REPORT TITLE: 
Taxation


DESCRIPTION:
Exempts exported services from GET; imposes the use tax on
imported services.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
SENATE                                  S.B. NO.           44
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  The legislature finds that businesses in Hawaii
 
 2 need encouragement and that changing the general excise tax is
 
 3 necessary to support business.  The purpose of this Act is to
 
 4 provide this encouragement by implementing the recommendation of
 
 5 the 1995-1997 Tax Review Commission and the previous Tax Review
 
 6 Commission reporting in 1989, that the State of Hawaii should
 
 7 exempt the export of services from the general excise tax and
 
 8 impose the use tax on the importation of services.  By making
 
 9 this change, services will be treated in the same manner as
 
10 tangible personal property.
 
11      In reviewing bills on this subject from previous sessions,
 
12 the legislature has taken a different approach to the problem.
 
13 In section 237-29.6, Hawaii Revised Statutes, exempting the
 
14 exportation of certain computer services from the general excise
 
15 tax, a certificate is required that provides that if the export
 
16 of services is exempt and the services are returned to the State,
 
17 the buyer of the services will pay the seller of the services the
 
18 general excise tax at four per cent.  The legislature finds that
 
19 this provision made sense when enacted, since imported services
 

 
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 1 were not taxed.  However, the legislature finds that computer
 
 2 services providers are finding this provision is making the sale
 
 3 of those services out of state difficult.  With the taxation of
 
 4 imported services, this provision is unnecessary.
 
 5      This Act also provides for the importation of services for
 
 6 bundling and exportation.  This activity should not be subject to
 
 7 the taxation of imported services, as Hawaii should exempt the
 
 8 importation, bundling, and exportation of services in a manner
 
 9 similar to tangible personal property.  The legislature believes
 
10 that failure to do so will prevent Hawaii from becoming a center
 
11 for those services which lend themselves to this type of
 
12 activity.  Therefore, this Act provides for the exemption of this
 
13 activity.
 
14      SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended
 
15 by adding a new section to be appropriately designated and to
 
16 read as follows:
 
17      "§237-    Exemption for services sold out of State.  (a)
 
18 There shall be exempted from, and excluded from the measure of,
 
19 taxes imposed by this chapter all of value or gross income
 
20 derived from services performed in Hawaii for an out-of-state
 
21 customer not licensed under this chapter where:
 
22      (1)  The services performed in Hawaii are exported and
 
23           resold, consumed, or used wholly outside the State; and
 

 
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 1      (2)  The gross income derived from the services performed
 
 2           would otherwise be subject to taxation at the highest
 
 3           rate under section 237-13(6), 237-13(8), or equivalent
 
 4           sections imposing the tax at the highest rate upon the
 
 5           gross income derived from the rendering of services
 
 6           under this chapter.
 
 7      (b)  For the purposes of this section, the seller or person
 
 8 rendering the services exported and resold, consumed, or used
 
 9 outside the State shall take from the purchaser, a certificate
 
10 (or an equivalent), in the form that the department prescribes,
 
11 certifying that the service purchased is to be resold or
 
12 otherwise consumed or used outside the State."
 
13      SECTION 3.  Chapter 238, Hawaii Revised Statutes, is amended
 
14 by adding a new section to be appropriately designated and to
 
15 read as follows:
 
16      "§238-    Service seller's certificate.  The department may
 
17 prescribe a certificate in a form that it deems necessary that
 
18 shall be furnished to a Hawaii user by a seller of services
 
19 provided through an office or other place of business which is
 
20 located outside of the State, certifying that the seller is a
 
21 licensed seller with respect to the sale of services.  The
 
22 absence of the certificate shall itself be a presumption that the
 
23 seller is an unlicensed seller and that the Hawaii user is
 

 
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 1 subject to taxation under this chapter for the use of the
 
 2 seller's services."
 
 3      SECTION 4.  Section 238-1, Hawaii Revised Statutes, is
 
 4 amended as follows:
 
 5      1.  By adding two new definitions to read:
 
 6      ""Foreign customer" means a nonresident person who:
 
 7      (1)  Is not subject to chapter 237;
 
 8      (2)  If an individual, whether or not employed by another
 
 9           person, has not been physically present in the State
 
10           for more than thirty consecutive days in the six-month
 
11           period prior to entering into a written exported
 
12           services agreement with a licensed person in Hawaii
 
13           engaged in a service business or calling; and
 
14      (3)  Is the recipient of the exported service provided
 
15           through a person in Hawaii engaged in a service
 
16           business or calling subject to chapter 237.
 
17      "Services" includes all activities engaged in by a service
 
18 business or calling, or other business for other persons for a
 
19 consideration that involve the rendering of a service, as
 
20 distinguished from the sale of tangible personal property or the
 
21 production and sale of tangible property.  "Services" do not
 
22 include services rendered by an employee to the employee's
 
23 employer."
 

 
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 1      2.  By amending the definition of "person" to read:
 
 2      ""Person", "business", "engaging in business", "service
 
 3 business or calling", "retailer", "wholesaler",  "jobber", and
 
 4 "contractor" have the meanings defined by chapter 237."
 
 5      3.  By amending the definition of "price" to read:
 
 6      ""Price" means the total amount for which tangible personal
 
 7 property [is] or services are purchased, valued in money, whether
 
 8 paid in money or otherwise, and wheresoever paid, provided that
 
 9 cash discounts allowed and taken on sales shall not be included."
 
10      4.  By amending the definitions of "purchase" and "sale",
 
11 "purchaser", "representation", and "seller" to read:
 
12      ""Purchase" and "sale" mean and refer to any transfer,
 
13 exchange, or barter, conditional or otherwise, in any manner or
 
14 by any means, wheresoever consummated, of tangible personal
 
15 property or services for a consideration.
 
16      "Purchaser" means any person purchasing property or services
 
17 and "importer" means any person importing property[;] or
 
18 services; provided that the term "purchaser" and "importer" shall
 
19 not include the State, its political subdivisions, or wholly
 
20 owned agencies or instrumentalities of the State or a political
 
21 subdivision; or the United States, its wholly owned agencies or
 
22 instrumentalities, or any person immune from the tax imposed by
 
23 this chapter under the Constitution and laws of the United States
 
24 but the terms shall include national banks.
 

 
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 1      "Representation" refers to any or all of the following:
 
 2      (1)  A seller being present in the State;
 
 3      (2)  A seller having in the State a salesperson, commission
 
 4           agent, manufacturer's representative, broker, or other
 
 5           person who is authorized or employed by the seller to
 
 6           assist the seller in selling property or services for
 
 7           use or consumption in the State, by procuring orders
 
 8           for the sales, making collections or deliveries, or
 
 9           otherwise; and
 
10      (3)  A seller having in the State a person upon whom process
 
11           directed to the seller from the courts of the State may
 
12           be served, including the director of commerce and
 
13           consumer affairs and the deputy director in the cases
 
14           provided in section 415-14.
 
15      "Seller" means any person engaged in the business of selling
 
16 tangible personal property[,] or services, wheresoever engaged,
 
17 but does not include the United States or its wholly owned
 
18 agencies or instrumentalities other than national banks, the
 
19 State or a political subdivision thereof, or wholly owned
 
20 agencies or instrumentalities of the State or a political
 
21 subdivision."
 
22      5.  By amending the definition of "use" to read:
 
23      ""Use" (and any nounal, verbal, adjective, adverbial, and
 
24 other equivalent form of the term) herein used interchangeably
 

 
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 1 means any use, whether the use is of such nature as to cause the
 
 2 property or services to be appreciably consumed or not, or the
 
 3 keeping of the property or services for such use or for sale, and
 
 4 shall include the exercise of any right or power over tangible or
 
 5 intangible personal property incident to the ownership of that
 
 6 property, but the term "use" shall not include:
 
 7      (1)  Temporary use of property, not of a perishable or
 
 8           quickly consumable nature, where the property is
 
 9           imported into the State for temporary use (not sale)
 
10           therein by the person importing the same and is not
 
11           intended to be, and is not, kept permanently in the
 
12           State (as for example without limiting the generality
 
13           of the foregoing language:  (A) in the case of a
 
14           contractor importing permanent equipment for the
 
15           performance of a construction contract, with intent to
 
16           remove, and who does remove, the equipment for the
 
17           performance of a construction contract, with intent to
 
18           remove, and who does remove, the equipment out of the
 
19           State upon completing the contract; (B) in the case of
 
20           moving picture films imported for use in theaters in
 
21           the State with intent or under contract to transport
 
22           the same out of State after completion of such use; (C)
 
23           in the case of a transient visitor importing an
 

 
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 1           automobile or other belongings into the State to be
 
 2           used by the transient visitor while therein but which
 
 3           are to be used and are removed upon the transient
 
 4           visitor's departure from the State);
 
 5      (2)  Use by the taxpayer of property acquired by the
 
 6           taxpayer solely by way of gift;
 
 7      (3)  Use which is limited to the receipt of articles and
 
 8           the return thereof, to the person from whom acquired,
 
 9           immediately or within a reasonable time either after
 
10           temporary trial or without trial;
 
11      (4)  Use of goods imported into the State by the owner of a
 
12           vessel or vessels engaged in interstate or foreign
 
13           commerce and held for and used only as ship stores for
 
14           the vessels;
 
15      (5)  The use or keeping for use of household goods, personal
 
16           effects, and private automobiles imported into the
 
17           State for nonbusiness use by a person who (A) acquired
 
18           them in another state, territory, district, or country,
 
19           (B) at the time of the acquisition was a bona fide
 
20           resident of another state, territory, district, or
 
21           country, (C) acquired the property for use outside the
 
22           State, and (D) made actual and substantial use thereof
 
23           outside this State; provided that as to an article
 

 
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 1           acquired less than three months prior to the time of
 
 2           its importation into the State it shall be presumed,
 
 3           until and unless clearly proved to the contrary, that
 
 4           it was acquired for use in the State and that its use
 
 5           outside the State was not actual and substantial;
 
 6      (6)  The leasing or renting of any aircraft or the keeping
 
 7           of any aircraft solely for leasing or renting to
 
 8           lessees or renters using the aircraft for commercial
 
 9           transportation of passengers and goods;
 
10      (7)  The use of oceangoing vehicles for passenger or
 
11           passenger and goods transportation from one point to
 
12           another within the State as a public utility as defined
 
13           in chapter 269; [and]
 
14      (8)  The use of material, parts, or tools imported or
 
15           purchased by a person licensed under chapter 237 which
 
16           are used for aircraft service and maintenance, or the
 
17           construction of an aircraft service and maintenance
 
18           facility as those terms are defined in section
 
19           237-24.9; and
 
20      (9)  The use of services imported into the State to the
 
21           extent the services are resold and billed to a foreign
 
22           customer.
 
23      With regard to purchases made and distributed under the
 
24 authority of chapter 421, a cooperative association shall be
 

 
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 1 deemed the user thereof."
 
 2      SECTION 5.  Section 238-2, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "§238-2 Imposition of tax; exemptions.  (a)  There is
 
 5 hereby levied an excise tax on the use in this State of tangible
 
 6 personal property which is imported, or purchased from an
 
 7 unlicensed seller, for use in this State.  The tax imposed by
 
 8 this chapter shall accrue when the property is acquired by the
 
 9 importer or purchaser and becomes subject to the taxing
 
10 jurisdiction of the State.  The rates of the tax hereby imposed
 
11 and the exemptions thereof are as follows:
 
12      (1)  If the importer or purchaser of property is licensed
 
13           under chapter 237 and is (A) a wholesaler or jobber
 
14           importing or purchasing for purposes of resale, or (B)
 
15           a manufacturer importing or purchasing material or
 
16           commodities which are to be incorporated by the
 
17           manufacturer into a finished or saleable product
 
18           (including the container or package in which the
 
19           product is contained) wherein it will remain in such
 
20           form as to be perceptible to the senses, and which
 
21           finished or saleable product is to be sold in such
 
22           manner as to result in a further tax on the activity of
 
23           the manufacturer as the manufacturer or as a
 

 
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 1           wholesaler, and not as a retailer, there shall be no
 
 2           tax, provided that if the wholesaler, jobber, or
 
 3           manufacturer is also engaged in business as a retailer
 
 4           (so classed under chapter 237), paragraph (2) shall
 
 5           apply to the wholesaler, jobber, or manufacturer, but
 
 6           the director of taxation shall refund to the
 
 7           wholesaler, jobber, or manufacturer, in the manner
 
 8           provided under section 231-23(c) such amount of tax as
 
 9           the wholesaler, jobber, or manufacturer shall, to the
 
10           satisfaction of the director, establish to have been
 
11           paid by the wholesaler, jobber, or manufacturer to the
 
12           director with respect to property which has been used
 
13           by the wholesaler, jobber, or manufacturer for the
 
14           purposes stated in this paragraph.
 
15      (2)  If the importer or purchaser of property is licensed
 
16           under chapter 237 and is (A) a retailer or other person
 
17           importing or purchasing for purposes of resale, not
 
18           exempted by paragraph (1), or (B) a manufacturer
 
19           importing or purchasing material or commodities which
 
20           are to be incorporated by the manufacturer into a
 
21           finished or saleable product (including the container
 
22           or package in which the product is contained) wherein
 
23           it will remain in such form as to be perceptible to the
 

 
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 1           senses, and which finished or saleable product is to be
 
 2           sold at retail in this State, in such manner as to
 
 3           result in a further tax on the activity of the
 
 4           manufacturer in selling such products at retail, or (C)
 
 5           a contractor importing or purchasing material or
 
 6           commodities which are to be incorporated by the
 
 7           contractor into the finished work or project required
 
 8           by the contract and which will remain in such finished
 
 9           work or project in such form as to be perceptible to
 
10           the senses, the tax shall be one-half of one per cent
 
11           of the purchase price of the property, if the purchase
 
12           and sale are consummated in Hawaii; or, if there is no
 
13           purchase price applicable thereto, or if the purchase
 
14           or sale is consummated outside of Hawaii, then one-half
 
15           of one per cent of the value of such property.
 
16      (3)  In all other cases, four per cent of the value of the
 
17           property.
 
18      (b)  There is hereby levied an excise tax on the use in this
 
19 State of services which are imported, or purchased from an
 
20 unlicensed seller, for use in this State.  The tax imposed by
 
21 this chapter shall accrue when the services are received by the
 
22 importer or purchaser and become subject to the taxing
 
23 jurisdiction of the State.  The rates of the tax hereby imposed
 
24 are as follows:
 

 
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 1      (1)  If the importer or purchaser of the services is
 
 2           engaging or continuing within the State in any service
 
 3           business or calling, or other business and, who in
 
 4           fact, acts as or acts in the nature of an intermediary
 
 5           between the seller and the ultimate recipient of the
 
 6           benefits of the services, only the value of the
 
 7           services actually received by the purchaser or importer
 
 8           shall be subject to a tax rate of one-half of one per
 
 9           cent; 
 
10      (2)  All other cases shall be subject to a tax rate of four
 
11           per cent of the value of the services received."
 
12      SECTION 6.  Section 238-3, Hawaii Revised Statutes, is
 
13 amended as follows:
 
14      1.  By amending subsections (a) to (d) to read:
 
15      "(a)  The tax imposed by this chapter shall not apply to any
 
16 property[,] or services, or to any use of the property[,] or
 
17 services, which cannot legally be so taxed under the Constitution
 
18 or laws of the United States, but only so long as, and only to
 
19 the extent to which the State is without power to impose the tax.
 
20      Any provision of law to the contrary notwithstanding,
 
21 exemptions or exclusions from tax under this chapter allowed on
 
22 or before April 1, 1978, under the provisions of the Constitution
 
23 of the United States or an act of the Congress of the United
 

 
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 1 States to persons or common carriers engaged in interstate or
 
 2 foreign commerce, or both, whether ocean-going or air, shall
 
 3 continue undiminished and be available thereafter.
 
 4      (b)  The tax imposed by this chapter shall not apply to any
 
 5 use of property or services the transfer of which property or
 
 6 services to, or the acquisition of which by, the person so using
 
 7 the same, has actually been or actually is taxed under chapter
 
 8 237.
 
 9      (c)  The tax imposed by this chapter shall be paid only once
 
10 upon or in respect of the same property[;] or services; provided
 
11 that nothing in this chapter contained shall be construed to
 
12 exempt any property or services or the use thereof from taxation
 
13 under any other law of the State.
 
14      (d)  The tax imposed by this chapter shall be in addition to
 
15 any other taxes imposed by any other laws of the State, except as
 
16 otherwise specifically provided herein; provided that if it be
 
17 finally held by any court of competent jurisdiction, that the tax
 
18 imposed by this chapter may not legally be imposed in addition to
 
19 any other tax or taxes imposed by any other law or laws with
 
20 respect to the same property or services or the use thereof, then
 
21 this chapter shall be deemed not to apply to the property or
 
22 services and the use thereof under such specific circumstances,
 
23 but such other laws shall be given full effect with respect to
 
24 the property or services and use."
 

 
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 1      2.  By amending subsections (i) and (j) to read:
 
 2      "(i)  Each taxpayer liable for the tax imposed by this
 
 3 chapter on tangible personal property or services shall be
 
 4 entitled to full credit for the combined amount or amounts of
 
 5 legally imposed sales or use taxes paid by the taxpayer with
 
 6 respect to the same transaction and property or services to
 
 7 another state and any subdivision thereof, but such credit shall
 
 8 not exceed the amount of the use tax imposed under this chapter
 
 9 on account of the transaction and property[.] or services.  The
 
10 director of taxation may require the taxpayer to produce the
 
11 necessary receipts or vouchers indicating the payment of the
 
12 sales or use tax to another state or subdivision as a condition
 
13 for the allowance of the credit.
 
14      (j)  The tax imposed by this chapter shall not apply to any
 
15 use of property or services exempted by section 237-26 or section
 
16 237-29."
 
17      SECTION 7.  Section 238-5, Hawaii Revised Statutes, is
 
18 amended by amending subsection (a) to read as follows:
 
19      "(a)  On or before the last day of each calendar month, any
 
20 person who has become liable for the payment of a tax under this
 
21 chapter during the preceding calendar month in respect of any
 
22 property or services or the use thereof, shall file a return with
 
23 the assessor of the taxation district in which the property was
 

 
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                                     S.B. NO.           44
                                                        
                                                        

 
 1 held or the services were received when the tax first became
 
 2 payable, or with the director of taxation at Honolulu, setting
 
 3 forth a description of the property or services and the character
 
 4 and quantity thereof in sufficient detail to identify the same or
 
 5 otherwise in such reasonable detail as the director by rule shall
 
 6 require, and the purchase price or value thereof as the case may
 
 7 be.  The return shall be accompanied by a remittance in full of
 
 8 the tax, computed at the rate specified in section 238-2 upon the
 
 9 price or value so returned.  Any tax remaining unpaid after the
 
10 last day following the end of the calendar month during which the
 
11 tax first became payable shall become delinquent; provided that a
 
12 receipt from a seller required or authorized to collect the tax,
 
13 given to a taxpayer in accordance with section 238-6, shall be
 
14 sufficient to relieve the taxpayer from further liability for the
 
15 tax to which the receipt may refer, or for the return thereof."
 
16      SECTION 8.  Section 238-6, Hawaii Revised Statutes, is
 
17 amended by amending subsection (a) to read as follows:
 
18      "(a)  For purposes of the taxes due under sections
 
19 238-2[(3)] and 238-2.5, every seller having in the State,
 
20 regularly or intermittently, any property, tangible or
 
21 intangible, any place of business, or any representation as
 
22 hereinabove defined, (and irrespective of the seller's having or
 
23 not having qualified to do business in the State) shall, if the
 

 
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                                     S.B. NO.           44
                                                        
                                                        

 
 1 seller makes sales of property or services for use in the State
 
 2 (whether or not the sales are made in the State) collect from the
 
 3 purchaser the taxes imposed by sections 238-2[(3)] and 238-2.5 on
 
 4 the use of the property or services so sold by the seller.  The
 
 5 collection shall be made within twenty days after the accrual of
 
 6 the tax or within such other period as shall be fixed by the
 
 7 director of taxation upon the application of the seller, and the
 
 8 seller shall give to the purchaser a receipt therefor in the
 
 9 manner and form prescribed by the director; provided that this
 
10 subsection shall not apply to vehicles registered under section
 
11 286-50."
 
12      SECTION 9.  Section 238-9, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§238-9 Records.  Every person who is engaged in any
 
15 business in the State and who is required under this chapter to
 
16 make returns, shall keep in the English language in the State and
 
17 preserve for a period of three years, books of account or other
 
18 records in sufficient detail to enable the director of taxation,
 
19 as far as reasonably practicable, to determine whether or not any
 
20 taxes imposed by this chapter are payable in respect of the
 
21 property or services concerned, and if so payable, the amount
 
22 thereof."
 
23      SECTION 10.  Section 237-29.6, Hawaii Revised Statutes, is
 
24 repealed.
 

 
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 1      ["[§237-29.6]  Exemption of certain computer services.(a)
 
 2 There shall be exempted from, and excluded from the measure of,
 
 3 the taxes imposed by this chapter all of the gross proceeds
 
 4 arising from technical services necessary for the production and
 
 5 sale of computer software where that software is shipped or
 
 6 transmitted by the provider of technical services to a customer
 
 7 at a point outside the State for use outside the State.
 
 8      As used in this section:
 
 9      "Computer software" means a set of computer programs,
 
10 procedures, or associated documentation concerned with the
 
11 operation and function of a computer system, and includes both
 
12 systems and application programs and subdivisions, such as
 
13 assemblers, compilers, routines, generators, and utility
 
14 programs.
 
15      "Technical services" include the development, design,
 
16 modification, and programming of computer software.
 
17      (b)  For the purposes of this section, the provider of
 
18 technical services shall take from the purchaser a certificate,
 
19 in such form as the department shall prescribe, certifying that
 
20 the software purchased is to be used outside the State.  Any
 
21 purchaser who shall furnish such a certificate shall be obligated
 
22 to pay to the provider of technical services, upon demand, if the
 
23 software purchased is used or sold by the purchaser in the State,
 

 
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 1 the amount of the additional tax which by reason of such use or
 
 2 sale is imposed upon the provider of technical services."]
 
 3      SECTION 11.  Statutory material to be repealed is bracketed.
 
 4 New statutory material is underscored.
 
 5      SECTION 12.  This Act shall take effect on July 1, 1999;
 
 6 provided that section 2 shall apply to all gross proceeds or
 
 7 gross income received after June 30, 1999, and sections 3 to 9
 
 8 shall apply to all taxes accruing after June 30, 1999.
 
 9 
 
10                           INTRODUCED BY:  _______________________