REPORT TITLE:
Taxation


DESCRIPTION:
Expands the definitions of "wholesaler" to include wholesale
services to alleviate the pyramiding of general excise and use
taxes. (SB638 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        638
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                H.D. 1
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
 
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.
 

 
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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      "§237-      Application of sections 237-4(a)(8), 237-
 
 8 4(a)(10), and 237-13(6)(A).  (a)  Sections 237-4(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."
 

 
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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      "§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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 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
 
24           feed lot, of poultry or animal feed, hatching eggs,
 

 
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 1           semen, replacement stock, breeding services for the
 
 2           purpose of raising or producing animal or poultry
 
 3           products for disposition as described in section 237-5
 
 4           or to be incorporated in a manufactured product as
 
 5           described in paragraph (2) or for the purpose of
 
 6           breeding, hatching, milking, or egg laying other than
 
 7           for the customer's own consumption of the meat,
 
 8           poultry, eggs, or milk so produced; provided that in
 
 9           the case of a feed lot operator, only the segregated
 
10           cost of the feed furnished by the feed lot operator as
 
11           part of the feed lot operator's service to a licensed
 
12           producer of poultry or animals to be butchered or to a
 
13           cooperative association described in section
 
14           237-23(a)(7) of such licensed producers shall be deemed
 
15           to be a sale at wholesale; and provided further that
 
16           any amount derived from the furnishing of feed lot
 
17           services, other than the segregated cost of feed, shall
 
18           be deemed taxable at the service business rate.  This
 
19           paragraph shall not apply to the sale of feed for
 
20           poultry or animals to be used for hauling,
 
21           transportation, or sports purposes;
 
22      (6)  Sales to a licensed producer, or to a cooperative
 
23           association described in section 237-23(a)(7) for sale
 
24           to the producer, of seed for producing agricultural
 

 
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 1           products, or bait for catching fish (including the
 
 2           catching of bait for catching fish), which agricultural
 
 3           products or fish are to be disposed of as described in
 
 4           section 237-5 or to be incorporated in a manufactured
 
 5           product as described in paragraph (2);
 
 6      (7)  Sales to a licensed producer, or to a cooperative
 
 7           association described in section 237-23(a)(7) for sale
 
 8           to such producer; of polypropylene shade cloth; of
 
 9           polyfilm; of polyethylene film; of cartons and such
 
10           other containers, wrappers, and sacks, and binders to
 
11           be used for packaging eggs, vegetables, fruits, and
 
12           other agricultural products; of seedlings and cuttings
 
13           for producing nursery plants; or of chick containers;
 
14           which cartons and such other containers, wrappers, and
 
15           sacks, binders, seedlings, cuttings, and containers are
 
16           to be used as described in section 237-5, or to be
 
17           incorporated in a manufactured product as described in
 
18           paragraph (2);
 
19      (8)  Sales of tangible personal property [to]:
 
20           (A)  To a licensed [person] seller engaged in [the] a
 
21                service business[;] or calling; provided that [(A)
 
22                the]:
 

 
 
 
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 1                (i)  The property is not consumed or incidental to
 
 2                     the performance of the services; [(B) there]
 
 3               (ii)  There is a resale of the article at the
 
 4                     retail rate of four per cent; and [[(C) the]
 
 5              (iii)  The resale of the article is separately
 
 6                     charged or billed by the person rendering the
 
 7                     services; and
 
 8           (B)  Where:
 
 9                (i)  Tangible personal property is sold upon the
 
10                     order or request of a licensed seller for the
 
11                     purpose of rendering a service in the course
 
12                     of the person's service business or calling
 
13                     or upon the order or request of a person,
 
14                     subject to tax under section 237D-2, for the
 
15                     purpose of furnishing transient
 
16                     accommodations;
 
17               (ii)  The property becomes or is used as an
 
18                     identifiable element of the service rendered;
 
19                     and
 
20              (iii)  The cost of the property does not constitute
 
21                     overhead to the licensed seller;
 
22                the sale shall be subject to section 237-    .
 

 
 
 
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 1           Where the taxpayer is subject to both subparagraphs (A)
 
 2           and (B), then the taxpayer shall be taxed under
 
 3           subparagraph (A).  Subparagraph (A) shall be repealed
 
 4           on January 1, 2006.
 
 5      (9)  Sales to a licensed leasing company of capital goods
 
 6           which have a depreciable life, are purchased by the
 
 7           leasing company for lease to its customers, and are
 
 8           thereafter leased as a service to others[.  Capital
 
 9           goods means goods which have a depreciable life and
 
10           which are purchased by the leasing company for lease to
 
11           its customers.]; and
 
12     (10)  Sales of services to a licensed seller engaging in a
 
13           business or calling whenever:
 
14           (A)  Either:
 
15                (i)  In the context of a service-to-service
 
16                     transaction, a service is rendered upon the
 
17                     order or request of a licensed seller for the
 
18                     purpose of rendering another service in the
 
19                     course of the seller's service business or
 
20                     calling;
 
21               (ii)  In the context of a service-to-goods
 
22                     transaction, a service is rendered upon the
 
23                     order or request of a licensed seller for the
 

 
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 1                     purpose of manufacturing, producing,
 
 2                     preparing, or acquiring tangible personal
 
 3                     property to be sold;
 
 4              (iii)  In the context of a services-to-contracting
 
 5                     transaction, a service is rendered upon the
 
 6                     order or request of a licensed contractor as
 
 7                     defined in section 237-6 for the purpose of
 
 8                     assisting that licensed contractor in
 
 9                     executing a contract; or
 
10               (iv)  In the context of a services-to-transient
 
11                     accommodations rental transaction, a service
 
12                     is rendered upon the order or request of a
 
13                     person subject to tax under section 237D-2
 
14                     for the purpose of furnishing transient
 
15                     accommodations;
 
16           (B)  The benefit of the service passes to the customer
 
17                of the licensed seller as an identifiable element
 
18                of the other service or property to be sold; and
 
19           (C)  The cost of the service does not constitute
 
20                overhead to the licensed seller.
 
21           Sales subject to this paragraph shall be subject to
 
22           section 237-    .
 

 
 
 
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 1      (b)  If the use tax law is finally held by a court of
 
 2 competent jurisdiction to be unconstitutional or invalid insofar
 
 3 as it purports to tax the use or consumption of tangible personal
 
 4 property imported into the State in interstate or foreign
 
 5 commerce or both, wholesalers and jobbers shall be taxed
 
 6 thereafter under this chapter in accordance with the following
 
 7 definition (which shall supersede the preceding paragraph
 
 8 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
 9 "jobber" means a person, or a definitely organized division
 
10 thereof, definitely organized to render and rendering a general
 
11 distribution service which buys and maintains at the person's
 
12 place of business a stock or lines of merchandise which the
 
13 person distributes; and which, through salespersons, advertising,
 
14 or sales promotion devices, sells to licensed retailers, to
 
15 institutional or licensed commercial or industrial users, in
 
16 wholesale quantities and at wholesale rates.  A corporation
 
17 deemed not to be carrying on a trade or business in this State
 
18 under section 235-6 shall nevertheless be deemed to be a
 
19 wholesaler and shall be subject to the tax imposed by this
 
20 chapter."
 
21      SECTION 5.  Section 237-7, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 

 
 
 
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 1      "§237-7 "Service business or calling", defined."Service
 
 2 business or calling" includes all activities engaged in for other
 
 3 persons for a consideration which involve the rendering of a
 
 4 service, including professional services, as distinguished from
 
 5 the sale of tangible property or the production and sale of
 
 6 tangible property.  "Service business or calling" does not
 
 7 include the services rendered by an employee to the employee's
 
 8 employer."
 
 9      SECTION 6.  Section 237-13, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "§237-13  Imposition of tax.  There is hereby levied and
 
12 shall be assessed and collected annually privilege taxes against
 
13 persons on account of their business and other activities in the
 
14 State measured by the application of rates against values of
 
15 products, gross proceeds of sales, or gross income, whichever is
 
16 specified, as follows:
 
17      (1)  Tax on manufacturers.
 
18           (A)  Upon every person engaging or continuing within
 
19                the State in the business of manufacturing,
 
20                including compounding, canning, preserving,
 
21                packing, printing, publishing, milling,
 
22                processing, refining, or preparing for sale,
 
23                profit, or commercial use, either directly or
 

 
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 1                through the activity of others, in whole or in
 
 2                part, any article or articles, substance or
 
 3                substances, commodity or commodities, the amount
 
 4                of the tax to be equal to the value of the
 
 5                articles, substances, or commodities,
 
 6                manufactured, compounded, canned, preserved,
 
 7                packed, printed, milled, processed, refined, or
 
 8                prepared, for sale, as shown by the gross proceeds
 
 9                derived from the sale thereof by the manufacturer
 
10                or person compounding, preparing, or printing
 
11                them, multiplied by one-half of one per cent.
 
12           (B)  The measure of the tax on manufacturers is the
 
13                value of the entire product for sale, regardless
 
14                of the place of sale or the fact that deliveries
 
15                may be made to points outside the State.
 
16           (C)  If any person liable for the tax on manufacturers
 
17                ships or transports the person's product, or any
 
18                part thereof, out of the State, whether in a
 
19                finished or unfinished condition, or sells the
 
20                same for delivery outside of the State (for
 
21                example, consigned to a mainland purchaser via
 
22                common carrier f.o.b. Honolulu), the value of the
 
23                products in the condition or form in which they
 

 
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 1                exist immediately before entering interstate or
 
 2                foreign commerce, determined as hereinafter
 
 3                provided, shall be the basis for the assessment of
 
 4                the tax imposed by this paragraph.  This tax shall
 
 5                be due and payable as of the date of entry of the
 
 6                products into interstate or foreign commerce,
 
 7                whether the products are then sold or not.  The
 
 8                department of taxation shall determine the basis
 
 9                for assessment, as provided by this paragraph, as
 
10                follows:
 
11                (i)  If the products at the time of their entry
 
12                     into interstate or foreign commerce already
 
13                     have been sold, the gross proceeds of sale,
 
14                     less the transportation expenses, if any,
 
15                     incurred in realizing the gross proceeds for
 
16                     transportation from the time of entry of the
 
17                     products into interstate or foreign commerce,
 
18                     including insurance and storage in transit,
 
19                     shall be the measure of the value of the
 
20                     products[.];
 
21               (ii)  If the products have not been sold at the
 
22                     time of their entry into interstate or
 
23                     foreign commerce, and in cases governed by
 
24                     clause (i) in which the products are sold
 

 
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 1                     under circumstances such that the gross
 
 2                     proceeds of sale are not indicative of the
 
 3                     true value of the products, the value of the
 
 4                     products constituting the basis for
 
 5                     assessment shall correspond as nearly as
 
 6                     possible to the gross proceeds of sales for
 
 7                     delivery outside the State, adjusted as
 
 8                     provided in clause (i), or if sufficient data
 
 9                     are not available, sales in the State, of
 
10                     similar products of like quality and
 
11                     character and in similar quantities, made by
 
12                     the taxpayer (unless not indicative of the
 
13                     true value) or by others.  Sales outside the
 
14                     State, adjusted as provided in clause (i),
 
15                     may be considered when they constitute the
 
16                     best available data.  The department shall
 
17                     prescribe uniform and equitable rules for
 
18                     ascertaining the values[.];
 
19              (iii)  At the election of the taxpayer and with the
 
20                     approval of the department, the taxpayer may
 
21                     make the taxpayer's returns under clause (i)
 
22                     even though the products have not been sold
 
23                     at the time of their entry into interstate or
 
24                     foreign commerce[.]; and
 

 
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 1               (iv)  In all cases in which products leave the
 
 2                     State in an unfinished condition, the basis
 
 3                     for assessment shall be adjusted so as to
 
 4                     deduct the portion of the value as is
 
 5                     attributable to the finishing of the goods
 
 6                     outside the State.
 
 7      (2)  Tax on business of selling tangible personal property;
 
 8           producing.
 
 9           (A)  Upon every person engaging or continuing in the
 
10                business of selling any tangible personal property
 
11                whatsoever (not including, however, bonds or other
 
12                evidence of indebtedness, or stocks), there is
 
13                likewise hereby levied, and shall be assessed and
 
14                collected, a tax equivalent to four per cent of
 
15                the gross proceeds of sales of the business;
 
16                provided that insofar as certain retailing is
 
17                taxed by section 237-16, the tax shall be that
 
18                levied by section 237-16, and in the case of a
 
19                wholesaler, the tax shall be equal to one-half of
 
20                one per cent of the gross proceeds of sales of the
 
21                business.  Upon every person engaging or
 
22                continuing within this State in the business of a
 
23                producer, the tax shall be equal to one-half of
 

 
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 1                one per cent of the gross proceeds of sales of the
 
 2                business, or the value of the products, for sale,
 
 3                if sold for delivery outside the State or shipped
 
 4                or transported out of the State, and the value of
 
 5                the products shall be determined in the same
 
 6                manner as the value of manufactured products
 
 7                covered in the cases under paragraph (1)(C).
 
 8           (B)  Gross proceeds of sales of tangible property in
 
 9                interstate and foreign commerce shall constitute a
 
10                part of the measure of the tax imposed on persons
 
11                in the business of selling tangible personal
 
12                property, to the extent, under the conditions, and
 
13                in accordance with the provisions of the
 
14                Constitution of the United States and the Acts of
 
15                the Congress of the United States which may be now
 
16                in force or may be hereafter adopted, and whenever
 
17                there occurs in the State an activity to which,
 
18                under the Constitution and Acts of Congress, there
 
19                may be attributed gross proceeds of sales, the
 
20                gross proceeds shall be so attributed.
 
21           (C)  No manufacturer or producer, engaged in such
 
22                business in the State and selling the
 
23                manufacturer's or producer's products for delivery
 

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

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

 
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 1                by the department [shall prescribe], certifying
 
 2                that the sale is a sale at wholesale[.  If the
 
 3                certificate is so provided for by rule of the
 
 4                department:]; provided that:
 
 5                (i)  Any purchaser who furnishes a certificate
 
 6                     shall be obligated to pay to the seller, upon
 
 7                     demand, [if the sale in fact is not at
 
 8                     wholesale,] the amount of the additional tax
 
 9                     [which by reason thereof] that is imposed
 
10                     upon the seller[;] whenever the sale in fact
 
11                     is not at wholesale; and
 
12               (ii)  The absence of a certificate[, unless the
 
13                     sales of the business are exclusively at
 
14                     wholesale,] in itself shall give rise to the
 
15                     presumption that the sale is not at
 
16                     wholesale[.] unless the sales of the business
 
17                     are exclusively at wholesale.
 
18      (3)  Tax upon contractors.
 
19           (A)  Upon every person engaging or continuing within
 
20                the State in the business of contracting, the tax
 
21                shall be equal to four per cent of the gross
 
22                income of the business; provided that insofar as
 
23                the business of contracting is taxed by section
 

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

 
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 1                of the person paying the tax on the amount
 
 2                deducted by the person.
 
 3           (C)  In computing the tax levied under this paragraph
 
 4                against any federal cost-plus contractor, there
 
 5                shall be excluded from the gross income of the
 
 6                contractor so much thereof as fulfills the
 
 7                following requirements:
 
 8                (i)  The gross income exempted shall constitute
 
 9                     reimbursement of costs incurred for
 
10                     materials, plant, or equipment purchased from
 
11                     a taxpayer licensed under this chapter, not
 
12                     exceeding the gross proceeds of sale of the
 
13                     taxpayer on account of the transaction; and
 
14               (ii)  The taxpayer making the sale shall have
 
15                     certified to the department that the taxpayer
 
16                     is taxable with respect to the gross proceeds
 
17                     of the sale, and that the taxpayer elects to
 
18                     have the tax on gross income computed the
 
19                     same as upon a sale to the state government.
 
20           (D)  A person who, as a business or as a part of a
 
21                business in which the person is engaged, erects,
 
22                constructs, or improves any building or structure,
 
23                of any kind or description, or makes, constructs,
 

 
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 1                or improves any road, street, sidewalk, sewer, or
 
 2                water system, or other improvements on land held
 
 3                by the person (whether held as a leasehold, fee
 
 4                simple, or otherwise), upon the sale or other
 
 5                disposition of the land or improvements, even if
 
 6                the work was not done pursuant to a contract,
 
 7                shall be liable to the same tax as if engaged in
 
 8                the business of contracting, unless the person
 
 9                shows that at the time the person was engaged in
 
10                making the improvements it was, and for the period
 
11                of at least one year after completion of the
 
12                building, structure, or other improvements, it
 
13                continued to be the person's purpose to hold and
 
14                not sell or otherwise dispose of the land or
 
15                improvements.  The tax in respect of the
 
16                improvements shall be measured by the amount of
 
17                the proceeds of the sale or other disposition that
 
18                is attributable to the erection, construction, or
 
19                improvement of such building or structure, or the
 
20                making, constructing, or improving of the road,
 
21                street, sidewalk, sewer, or water system, or other
 
22                improvements.  The measure of tax in respect of
 
23                the improvements shall not exceed the amount which
 

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

 
Page 24                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1      (5)  Tax upon sales representatives, etc.  Upon every person
 
 2           classified as a representative or purchasing agent
 
 3           under section 237-1, engaging or continuing within the
 
 4           State in the business of performing services for
 
 5           another, other than as an employee, there is likewise
 
 6           hereby levied and shall be assessed and collected a tax
 
 7           equal to four per cent of the commissions and other
 
 8           compensation attributable to the services so rendered
 
 9           by the person.
 
10      (6)  Tax on service business.
 
11           (A)  Upon every person engaging or continuing within
 
12                the State in any service business or calling
 
13                including professional services not otherwise
 
14                specifically taxed under this chapter, there is
 
15                likewise hereby levied and shall be assessed and
 
16                collected a tax equal to four per cent of the
 
17                gross income of the business[; provided that
 
18                where], and in the case of a wholesaler under
 
19                section 237-4(a)(10), the tax shall be equal to
 
20                one-half of one per cent of the gross income of
 
21                the business.  Sales subject to this subparagraph
 
22                shall be subject to section 237-     .
 

 
 
 
Page 25                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           (B)  The department, by rule, may require that the
 
 2                person rendering a service at wholesale take from
 
 3                the licensed seller a certificate, in the form
 
 4                prescribed by the department, certifying that the
 
 5                sale is a sale at wholesale; provided that:
 
 6                (i)  Any licensed seller who furnishes a
 
 7                     certificate shall be obligated to pay to the
 
 8                     person rendering the service, upon demand,
 
 9                     the amount of additional tax that is imposed
 
10                     upon the seller whenever the sale is not at
 
11                     wholesale; and
 
12               (ii)  The absence of a certificate in itself shall
 
13                     give rise to the presumption that the sale is
 
14                     not at wholesale unless the person rendering
 
15                     the sale is exclusively rendering services at
 
16                     wholesale.
 
17           (C)  Where any person engaging or continuing within the
 
18                State in any service business or calling renders
 
19                those services upon the order of or at the request
 
20                of another taxpayer who is engaged in the service
 
21                business and who, in fact, acts as or acts in the
 
22                nature of an intermediary between the person
 
23                rendering those services and the ultimate
 

 
Page 26                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                recipient of the benefits of those services, so
 
 2                much of the gross income as is received by the
 
 3                person rendering the services shall be subjected
 
 4                to the tax at the rate of one-half of one per cent
 
 5                and all of the gross income received by the
 
 6                intermediary from the principal shall be subjected
 
 7                to a tax at the rate of four per cent; [and
 
 8                provided that where]  Where the taxpayer is
 
 9                subject to both this subparagraph and to the
 
10                lowest tax rate under subparagraph (A), the
 
11                taxpayer shall be taxed under this subparagraph.
 
12                This subparagraph shall be repealed on January 1,
 
13                2006.
 
14           (D)  Where any person is engaged in the business of
 
15                selling interstate or foreign common carrier
 
16                telecommunication services within and without the
 
17                State, the tax shall be imposed on that portion of
 
18                gross income received by a person from service
 
19                which is originated or terminated in this State
 
20                and is charged to a telephone number, customer, or
 
21                account in this State notwithstanding any other
 
22                state law (except for the exemption under section
 
23                237-23(a)(1)) to the contrary.  If, under the
 

 
Page 27                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                Constitution and laws of the United States, the
 
 2                entire gross income as determined under this
 
 3                paragraph of a business selling interstate or
 
 4                foreign common carrier telecommunication services
 
 5                cannot be included in the measure of the tax, the
 
 6                gross income shall be apportioned as provided in
 
 7                section 237-21; provided that the apportionment
 
 8                factor and formula shall be the same for all
 
 9                persons providing those services in the State.
 
10      (7)  Tax on insurance solicitors and agents.  Upon every
 
11           person engaged as a licensed solicitor, general agent,
 
12           or subagent pursuant to chapter 431, there is hereby
 
13           levied and shall be assessed and collected a tax equal
 
14           to .15 per cent of the commissions due to that
 
15           activity.
 
16     [(8)  Professions.  Upon every person engaging or continuing
 
17           within the State in the practice of a profession,
 
18           including those expounding the religious doctrines of
 
19           any church, there is likewise hereby levied and shall
 
20           be assessed and collected a tax equal to four per cent
 
21           of the gross income on the practice or exposition.
 
22      (9)] (8)  Tax on receipts of sugar benefit payments.  Upon
 
23           the amounts received from the United States government
 
24           by any producer of sugar (or the producer's legal
 

 
Page 28                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           representative or heirs), as defined under and by
 
 2           virtue of the Sugar Act of 1948, as amended, or other
 
 3           Acts of the Congress of the United States relating
 
 4           thereto, there is hereby levied a tax of one-half of
 
 5           one per cent of the gross amount received[,]; provided
 
 6           that the tax levied hereunder on any amount so received
 
 7           and actually disbursed to another by a producer in the
 
 8           form of a benefit payment shall be paid by the person
 
 9           or persons to whom the amount is actually disbursed,
 
10           and the producer actually making a benefit payment to
 
11           another shall be entitled to claim on the producer's
 
12           return a deduction from the gross amount taxable
 
13           hereunder in the sum of the amount so disbursed.  The
 
14           amounts taxed under this paragraph shall not be taxable
 
15           under any other paragraph, subsection, or section of
 
16           this chapter.
 
17    [(10)] (9)  Tax on other business.  Upon every person engaging
 
18           or continuing within the State in any business, trade,
 
19           activity, occupation, or calling not included in the
 
20           preceding paragraphs or any other provisions of this
 
21           chapter, there is likewise hereby levied and shall be
 
22           assessed and collected, a tax equal to four per cent of
 
23           the gross income thereof.  In addition, the rate
 

 
Page 29                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           prescribed by this paragraph shall apply to a business
 
 2           taxable under one or more of the preceding paragraphs
 
 3           or other provisions of this chapter, as to any gross
 
 4           income thereof not taxed thereunder as gross income or
 
 5           gross proceeds of sales or by taxing an equivalent
 
 6           value of products, unless specifically exempted."
 
 7      SECTION 7.  Section 237-16, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "§237-16  Tax on certain retailing.(a)  This section
 
10 relates to certain retailing in the State as follows:
 
11      (1)  This section relates to the sale of tangible personal
 
12           property, for consumption or use by the purchaser and
 
13           not for resale, the renting of tangible personal
 
14           property, and the rendering of services by one engaged
 
15           in a service business or calling, as defined, to a
 
16           person who is not purchasing the services for resale,
 
17           but does not relate to the sale or rental of tangible
 
18           personal property or the rendering of services to the
 
19           State, its political subdivisions, or agencies or
 
20           instrumentalities of the State or a political
 
21           subdivision, or to the United States or its agencies or
 
22           instrumentalities (other than national banks), or to a
 
23           corporation, organization, or other person designated
 

 
Page 30                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           in section 237-23 who is not subject to the tax imposed
 
 2           by this chapter, or to a person licensed under this
 
 3           chapter in connection with the person's business.
 
 4      (2)  This section relates to the business of a contractor,
 
 5           as defined, but does not relate to contracting with, or
 
 6           any gross income or proceeds of a subcontractor if the
 
 7           principal contract is with the State, its political
 
 8           subdivisions, or agencies or instrumentalities of the
 
 9           State or a political subdivision, or with the United
 
10           States or its agencies or instrumentalities (other than
 
11           national banks), or with a person designated in section
 
12           237-23 who is not subject to the tax imposed by this
 
13           chapter, or with a person licensed under this chapter
 
14           in connection with the person's business.
 
15      (3)  This section relates to furnishing of transient
 
16           accommodations in a hotel, apartment hotel, or other
 
17           place in which lodgings are regularly furnished to
 
18           transients for a consideration which includes the
 
19           rendering of services.
 
20      (b)  There is hereby levied, and shall be assessed and
 
21 collected annually, a privilege tax against persons engaging or
 
22 continuing within the State in the retailing to which this
 
23 section relates, on account of such retailing activities, as set
 

 
Page 31                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 forth in subsection (a), equal to four per cent of the gross
 
 2 proceeds of sale or gross income received or derived from such
 
 3 retailing.  Persons on whom a tax is imposed by this section
 
 4 hereinafter are called "retailers".
 
 5      (c)  No retailer shall advertise or hold out to the public
 
 6 in any manner, directly or indirectly, that the tax imposed by
 
 7 this section is not considered as an element in the price to the
 
 8 consumer.  Any person violating this subsection shall be fined
 
 9 not more than $50 for each offense.
 
10      (d)  This section shall not cause the tax upon a taxpayer,
 
11 with respect to any item of the taxpayer's gross income, to
 
12 exceed four per cent.
 
13      (e)  This section shall not apply to:
 
14      (1)  Sales of tangible personal property to a licensed
 
15           seller engaged in a service business or calling as
 
16           defined in section 237-4(a)(8); or
 
17      (2)  Sales of services to a licensed seller engaged in a
 
18           business or calling as defined in section
 
19           237-4(a)(10)."
 
20      SECTION 8.  Section 238-2, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§238-2 Imposition of tax; exemptions.  There is hereby
 
23 levied an excise tax on the use in this State of tangible
 
24 personal property which is imported, or purchased from an
 

 
Page 32                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1 unlicensed seller, for use in this State.  The tax imposed by
 
 2 this chapter shall accrue when the property is acquired by the
 
 3 importer or purchaser and becomes subject to the taxing
 
 4 jurisdiction of the State.  The rates of the tax hereby imposed
 
 5 and the exemptions thereof are as follows:
 
 6      (1)  If the importer or purchaser is licensed under chapter
 
 7           237 and is:
 
 8           (A)  [a] A wholesaler or jobber importing or purchasing
 
 9                for purposes of resale[,]; or
 
10           (B)  [a] A manufacturer importing or purchasing
 
11                material or commodities which are to be
 
12                incorporated by the manufacturer into a finished
 
13                or saleable product (including the container or
 
14                package in which the product is contained) wherein
 
15                it will remain in such form as to be perceptible
 
16                to the senses, and which finished or saleable
 
17                product is to be sold in such manner as to result
 
18                in a further tax on the activity of the
 
19                manufacturer as the manufacturer or as a
 
20                wholesaler, and not as a retailer,
 
21           there shall be no tax[,]; provided that if the
 
22           wholesaler, jobber, or manufacturer is also engaged in
 
23           business as a retailer (so classed under chapter 237),
 

 
Page 33                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           paragraph (2) shall apply to the wholesaler, jobber, or
 
 2           manufacturer, but the director of taxation shall refund
 
 3           to the wholesaler, jobber, or manufacturer, in the
 
 4           manner provided under section 231-23(c) such amount of
 
 5           tax as the wholesaler, jobber, or manufacturer shall,
 
 6           to the satisfaction of the director, establish to have
 
 7           been paid by the wholesaler, jobber, or manufacturer to
 
 8           the director with respect to property which has been
 
 9           used by the wholesaler, jobber, or manufacturer for the
 
10           purposes stated in this paragraph[.];
 
11      (2)  If the importer or purchaser is licensed under chapter
 
12           237 and is:
 
13           (A)  [a] A retailer or other person importing or
 
14                purchasing for purposes of resale, not exempted by
 
15                paragraph (1)[, or];
 
16           (B)  [a] A manufacturer importing or purchasing
 
17                material or commodities which are to be
 
18                incorporated by the manufacturer into a finished
 
19                or saleable product (including the container or
 
20                package in which the product is contained) wherein
 
21                it will remain in such form as to be perceptible
 
22                to the senses, and which finished or saleable
 
23                product is to be sold at retail in this State, in
 

 
Page 34                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1                such manner as to result in a further tax on the
 
 2                activity of the manufacturer in selling such
 
 3                products at retail[, or];
 
 4           (C)  [a] A contractor importing or purchasing material
 
 5                or commodities which are to be incorporated by the
 
 6                contractor into the finished work or project
 
 7                required by the contract and which will remain in
 
 8                such finished work or project in such form as to
 
 9                be perceptible to the senses[,]; or
 
10           (D)  A person engaged in a service business or calling
 
11                as defined in section 237-7, or a person
 
12                furnishing transient accommodations subject to the
 
13                tax imposed by section 237D-2, in which the import
 
14                or purchase of tangible personal property would
 
15                have qualified as a sale at wholesale as defined
 
16                in section 237-4(a)(8) had the seller of the
 
17                property been subject to the tax in chapter 237,
 
18           the tax shall be one-half of one per cent of the
 
19           purchase price of the property, if the purchase and
 
20           sale are consummated in Hawaii; or, if there is no
 
21           purchase price applicable thereto, or if the purchase
 
22           or a person furnishing transient accommodations subject
 

 
 
 
Page 35                                                    638
                                     S.B. NO.           S.D. 1
                                                        H.D. 1
                                                        

 
 1           to the tax imposed by section 237D-2, or sale is
 
 2           consummated outside of Hawaii, then one-half of one per
 
 3           cent of the value of such property[.]; and
 
 4      (3)  In all other cases, four per cent of the value of the
 
 5           property."
 
 6      SECTION 9.  Statutory material to be repealed is bracketed.
 
 7 New statutory material is underscored.
 
 8      SECTION 10.  This Act shall take effect upon its approval
 
 9 and shall apply to gross income or gross proceeds received after
 
10 December 31, 1999; provided that section 8 of this Act shall
 
11 apply to amounts paid or incurred after December 31, 1999.