this paragraph may be applied notwithstanding that the improvements were not made by the taxpayer, or were not made as a business or as a part of a business, or were made with the intention of holding the same. However, this paragraph shall not apply in respect of any proceeds that constitute or are in the nature of rent; all such gross income shall be taxable under paragraph (9); provided that insofar as the business of renting or leasing real property under a lease is taxed under section 237-16.5, the tax shall be levied by section 237-16.5.

(4) Tax upon theaters, amusements, radio broadcasting stations, etc.

(A) [Upon] From January 1, 2007, contingent upon the condition in section 237-    being met, upon every person engaging or continuing within the State in the business of operating a theater, opera house, moving picture show, vaudeville, amusement park, dance hall, skating rink, radio broadcasting station, or any other place at which amusements are offered to the public, the tax shall be equal to [four] five per cent of the gross income of the business, and in the case of a sale of an amusement at wholesale under section 237-4(a)(13), the tax shall be subject to section 237-13.3.

(B) The department may require that the person rendering an amusement at wholesale take from the licensed seller a certificate, in a form prescribed by the department, certifying that the sale is a sale at wholesale; provided that:

(i) Any licensed seller who furnishes a certificate shall be obligated to pay to the person rendering the amusement, upon demand, the amount of additional tax that is imposed upon the seller whenever the sale is not at wholesale; and

(ii) The absence of a certificate in itself shall give rise to the presumption that the sale is not at wholesale unless the person rendering the sale is exclusively rendering the amusement at wholesale.

(5) Tax upon sales representatives, etc. [Upon] From January 1, 2007, contingent upon the condition in section 237-    being met, upon every person classified as a representative or purchasing agent under section 237-1, engaging or continuing within the State in the business of performing services for another, other than as an employee, there is likewise hereby levied and shall be assessed and collected a tax equal to [four] five per cent of the commissions and other compensation attributable to the services so rendered by the person.

(6) Tax on service business.

(A) [Upon] From January 1, 2007, contingent upon the condition in section 237-    being met, upon every person engaging or continuing within the State in any service business or calling including professional services not otherwise specifically taxed under this chapter, there is likewise hereby levied and shall be assessed and collected a tax equal to [four] five per cent of the gross income of the business, and in the case of a wholesaler under section 237-4(a)(10), the tax shall be equal to one-half of one per cent of the gross income of the business. Notwithstanding the foregoing, a wholesaler under section 237-4(a)(10) shall be subject to section 237-13.3.

(B) The department may require that the person rendering a service at wholesale take from the licensed seller a certificate, in a form prescribed by the department, certifying that the sale is a sale at wholesale; provided that:

(i) Any licensed seller who furnishes a certificate shall be obligated to pay to the person rendering the service, upon demand, the amount of additional tax that is imposed upon the seller whenever the sale is not at wholesale; and

(ii) The absence of a certificate in itself shall give rise to the presumption that the sale is not at wholesale unless the person rendering the sale is exclusively rendering services at wholesale.

(C) Where any person engaging or continuing within the State in any service business or calling renders those services upon the order of or at the request of another taxpayer who is engaged in the service business and who, in fact, acts as or acts in the nature of an intermediary between the person rendering those services and the ultimate recipient of the benefits of those services, so much of the gross income as is received by the person rendering the services shall be subjected to the tax at the rate of one-half of one per cent and all of the gross income received by the intermediary from the principal shall be subjected to a tax at the rate of [four] five per cent. Where the taxpayer is subject to both this subparagraph and to the lowest tax rate under subparagraph (A), the taxpayer shall be taxed under this subparagraph. This subparagraph shall be repealed on January 1, 2006.

(D) Where any person is engaged in the business of selling interstate or foreign common carrier telecommunication services within and without the State, other than as a home service provider, the tax shall be imposed on that portion of gross income received by a person from service which is originated or terminated in this State and is charged to a telephone number, customer, or account in this State notwithstanding any other state law (except for the exemption under section 237-23(a)(1)) to the contrary. If, under the Constitution and laws of the United States, the entire gross income as determined under this paragraph of a business selling interstate or foreign common carrier telecommunication services cannot be included in the measure of the tax, the gross income shall be apportioned as provided in section 237-21; provided that the apportionment factor and formula shall be the same for all persons providing those services in the State.

(E) Where any person is engaged in the business of a home service provider, the tax shall be imposed on the gross income received or derived from providing interstate or foreign mobile telecommunications services to a customer with a place of primary use in this State when such services originate in one state and terminate in another state, territory, or foreign country; provided that all charges for mobile telecommunications services which are billed by or for the home service provider are deemed to be provided by the home service provider at the customer's place of primary use, regardless of where the mobile telecommunications originate, terminate, or pass through; provided further that the income from charges specifically derived from interstate or foreign mobile telecommunications services, as determined by books and records that are kept in the regular course of business by the home service provider in accordance with section 239-24, shall be apportioned under any apportionment factor or formula adopted under section 237-13(6)(D). Gross income shall not include:

(i) Gross receipts from mobile telecommunications services provided to a customer with a place of primary use outside this State;

(ii) Gross receipts from mobile telecommunications services that are subject to the tax imposed by chapter 239;

(iii) Gross receipts from mobile telecommunications services taxed under section 237-13.8; and

(iv) Gross receipts of a home service provider acting as a serving carrier providing mobile telecommunications services to another home service provider's customer.

For the purposes of this paragraph, "charges for mobile telecommunications services", "customer", "home service provider", "mobile telecommunications services", "place of primary use", and "serving carrier" have the same meaning as in section 239-22.

(7) Tax on insurance producers. Upon every person engaged as a licensed producer pursuant to chapter 431, there is hereby levied and shall be assessed and collected a tax equal to 0.15 per cent of the commissions due to that activity.

(8) Tax on receipts of sugar benefit payments. Upon the amounts received from the United States government by any producer of sugar (or the producer's legal representative or heirs), as defined under and by virtue of the Sugar Act of 1948, as amended, or other Acts of the Congress of the United States relating thereto, there is hereby levied a tax of one-half of one per cent of the gross amount received; provided that the tax levied hereunder on any amount so received and actually disbursed to another by a producer in the form of a benefit payment shall be paid by the person or persons to whom the amount is actually disbursed, and the producer actually making a benefit payment to another shall be entitled to claim on the producer's return a deduction from the gross amount taxable hereunder in the sum of the amount so disbursed. The amounts taxed under this paragraph shall not be taxable under any other paragraph, subsection, or section of this chapter.

(9) Tax on other business. [Upon] From January 1, 2007, contingent upon the condition in section 237-    being met, upon every person engaging or continuing within the State in any business, trade, activity, occupation, or calling not included in the preceding paragraphs or any other provisions of this chapter, there is likewise hereby levied and shall be assessed and collected, a tax equal to [four] five per cent of the gross income thereof. In addition, the rate prescribed by this paragraph shall apply to a business taxable under one or more of the preceding paragraphs or other provisions of this chapter, as to any gross income thereof not taxed thereunder as gross income or gross proceeds of sales or by taxing an equivalent value of products, unless specifically exempted."

SECTION 5. Section 238-2, Hawaii Revised Statutes, is amended to read as follows:

§238-2 Imposition of tax on tangible personal property; exemptions. There is hereby levied an excise tax on the use in this State of tangible personal property which is imported by a taxpayer in this State whether owned, purchased from an unlicensed seller, or however acquired for use in this State. The tax imposed by this chapter shall accrue when the property is acquired by the importer or purchaser and becomes subject to the taxing jurisdiction of the State. The rates of the tax hereby imposed and the exemptions thereof are as follows:

(1) If the importer or purchaser is licensed under chapter 237 and is:

(A) A wholesaler or jobber importing or purchasing for purposes of sale or resale; or

(B) A manufacturer importing or purchasing material or commodities which are to be incorporated by the manufacturer into a finished or saleable product (including the container or package in which the product is contained) wherein it will remain in such form as to be perceptible to the senses, and which finished or saleable product is to be sold in such manner as to result in a further tax on the activity of the manufacturer as the manufacturer or as a wholesaler, and not as a retailer,

there shall be no tax; provided that if the wholesaler, jobber, or manufacturer is also engaged in business as a retailer (so classed under chapter 237), paragraph (2) shall apply to the wholesaler, jobber, or manufacturer, but the director of taxation shall refund to the wholesaler, jobber, or manufacturer, in the manner provided under section 231-23(c) such amount of tax as the wholesaler, jobber, or manufacturer shall, to the satisfaction of the director, establish to have been paid by the wholesaler, jobber, or manufacturer to the director with respect to property which has been used by the wholesaler, jobber, or manufacturer for the purposes stated in this paragraph;

(2) If the importer or purchaser is licensed under chapter 237 and is:

(A) A retailer or other person importing or purchasing for purposes of sale or resale, not exempted by paragraph (1);

(B) A manufacturer importing or purchasing material or commodities which are to be incorporated by the manufacturer into a finished or saleable product (including the container or package in which the product is contained) wherein it will remain in such form as to be perceptible to the senses, and which finished or saleable product is to be sold at retail in this State, in such manner as to result in a further tax on the activity of the manufacturer in selling such products at retail;

(C) A contractor importing or purchasing material or commodities which are to be incorporated by the contractor into the finished work or project required by the contract and which will remain in such finished work or project in such form as to be perceptible to the senses;

(D) A person engaged in a service business or calling as defined in section 237-7, or a person furnishing transient accommodations subject to the tax imposed by section 237D-2, in which the import or purchase of tangible personal property would have qualified as a sale at wholesale as defined in section 237-4(a)(8) had the seller of the property been subject to the tax in chapter 237; or

(E) A publisher of magazines or similar printed materials containing advertisements, when the publisher is under contract with the advertisers to distribute a minimum number of magazines or similar printed materials to the public or defined segment of the public, whether or not there is a charge to the persons who actually receive the magazines or similar printed materials,

the tax shall be one-half of one per cent of the purchase price of the property, if the purchase and sale are consummated in Hawaii; or, if there is no purchase price applicable thereto, or if the purchase or sale is consummated outside of Hawaii, then one-half of one per cent of the value of such property; and

(3) In all other cases, from January 1, 2007, contingent upon the condition in section 238-    being met, [four] five per cent of the value of the property.

For purposes of this section, tangible personal property is property that is imported by the taxpayer for use in this State, notwithstanding the fact that title to the property, or the risk of loss to the property, passes to the purchaser of the property at a location outside this State."

SECTION 6. (a) The reference to the increase in the rate of tax from four per cent to five per cent that is imposed under section 237-13, Hawaii Revised Statutes, as amended in section 4, shall apply to all other references in the Hawaii Revised Statutes to imposition of the general excise tax imposed under chapter 237, Hawaii Revised Statutes.

(b) The reference to the increase in the rate of tax from four per cent to five per cent that is imposed under section 238-2, Hawaii Revised Statutes, as amended in section 5, shall apply to all other references in the Hawaii Revised Statutes to imposition of the excise tax on use imposed under chapter 238, Hawaii Revised Statutes.

SECTION 7. Chapter 51D, Hawaii Revised Statutes, is repealed.

SECTION 8. There is appropriated out of the general revenues of the State of Hawaii the following sums, or so much thereof as may be necessary for fiscal year 2006-2007, for the counties' respective mass transit or public transit projects pursuant to section 46-   , Hawaii Revised Statutes:

(1) $200,000,000 for the city and county of Honolulu;

(2) $20,000,000 for the county of Hawaii;

(3) $20,000,000 for the county of Maui; and

(4) $10,000,000 for the county of Kauai.

The sums appropriated shall be expended by the department of transportation for the purposes of this section.

Part II

SECTION 9. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235-    Food/excise tax credit. (a) Each resident individual taxpayer, who files an individual income tax return for a taxable year, and who is not claimed or is not otherwise eligible to be claimed as a dependent by another taxpayer for federal or Hawaii state individual income tax purposes, may claim a food/excise tax credit against the resident taxpayer's individual income tax liability for the taxable year for which the individual income tax return is being filed; provided that a resident individual who has no income or no income taxable under this chapter and who is not claimed or is not otherwise eligible to be claimed as a dependent by a taxpayer for federal or Hawaii state individual income tax purposes may claim this credit.

(b) Each resident individual taxpayer may claim tax credits in the amount indicated in this subsection:

(1) A tax credit of $55 multiplied by the number of qualified exemptions to which the taxpayer is entitled; provided that no additional tax credit shall be claimed because of age;

(2) In addition to the amount of the credit allowed under paragraph (1), the taxpayer may claim an additional tax credit for each adjusted gross income bracket as shown in the schedule below multiplied by the number of qualified exemptions to which the taxpayer is entitled; provided that each taxpayer sixty-five years of age or over may claim double the tax credit:

TAX CREDIT SCHEDULE

Adjusted Gross Income Tax Credit

Under $6,000 $55

$6,000 under $8,000 45

$8,000 under $10,000 35

$10,000 under $12,000 25

$12,000 under $15,000 20

$15,000 under $20,000 15

$20,000 under $30,000 10

Over $30,000 0

provided that a husband and wife filing separate tax returns for a taxable year for which a joint return could have been filed by them shall claim only the tax credit to which they would have been entitled under paragraph (2) had a joint return been filed and may each claim $55 under paragraph (1).

(c) For the purposes of this section, a qualified exemption is defined to include those exemptions permitted under this chapter; provided that a person for whom an exemption is claimed has physically resided in the State for more than nine months during the taxable year; and provided further that multiple exemptions shall not be granted because of deficiencies in vision or hearing, or other disability. For purposes of claiming the credit only, a minor child receiving support from the department of human services of the State, social security survivor's benefits, and the like, may be considered a dependent and a qualified exemption of the parent or guardian.

(d) The tax credit under this section shall not be available to:

(1) Any person who has been convicted of a felony and who has been committed to prison and has been physically confined for the full taxable year;

(2) Any person who would otherwise be eligible to be claimed as a dependent but who has been committed to a youth correctional facility and has resided at the facility for the full taxable year; or

(3) Any misdemeanant who has been committed to jail and has been physically confined for the full taxable year.

(e) The tax credits claimed by a resident taxpayer pursuant to this section shall be deductible from the resident taxpayer's individual income tax liability, if any, for the tax year in which they are properly claimed. If the tax credits claimed by a resident taxpayer exceed the amount of income tax payment due from the resident taxpayer, the excess of credits over payments due shall be refunded to the resident taxpayer; provided that tax credits properly claimed by a resident individual who has no income tax liability shall be paid to the resident individual; and provided further that no refunds or payment on account of the tax credits allowed by this section shall be made for amounts less than $1.

(f) All claims for tax credits under this section, including any amended claims, must be filed on or before the end of the twelfth month following the close of the taxable year for which the credits may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit."

SECTION 10. Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Section 63 (with respect to taxable income defined) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that the standard deduction amount in section 63(c) of the Internal Revenue Code shall instead mean:

(1) [$1,900] $_______ in the case of:

(A) A joint return as provided by section 235-93; or

(B) A surviving spouse (as defined in section 2(a) of the Internal Revenue Code);

(2) [$1,650] $_______ in the case of a head of household (as defined in section 2(b) of the Internal Revenue Code);

(3) [$1,500] $_______ in the case of an individual who is not married and who is not a surviving spouse or head of household; or

(4) [$950] $________ in the case of a married individual filing a separate return.

Section 63(c)(4) shall not be operative in this State. Section 63(c)(5) shall be operative, except that the limitation on basic standard deduction in the case of certain dependents shall be the greater of [$500] $______ or such individual's earned income. Section 63(f) shall not be operative in this State.

The standard deduction amount for nonresidents shall be calculated pursuant to section 235-5."

Part III

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect on July 1, 2099; provided that the appropriations made in section 8 shall take effect on January 1, 2007.