HB2877.DOC

PART I.

SECTION 1. The purpose of this part is to temporarily suspend the general excise tax exemption for certain persons and instead require those persons to pay the general excise tax at the one-half per cent rate.

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

"§237-A Temporary suspension of exemption of certain persons; levy of tax at one-half per cent rate. (a) Notwithstanding sections 237-16.8, 237-23, and any other law to the contrary, the exemption of the following persons from taxation under this chapter shall be suspended from October 1, 2010 through June 30, 2015:

(1) Fraternal benefit societies, orders, or associations operating under the lodge system, or for the exclusive benefit of the members of the fraternity itself, operating under the lodge system, and providing for the payment of death, sick, accident, prepaid legal services, or other benefits to the members of the societies, orders, or associations, and to their dependents;

(2) Except as otherwise provided under subsection (d), corporations, associations, trusts, or societies organized and operated exclusively for religious, charitable, scientific, or educational purposes, as well as that of operating senior citizens housing facilities qualifying for a loan under the laws of the United States as authorized by section 202 of the Housing Act of 1959, as amended, as well as that of operating a prepaid legal services plan, as well as that of operating or managing a homeless facility, or any other program for the homeless authorized under part VII of chapter 356D;

(3) Business leagues, chambers of commerce, boards of trade, civic leagues, agricultural and horticultural organizations, and organizations operated exclusively for the benefit of the community and for the promotion of social welfare that shall include the operation of a prepaid legal service plan, and from which no profit inures to the benefit of any private stockholder or individual;

(4) Hospitals, infirmaries, and sanitaria;

(5) Cooperative associations incorporated under chapter 421 or Code section 521 cooperatives which fully meet the requirements of section 421-23, except Code section 521 cooperatives need not be organized in Hawaii;

(6) Hansen's disease patients and kokuas with respect to business within the county of Kalawao;

(7) Nonprofit cemetery operators even though the income is to be used for or in the furtherance of the exempt activities of the operators; and

(8) Nonprofit shippers associations operating under part 296 of the Civil Aeronautics Board Economic Regulations.

(b) There is levied, assessed, and collected annually against a person whose exemption is suspended under this subsection, a tax at the rate of one-half per cent on the person's previously exempt gross income or gross proceeds of sale. The "previously exempt gross income or gross proceeds of sale" means the gross income, gross proceeds of sale, or value that would have been exempt under sections 237-16.8 or 237-23 on the day before the effective date of this Act.

The term does not include:

(1) Any gross income or gross proceeds of sale not identified in subsection (a) that would have been taxable under this chapter on the day before the effective date of this Act, and such gross income or gross proceeds shall continue to be taxed at the applicable rate from the effective date of this Act; or

(2) The term does not include amounts received as a gift or donation by a:

(A) Fraternal benefit society, order, or association;

(B) Corporation, association, trust, or society organized and operated exclusively for charitable, scientific, or educational purposes;

(C) Business league, chamber of commerce, board of trade, civic league, agricultural or horticultural organization, and organization operated exclusively for the benefit of the community and for the promotion of social welfare; or

(D) Nonprofit hospital, infirmary, or sanitarium.

The person against whom the tax is levied and assessed under this section shall be responsible for the payment of the tax to the director of taxation.

If deemed necessary by the director of taxation, the director may establish additional requirements, procedures, and forms pursuant to rules adopted under chapter 91 to effectuate this section.

(d) This section shall not apply to the exemptions under sections 237-16.8 or 237-23(a)(4) for corporations, associations, trusts, or societies organized and operated exclusively for religious purposes."

SECTION 3. Section 237-16.8, Hawaii Revised Statutes, is amended to read as follows:

"[[]§237-16.8[]] Exemption of certain convention, conference, and trade show fees[.] for religious organizations. In addition to any other applicable exemption provided under this chapter, there shall be exempted from the measure of taxes imposed by this chapter all of the value or gross income derived by a [~~fraternal benefit,~~] religious[~~, charitable, scientific, educational, or other nonprofit~~] organization under section 501(c) of the Internal Revenue Code of 1986, as amended, from fees for convention, conference, or trade show exhibit or display spaces; provided that the gross proceeds of sales by a vendor through the use of exhibit or display space at a conference, convention, or trade show shall be subject to the imposition of the general excise tax under section 237-13."

SECTION 4. Section 237-23, Hawaii Revised Statutes, is amended by amending subsections (a), (b), and (c) to read as follows:

"(a) [~~This~~] Except as otherwise provided under section 237-A, this chapter shall not apply to the following persons:

(1) Public service companies as that term is defined in section 239-2, with respect to the gross income, either actual gross income or gross income estimated and adjusted, that is included in the measure of the tax imposed by chapter 239;

(2) Public utilities owned and operated by the State or any county, or other political subdivision thereof;

[~~(3)~~ Fraternal benefit societies, orders, or associations, operating under the lodge system, or for the exclusive benefit of the members of the fraternity itself, operating under the lodge system, and providing for the payment of death, sick, accident, prepaid legal services, or other benefits to the members of the societies, orders, or associations, and to their dependents;] and

[~~(4)~~] (3) Corporations, associations, trusts, or societies organized and operated exclusively for religious, [~~charitable, scientific, or educational~~] purposes[, as well as that of operating senior citizens housing facilities qualifying for a loan under the laws of the United States as authorized by section 202 of the Housing Act of 1959, as amended, as well as that of operating a prepaid legal services plan, as well as that of operating or managing a homeless facility, or any other program for the homeless authorized under part VII of chapter 356D;

~~(5)~~ Business leagues, chambers of commerce, boards of trade, civic leagues, agricultural and horticultural organizations, and organizations operated exclusively for the benefit of the community and for the promotion of social welfare that shall include the operation of a prepaid legal service plan, and from which no profit inures to the benefit of any private stockholder or individual;

~~(6)~~ ~~Hospitals, infirmaries, and sanitaria;~~

~~(7)~~ Cooperative associations incorporated under chapter 421 or Code section 521 cooperatives which fully meet the requirements of section 421-23, except Code section 521 cooperatives need not be organized in Hawaii; provided that:

~~(A)~~ The exemption shall apply only to the gross income derived from activities that are pursuant to purposes and powers authorized by chapter 421, except those provisions pertaining to or requiring corporate organization in Hawaii do not apply to Code section 521 cooperatives;

~~(B)~~ The exemption shall not relieve any person who receives any proceeds of sale from the association of the duty of returning and paying the tax on the total gross proceeds of the sales on account of which the payment was made, in the same amount and at the same rate as would apply thereto had the sales been made directly by the person, and all those persons shall be so taxable; and

~~(C)~~ As used in this paragraph, "section 521 cooperatives" mean associations that qualify as a cooperative under section 521 (with respect to exemption of farmers' cooperatives from tax) of the Internal Revenue Code of 1986, as amended;

~~(8)~~ ~~Persons affected with Hansen's disease and kokuas, with respect to business within the county of Kalawao;~~

~~(9)~~ Corporations, companies, associations, or trusts organized for the establishment and conduct of cemeteries no part of the net earnings of which inures to the financial benefit of any private stockholder or individual; provided that the exemption shall apply only to the activities of those persons in the conduct of cemeteries and shall not apply to any activity the primary purpose of which is to produce income, even though the income is to be used for or in the furtherance of the exempt activities of those persons; and

~~(10)~~ ~~Nonprofit shippers associations operating under part 296 of the Civil Aeronautics Board Economic Regulations~~].

(b) The [~~exemptions~~] exemption enumerated in subsection (a)(3) [~~to (6)~~] shall apply only:

(1) To those persons who shall have registered with the department of taxation by filing a written application for registration in such form as the department shall prescribe, shall have paid the registration fee of $20, and shall have had the exemption allowed by the department or by a court or tribunal of competent jurisdiction upon appeal from any assessment resulting from disallowance of the exemption by the department;

(2) To activities from which no profit inures to the benefit of any private stockholder or individual[~~, except for death or other benefits to the members of fraternal societies~~]; and

(3) To the [~~fraternal,~~] religious[~~, charitable, scientific, educational, communal, or social welfare~~] activities of such persons, [~~or to the activities of such hospitals, infirmaries, and sanitaria as such,~~] and not to any activity the primary purpose of which is to produce income even though the income is to be used for or in furtherance of the exempt activities of such persons.

~~(1)~~ A] a person under subsection (a)(3) [~~to (6),~~] who has received or applied for recognition of tax exempt status under section 501(c)(3)[~~, (4), (6), or (8)~~] of the Internal Revenue Code of 1986, as amended, or who is a subordinate person of a person who has received a group exemption letter under section 501(c)(3)[~~, (4), (6), or (8)~~] of the Internal Revenue Code of 1986, as amended, shall register with the department by filing a statement attaching a copy of the exemption or application for recognition of exempt status and any particular facts that the department may require[~~; and~~

~~(2)~~ All other persons under subsection (a)(3) to (6) shall file an application for exemption in the form of an affidavit or affidavits setting forth in general all facts affecting the right to the exemption and such particular facts as the department may require, to which shall be attached such records, papers, and other information as the department may prescribe]."

PART II.

SECTION 5. The purpose of this part is to temporarily suspend the general excise tax exemption for certain amounts of gross income and gross proceeds of sale for certain sales and services and to instead assess the general excise tax at a rate of one-half per cent for those amounts.

SECTION 6. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237-B Temporary suspension of exemption of certain amounts; levy of tax at one-half per cent rate. (a) Notwithstanding any other law to the contrary, the exemption of the following amounts from taxation under this chapter shall be suspended from October 1, 2010 through June 30, 2015:

(1) Amounts deducted from the gross income received by contractors as described under section 237-13(3)(A);

(2) Reimbursements received by federal cost-plus contractors for the costs of purchased materials, plant, and equipment as described under section 237-13(3)(C);

(3) Gross receipts of home service providers acting as service carriers for other home service providers as described under section 237-13(6)(D);

(4) Amounts deducted from the gross income of real property lessees because of receipt from sublessees as described under section 237-16.5;

(5) The value or gross income received by nonprofit organizations from certain conventions, conferences, trade shows, or display spaces as described under section 237-16.8;

(6) Amounts received, charged, or attributable to services furnished by related entities or the imputed or stated interests of related entities as described under section 237-23.5(a);

(7) Amounts received by common paymasters and disbursed as employee compensation or benefits as described under section 237-23.5(b);

(8) Amounts received by blind, deaf, or totally disabled persons and corporations, partnerships, and limited liability companies entirely owned by blind, deaf, or totally disabled persons as described under section 237-24(13);

(9) Amounts received by sugarcane producers as described under section 237-24(14);

(10) Moneys received by foster parents as described under section 237-24(15);

(11) Amounts received by cooperative housing corporations from shareholders as reimbursement for expenses as described under section 237-24(16);

(12) Amounts received from the loading, transportation, and unloading of agricultural commodities shipped interisland as described under section 237-24.3(1);

(13) Amounts received from the sale of intoxicating liquor, cigarettes and tobacco products, and agricultural, meat, or fish products to persons or common carriers engaged in interstate or foreign commerce as described under section 237-24.3(2);

(14) Amounts received by managers, submanagers, or boards of directors of condominium property regime owner, nonprofit homeowner, or nonprofit community associations as described under section 237-24.3(3) in the form in which it existed on July 1, 2010;

(15) Amounts received or accrued from the loading or unloading of cargo as described under section 237-24.3(4)(A);

(16) Amounts received or accrued from tugboat and towage services as described under section 237-24.3(4)(B);

(17) Amounts received or accrued from the transportation of pilots or government officials and other maritime-related services as described under section 237-24.3(4)(C);

(18) Amounts received by employee benefit plans by way of dividends, interest, and other income as described under section 237-24.3(5); provided that employee and employer contributions to employee benefit plans shall continue to be exempt from taxation under this section;

(19) Amounts received by nonprofit organizations or offices for the administration of employee benefit plans as described under section 237-24.3(5);

(20) Amounts received by hospitals, infirmaries, medical clinics, health care facilities, pharmacies, or licensed practitioners for selling prescription drugs or prosthetic devices as described under section 237-24.3(7);

(21) Amounts received as dues by unincorporated merchants associations as described under section 237-24.3(9);

(22) Amounts received by labor organizations for real property leases as described under section 237-24.3(10);

(23) Amounts received as rent for aircraft or aircraft engines used for interstate air transportation as described under section 237-24.3(12);

(24) Amounts received by exchanges and exchange members as described under section 237-24.5;

(25) Amounts received by hotel operators or suboperators and disbursed for employee compensation and benefits as described under section 237-24.7(1) in the form in which it existed on July 1, 2010;

(26) Amounts received by county transportation system operators as described under section 237-24.7(2); provided that subsidies or grants from the federal and county governments shall continue to be exempt from taxation under this section;

(27) Amounts received by orchard property operators and disbursed for employee compensation and benefits as described under section 237-24.7(4);

(28) Amounts received by community organizations, school booster clubs, and nonprofit organizations for election-related assistance as described under section 237-24.7(7);

(29) Amounts received by management companies from related telecommunications services common carriers and disbursed for employee compensation and benefits as described under section 237-24.7(9);

(30) Amounts received as high technology development grants as described under section 237-24.7(10);

(31) Amounts received by the Hawaii convention center operator as reimbursements of costs or advances as described under section 237-24.75(2);

(32) Amounts received by professional employment organizations from client companies and disbursed for employee benefits and compensation as described under section 237-24.75(3);

(33) Amounts received by financial institutions, trust companies, and trust departments as described under section 237-24.8;

(34) Amounts received from the servicing and maintenance of aircrafts or construction of aircraft service and maintenance facilities as described under section 237-24.9;

(35) Gross proceeds received from the sale of tangible personal property to the United States and state-chartered credit unions as described under section 237-25(a)(3);

(36) Gross proceeds, as described under section 237-26, received by:

(A) Contractors or subcontractors with the United States for the performance of scientific work; and

(B) Sellers of tangible personal property to such contractors or subcontractors;

(37) Amounts received by petroleum product refiners from other refiners for further refining of petroleum products as described under section 237-27;

(38) Gross proceeds received from the construction, reconstruction, erection, operation, use, maintenance, or furnishing of air pollution control facilities, as described under section 237-27.5, that do not have valid certificates of exemption on the effective date of this Act;

(39) Gross proceeds received from shipbuilding and ship repairs as described under section 237-28.1;

(40) Gross income received from the planning, design, financing, construction, sale, or lease of affordable housing projects, as described under section 237-29(a), that do not have valid certificates of exemption or approval under section 201H-36 on the effective date of this Act;

(41) Gross income received by nonprofit or limited distribution mortgagors for low- and moderate-income housing projects, as described under section 237-29(b), that were not certified or approved under section 201H-36 on or before the effective date of this Act;

(42) The value of, or gross proceeds received from tangible personal property shipped out of the State as described under section 237-29.5;

(43) The value of or gross income received from contracting or services performed for use outside the State as described under section 237-29.53;

(44) Gross proceeds or gross income received from the sale of tangible personal property imported for subsequent resale at wholesale as described under section 237-29.55;

(45) Amounts received by telecommunications common carriers from call center operators for interstate or foreign telecommunications services as described under section 237-29.8;

(46) Gross proceeds received by qualified businesses in enterprise zones, as described under section 209E-11, that do not have valid certificates of qualification from the department of business, economic development, and tourism on the effective date of this Act;

(47) Proceeds earned from county senior citizen's fairs as described under section 349-10; and

(48) Compensation received by agencies for providing services to homeless families or individuals or operating or managing homeless facilities as described under section 356D-129.

(b) There is levied, assessed, and collected annually against a person, a tax at the rate of one-half per cent on the previously exempt gross income or gross proceeds of sale received by the person.

"Previously exempt gross income or gross proceeds of sale" means the amount of the gross income or gross proceeds of sale, the exemption for which is suspended under subsection (a). The term also includes the following:

(1) The value received by a nonprofit organization from conventions, conferences, trade show exhibits, and display spaces, the exemption for which is suspended under subsection (a)(5);

(2) The value of tangible personal property shipped out of the State, the exemption for which is suspended under subsection (a)(42); and

(3) The value of contracting or services performed for use outside the State, the exemption for which is suspended under subsection (a)(43).

The person against whom the tax is levied and assessed under this section shall be responsible for payment of the tax to the director of taxation.

If deemed necessary by the director of taxation, the director may establish additional requirements, procedures, and forms pursuant to rules adopted under chapter 91, to effectuate this section."

PART III.

SECTION 7. In codifying the new sections added by sections 2 and 6 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on October 1, 2010; provided that:

(1) This Act shall apply to taxable years beginning after December 31, 2009;

(2) Sections 2 and 6 shall be repealed on June 30, 2015; and

(3) Sections 237-16.8 and 237-23, Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day before the effective date of this Act.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2877
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII