HB2853.DOC

SECTION 1. The purpose of this Act is to address the public service company tax. More specifically, this Act temporarily increases the tax rate applicable to public utilities.

SECTION 2. Section 239-5, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) There shall be levied and assessed upon each public utility, except airlines, motor carriers, common carriers by water, and contract carriers taxed by section 239-6, a tax of such rate per cent of its gross income each year from its public utility business as shall be determined in the manner hereinafter provided. The tax imposed by this section is in lieu of all taxes other than those below set out, and is a means of taxing the personal property of the public utility, tangible and intangible, including going concern value. In addition to the tax imposed by this chapter there also are imposed income taxes, the specific taxes imposed by chapter 249, the fees prescribed by chapter 269, any tax specifically imposed by the terms of the public utility's franchise or under chapter 240, the use or consumption tax imposed by chapter 238, and employment taxes.

The rate of the tax upon the gross income of the public utility shall be [~~four~~] five per cent; provided that if:

(1) A county provides by ordinance for a real property tax exemption for real property used by a public utility in its public utility business and owned by the public utility (or leased to it by a lease under which the public utility is required to pay the taxes upon the property), and

(2) The county has not denied the exemption to the public utility, but excluding a denial based upon a dispute as to the ownership, lease, or use of a specific parcel of real property,

then there shall be levied and assessed a tax in excess of the [~~four~~] five per cent rate determined in the manner hereinafter provided upon the gross income allocable to [~~such~~] that county. The revenues generated from the tax in excess of the [~~four~~] five per cent rate hereinbefore established shall be paid by the public utility directly to [~~such~~] the county based upon the proportion of gross income from its public utility business attributable to [~~such~~] the county, based upon the allocation made in the public utility's filings with the State of Hawaii; provided that if the gross income from the public utility business attributable to [~~such~~] the county is not so allocated in the public utility's State filings, then the gross income from the public utility business shall be equitably allocated to each county. The relative number of access lines in each county shall be deemed an acceptable basis of equitable allocation for telecommunication companies.

The rate of the tax in excess of the [~~four~~] five per cent rate hereinbefore established upon the gross income from the public utility business shall be determined as follows:

If the ratio of the net income of the company to its gross income is fifteen per cent or less, the rate of tax in excess of the [~~four~~] five per cent rate on gross income shall be 1.885 per cent; for all companies having net income in excess of fifteen per cent of the gross, the rate of the tax on gross income shall increase continuously in proportion to the increase in ratio of net income to gross, at such rate that for each increase of one per cent in the ratio of net income to gross, there shall be an increase of .2675 per cent in the rate of the tax.

The following formula may be used to determine the rate, in which formula the term "R" is the ratio of net income to gross income, and "X" is the required rate of the tax on gross income for the utility in question:

X = (26.75R-2.1275)%;

provided that in no case governed by the formula shall "X" be less than 1.885 per cent or more than 4.2 per cent.

However, if the gross income is apportioned under section 239-8(b) or (c), there shall be no adjustment of the rate of tax on the amount of gross income so apportioned to the State on account of the ratio of the net income to the gross income being in excess of fifteen per cent, and it shall be assumed in such case that the ratio is fifteen per cent or less.

(b) Notwithstanding subsection (a), the rate of the tax upon the portion of the gross income of a carrier of passengers by land which consists in passenger fares for transportation between points on a scheduled route, shall be [~~5.35~~] 6.35 per cent. However, if the carrier has other public utility gross income the fares nevertheless shall be included in applying subsection (a) in determining the rate of tax upon the other public utility gross income."

SECTION 3. Section 239-7, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) The tax imposed by this chapter shall be assessed against each public service company in the manner provided by this chapter, and shall be paid to the department of taxation at the times and in the manner (in installments or otherwise) provided by this section, except as provided in section 239-5(a), where there is levied and assessed a tax in excess of [~~four~~] five per cent upon gross income, the revenues generated from the tax in excess of the [~~four~~] five per cent rate shall be paid to the respective county director of finance at the times and in the manner (in installments or otherwise) provided by this section."

2. By amending subsection (c) to read:

"(c) The department shall prescribe the forms in which returns shall be made so as to reflect clearly the liability of each public service company subject to this tax, and may provide in the forms for such additional information as it may deem necessary. All provisions of the laws, not inapplicable and not inconsistent with this chapter, relating to returns for income tax purposes, the assessment (including additional assessments), collection, and payment (in installments or otherwise) of income taxes and the powers and duties of the department and the state director of finance in connection therewith, and relating to appeals from or other adjustments of such assessments, limitation periods for assessments, enforcement of attendance of witnesses, and the production of evidence, examination of witnesses and records, the effect of assessments, tax books, and lists and other official tax records as evidence, delinquent dates and penalties, and the rights and liabilities (civil and criminal) of taxpayers and other persons in connection with any matters dealt with by chapter 235, are made applicable (1) to the taxes and the assessment, payment, and collection thereof, provided by this chapter, and (2) to the department and the state director of finance in connection with the taxes and the assessment, payment, or enforcement of payment and collection thereof, and (3) to taxpayers and other persons affected by this chapter, as the case may be. The provisions of chapter 235 regarding the limitation period for assessment and refunds shall run from the filing of the return for the taxable year, or the due date prescribed for the filing of the return, whichever is later. With respect to payments due to a county of the revenues generated from the tax in excess of the [~~four~~] five per cent rate imposed under section 239-5(a), a county director of finance shall be afforded [~~such~~] the rights and procedures of the department in the enforcement of payment and collection of the taxes assessed and levied under this chapter."

SECTION 4. Section 239-9, Hawaii Revised Statutes, is amended by amending subsection (c)to read as follows:

"(c) First year of doing business. The measure of the tax for the year in which the company begins business is an estimate of the gross income of the public service company for that year or for the part of that year in which it is in business.

The tax thereon for the year in which the company begins business shall be at the following rate:

(1) If subsection (a)(2) applies, at the rate of [~~four~~] five per cent, or

(2) If subsection (a)(1) applies but the company though in business at the commencement of the calendar year was not in business during any part of the preceding year, the tax shall be at the rate provided by sections 239-5 and 239-6, except that there shall be no adjustment of the rate of tax on account of the ratio of the net income to the gross income being in excess of fifteen per cent and it shall be assumed for purposes of this subsection and subsection (e) that the ratio is fifteen per cent or less.

The estimate shall be made and the tax returned on or before the twentieth day of the third month after the month in which the company begins business and shall be subject to adjustment by the filing of an amended return as provided in subsection (e). Payment of the tax shall accompany the return unless time for payment is extended by the director of taxation. The extension may be granted by the director in order to provide for payment of the tax in installments during the remainder of the taxable year."

SECTION 5. Section 239-10, Hawaii Revised Statutes, is amended to read as follows:

"§239-10 Disposition of revenues. All taxes collected under this chapter shall be state realizations; provided that where a tax in excess of the [~~four~~] five per cent rate upon gross income is levied and assessed under section 239-5(a), [~~such~~] the tax revenues to be paid to the county shall be realizations of [~~such~~] that county."

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2010, and shall be repealed on June 30, 2015; provided that sections 239-5, 239-7, 239-9, and 239-10, Hawaii Revised Statutes, shall be reenacted on June 30, 2015, in the form in which they read on the day prior to the effective date of this Act.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2853
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII