REPORT TITLE:
Taxation
DESCRIPTION:
Expands the definitions of "wholesaler" to include wholesale
services to alleviate the pyramiding of general excise and use
taxes. (SB638 HD2)
638
THE SENATE S.B. NO. S.D. 1
TWENTIETH LEGISLATURE, 1999 H.D. 2
STATE OF HAWAII
________________________________________________________________
________________________________________________________________
A BILL FOR AN ACT
RELATING TO TAXATION.
BE IT ENACTED BY THE LEGISLATURE
1 SECTION 1. In the past, Hawaii's agricultural goods-
2 dominated economy was not severely burdened because of the
3 reduced general excise tax rate on intermediary sale of goods.
4 However, Hawaii has moved from an agricultural goods to a
5 service-dominated economy. Because the general excise tax does
6 not allow for the intermediary sale of services, the pyramiding
7 effect of the general excise tax has become a large burden on
8 business and the public.
9 The pyramiding effect of the general excise tax and the use
10 tax significantly increases the cost of goods and services to
11 consumers. The current law allows a reduced rate of one-half of
12 one per cent on the sale of tangible personal property for resale
13 and for limited intermediary sales but this is not enough. The
14 Hawaii courts have narrowly construed the types of sales that
15 qualify for intermediary sales of services, so to promote
16 fairness and equality with wholesale goods, the legislature finds
17 that the taxation of wholesale sales of services should be
18 treated similarly to the taxation of wholesale sales of goods.
Page 2 638
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1 The purpose of this Act is to expand the treatment of
2 intermediary sales of services by treating all intermediary
3 services as wholesale sales.
4 SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended
5 by adding a new section to be appropriately designated and to
6 read as follows:
7 "�7- Application of sections 237-4(a)(8), 237-
8 4(a)(10), and 237-13(6)(A). (a) Sections 237-4(a)(8), 237-
9 4(a)(10), and 237-13(6)(A) to the contrary notwithstanding,
10 instead of the tax levied under sections 237-4 and 237-13(6)(A)
11 at one-half of one per cent, during the period January 1, 2000,
12 to December 31, 2005, the tax shall be as follows:
13 (1) In calendar year 2000, 3.5 per cent;
14 (2) In calendar year 2001, 3.0 per cent;
15 (3) In calendar year 2002, 2.5 per cent;
16 (4) In calendar year 2003, 2.0 per cent;
17 (5) In calendar year 2004, 1.5 per cent;
18 (6) In calendar year 2005, 1.0 per cent; and
19 (7) In calendar year 2006 and thereafter, 0.5 per cent.
20 (b) The department shall have the authority to implement
21 the tax rate changes in subsection (a) by prescribing tax forms
22 and instructions that require tax reporting and payment by
23 deduction, allocation, or any other method to determine tax
24 liability with due regard to the tax rate changes."
Page 3 638
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1 SECTION 3. Section 237-1, Hawaii Revised Statutes, is
2 amended by adding a new definition to be appropriately inserted
3 and to read as follows:
4 ""Overhead" means continuous or general costs occurring in
5 the normal course of a business, including but not limited to
6 costs for labor, rent, taxes, royalties, interest, discounts
7 paid, insurance, lighting, heating, cooling, accounting, legal
8 fees, equipment and facilities, telephone systems, depreciation,
9 and amortization."
10 SECTION 4. Section 237-4, Hawaii Revised Statutes, is
11 amended to read as follows:
12 "�7-4 "Wholesaler", "jobber", defined. (a) "Wholesaler"
13 or "jobber" applies only to a person making sales at wholesale.
14 Only the following are sales at wholesale:
15 (1) Sales to a licensed retail merchant, jobber, or other
16 licensed seller for purposes of resale;
17 (2) Sales to a licensed manufacturer of material or
18 commodities which are to be incorporated by the
19 manufacturer into a finished or saleable product
20 (including the container or package in which the
21 product is contained) during the course of its
22 preservation, manufacture, or processing, including
23 preparation for market, and which will remain in such
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1 finished or saleable product in such form as to be
2 perceptible to the senses, which finished or saleable
3 product is to be sold and not otherwise used by the
4 manufacturer;
5 (3) Sales to a licensed producer or cooperative association
6 of materials or commodities which are to be
7 incorporated by the producer or by the cooperative
8 association into a finished or saleable product which
9 is to be sold and not otherwise used by the producer or
10 cooperative association, including specifically
11 materials or commodities expended as essential to the
12 planting, growth, nurturing, and production of
13 commodities which are sold by the producer or by the
14 cooperative association;
15 (4) Sales to a licensed contractor, of material or
16 commodities which are to be incorporated by the
17 contractor into the finished work or project required
18 by the contract and which will remain in such finished
19 work or project in such form as to be perceptible to
20 the senses;
21 (5) Sales to a licensed producer, or to a cooperative
22 association described in section 237-23(a)(7) for sale
23 to such producer, or to a licensed person operating a
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1 feed lot, of poultry or animal feed, hatching eggs,
2 semen, replacement stock, breeding services for the
3 purpose of raising or producing animal or poultry
4 products for disposition as described in section 237-5
5 or to be incorporated in a manufactured product as
6 described in paragraph (2) or for the purpose of
7 breeding, hatching, milking, or egg laying other than
8 for the customer's own consumption of the meat,
9 poultry, eggs, or milk so produced; provided that in
10 the case of a feed lot operator, only the segregated
11 cost of the feed furnished by the feed lot operator as
12 part of the feed lot operator's service to a licensed
13 producer of poultry or animals to be butchered or to a
14 cooperative association described in section
15 237-23(a)(7) of such licensed producers shall be deemed
16 to be a sale at wholesale; and provided further that
17 any amount derived from the furnishing of feed lot
18 services, other than the segregated cost of feed, shall
19 be deemed taxable at the service business rate. This
20 paragraph shall not apply to the sale of feed for
21 poultry or animals to be used for hauling,
22 transportation, or sports purposes;
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1 (6) Sales to a licensed producer, or to a cooperative
2 association described in section 237-23(a)(7) for sale
3 to the producer, of seed for producing agricultural
4 products, or bait for catching fish (including the
5 catching of bait for catching fish), which agricultural
6 products or fish are to be disposed of as described in
7 section 237-5 or to be incorporated in a manufactured
8 product as described in paragraph (2);
9 (7) Sales to a licensed producer, or to a cooperative
10 association described in section 237-23(a)(7) for sale
11 to such producer; of polypropylene shade cloth; of
12 polyfilm; of polyethylene film; of cartons and such
13 other containers, wrappers, and sacks, and binders to
14 be used for packaging eggs, vegetables, fruits, and
15 other agricultural products; of seedlings and cuttings
16 for producing nursery plants; or of chick containers;
17 which cartons and such other containers, wrappers, and
18 sacks, binders, seedlings, cuttings, and containers are
19 to be used as described in section 237-5, or to be
20 incorporated in a manufactured product as described in
21 paragraph (2);
Page 7 638
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1 (8) Sales of tangible personal property [to]:
2 (A) To a licensed [person] seller engaged in [the] a
3 service business[;] or calling; provided that [(A)
4 the]:
5 (i) The property is not consumed or incidental to
6 the performance of the services; [(B) there]
7 (ii) There is a resale of the article at the
8 retail rate of four per cent; and [[(C) the]
9 (iii) The resale of the article is separately
10 charged or billed by the person rendering the
11 services; and
12 (B) Where:
13 (i) Tangible personal property is sold upon the
14 order or request of a licensed seller for the
15 purpose of rendering a service in the course
16 of the person's service business or calling
17 or upon the order or request of a person,
18 subject to tax under section 237D-2, for the
19 purpose of furnishing transient
20 accommodations;
21 (ii) The property becomes or is used as an
22 identifiable element of the service rendered;
23 and
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1 (iii) The cost of the property does not constitute
2 overhead to the licensed seller;
3 the sale shall be subject to section 237- .
4 Where the taxpayer is subject to both subparagraphs (A)
5 and (B), then the taxpayer shall be taxed under
6 subparagraph (A). Subparagraph (A) shall be repealed
7 on January 1, 2006.
8 (9) Sales to a licensed leasing company of capital goods
9 which have a depreciable life, are purchased by the
10 leasing company for lease to its customers, and are
11 thereafter leased as a service to others[. Capital
12 goods means goods which have a depreciable life and
13 which are purchased by the leasing company for lease to
14 its customers.]; and
15 (10) Sales of services to a licensed seller engaging in a
16 business or calling whenever:
17 (A) Either:
18 (i) In the context of a service-to-service
19 transaction, a service is rendered upon the
20 order or request of a licensed seller for the
21 purpose of rendering another service in the
22 course of the seller's service business or
23 calling;
Page 9 638
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1 (ii) In the context of a service-to-goods
2 transaction, a service is rendered upon the
3 order or request of a licensed seller for the
4 purpose of manufacturing, producing,
5 preparing, or acquiring tangible personal
6 property to be sold;
7 (iii) In the context of a services-to-contracting
8 transaction, a service is rendered upon the
9 order or request of a licensed contractor as
10 defined in section 237-6 for the purpose of
11 assisting that licensed contractor in
12 executing a contract; or
13 (iv) In the context of a services-to-transient
14 accommodations rental transaction, a service
15 is rendered upon the order or request of a
16 person subject to tax under section 237D-2
17 for the purpose of furnishing transient
18 accommodations;
19 (B) The benefit of the service passes to the customer
20 of the licensed seller, licensed contractor, or
21 person furnishing transient accommodations as an
22 identifiable element of the other service or
23 property to be sold, the contracting, or the
24 furnishing of transient accommodations; and
Page 10 638
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1 (C) The cost of the service does not constitute
2 overhead to the licensed seller, licensed
3 contractor, or person furnishing transient
4 accommodations.
5 Sales subject to this paragraph shall be subject to
6 section 237- .
7 (b) If the use tax law is finally held by a court of
8 competent jurisdiction to be unconstitutional or invalid insofar
9 as it purports to tax the use or consumption of tangible personal
10 property imported into the State in interstate or foreign
11 commerce or both, wholesalers and jobbers shall be taxed
12 thereafter under this chapter in accordance with the following
13 definition (which shall supersede the preceding paragraph
14 otherwise defining "wholesaler" or "jobber"): "Wholesaler" or
15 "jobber" means a person, or a definitely organized division
16 thereof, definitely organized to render and rendering a general
17 distribution service which buys and maintains at the person's
18 place of business a stock or lines of merchandise which the
19 person distributes; and which, through salespersons, advertising,
20 or sales promotion devices, sells to licensed retailers, to
21 institutional or licensed commercial or industrial users, in
22 wholesale quantities and at wholesale rates. A corporation
23 deemed not to be carrying on a trade or business in this State
Page 11 638
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1 under section 235-6 shall nevertheless be deemed to be a
2 wholesaler and shall be subject to the tax imposed by this
3 chapter."
4 SECTION 5. Section 237-7, Hawaii Revised Statutes, is
5 amended to read as follows:
6 "�7-7 "Service business or calling", defined."Service
7 business or calling" includes all activities engaged in for other
8 persons for a consideration which involve the rendering of a
9 service, including professional services, as distinguished from
10 the sale of tangible property or the production and sale of
11 tangible property. "Service business or calling" does not
12 include the services rendered by an employee to the employee's
13 employer."
14 SECTION 6. Section 237-13, Hawaii Revised Statutes, is
15 amended to read as follows:
16 "�7-13 Imposition of tax. There is hereby levied and
17 shall be assessed and collected annually privilege taxes against
18 persons on account of their business and other activities in the
19 State measured by the application of rates against values of
20 products, gross proceeds of sales, or gross income, whichever is
21 specified, as follows:
22 (1) Tax on manufacturers.
23 (A) Upon every person engaging or continuing within
24 the State in the business of manufacturing,
Page 12 638
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1 including compounding, canning, preserving,
2 packing, printing, publishing, milling,
3 processing, refining, or preparing for sale,
4 profit, or commercial use, either directly or
5 through the activity of others, in whole or in
6 part, any article or articles, substance or
7 substances, commodity or commodities, the amount
8 of the tax to be equal to the value of the
9 articles, substances, or commodities,
10 manufactured, compounded, canned, preserved,
11 packed, printed, milled, processed, refined, or
12 prepared, for sale, as shown by the gross proceeds
13 derived from the sale thereof by the manufacturer
14 or person compounding, preparing, or printing
15 them, multiplied by one-half of one per cent.
16 (B) The measure of the tax on manufacturers is the
17 value of the entire product for sale, regardless
18 of the place of sale or the fact that deliveries
19 may be made to points outside the State.
20 (C) If any person liable for the tax on manufacturers
21 ships or transports the person's product, or any
22 part thereof, out of the State, whether in a
23 finished or unfinished condition, or sells the
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1 same for delivery outside of the State (for
2 example, consigned to a mainland purchaser via
3 common carrier f.o.b. Honolulu), the value of the
4 products in the condition or form in which they
5 exist immediately before entering interstate or
6 foreign commerce, determined as hereinafter
7 provided, shall be the basis for the assessment of
8 the tax imposed by this paragraph. This tax shall
9 be due and payable as of the date of entry of the
10 products into interstate or foreign commerce,
11 whether the products are then sold or not. The
12 department of taxation shall determine the basis
13 for assessment, as provided by this paragraph, as
14 follows:
15 (i) If the products at the time of their entry
16 into interstate or foreign commerce already
17 have been sold, the gross proceeds of sale,
18 less the transportation expenses, if any,
19 incurred in realizing the gross proceeds for
20 transportation from the time of entry of the
21 products into interstate or foreign commerce,
22 including insurance and storage in transit,
23 shall be the measure of the value of the
24 products[.];
Page 14 638
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1 (ii) If the products have not been sold at the
2 time of their entry into interstate or
3 foreign commerce, and in cases governed by
4 clause (i) in which the products are sold
5 under circumstances such that the gross
6 proceeds of sale are not indicative of the
7 true value of the products, the value of the
8 products constituting the basis for
9 assessment shall correspond as nearly as
10 possible to the gross proceeds of sales for
11 delivery outside the State, adjusted as
12 provided in clause (i), or if sufficient data
13 are not available, sales in the State, of
14 similar products of like quality and
15 character and in similar quantities, made by
16 the taxpayer (unless not indicative of the
17 true value) or by others. Sales outside the
18 State, adjusted as provided in clause (i),
19 may be considered when they constitute the
20 best available data. The department shall
21 prescribe uniform and equitable rules for
22 ascertaining the values[.];
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1 (iii) At the election of the taxpayer and with the
2 approval of the department, the taxpayer may
3 make the taxpayer's returns under clause (i)
4 even though the products have not been sold
5 at the time of their entry into interstate or
6 foreign commerce[.]; and
7 (iv) In all cases in which products leave the
8 State in an unfinished condition, the basis
9 for assessment shall be adjusted so as to
10 deduct the portion of the value as is
11 attributable to the finishing of the goods
12 outside the State.
13 (2) Tax on business of selling tangible personal property;
14 producing.
15 (A) Upon every person engaging or continuing in the
16 business of selling any tangible personal property
17 whatsoever (not including, however, bonds or other
18 evidence of indebtedness, or stocks), there is
19 likewise hereby levied, and shall be assessed and
20 collected, a tax equivalent to four per cent of
21 the gross proceeds of sales of the business;
22 provided that insofar as certain retailing is
23 taxed by section 237-16, the tax shall be that
Page 16 638
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1 levied by section 237-16, and in the case of a
2 wholesaler, the tax shall be equal to one-half of
3 one per cent of the gross proceeds of sales of the
4 business and provided that insofar as the sales of
5 tangible personal property is a wholesale sale
6 under section 237-4(a)(8)(B) the sale shall be
7 subject to section 237- . Upon every person
8 engaging or continuing within this State in the
9 business of a producer, the tax shall be equal to
10 one-half of one per cent of the gross proceeds of
11 sales of the business, or the value of the
12 products, for sale, if sold for delivery outside
13 the State or shipped or transported out of the
14 State, and the value of the products shall be
15 determined in the same manner as the value of
16 manufactured products covered in the cases under
17 paragraph (1)(C).
18 (B) Gross proceeds of sales of tangible property in
19 interstate and foreign commerce shall constitute a
20 part of the measure of the tax imposed on persons
21 in the business of selling tangible personal
22 property, to the extent, under the conditions, and
23 in accordance with the provisions of the
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1 Constitution of the United States and the Acts of
2 the Congress of the United States which may be now
3 in force or may be hereafter adopted, and whenever
4 there occurs in the State an activity to which,
5 under the Constitution and Acts of Congress, there
6 may be attributed gross proceeds of sales, the
7 gross proceeds shall be so attributed.
8 (C) No manufacturer or producer, engaged in such
9 business in the State and selling the
10 manufacturer's or producer's products for delivery
11 outside of the State (for example, consigned to a
12 mainland purchaser via common carrier f.o.b.
13 Honolulu), shall be required to pay the tax
14 imposed in this chapter for the privilege of so
15 selling the products, and the value or gross
16 proceeds of sales of the products shall be
17 included only in determining the measure of the
18 tax imposed upon the manufacturer or producer.
19 (D) When a manufacturer or producer, engaged in such
20 business in the State, also is engaged in selling
21 the manufacturer's or producer's products in the
22 State at wholesale, retail, or in any other
23 manner, the tax for the privilege of engaging in
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1 the business of selling the products in the State
2 shall apply to the manufacturer or producer as
3 well as the tax for the privilege of manufacturing
4 or producing in the State, and the manufacturer or
5 producer shall make the returns of the gross
6 proceeds of the wholesale, retail, or other sales
7 required for the privilege of selling in the
8 State, as well as making the returns of the value
9 or gross proceeds of sales of the products
10 required for the privilege of manufacturing or
11 producing in the State. The manufacturer or
12 producer shall pay the tax imposed in this chapter
13 for the privilege of selling its products in the
14 State, and the value or gross proceeds of sales of
15 the products, thus subjected to tax, may be
16 deducted insofar as duplicated as to the same
17 products by the measure of the tax upon the
18 manufacturer or producer for the privilege of
19 manufacturing or producing in the State; except
20 that no producer of agricultural products who
21 sells the products to a purchaser who will process
22 the products outside the State shall be required
23 to pay the tax imposed in this chapter for the
24 privilege of producing or selling those products.
Page 19 638
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1 (E) A taxpayer selling to a federal cost-plus
2 contractor may make the election provided for by
3 paragraph (3)(C), and in that case the tax shall
4 be computed pursuant to the election,
5 notwithstanding this paragraph or paragraph (1) to
6 the contrary.
7 (F) The department, by rule, may provide that a seller
8 may take from the purchaser of tangible personal
9 property a certificate, in a form [as] prescribed
10 by the department [shall prescribe], certifying
11 that the sale is a sale at wholesale[. If the
12 certificate is so provided for by rule of the
13 department:]; provided that:
14 (i) Any purchaser who furnishes a certificate
15 shall be obligated to pay to the seller, upon
16 demand, [if the sale in fact is not at
17 wholesale,] the amount of the additional tax
18 [which by reason thereof] that is imposed
19 upon the seller[;] whenever the sale in fact
20 is not at wholesale; and
21 (ii) The absence of a certificate[, unless the
22 sales of the business are exclusively at
23 wholesale,] in itself shall give rise to the
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1 presumption that the sale is not at
2 wholesale[.] unless the sales of the business
3 are exclusively at wholesale.
4 (3) Tax upon contractors.
5 (A) Upon every person engaging or continuing within
6 the State in the business of contracting, the tax
7 shall be equal to four per cent of the gross
8 income of the business; provided that insofar as
9 the business of contracting is taxed by section
10 237-16, which relates to certain retailing, the
11 tax shall be that levied by section 237-16.
12 (B) In computing the tax levied under this paragraph
13 or section 237-16, there shall be deducted from
14 the gross income of the taxpayer so much thereof
15 as has been included in the measure of the tax
16 levied under subparagraph (A) or section 237-16,
17 on:
18 (i) Another taxpayer who is a contractor, as
19 defined in section 237-6;
20 (ii) A specialty contractor, duly licensed by the
21 department of commerce and consumer affairs
22 pursuant to section 444-9, in respect of the
23 specialty contractor's business; or
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1 (iii) A specialty contractor who is not licensed by
2 the department of commerce and consumer
3 affairs pursuant to section 444-9, but who
4 performs contracting activities on federal
5 military installations and nowhere else in
6 this State;
7 but any person claiming a deduction under this
8 paragraph shall be required to show in the
9 person's return the name and general excise number
10 of the person paying the tax on the amount
11 deducted by the person.
12 (C) In computing the tax levied under this paragraph
13 against any federal cost-plus contractor, there
14 shall be excluded from the gross income of the
15 contractor so much thereof as fulfills the
16 following requirements:
17 (i) The gross income exempted shall constitute
18 reimbursement of costs incurred for
19 materials, plant, or equipment purchased from
20 a taxpayer licensed under this chapter, not
21 exceeding the gross proceeds of sale of the
22 taxpayer on account of the transaction; and
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1 (ii) The taxpayer making the sale shall have
2 certified to the department that the taxpayer
3 is taxable with respect to the gross proceeds
4 of the sale, and that the taxpayer elects to
5 have the tax on gross income computed the
6 same as upon a sale to the state government.
7 (D) A person who, as a business or as a part of a
8 business in which the person is engaged, erects,
9 constructs, or improves any building or structure,
10 of any kind or description, or makes, constructs,
11 or improves any road, street, sidewalk, sewer, or
12 water system, or other improvements on land held
13 by the person (whether held as a leasehold, fee
14 simple, or otherwise), upon the sale or other
15 disposition of the land or improvements, even if
16 the work was not done pursuant to a contract,
17 shall be liable to the same tax as if engaged in
18 the business of contracting, unless the person
19 shows that at the time the person was engaged in
20 making the improvements it was, and for the period
21 of at least one year after completion of the
22 building, structure, or other improvements, it
23 continued to be the person's purpose to hold and
Page 23 638
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1 not sell or otherwise dispose of the land or
2 improvements. The tax in respect of the
3 improvements shall be measured by the amount of
4 the proceeds of the sale or other disposition that
5 is attributable to the erection, construction, or
6 improvement of such building or structure, or the
7 making, constructing, or improving of the road,
8 street, sidewalk, sewer, or water system, or other
9 improvements. The measure of tax in respect of
10 the improvements shall not exceed the amount which
11 would have been taxable had the work been
12 performed by another, subject as in other cases to
13 the deductions allowed by subparagraph (B). Upon
14 the election of the taxpayer, this paragraph may
15 be applied notwithstanding the improvements were
16 not made by the taxpayer, or were not made as a
17 business or as a part of a business, or were made
18 with the intention of holding the same. However,
19 this paragraph shall not apply in respect of any
20 proceeds that constitute or are in the nature of
21 rent; all such gross income shall be taxable under
22 paragraph [(10);] (9); provided that insofar as
23 the business of renting or leasing real property
Page 24 638
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1 under a lease is taxed under section 237-16.5, the
2 tax shall be levied by section 237-16.5.
3 (4) Tax upon theaters, amusements, radio broadcasting
4 stations, etc. Upon every person engaging or
5 continuing within the State in the business of
6 operating a theater, opera house, moving picture show,
7 vaudeville, amusement park, dance hall, skating rink,
8 radio broadcasting station, or any other place at which
9 amusements are offered to the public, the tax shall be
10 equal to four per cent of the gross income of the
11 business.
12 (5) Tax upon sales representatives, etc. Upon every person
13 classified as a representative or purchasing agent
14 under section 237-1, engaging or continuing within the
15 State in the business of performing services for
16 another, other than as an employee, there is likewise
17 hereby levied and shall be assessed and collected a tax
18 equal to four per cent of the commissions and other
19 compensation attributable to the services so rendered
20 by the person.
21 (6) Tax on service business.
22 (A) Upon every person engaging or continuing within
23 the State in any service business or calling
Page 25 638
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1 including professional services not otherwise
2 specifically taxed under this chapter, there is
3 likewise hereby levied and shall be assessed and
4 collected a tax equal to four per cent of the
5 gross income of the business[; provided that
6 where], and in the case of a wholesaler under
7 section 237-4(a)(10), the tax shall be equal to
8 one-half of one per cent of the gross income of
9 the business. Sales subject to this subparagraph
10 shall be subject to section 237- .
11 (B) The department, by rule, may require that the
12 person rendering a service at wholesale take from
13 the licensed seller a certificate, in a form
14 prescribed by the department, certifying that the
15 sale is a sale at wholesale; provided that:
16 (i) Any licensed seller who furnishes a
17 certificate shall be obligated to pay to the
18 person rendering the service, upon demand,
19 the amount of additional tax that is imposed
20 upon the seller whenever the sale is not at
21 wholesale; and
22 (ii) The absence of a certificate in itself shall
23 give rise to the presumption that the sale is
Page 26 638
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1 not at wholesale unless the person rendering
2 the sale is exclusively rendering services at
3 wholesale.
4 (C) Where any person engaging or continuing within the
5 State in any service business or calling renders
6 those services upon the order of or at the request
7 of another taxpayer who is engaged in the service
8 business and who, in fact, acts as or acts in the
9 nature of an intermediary between the person
10 rendering those services and the ultimate
11 recipient of the benefits of those services, so
12 much of the gross income as is received by the
13 person rendering the services shall be subjected
14 to the tax at the rate of one-half of one per cent
15 and all of the gross income received by the
16 intermediary from the principal shall be subjected
17 to a tax at the rate of four per cent; [and
18 provided that where] Where the taxpayer is
19 subject to both this subparagraph and to the
20 lowest tax rate under subparagraph (A), the
21 taxpayer shall be taxed under this subparagraph.
22 This subparagraph shall be repealed on January 1,
23 2006.
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1 (D) Where any person is engaged in the business of
2 selling interstate or foreign common carrier
3 telecommunication services within and without the
4 State, the tax shall be imposed on that portion of
5 gross income received by a person from service
6 which is originated or terminated in this State
7 and is charged to a telephone number, customer, or
8 account in this State notwithstanding any other
9 state law (except for the exemption under section
10 237-23(a)(1)) to the contrary. If, under the
11 Constitution and laws of the United States, the
12 entire gross income as determined under this
13 paragraph of a business selling interstate or
14 foreign common carrier telecommunication services
15 cannot be included in the measure of the tax, the
16 gross income shall be apportioned as provided in
17 section 237-21; provided that the apportionment
18 factor and formula shall be the same for all
19 persons providing those services in the State.
20 (7) Tax on insurance solicitors and agents. Upon every
21 person engaged as a licensed solicitor, general agent,
22 or subagent pursuant to chapter 431, there is hereby
23 levied and shall be assessed and collected a tax equal
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H.D. 2
1 to .15 per cent of the commissions due to that
2 activity.
3 [(8) Professions. Upon every person engaging or continuing
4 within the State in the practice of a profession,
5 including those expounding the religious doctrines of
6 any church, there is likewise hereby levied and shall
7 be assessed and collected a tax equal to four per cent
8 of the gross income on the practice or exposition.
9 (9)] (8) Tax on receipts of sugar benefit payments. Upon
10 the amounts received from the United States government
11 by any producer of sugar (or the producer's legal
12 representative or heirs), as defined under and by
13 virtue of the Sugar Act of 1948, as amended, or other
14 Acts of the Congress of the United States relating
15 thereto, there is hereby levied a tax of one-half of
16 one per cent of the gross amount received[,]; provided
17 that the tax levied hereunder on any amount so received
18 and actually disbursed to another by a producer in the
19 form of a benefit payment shall be paid by the person
20 or persons to whom the amount is actually disbursed,
21 and the producer actually making a benefit payment to
22 another shall be entitled to claim on the producer's
23 return a deduction from the gross amount taxable
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H.D. 2
1 hereunder in the sum of the amount so disbursed. The
2 amounts taxed under this paragraph shall not be taxable
3 under any other paragraph, subsection, or section of
4 this chapter.
5 [(10)] (9) Tax on other business. Upon every person engaging
6 or continuing within the State in any business, trade,
7 activity, occupation, or calling not included in the
8 preceding paragraphs or any other provisions of this
9 chapter, there is likewise hereby levied and shall be
10 assessed and collected, a tax equal to four per cent of
11 the gross income thereof. In addition, the rate
12 prescribed by this paragraph shall apply to a business
13 taxable under one or more of the preceding paragraphs
14 or other provisions of this chapter, as to any gross
15 income thereof not taxed thereunder as gross income or
16 gross proceeds of sales or by taxing an equivalent
17 value of products, unless specifically exempted."
18 SECTION 7. Section 237-16, Hawaii Revised Statutes, is
19 amended to read as follows:
20 "�7-16 Tax on certain retailing.(a) This section
21 relates to certain retailing in the State as follows:
22 (1) This section relates to the sale of tangible personal
23 property, for consumption or use by the purchaser and
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H.D. 2
1 not for resale, the renting of tangible personal
2 property, and the rendering of services by one engaged
3 in a service business or calling, as defined, to a
4 person who is not purchasing the services for resale,
5 but does not relate to the sale or rental of tangible
6 personal property or the rendering of services to the
7 State, its political subdivisions, or agencies or
8 instrumentalities of the State or a political
9 subdivision, or to the United States or its agencies or
10 instrumentalities (other than national banks), or to a
11 corporation, organization, or other person designated
12 in section 237-23 who is not subject to the tax imposed
13 by this chapter, or to a person licensed under this
14 chapter in connection with the person's business.
15 (2) This section relates to the business of a contractor,
16 as defined, but does not relate to contracting with, or
17 any gross income or proceeds of a subcontractor if the
18 principal contract is with the State, its political
19 subdivisions, or agencies or instrumentalities of the
20 State or a political subdivision, or with the United
21 States or its agencies or instrumentalities (other than
22 national banks), or with a person designated in section
23 237-23 who is not subject to the tax imposed by this
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H.D. 2
1 chapter, or with a person licensed under this chapter
2 in connection with the person's business.
3 (3) This section relates to furnishing of transient
4 accommodations in a hotel, apartment hotel, or other
5 place in which lodgings are regularly furnished to
6 transients for a consideration which includes the
7 rendering of services.
8 (b) There is hereby levied, and shall be assessed and
9 collected annually, a privilege tax against persons engaging or
10 continuing within the State in the retailing to which this
11 section relates, on account of such retailing activities, as set
12 forth in subsection (a), equal to four per cent of the gross
13 proceeds of sale or gross income received or derived from such
14 retailing. Persons on whom a tax is imposed by this section
15 hereinafter are called "retailers".
16 (c) No retailer shall advertise or hold out to the public
17 in any manner, directly or indirectly, that the tax imposed by
18 this section is not considered as an element in the price to the
19 consumer. Any person violating this subsection shall be fined
20 not more than $50 for each offense.
21 (d) This section shall not cause the tax upon a taxpayer,
22 with respect to any item of the taxpayer's gross income, to
23 exceed four per cent.
Page 32 638
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1 (e) This section shall not apply to:
2 (1) Sales of tangible personal property treated as a
3 wholesale sale under section 237-4(a)(8)(B) to a
4 licensed seller engaged in a service business or
5 calling or a person furnishing transient
6 accommodations; or
7 (2) Sales of services treated as a wholesale sale under
8 section 237-4(a)(10) to to a licensed seller engaged in
9 a business or calling, a contractor as defined in
10 section 237-6, or a person furnishing transient
11 accommodations."
12 SECTION 8. Section 238-2, Hawaii Revised Statutes, is
13 amended to read as follows:
14 "�8-2 Imposition of tax; exemptions. There is hereby
15 levied an excise tax on the use in this State of tangible
16 personal property which is imported, or purchased from an
17 unlicensed seller, for use in this State. The tax imposed by
18 this chapter shall accrue when the property is acquired by the
19 importer or purchaser and becomes subject to the taxing
20 jurisdiction of the State. The rates of the tax hereby imposed
21 and the exemptions thereof are as follows:
22 (1) If the importer or purchaser is licensed under chapter
23 237 and is:
Page 33 638
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H.D. 2
1 (A) [a] A wholesaler or jobber importing or purchasing
2 for purposes of resale[,]; or
3 (B) [a] A manufacturer importing or purchasing
4 material or commodities which are to be
5 incorporated by the manufacturer into a finished
6 or saleable product (including the container or
7 package in which the product is contained) wherein
8 it will remain in such form as to be perceptible
9 to the senses, and which finished or saleable
10 product is to be sold in such manner as to result
11 in a further tax on the activity of the
12 manufacturer as the manufacturer or as a
13 wholesaler, and not as a retailer,
14 there shall be no tax[,]; provided that if the
15 wholesaler, jobber, or manufacturer is also engaged in
16 business as a retailer (so classed under chapter 237),
17 paragraph (2) shall apply to the wholesaler, jobber, or
18 manufacturer, but the director of taxation shall refund
19 to the wholesaler, jobber, or manufacturer, in the
20 manner provided under section 231-23(c) such amount of
21 tax as the wholesaler, jobber, or manufacturer shall,
22 to the satisfaction of the director, establish to have
23 been paid by the wholesaler, jobber, or manufacturer to
Page 34 638
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H.D. 2
1 the director with respect to property which has been
2 used by the wholesaler, jobber, or manufacturer for the
3 purposes stated in this paragraph[.];
4 (2) If the importer or purchaser is licensed under chapter
5 237 and is:
6 (A) [a] A retailer or other person importing or
7 purchasing for purposes of resale, not exempted by
8 paragraph (1)[, or];
9 (B) [a] A manufacturer importing or purchasing
10 material or commodities which are to be
11 incorporated by the manufacturer into a finished
12 or saleable product (including the container or
13 package in which the product is contained) wherein
14 it will remain in such form as to be perceptible
15 to the senses, and which finished or saleable
16 product is to be sold at retail in this State, in
17 such manner as to result in a further tax on the
18 activity of the manufacturer in selling such
19 products at retail[, or];
20 (C) [a] A contractor importing or purchasing material
21 or commodities which are to be incorporated by the
22 contractor into the finished work or project
23 required by the contract and which will remain in
Page 35 638
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H.D. 2
1 such finished work or project in such form as to
2 be perceptible to the senses[,]; or
3 (D) A person engaged in a service business or calling
4 as defined in section 237-7, or a person
5 furnishing transient accommodations subject to the
6 tax imposed by section 237D-2, in which the import
7 or purchase of tangible personal property would
8 have qualified as a sale at wholesale as defined
9 in section 237-4(a)(8) had the seller of the
10 property been subject to the tax in chapter 237,
11 the tax shall be one-half of one per cent of the
12 purchase price of the property, if the purchase and
13 sale are consummated in Hawaii; or, if there is no
14 purchase price applicable thereto, or if the purchase
15 or a person furnishing transient accommodations subject
16 to the tax imposed by section 237D-2, or sale is
17 consummated outside of Hawaii, then one-half of one per
18 cent of the value of such property[.]; and
19 (3) In all other cases, four per cent of the value of the
20 property."
21 SECTION 9. Statutory material to be repealed is bracketed.
22 New statutory material is underscored.
Page 36 638
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1 SECTION 10. This Act shall take effect upon its approval
2 and shall apply to gross income or gross proceeds received after
3 December 31, 1999; provided that section 8 of this Act shall
4 apply to amounts paid or incurred after December 31, 1999.