REPORT TITLE:
Taxation
DESCRIPTION:
Clarifies the definition of "related entities" for purposes of
the general excise tax. (SB1178 HD2)
1178
THE SENATE S.B. NO. S.D. 2
TWENTIETH LEGISLATURE, 1999 H.D. 2
STATE OF HAWAII
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A BILL FOR AN ACT
RELATING TO THE GENERAL EXCISE TAXATION OF RELATED ENTITIES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
1 SECTION 1. Section 237-23.5, Hawaii Revised Statutes, is
2 amended by amending subsection (a) to read as follows:
3 "(a) This chapter shall not apply to amounts received,
4 charged, or attributable to services furnished by one related
5 entity to another related entity or to imputed or stated interest
6 attributable to loans, advances, or use of capital between
7 related entities.
8 As used in this subsection:
9 "Related entities" [mean:] means:
10 (1) An affiliated group of corporations within the meaning
11 of section 1504 (with respect to affiliated group
12 defined) of the federal Internal Revenue Code of 1986,
13 as amended;
14 (2) A controlled group of corporations within the meaning
15 of section 1563 (with respect to definitions and
16 special rules) of the federal Internal Revenue Code of
17 1986, as amended; [and]
18 (3) Those entities connected through ownership of at least
19 eighty per cent of the total value and at least eighty
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1 per cent of the total voting power of each such entity
2 (or combination thereof), including partnerships,
3 associations, trusts, S corporations, nonprofit
4 corporations, [or any other group or combination of
5 these or other tax entities acting as a business unit;]
6 limited liability partnerships, or limited liability
7 companies; and
8 (4) Any group or combination of the entities described in
9 paragraph (3) constituting a unitary business for
10 income tax purposes;
11 whether or not the entity is located within or without the State
12 or licensed under this chapter.
13 "Services" [mean] means legal and accounting services and
14 those managerial and administrative services performed by an
15 employee, officer, partner, trustee, sole proprietor, member, or
16 manager in the person's capacity as an employee, officer,
17 partner, trustee, sole proprietor, member, or manager of one of
18 the related entities and shall include overhead costs
19 attributable to those services."
20 SECTION 2. Section 237-24.7, Hawaii Revised Statutes, is
21 amended to read as follows:
22 "ยง237-24.7 Additional amounts not taxable. In addition to
23 the amounts not taxable under section 237-24, this chapter shall
24 not apply to:
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H.D. 2
1 (1) Amounts received by the operator of a hotel from the
2 owner of the hotel in amounts equal to and which are
3 disbursed by the operator for employee wages, salaries,
4 payroll taxes, insurance premiums, and benefits,
5 including retirement, vacation, sick pay, and health
6 benefits. As used in this paragraph:
7 "Employee" means employees directly engaged in the
8 day-to-day operation of the hotel and employed by the
9 operator.
10 "Hotel" means an operation licensed under section
11 445-92.
12 "Operator" means any person who, pursuant to a
13 written contract with the owner of a hotel, operates or
14 manages the hotel for the owner.
15 "Owner" means the fee owner or lessee under a
16 recorded lease of a hotel;
17 (2) Amounts received by the operator of a county
18 transportation system operated under an operating
19 contract with a political subdivision, where the
20 political subdivision is the owner of the county
21 transportation system. As used in this paragraph:
22 "County transportation system" means a mass
23 transit system of motorized buses providing regularly
24 scheduled transportation within a county.
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H.D. 2
1 "Operating contract" or "contract" means a
2 contract to operate and manage a political
3 subdivision's county transportation system, which
4 provides that:
5 (A) The political subdivision shall exercise
6 substantial control over all aspects of the
7 operator's operation;
8 (B) The political subdivision controls the
9 development of transit policy, service
10 planning, routes, and fares; and
11 (C) The operator develops in advance a draft
12 budget in the same format as prescribed for
13 agencies of the political subdivision. The
14 budget must be subject to the same
15 constraints and controls regarding the lawful
16 expenditure of public funds as any public
17 sector agency, and deviations from the budget
18 must be subject to approval by the
19 appropriate political subdivision officials
20 involved in the budgetary process.
21 "Operator" means any person who, pursuant to an
22 operating contract with a political subdivision,
23 operates or manages a county transportation system.
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H.D. 2
1 "Owner" means a political subdivision that owns or
2 is the lessee of all the properties and facilities of
3 the county transportation system (including buses, real
4 estate, parking garages, fuel pumps, maintenance
5 equipment, office supplies, etc.), and that owns all
6 revenues derived therefrom;
7 (3) Surcharge taxes on rental motor vehicles imposed by
8 chapter 251 and passed on and collected by persons
9 holding certificates of registration under that
10 chapter;
11 (4) Amounts received by the operator of orchard properties
12 from the owner of the orchard property in amounts equal
13 to and which are disbursed by the operator for employee
14 wages, salaries, payroll taxes, insurance premiums, and
15 benefits, including retirement, vacation, sick pay, and
16 health benefits. As used in this paragraph:
17 "Employee" means an employee directly engaged in
18 the day-to-day operations of the orchard properties and
19 employed by the operator.
20 "Operator" means a producer who, pursuant to a
21 written contract with the owner of the orchard
22 property, operates or manages the orchard property for
23 the owner where the property contains an area
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1 sufficient to make the undertaking economically
2 feasible.
3 "Orchard property" means any real property that is
4 used to raise trees with a production life cycle of
5 fifteen years or more producing fruits or nuts having a
6 normal period of development from the initial planting
7 to the first commercially saleable harvest of not less
8 than three years.
9 "Owner" means a fee owner or lessee under a
10 recorded lease of orchard property;
11 (5) Taxes on nursing facility income imposed by chapter
12 346E and passed on and collected by operators of
13 nursing facilities;
14 (6) Amounts received under property and casualty insurance
15 policies for damage or loss of inventory used in the
16 conduct of a trade or business located within the State
17 or a portion thereof that is declared a natural
18 disaster area by the governor pursuant to section
19 209-2;
20 (7) Amounts received as compensation by community
21 organizations, school booster clubs, and nonprofit
22 organizations under a contract with the chief election
23 officer for the provision and compensation of precinct
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H.D. 2
1 officials and other election-related personnel,
2 services, and activities, pursuant to section 11-5;
3 (8) Interest received by a person domiciled outside the
4 State from a trust company (as defined in section
5 412:8-101) acting as payment agent or trustee on behalf
6 of the issuer or payees of an interest bearing
7 instrument or obligation, if the interest would not
8 have been subject to tax under this chapter if paid
9 directly to the person domiciled outside the State
10 without the use of a paying agent or trustee; provided
11 that if the interest would otherwise be taxable under
12 this chapter if paid directly to the person domiciled
13 outside the State, it shall not be exempt solely
14 because of the use of a Hawaii trust company as a
15 paying agent or trustee;
16 (9) Amounts received by a management company from related
17 entities engaged in the business of selling interstate
18 or foreign common carrier telecommunications services
19 in amounts equal to and which are disbursed by the
20 management company for employee wages, salaries,
21 payroll taxes, insurance premiums, and benefits,
22 including retirement, vacation, sick pay, and health
23 benefits. As used in this paragraph:
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1 "Employee" means employees directly engaged in the
2 day-to-day operation of related entities engaged in the
3 business of selling interstate or foreign common
4 carrier telecommunications services and employed by the
5 management company.
6 "Management company" means any person who,
7 pursuant to a written contract with a related entity
8 engaged in the business of selling interstate or
9 foreign common carrier telecommunications services,
10 provides managerial or operational services to that
11 entity.
12 "Related entities"means:
13 (A) An affiliated group of corporations within the
14 meaning of section 1504 (with respect to
15 affiliated group defined) of the federal Internal
16 Revenue Code of 1986, as amended;
17 (B) A controlled group of corporations within the
18 meaning of section 1563 (with respect to
19 definitions and special rules) of the federal
20 Internal Revenue Code of 1986, as amended;
21 [or]
22 (C) Those entities connected through ownership of
23 at least eighty per cent of the total value
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1 and at least eighty per cent of the total
2 voting power of each such entity (or
3 combination thereof), including partnerships,
4 associations, trusts, S corporations,
5 nonprofit corporations, [or any other group
6 or combination of these or other tax entities
7 acting as a business unit;] limited liability
8 partnerships, or limited liability companies;
9 and
10 (D) Any group or combination of the entities
11 described in paragraph (C) constituting a
12 unitary business for income tax purposes;
13 whether or not the entity is located within or without
14 the State or licensed under this chapter; and
15 (10) Amounts received as grants under section 206M-15."
16 SECTION 3. This Act does not affect rights and duties that
17 matured, assessments and penalties that were incurred, and
18 proceedings that were begun, before its effective date.
19 SECTION 4. Statutory material to be repealed is bracketed.
20 New statutory material is underscored.
21 SECTION 5. This Act shall take effect on July 1, 1999, and
22 apply to gross income or gross proceeds received after June 30,
23 1999.