REPORT TITLE:
Taxation


DESCRIPTION:
Expands the definitions of "wholesaler" to include wholesale
services to alleviate the pyramiding of general excise and use
taxes. (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        638
THE SENATE                              S.B. NO.           S.D. 1
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
 
20 intermediary sales of services by treating all intermediary
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 services as wholesale sales.
 
 2      SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended
 
 3 by adding a new section to be appropriately designated and to
 
 4 read as follows:
 
 5      "§237-    Application of sections 237-4(a)(10) and
 
 6 237-13(6)(A).  (a)  Sections 237-4(a)(10) and 237-13(6)(A) to the
 
 7 contrary notwithstanding, instead of the tax levied under section
 
 8 237-13(6)(A) at one-half of one per cent, during the period
 
 9 January 1, 2000, to December 31, 2005, the tax shall be four per
 
10 cent and the taxpayer shall take a deduction from gross income or
 
11 gross proceeds as provided in subsection (b).
 
12      (b)  In order to determine the deduction allowed under this
 
13 section, the taxpayer shall compute the gross income or gross
 
14 proceeds subject to section 237-13(6)(A) and multiply that amount
 
15 by the following amount:
 
16      (1)  In calendar year 2000, .088;
 
17      (2)  In calendar year 2001, .281;
 
18      (3)  In calendar year 2002, .461;
 
19      (4)  In calendar year 2003, .628;
 
20      (5)  In calendar year 2004, .782;
 
21      (6)  In calendar year 2005, .850.
 
22      The amount calculated under paragraph (1) to (6) shall be
 
23 deducted by the taxpayer from the taxpayer's gross income or
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 gross proceeds taxed by this chapter, including gross income or
 
 2 gross proceeds subject to section 237-13(6)(A).  The deduction
 
 3 allowed by this section may be taken by fiscal and calendar year
 
 4 taxpayers."
 
 5      SECTION 3.  Section 237-1, Hawaii Revised Statutes, is
 
 6 amended by adding a new definition to be appropriately inserted
 
 7 and to read as follows:
 
 8      ""Overhead" means continuous or general costs of property or
 
 9 services which are not specifically or directly associated with
 
10 the manufacture, preparation, production, or acquisition of
 
11 identifiable goods or services to be sold."
 
12      SECTION 4.  Section 237-4, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "§237-4 "Wholesaler", "jobber", defined.  (a)  "Wholesaler"
 
15 or "jobber" applies only to a person making sales at wholesale.
 
16 Only the following are sales at wholesale:
 
17      (1)  Sales to a licensed retail merchant, jobber, or other
 
18           licensed seller for purposes of resale;
 
19      (2)  Sales to a licensed manufacturer of 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) during the course of its
 

 
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 1           preservation, manufacture, or processing, including
 
 2           preparation for market, and which will remain in such
 
 3           finished or saleable product in such form as to be
 
 4           perceptible to the senses, which finished or saleable
 
 5           product is to be sold and not otherwise used by the
 
 6           manufacturer;
 
 7      (3)  Sales to a licensed producer or cooperative association
 
 8           of materials or commodities which are to be
 
 9           incorporated by the producer or by the cooperative
 
10           association into a finished or saleable product which
 
11           is to be sold and not otherwise used by the producer or
 
12           cooperative association, including specifically
 
13           materials or commodities expended as essential to the
 
14           planting, growth, nurturing, and production of
 
15           commodities which are sold by the producer or by the
 
16           cooperative association;
 
17      (4)  Sales to a licensed contractor, of material or
 
18           commodities which are to be incorporated by the
 
19           contractor into the finished work or project required
 
20           by the contract and which will remain in such finished
 
21           work or project in such form as to be perceptible to
 
22           the senses;
 
23      (5)  Sales to a licensed producer, or to a cooperative
 

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

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

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

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1           business or calling whenever:
 
 2           (A)  Either:
 
 3                (i)  In the context of a service-to-service
 
 4                     transaction, a service is rendered upon the
 
 5                     order or request of a licensed seller for the
 
 6                     purpose of rendering another service in the
 
 7                     course of the seller's service business or
 
 8                     calling;
 
 9               (ii)  In the context of a service-to-goods
 
10                     transaction, a service is rendered upon the
 
11                     order or request of a licensed seller for the
 
12                     purpose of manufacturing, producing,
 
13                     preparing, or acquiring tangible personal
 
14                     property to be sold; or
 
15              (iii)  In the context of a services-to-contracting
 
16                     transaction, a service is rendered upon the
 
17                     order or request of a licensed contractor as
 
18                     defined in section 237-6 for the purpose of
 
19                     assisting that licensed contractor in
 
20                     executing a contract; and
 
21           (B)  The benefit of the service passes to the customer
 
22                of the licensed seller as an integral part of the
 
23                other service or property to be sold; and
 

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

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

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

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

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

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

 
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 1                     approval of the department, the taxpayer may
 
 2                     make the taxpayer's returns under clause (i)
 
 3                     even though the products have not been sold
 
 4                     at the time of their entry into interstate or
 
 5                     foreign commerce.
 
 6               (iv)  In all cases in which products leave the
 
 7                     State in an unfinished condition, the basis
 
 8                     for assessment shall be adjusted so as to
 
 9                     deduct the portion of the value as is
 
10                     attributable to the finishing of the goods
 
11                     outside the State.
 
12      (2)  Tax on business of selling tangible personal property;
 
13           producing.
 
14           (A)  Upon every person engaging or continuing in the
 
15                business of selling any tangible personal property
 
16                whatsoever (not including, however, bonds or other
 
17                evidence of indebtedness, or stocks), there is
 
18                likewise hereby levied, and shall be assessed and
 
19                collected, a tax equivalent to four per cent of
 
20                the gross proceeds of sales of the business;
 
21                provided that insofar as certain retailing is
 
22                taxed by section 237-16, the tax shall be that
 
23                levied by section 237-16, and in the case of a
 

 
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 1                wholesaler, the tax shall be equal to one-half of
 
 2                one per cent of the gross proceeds of sales of the
 
 3                business.  Upon every person engaging or
 
 4                continuing within this State in the business of a
 
 5                producer, the tax shall be equal to one-half of
 
 6                one per cent of the gross proceeds of sales of the
 
 7                business, or the value of the products, for sale,
 
 8                if sold for delivery outside the State or shipped
 
 9                or transported out of the State, and the value of
 
10                the products shall be determined in the same
 
11                manner as the value of manufactured products
 
12                covered in the cases under paragraph (1)(C).
 
13           (B)  Gross proceeds of sales of tangible property in
 
14                interstate and foreign commerce shall constitute a
 
15                part of the measure of the tax imposed on persons
 
16                in the business of selling tangible personal
 
17                property, to the extent, under the conditions, and
 
18                in accordance with the provisions of the
 
19                Constitution of the United States and the Acts of
 
20                the Congress of the United States which may be now
 
21                in force or may be hereafter adopted, and whenever
 
22                there occurs in the State an activity to which,
 
23                under the Constitution and Acts of Congress, there
 

 
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 1                may be attributed gross proceeds of sales, the
 
 2                gross proceeds shall be so attributed.
 
 3           (C)  No manufacturer or producer, engaged in such
 
 4                business in the State and selling the
 
 5                manufacturer's or producer's products for delivery
 
 6                outside of the State (for example, consigned to a
 
 7                mainland purchaser via common carrier f.o.b.
 
 8                Honolulu), shall be required to pay the tax
 
 9                imposed in this chapter for the privilege of so
 
10                selling the products, and the value or gross
 
11                proceeds of sales of the products shall be
 
12                included only in determining the measure of the
 
13                tax imposed upon the manufacturer or producer.
 
14           (D)  When a manufacturer or producer, engaged in such
 
15                business in the State, also is engaged in selling
 
16                the manufacturer's or producer's products in the
 
17                State at wholesale, retail, or in any other
 
18                manner, the tax for the privilege of engaging in
 
19                the business of selling the products in the State
 
20                shall apply to the manufacturer or producer as
 
21                well as the tax for the privilege of manufacturing
 
22                or producing in the State, and the manufacturer or
 
23                producer shall make the returns of the gross
 

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

 
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 1                notwithstanding this paragraph or paragraph (1) to
 
 2                the contrary.
 
 3           (F)  The department, by rule, may provide that a seller
 
 4                may take from the purchaser of tangible personal
 
 5                property a certificate, in a form [as] prescribed
 
 6                by the department [shall prescribe], certifying
 
 7                that the sale is a sale at wholesale[.  If the
 
 8                certificate is so provided for by rule of the
 
 9                department:]; provided that:
 
10                (i)  Any purchaser who furnishes a certificate
 
11                     shall be obligated to pay to the seller, upon
 
12                     demand, [if the sale in fact is not at
 
13                     wholesale,] the amount of the additional tax
 
14                     [which by reason thereof] that is imposed
 
15                     upon the seller[;] whenever the sale in fact
 
16                     is not at wholesale; and
 
17               (ii)  The absence of a certificate[, unless the
 
18                     sales of the business are exclusively at
 
19                     wholesale,] in itself shall give rise to the
 
20                     presumption that the sale is not at
 
21                     wholesale[.] unless the sales of the business
 
22                     are exclusively at wholesale.
 
23      (3)  Tax upon contractors.
 

 
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 1           (A)  Upon every person engaging or continuing within
 
 2                the State in the business of contracting, the tax
 
 3                shall be equal to four per cent of the gross
 
 4                income of the business; provided that insofar as
 
 5                the business of contracting is taxed by section
 
 6                237-16, which relates to certain retailing, the
 
 7                tax shall be that levied by section 237-16.
 
 8           (B)  In computing the tax levied under this paragraph
 
 9                or section 237-16, there shall be deducted from
 
10                the gross income of the taxpayer so much thereof
 
11                as has been included in the measure of the tax
 
12                levied under subparagraph (A) or section 237-16,
 
13                on:
 
14                (i)  Another taxpayer who is a contractor, as
 
15                     defined in section 237-6;
 
16               (ii)  A specialty contractor, duly licensed by the
 
17                     department of commerce and consumer affairs
 
18                     pursuant to section 444-9, in respect of the
 
19                     specialty contractor's business; or
 
20              (iii)  A specialty contractor who is not licensed by
 
21                     the department of commerce and consumer
 
22                     affairs pursuant to section 444-9, but who
 
23                     performs contracting activities on federal
 

 
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 1                     military installations and nowhere else in
 
 2                     this State;
 
 3                but any person claiming a deduction under this
 
 4                paragraph shall be required to show in the
 
 5                person's return the name and general excise number
 
 6                of the person paying the tax on the amount
 
 7                deducted by the person.
 
 8           (C)  In computing the tax levied under this paragraph
 
 9                against any federal cost-plus contractor, there
 
10                shall be excluded from the gross income of the
 
11                contractor so much thereof as fulfills the
 
12                following requirements:
 
13                (i)  The gross income exempted shall constitute
 
14                     reimbursement of costs incurred for
 
15                     materials, plant, or equipment purchased from
 
16                     a taxpayer licensed under this chapter, not
 
17                     exceeding the gross proceeds of sale of the
 
18                     taxpayer on account of the transaction; and
 
19               (ii)  The taxpayer making the sale shall have
 
20                     certified to the department that the taxpayer
 
21                     is taxable with respect to the gross proceeds
 
22                     of the sale, and that the taxpayer elects to
 
23                     have the tax on gross income computed the
 

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

 
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 1                improvement of such building or structure, or the
 
 2                making, constructing, or improving of the road,
 
 3                street, sidewalk, sewer, or water system, or other
 
 4                improvements.  The measure of tax in respect of
 
 5                the improvements shall not exceed the amount which
 
 6                would have been taxable had the work been
 
 7                performed by another, subject as in other cases to
 
 8                the deductions allowed by subparagraph (B).  Upon
 
 9                the election of the taxpayer, this paragraph may
 
10                be applied notwithstanding the improvements were
 
11                not made by the taxpayer, or were not made as a
 
12                business or as a part of a business, or were made
 
13                with the intention of holding the same.  However,
 
14                this paragraph shall not apply in respect of any
 
15                proceeds that constitute or are in the nature of
 
16                rent; all such gross income shall be taxable under
 
17                paragraph [(10);] (9); provided that insofar as
 
18                the business of renting or leasing real property
 
19                under a lease is taxed under section 237-16.5, the
 
20                tax shall be levied by section 237-16.5.
 
21      (4)  Tax upon theaters, amusements, radio broadcasting
 
22           stations, etc.  Upon every person engaging or
 
23           continuing within the State in the business of
 

 
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 1           operating a theater, opera house, moving picture show,
 
 2           vaudeville, amusement park, dance hall, skating rink,
 
 3           radio broadcasting station, or any other place at which
 
 4           amusements are offered to the public, the tax shall be
 
 5           equal to four per cent of the gross income of the
 
 6           business.
 
 7      (5)  Tax upon sales representatives, etc.  Upon every person
 
 8           classified as a representative or purchasing agent
 
 9           under section 237-1, engaging or continuing within the
 
10           State in the business of performing services for
 
11           another, other than as an employee, there is likewise
 
12           hereby levied and shall be assessed and collected a tax
 
13           equal to four per cent of the commissions and other
 
14           compensation attributable to the services so rendered
 
15           by the person.
 
16      (6)  Tax on service business.
 
17           (A)  Upon every person engaging or continuing within
 
18                the State in any service business or calling [not
 
19                otherwise specifically taxed under this chapter,]
 
20                there is likewise hereby levied and shall be
 
21                assessed and collected a tax equal to four per
 
22                cent of the gross income of the business[;
 
23                provided that where], and in the case of a
 

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

 
 1                wholesaler, the tax shall be equal to one-half of
 
 2                one per cent of the gross income of the business.
 
 3                Sales subject to this subparagraph shall be
 
 4                subject be to section 237-     .
 
 5           (B)  The department, by rule, may require that the
 
 6                person rendering a service at wholesale take from
 
 7                the licensed seller a certificate, in the form
 
 8                prescribed by the department, certifying that the
 
 9                sale is a sale at wholesale; provided that:
 
10                (i)  Any licensed seller who furnishes a
 
11                     certificate shall be obligated to pay to the
 
12                     person rendering the service, upon demand,
 
13                     the amount of additional tax that is imposed
 
14                     upon the seller whenever the sale is not at
 
15                     wholesale; and
 
16               (ii)  The absence of a certificate in itself shall
 
17                     give rise to the presumption that the sale is
 
18                     not at wholesale unless the person rendering
 
19                     the sale is exclusively rendering services at
 
20                     wholesale.
 
21           (C)  Where any person engaging or continuing within the
 
22                State in any service business or calling renders
 
23                those services upon the order of or at the request
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1                of another taxpayer who is engaged in the service
 
 2                business and who, in fact, acts as or acts in the
 
 3                nature of an intermediary between the person
 
 4                rendering those services and the ultimate
 
 5                recipient of the benefits of those services, so
 
 6                much of the gross income as is received by the
 
 7                person rendering the services shall be subjected
 
 8                to the tax at the rate of one-half of one per cent
 
 9                and all of the gross income received by the
 
10                intermediary from the principal shall be subjected
 
11                to a tax at the rate of four per cent; [and
 
12                provided that where]  Where the taxpayer is
 
13                subject to this subparagraph or to the lowest tax
 
14                rate under subparagraph (A), the taxpayer may
 
15                choose to be taxed under either subparagraph (A)
 
16                or this subparagraph.  This subparagraph is
 
17                repealed on January 1, 2006.
 
18           (D)  Where any person is engaged in the business of
 
19                selling interstate or foreign common carrier
 
20                telecommunication services within and without the
 
21                State, the tax shall be imposed on that portion of
 
22                gross income received by a person from service
 
23                which is originated or terminated in this State
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

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

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

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

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

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

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1           State, its political subdivisions, or agencies or
 
 2           instrumentalities of the State or a political
 
 3           subdivision, or to the United States or its agencies or
 
 4           instrumentalities (other than national banks), or to a
 
 5           corporation, organization, or other person designated
 
 6           in section 237-23 who is not subject to the tax imposed
 
 7           by this chapter, or to a person licensed under this
 
 8           chapter in connection with the person's business.
 
 9      (2)  This section relates to the business of a contractor,
 
10           as defined, but does not relate to contracting with, or
 
11           any gross income or proceeds of a subcontractor if the
 
12           principal contract is with the State, its political
 
13           subdivisions, or agencies or instrumentalities of the
 
14           State or a political subdivision, or with the United
 
15           States or its agencies or instrumentalities (other than
 
16           national banks), or with a person designated in section
 
17           237-23 who is not subject to the tax imposed by this
 
18           chapter, or with a person licensed under this chapter
 
19           in connection with the person's business.
 
20      (3)  This section relates to furnishing of transient
 
21           accommodations in a hotel, apartment hotel, or other
 
22           place in which lodgings are regularly furnished to
 
23           transients for a consideration which includes the
 

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

 
 1           rendering of services.
 
 2      (b)  There is hereby levied, and shall be assessed and
 
 3 collected annually, a privilege tax against persons engaging or
 
 4 continuing within the State in the retailing to which this
 
 5 section relates, on account of such retailing activities, as set
 
 6 forth in subsection (a), equal to four per cent of the gross
 
 7 proceeds of sale or gross income received or derived from such
 
 8 retailing.  Persons on whom a tax is imposed by this section
 
 9 hereinafter are called "retailers".
 
10      (c)  No retailer shall advertise or hold out to the public
 
11 in any manner, directly or indirectly, that the tax imposed by
 
12 this section is not considered as an element in the price to the
 
13 consumer.  Any person violating this subsection shall be fined
 
14 not more than $50 for each offense.
 
15      (d)  This section shall not cause the tax upon a taxpayer,
 
16 with respect to any item of the taxpayer's gross income, to
 
17 exceed four per cent.
 
18      (e)  This section shall not apply to:
 
19      (1)  Sales of tangible personal property to a licensed
 
20           seller engaged in a service business or calling as
 
21           defined in section 237-4(a)(8); or
 
22      (2)  Sales of services to a licensed seller engaged in a
 
23           business or calling as defined in section
 

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

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

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

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

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

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

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

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