REPORT TITLE:
General Excise Tax


DESCRIPTION:
Expands the definitions of "wholesaler" to include wholesale
services to alleviate the pyramiding of general excise taxes.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           638
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.  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 the
 
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.
 
19      The purpose of this Act is to expand the treatment of
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1 intermediary sales of services by treating all intermediary
 
 2 services as wholesale sales. 
 
 3      SECTION 2.  Section 237-1, Hawaii Revised Statutes, is
 
 4 amended by adding a new definition to be appropriately inserted
 
 5 and to read as follows:
 
 6      ""Overhead" means continuous or general costs of property or
 
 7 services which are not specifically or directly associated with
 
 8 the manufacture, preparation, production, or acquisition of
 
 9 identifiable goods or services to be sold."
 
10      SECTION 3.  Section 237-4, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "§237-4 "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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                                     S.B. NO.           638
                                                        
                                                        

 
 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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                                     S.B. NO.           638
                                                        
                                                        

 
 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;
 
23      (6)  Sales to a licensed producer, or to a cooperative
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1           association described in section 237-23(a)(7) for sale
 
 2           to the producer, of seed for producing agricultural
 
 3           products, or bait for catching fish (including the
 
 4           catching of bait for catching fish), which agricultural
 
 5           products or fish are to be disposed of as described in
 
 6           section 237-5 or to be incorporated in a manufactured
 
 7           product as described in paragraph (2);
 
 8      (7)  Sales to a licensed producer, or to a cooperative
 
 9           association described in section 237-23(a)(7) for sale
 
10           to such producer; of polypropylene shade cloth; of
 
11           polyfilm; of polyethylene film; of cartons and such
 
12           other containers, wrappers, and sacks, and binders to
 
13           be used for packaging eggs, vegetables, fruits, and
 
14           other agricultural products; of seedlings and cuttings
 
15           for producing nursery plants; or of chick containers;
 
16           which cartons and such other containers, wrappers, and
 
17           sacks, binders, seedlings, cuttings, and containers are
 
18           to be used as described in section 237-5, or to be
 
19           incorporated in a manufactured product as described in
 
20           paragraph (2);
 
21      (8)  Sales of tangible personal property to a licensed
 
22           [person] seller engaged in [the] a service business[;]
 
23           or calling; provided that [(A) the property is not
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1           consumed or incidental to the performance of the
 
 2           services; (B) there is a resale of the article at the
 
 3           retail rate of four per cent; and (C) the resale of the
 
 4           article is separately charged or billed by the person
 
 5           rendering the services;]:
 
 6           (A)  The property is sold upon the order of request or
 
 7                the licensed seller for the purpose of rendering a
 
 8                service in the course of the person's service
 
 9                business or calling;
 
10           (B)  The property becomes or is used as an integral
 
11                part of the service rendered; and
 
12           (C)  The cost of the property does not constitute
 
13                overhead to the licensed seller.
 
14      (9)  Sales to a licensed leasing company of capital goods
 
15           which have a depreciable life, are purchased by the
 
16           leasing company for lease to its customers, and are
 
17           thereafter leased as a service to others[.  Capital
 
18           goods means goods which have a depreciable life and
 
19           which are purchased by the leasing company for lease to
 
20           its customers.]; and
 
21     (10)  Sales of services to a licensed seller engaging in a
 
22           business or calling whenever:
 
23           (A)  Either:
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                (i)  In the context of a service-to-service
 
 2                     transaction, a service is rendered upon the
 
 3                     order or request of a licensed seller for the
 
 4                     purpose of rendering another service in the
 
 5                     course of the seller's service business or
 
 6                     calling; or
 
 7               (ii)  In the context of a service-to-goods
 
 8                     transaction, a service is rendered upon the
 
 9                     order or request of a licensed seller for the
 
10                     purpose of manufacturing, producing,
 
11                     preparing, or acquiring tangible personal
 
12                     property to be sold;
 
13           (B)  The benefit of the service passes to the customer
 
14                of the licensed seller as an integral part of the
 
15                other service or property to be sold; and
 
16           (C)  The cost of the service does not constitute
 
17                overhead to the licensed seller.
 
18      (b)  If the use tax law is finally held by a court of
 
19 competent jurisdiction to be unconstitutional or invalid insofar
 
20 as it purports to tax the use or consumption of tangible personal
 
21 property imported into the State in interstate or foreign
 
22 commerce or both, wholesalers and jobbers shall be taxed
 
23 thereafter under this chapter in accordance with the following
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1 definition (which shall supersede the preceding paragraph
 
 2 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
 3 "jobber" means a person, or a definitely organized division
 
 4 thereof, definitely organized to render and rendering a general
 
 5 distribution service which buys and maintains at the person's
 
 6 place of business a stock or lines of merchandise which the
 
 7 person distributes; and which, through salespersons, advertising,
 
 8 or sales promotion devices, sells to licensed retailers, to
 
 9 institutional or licensed commercial or industrial users, in
 
10 wholesale quantities and at wholesale rates.  A corporation
 
11 deemed not to be carrying on a trade or business in this State
 
12 under section 235-6 shall nevertheless be deemed to be a
 
13 wholesaler and shall be subject to the tax imposed by this
 
14 chapter."
 
15      SECTION 4.  Section 237-7, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "§237-7 "Service business or calling", defined."Service
 
18 business or calling" includes all activities engaged in for other
 
19 persons for a consideration which involve the rendering of a
 
20 service, including professional services and transient
 
21 accommodations services, as distinguished from the sale of
 
22 tangible property or the production and sale of tangible
 
23 property.  "Service business or calling" does not include the
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1 services rendered by an employee to the employee's employer."
 
 2      SECTION 5.  Section 237-13, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "§237-13  Imposition of tax.  There is hereby levied and
 
 5 shall be assessed and collected annually privilege taxes against
 
 6 persons on account of their business and other activities in the
 
 7 State measured by the application of rates against values of
 
 8 products, gross proceeds of sales, or gross income, whichever is
 
 9 specified, as follows:
 
10      (1)  Tax on manufacturers.
 
11           (A)  Upon every person engaging or continuing within
 
12                the State in the business of manufacturing,
 
13                including compounding, canning, preserving,
 
14                packing, printing, publishing, milling,
 
15                processing, refining, or preparing for sale,
 
16                profit, or commercial use, either directly or
 
17                through the activity of others, in whole or in
 
18                part, any article or articles, substance or
 
19                substances, commodity or commodities, the amount
 
20                of the tax to be equal to the value of the
 
21                articles, substances, or commodities,
 
22                manufactured, compounded, canned, preserved,
 
23                packed, printed, milled, processed, refined, or
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                prepared, for sale, as shown by the gross proceeds
 
 2                derived from the sale thereof by the manufacturer
 
 3                or person compounding, preparing, or printing
 
 4                them, multiplied by one-half of one per cent.
 
 5           (B)  The measure of the tax on manufacturers is the
 
 6                value of the entire product for sale, regardless
 
 7                of the place of sale or the fact that deliveries
 
 8                may be made to points outside the State.
 
 9           (C)  If any person liable for the tax on manufacturers
 
10                ships or transports the person's product, or any
 
11                part thereof, out of the State, whether in a
 
12                finished or unfinished condition, or sells the
 
13                same for delivery outside of the State (for
 
14                example, consigned to a mainland purchaser via
 
15                common carrier f.o.b. Honolulu), the value of the
 
16                products in the condition or form in which they
 
17                exist immediately before entering interstate or
 
18                foreign commerce, determined as hereinafter
 
19                provided, shall be the basis for the assessment of
 
20                the tax imposed by this paragraph.  This tax shall
 
21                be due and payable as of the date of entry of the
 
22                products into interstate or foreign commerce,
 
23                whether the products are then sold or not.  The
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                department of taxation shall determine the basis
 
 2                for assessment, as provided by this paragraph, as
 
 3                follows:
 
 4                (i)  If the products at the time of their entry
 
 5                     into interstate or foreign commerce already
 
 6                     have been sold, the gross proceeds of sale,
 
 7                     less the transportation expenses, if any,
 
 8                     incurred in realizing the gross proceeds for
 
 9                     transportation from the time of entry of the
 
10                     products into interstate or foreign commerce,
 
11                     including insurance and storage in transit,
 
12                     shall be the measure of the value of the
 
13                     products.
 
14               (ii)  If the products have not been sold at the
 
15                     time of their entry into interstate or
 
16                     foreign commerce, and in cases governed by
 
17                     clause (i) in which the products are sold
 
18                     under circumstances such that the gross
 
19                     proceeds of sale are not indicative of the
 
20                     true value of the products, the value of the
 
21                     products constituting the basis for
 
22                     assessment shall correspond as nearly as
 
23                     possible to the gross proceeds of sales for
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                     delivery outside the State, adjusted as
 
 2                     provided in clause (i), or if sufficient data
 
 3                     are not available, sales in the State, of
 
 4                     similar products of like quality and
 
 5                     character and in similar quantities, made by
 
 6                     the taxpayer (unless not indicative of the
 
 7                     true value) or by others.  Sales outside the
 
 8                     State, adjusted as provided in clause (i),
 
 9                     may be considered when they constitute the
 
10                     best available data.  The department shall
 
11                     prescribe uniform and equitable rules for
 
12                     ascertaining the values.
 
13              (iii)  At the election of the taxpayer and with the
 
14                     approval of the department, the taxpayer may
 
15                     make the taxpayer's returns under clause (i)
 
16                     even though the products have not been sold
 
17                     at the time of their entry into interstate or
 
18                     foreign commerce.
 
19               (iv)  In all cases in which products leave the
 
20                     State in an unfinished condition, the basis
 
21                     for assessment shall be adjusted so as to
 
22                     deduct the portion of the value as is
 
23                     attributable to the finishing of the goods
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                     outside the State.
 
 2      (2)  Tax on business of selling tangible personal property;
 
 3           producing.
 
 4           (A)  Upon every person engaging or continuing in the
 
 5                business of selling any tangible personal property
 
 6                whatsoever (not including, however, bonds or other
 
 7                evidence of indebtedness, or stocks), there is
 
 8                likewise hereby levied, and shall be assessed and
 
 9                collected, a tax equivalent to four per cent of
 
10                the gross proceeds of sales of the business;
 
11                provided that insofar as certain retailing is
 
12                taxed by section 237-16, the tax shall be that
 
13                levied by section 237-16, and in the case of a
 
14                wholesaler, the tax shall be equal to one-half of
 
15                one per cent of the gross proceeds of sales of the
 
16                business.  Upon every person engaging or
 
17                continuing within this State in the business of a
 
18                producer, the tax shall be equal to one-half of
 
19                one per cent of the gross proceeds of sales of the
 
20                business, or the value of the products, for sale,
 
21                if sold for delivery outside the State or shipped
 
22                or transported out of the State, and the value of
 
23                the products shall be determined in the same
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                manner as the value of manufactured products
 
 2                covered in the cases under paragraph (1)(C).
 
 3           (B)  Gross proceeds of sales of tangible property in
 
 4                interstate and foreign commerce shall constitute a
 
 5                part of the measure of the tax imposed on persons
 
 6                in the business of selling tangible personal
 
 7                property, to the extent, under the conditions, and
 
 8                in accordance with the provisions of the
 
 9                Constitution of the United States and the Acts of
 
10                the Congress of the United States which may be now
 
11                in force or may be hereafter adopted, and whenever
 
12                there occurs in the State an activity to which,
 
13                under the Constitution and Acts of Congress, there
 
14                may be attributed gross proceeds of sales, the
 
15                gross proceeds shall be so attributed.
 
16           (C)  No manufacturer or producer, engaged in such
 
17                business in the State and selling the
 
18                manufacturer's or producer's products for delivery
 
19                outside of the State (for example, consigned to a
 
20                mainland purchaser via common carrier f.o.b.
 
21                Honolulu), shall be required to pay the tax
 
22                imposed in this chapter for the privilege of so
 
23                selling the products, and the value or gross
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                proceeds of sales of the products shall be
 
 2                included only in determining the measure of the
 
 3                tax imposed upon the manufacturer or producer.
 
 4           (D)  When a manufacturer or producer, engaged in such
 
 5                business in the State, also is engaged in selling
 
 6                the manufacturer's or producer's products in the
 
 7                State at wholesale, retail, or in any other
 
 8                manner, the tax for the privilege of engaging in
 
 9                the business of selling the products in the State
 
10                shall apply to the manufacturer or producer as
 
11                well as the tax for the privilege of manufacturing
 
12                or producing in the State, and the manufacturer or
 
13                producer shall make the returns of the gross
 
14                proceeds of the wholesale, retail, or other sales
 
15                required for the privilege of selling in the
 
16                State, as well as making the returns of the value
 
17                or gross proceeds of sales of the products
 
18                required for the privilege of manufacturing or
 
19                producing in the State.  The manufacturer or
 
20                producer shall pay the tax imposed in this chapter
 
21                for the privilege of selling its products in the
 
22                State, and the value or gross proceeds of sales of
 
23                the products, thus subjected to tax, may be
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                deducted insofar as duplicated as to the same
 
 2                products by the measure of the tax upon the
 
 3                manufacturer or producer for the privilege of
 
 4                manufacturing or producing in the State; except
 
 5                that no producer of agricultural products who
 
 6                sells the products to a purchaser who will process
 
 7                the products outside the State shall be required
 
 8                to pay the tax imposed in this chapter for the
 
 9                privilege of producing or selling those products.
 
10           (E)  A taxpayer selling to a federal cost-plus
 
11                contractor may make the election provided for by
 
12                paragraph (3)(C), and in that case the tax shall
 
13                be computed pursuant to the election,
 
14                notwithstanding this paragraph or paragraph (1) to
 
15                the contrary.
 
16           (F)  The department, by rule, may provide that a seller
 
17                may take from the purchaser of tangible personal
 
18                property a certificate, in a form [as] prescribed
 
19                by the department [shall prescribe], certifying
 
20                that the sale is a sale at wholesale[.  If the
 
21                certificate is so provided for by rule of the
 
22                department:]; provided that:
 
23                (i)  Any purchaser who furnishes a certificate
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                     shall be obligated to pay to the seller, upon
 
 2                     demand, [if the sale in fact is not at
 
 3                     wholesale,] the amount of the additional tax
 
 4                     [which by reason thereof] that is imposed
 
 5                     upon the seller[;] whenever the sale in fact
 
 6                     is not at wholesale; and
 
 7               (ii)  The absence of a certificate[, unless the
 
 8                     sales of the business are exclusively at
 
 9                     wholesale,] in itself shall give rise to the
 
10                     presumption that the sale is not at
 
11                     wholesale[.] unless the sales of the business
 
12                     are exclusively at wholesale.
 
13      (3)  Tax upon contractors.
 
14           (A)  Upon every person engaging or continuing within
 
15                the State in the business of contracting, the tax
 
16                shall be equal to four per cent of the gross
 
17                income of the business; provided that insofar as
 
18                the business of contracting is taxed by section
 
19                237-16, which relates to certain retailing, the
 
20                tax shall be that levied by section 237-16.
 
21           (B)  In computing the tax levied under this paragraph
 
22                or section 237-16, there shall be deducted from
 
23                the gross income of the taxpayer so much thereof
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                as has been included in the measure of the tax
 
 2                levied under subparagraph (A) or section 237-16,
 
 3                on:
 
 4                (i)  Another taxpayer who is a contractor, as
 
 5                     defined in section 237-6;
 
 6               (ii)  A specialty contractor, duly licensed by the
 
 7                     department of commerce and consumer affairs
 
 8                     pursuant to section 444-9, in respect of the
 
 9                     specialty contractor's business; or
 
10              (iii)  A specialty contractor who is not licensed by
 
11                     the department of commerce and consumer
 
12                     affairs pursuant to section 444-9, but who
 
13                     performs contracting activities on federal
 
14                     military installations and nowhere else in
 
15                     this State;
 
16                but any person claiming a deduction under this
 
17                paragraph shall be required to show in the
 
18                person's return the name and general excise number
 
19                of the person paying the tax on the amount
 
20                deducted by the person.
 
21           (C)  In computing the tax levied under this paragraph
 
22                against any federal cost-plus contractor, there
 
23                shall be excluded from the gross income of the
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                contractor so much thereof as fulfills the
 
 2                following requirements:
 
 3                (i)  The gross income exempted shall constitute
 
 4                     reimbursement of costs incurred for
 
 5                     materials, plant, or equipment purchased from
 
 6                     a taxpayer licensed under this chapter, not
 
 7                     exceeding the gross proceeds of sale of the
 
 8                     taxpayer on account of the transaction; and
 
 9               (ii)  The taxpayer making the sale shall have
 
10                     certified to the department that the taxpayer
 
11                     is taxable with respect to the gross proceeds
 
12                     of the sale, and that the taxpayer elects to
 
13                     have the tax on gross income computed the
 
14                     same as upon a sale to the state government.
 
15           (D)  A person who, as a business or as a part of a
 
16                business in which the person is engaged, erects,
 
17                constructs, or improves any building or structure,
 
18                of any kind or description, or makes, constructs,
 
19                or improves any road, street, sidewalk, sewer, or
 
20                water system, or other improvements on land held
 
21                by the person (whether held as a leasehold, fee
 
22                simple, or otherwise), upon the sale or other
 
23                disposition of the land or improvements, even if
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1                the work was not done pursuant to a contract,
 
 2                shall be liable to the same tax as if engaged in
 
 3                the business of contracting, unless the person
 
 4                shows that at the time the person was engaged in
 
 5                making the improvements it was, and for the period
 
 6                of at least one year after completion of the
 
 7                building, structure, or other improvements, it
 
 8                continued to be the person's purpose to hold and
 
 9                not sell or otherwise dispose of the land or
 
10                improvements.  The tax in respect of the
 
11                improvements shall be measured by the amount of
 
12                the proceeds of the sale or other disposition that
 
13                is attributable to the erection, construction, or
 
14                improvement of such building or structure, or the
 
15                making, constructing, or improving of the road,
 
16                street, sidewalk, sewer, or water system, or other
 
17                improvements.  The measure of tax in respect of
 
18                the improvements shall not exceed the amount which
 
19                would have been taxable had the work been
 
20                performed by another, subject as in other cases to
 
21                the deductions allowed by subparagraph (B).  Upon
 
22                the election of the taxpayer, this paragraph may
 
23                be applied notwithstanding the improvements were
 

 
Page 21                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1                not made by the taxpayer, or were not made as a
 
 2                business or as a part of a business, or were made
 
 3                with the intention of holding the same.  However,
 
 4                this paragraph shall not apply in respect of any
 
 5                proceeds that constitute or are in the nature of
 
 6                rent; all such gross income shall be taxable under
 
 7                paragraph [(10);] (9); provided that insofar as
 
 8                the business of renting or leasing real property
 
 9                under a lease is taxed under section 237-16.5, the
 
10                tax shall be levied by section 237-16.5.
 
11      (4)  Tax upon theaters, amusements, radio broadcasting
 
12           stations, etc.  Upon every person engaging or
 
13           continuing within the State in the business of
 
14           operating a theater, opera house, moving picture show,
 
15           vaudeville, amusement park, dance hall, skating rink,
 
16           radio broadcasting station, or any other place at which
 
17           amusements are offered to the public, the tax shall be
 
18           equal to four per cent of the gross income of the
 
19           business.
 
20      (5)  Tax upon sales representatives, etc.  Upon every person
 
21           classified as a representative or purchasing agent
 
22           under section 237-1, engaging or continuing within the
 
23           State in the business of performing services for
 

 
Page 22                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1           another, other than as an employee, there is likewise
 
 2           hereby levied and shall be assessed and collected a tax
 
 3           equal to four per cent of the commissions and other
 
 4           compensation attributable to the services so rendered
 
 5           by the person.
 
 6      (6)  Tax on service business.
 
 7           (A)  Upon every person engaging or continuing within
 
 8                the State in any service business or calling [not
 
 9                otherwise specifically taxed under this chapter,]
 
10                there is likewise hereby levied and shall be
 
11                assessed and collected a tax equal to four per
 
12                cent of the gross income of the business[;
 
13                provided that where any person engaging or
 
14                continuing within the State in any service
 
15                business or calling renders those services upon
 
16                the order of or at the request of another taxpayer
 
17                who is engaged in the service business and who, in
 
18                fact, acts as or acts in the nature of an
 
19                intermediary between the person rendering those
 
20                services and the ultimate recipient of the
 
21                benefits of those services, so much of the gross
 
22                income as is received by the person rendering the
 
23                services shall be subjected to the tax at the rate
 

 
Page 23                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1                of one-half of one per cent and all of the gross
 
 2                income received by the intermediary from the
 
 3                principal shall be subjected to a tax at the rate
 
 4                of four per cent; and provided that where], and in
 
 5                the case of a wholesaler, the tax shall be equal
 
 6                to one-half of one per cent of the gross income of
 
 7                the business.
 
 8           (B)  The department, by rule, may require that the
 
 9                person rendering the service take from the
 
10                licensed seller a certificate, in the form as
 
11                prescribed by the department, certifying that the
 
12                sale is a sale at wholesale; provided that;
 
13                (i)  Any licensed seller who furnishes a
 
14                     certificate shall be obligated to pay to the
 
15                     person rendering the service whenever the
 
16                     sale in fact is not a sale at wholesale; and
 
17               (ii)  The absence of a certificate in itself shall
 
18                     give rise to the presumption that the sale is
 
19                     not a sale at wholesale unless the person
 
20                     rendering the sale is exclusively rendering
 
21                     service at wholesale.
 
22           (C)  Where any person is engaged in the business of
 
23                selling interstate or foreign common carrier
 

 
Page 24                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1                telecommunication services within and without the
 
 2                State, the tax shall be imposed on that portion of
 
 3                gross income received by a person from service
 
 4                which is originated or terminated in this State
 
 5                and is charged to a telephone number, customer, or
 
 6                account in this State notwithstanding any other
 
 7                state law (except for the exemption under section
 
 8                237-23(a)(1)) to the contrary.  If, under the
 
 9                Constitution and laws of the United States, the
 
10                entire gross income as determined under this
 
11                paragraph of a business selling interstate or
 
12                foreign common carrier telecommunication services
 
13                cannot be included in the measure of the tax, the
 
14                gross income shall be apportioned as provided in
 
15                section 237-21; provided that the apportionment
 
16                factor and formula shall be the same for all
 
17                persons providing those services in the State.
 
18      (7)  Tax on insurance solicitors and agents.  Upon every
 
19           person engaged as a licensed solicitor, general agent,
 
20           or subagent pursuant to chapter 431, there is hereby
 
21           levied and shall be assessed and collected a tax equal
 
22           to .15 per cent of the commissions due to that
 
23           activity.
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1     [(8)  Professions.  Upon every person engaging or continuing
 
 2           within the State in the practice of a profession,
 
 3           including those expounding the religious doctrines of
 
 4           any church, there is likewise hereby levied and shall
 
 5           be assessed and collected a tax equal to four per cent
 
 6           of the gross income on the practice or exposition.
 
 7      (9)] (8)  Tax on receipts of sugar benefit payments.  Upon
 
 8           the amounts received from the United States government
 
 9           by any producer of sugar (or the producer's legal
 
10           representative or heirs), as defined under and by
 
11           virtue of the Sugar Act of 1948, as amended, or other
 
12           Acts of the Congress of the United States relating
 
13           thereto, there is hereby levied a tax of one-half of
 
14           one per cent of the gross amount received, provided
 
15           that the tax levied hereunder on any amount so received
 
16           and actually disbursed to another by a producer in the
 
17           form of a benefit payment shall be paid by the person
 
18           or persons to whom the amount is actually disbursed,
 
19           and the producer actually making a benefit payment to
 
20           another shall be entitled to claim on the producer's
 
21           return a deduction from the gross amount taxable
 
22           hereunder in the sum of the amount so disbursed.  The
 
23           amounts taxed under this paragraph shall not be taxable
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1           under any other paragraph, subsection, or section of
 
 2           this chapter.
 
 3    [(10)] (9)  Tax on other business.  Upon every person engaging
 
 4           or continuing within the State in any business, trade,
 
 5           activity, occupation, or calling not included in the
 
 6           preceding paragraphs or any other provisions of this
 
 7           chapter, there is likewise hereby levied and shall be
 
 8           assessed and collected, a tax equal to four per cent of
 
 9           the gross income thereof.  In addition, the rate
 
10           prescribed by this paragraph shall apply to a business
 
11           taxable under one or more of the preceding paragraphs
 
12           or other provisions of this chapter, as to any gross
 
13           income thereof not taxed thereunder as gross income or
 
14           gross proceeds of sales or by taxing an equivalent
 
15           value of products, unless specifically exempted."
 
16      SECTION 6.  Section 237-16, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "§237-16  Tax on certain retailing.(a)  This section
 
19 relates to certain retailing in the State as follows:
 
20      (1)  This section relates to the sale of tangible personal
 
21           property, for consumption or use by the purchaser and
 
22           not for resale, the renting of tangible personal
 
23           property, and the rendering of services by one engaged
 

 
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                                     S.B. NO.           638
                                                        
                                                        

 
 1           in a service business or calling, as defined, to a
 
 2           person who is not purchasing the services for resale,
 
 3           but does not relate to the sale or rental of tangible
 
 4           personal property or the rendering of services to the
 
 5           State, its political subdivisions, or agencies or
 
 6           instrumentalities of the State or a political
 
 7           subdivision, or to the United States or its agencies or
 
 8           instrumentalities (other than national banks), or to a
 
 9           corporation, organization, or other person designated
 
10           in section 237-23 who is not subject to the tax imposed
 
11           by this chapter, or to a person licensed under this
 
12           chapter in connection with the person's business.
 
13      (2)  This section relates to the business of a contractor,
 
14           as defined, but does not relate to contracting with, or
 
15           any gross income or proceeds of a subcontractor if the
 
16           principal contract is with the State, its political
 
17           subdivisions, or agencies or instrumentalities of the
 
18           State or a political subdivision, or with the United
 
19           States or its agencies or instrumentalities (other than
 
20           national banks), or with a person designated in section
 
21           237-23 who is not subject to the tax imposed by this
 
22           chapter, or with a person licensed under this chapter
 
23           in connection with the person's business.
 

 
Page 28                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1      (3)  This section relates to furnishing of transient
 
 2           accommodations in a hotel, apartment hotel, or other
 
 3           place in which lodgings are regularly furnished to
 
 4           transients for a consideration which includes the
 
 5           rendering of services.
 
 6      (b)  There is hereby levied, and shall be assessed and
 
 7 collected annually, a privilege tax against persons engaging or
 
 8 continuing within the State in the retailing to which this
 
 9 section relates, on account of such retailing activities, as set
 
10 forth in subsection (a), equal to four per cent of the gross
 
11 proceeds of sale or gross income received or derived from such
 
12 retailing.  Persons on whom a tax is imposed by this section
 
13 hereinafter are called "retailers".
 
14      (c)  No retailer shall advertise or hold out to the public
 
15 in any manner, directly or indirectly, that the tax imposed by
 
16 this section is not considered as an element in the price to the
 
17 consumer.  Any person violating this subsection shall be fined
 
18 not more than $50 for each offense.
 
19      (d)  This section shall not cause the tax upon a taxpayer,
 
20 with respect to any item of the taxpayer's gross income, to
 
21 exceed four per cent.
 
22      (e)  This section shall not apply to:
 
23      (1)  Sales of tangible personal property to a licensed
 

 
Page 29                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1           seller engaged in a service business or calling as
 
 2           defined in section 237-4(a)(8); nor
 
 3      (2)  Sales of services to a licensed seller engaged in a
 
 4           business or calling as defined in section
 
 5           237-4(a)(10)."
 
 6      SECTION 7.  Section 238-2, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "§238-2 Imposition of tax; exemptions.  There is hereby
 
 9 levied an excise tax on the use in this State of tangible
 
10 personal property which is imported, or purchased from an
 
11 unlicensed seller, for use in this State.  The tax imposed by
 
12 this chapter shall accrue when the property is acquired by the
 
13 importer or purchaser and becomes subject to the taxing
 
14 jurisdiction of the State.  The rates of the tax hereby imposed
 
15 and the exemptions thereof are as follows:
 
16      (1)  If the importer or purchaser is licensed under chapter
 
17           237 and is (A) a wholesaler or jobber importing or
 
18           purchasing for purposes of resale, or (B) a
 
19           manufacturer importing or purchasing material or
 
20           commodities which are to be incorporated by the
 
21           manufacturer into a finished or saleable product
 
22           (including the container or package in which the
 
23           product is contained) wherein it will remain in such
 

 
Page 30                                                    
                                     S.B. NO.           638
                                                        
                                                        

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

 
Page 31                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1           (B)  [a] A manufacturer importing or purchasing
 
 2                material or commodities which are to be
 
 3                incorporated by the manufacturer into a finished
 
 4                or saleable product (including the container or
 
 5                package in which the product is contained) wherein
 
 6                it will remain in such form as to be perceptible
 
 7                to the senses, and which finished or saleable
 
 8                product is to be sold at retail in this State, in
 
 9                such manner as to result in a further tax on the
 
10                activity of the manufacturer in selling such
 
11                products at retail[, or];
 
12           (C)  [a] A contractor importing or purchasing material
 
13                or commodities which are to be incorporated by the
 
14                contractor into the finished work or project
 
15                required by the contract and which will remain in
 
16                such finished work or project in such form as to
 
17                be perceptible to the senses[,]; or
 
18           (D)  A person engaged in a service business or calling
 
19                as defined in section 237-7, in which the import
 
20                or purchase of tangible personal property would
 
21                have qualified as a sale at wholesale as defined
 
22                in section 237-4(a)(8) had the seller of the
 
23                property been subject to the tax in chapter 237,
 

 
Page 32                                                    
                                     S.B. NO.           638
                                                        
                                                        

 
 1           the tax shall be one-half of one per cent of the
 
 2           purchase price of the property, if the purchase and
 
 3           sale are consummated in Hawaii; or, if there is no
 
 4           purchase price applicable thereto, or if the purchase
 
 5           or sale is consummated outside of Hawaii, then one-half
 
 6           of one per cent of the value of such property.
 
 7      (3)  In all other cases, four per cent of the value of the
 
 8           property."
 
 9      SECTION 8.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 9.  This Act shall take effect upon its approval and
 
12 shall apply to gross receipts received after December 31, 1999.
 
13 
 
14                              INTRODUCED BY:______________________