REPORT TITLE:
Public Service Company Tax


DESCRIPTION:
Authorizes an apportionment of public service company taxes to
the counties, in lieu of the authority to assess real property
taxes on property owned by public utilities.  (SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1944
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 2000                                S.D. 2
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC SERVICE COMPANY TAX.



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

 1      SECTION 1.  Chapter 239, Hawaii Revised Statutes, was
 
 2 enacted to impose the public service company tax on certain
 
 3 public utilities in lieu of other taxes and as a means of taxing
 
 4 the real property (owned by a public utility or leased to it by a
 
 5 lease under which the public utility is required to pay the taxes
 
 6 upon the property) and the personal property of the public
 
 7 utility.  Specifically, section 239-3, Hawaii Revised Statutes
 
 8 (HRS), provides that public utilities are exempt from the
 
 9 counties' real property taxes.  At the time of the enactment of
 
10 chapter 239, HRS, the power to tax real property was held by the
 
11 State.  As a result of the 1978 Constitutional Convention, the
 
12 power to tax real property was transferred to the counties.
 
13 Nonetheless, the same amendment that effected this transfer of
 
14 taxing authority also prescribed that for a period of eleven
 
15 years following the transfer, the various counties would follow
 
16 the same real property taxing system and continue to recognize
 
17 real property tax exemptions that had previously existed under
 
18 the state system.  That eleven-year transition period ended in
 
19 1989 giving rise to a potential challenge to the continued
 

 
Page 2                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1 operation of the exemption from real property taxation set forth
 
 2 in chapter 239, HRS.
 
 3      In 1999, the county of Hawaii amended its real property
 
 4 taxing ordinances and in January 2000, the county of Hawaii
 
 5 rejected the applications of public utilities for exemptions from
 
 6 real property taxation.  This has led to the possibility that
 
 7 those public utilities will be forced to pay two different taxes
 
 8 on real property:
 
 9      (1)  One tax embedded in the existing chapter 239, HRS; and
 
10      (2)  The other tax directly to the county of Hawaii.
 
11 Ultimately, the customers of those public utilities will pay for
 
12 this two-tiered taxation in the form of higher utility bills.
 
13      To avoid having consumers bear the ultimate burden of two-
 
14 tiered taxation, the legislature finds that it would be equitable
 
15 for the State to offer to share a part of the public service
 
16 company tax revenues with the counties to compensate them for
 
17 unrealized real property tax revenues.  This tax revenue sharing
 
18 would also avoid the significant additional administrative costs
 
19 and burdens that the counties would face in individually
 
20 administering the direct assessment and collection of real
 
21 property taxes upon public utilities.
 
22      The purpose of this Act is to provide the counties with the
 
23 option of either:
 

 
Page 3                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1      (1)  Sharing revenues collected under the public service
 
 2           company tax which are collected in lieu of real
 
 3           property taxes; or
 
 4      (2)  Foregoing the revenue sharing and collecting real
 
 5           property taxes.  That portion of a public utility's
 
 6           gross income from public utility business generated in
 
 7           any county which elects to forgo revenue sharing shall
 
 8           be subject to a public service company tax rate equal
 
 9           to the maximum general excise tax rate under chapter
 
10           237, HRS (which is currently four per cent).
 
11      SECTION 2.  Section 239-5, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "§239-5 Public utilities, generally.(a)  There shall be
 
14 levied and assessed upon each public utility, except airlines,
 
15 motor carriers, common carriers by water, and contract carriers
 
16 taxed by section 239-6, a tax of such rate per cent of its gross
 
17 income each year from its public utility business as shall be
 
18 determined in the manner hereinafter provided.  The tax imposed
 
19 by this section is in lieu of all taxes other than those below
 
20 set out, and is a means of taxing, on behalf of and as the agent
 
21 for those counties that elect to participate in the revenue
 
22 sharing provided for in section 239-10, the real property (owned
 
23 by the public utility or leased to it by a lease under which the
 

 
Page 4                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1 public utility is required to pay the taxes upon the property),
 
 2 and the personal property of the public utility, tangible and
 
 3 intangible, including going concern value.  In addition to the
 
 4 tax imposed by this chapter, there also are imposed income taxes,
 
 5 the specific taxes imposed by chapter 249, the fees prescribed by
 
 6 chapter 269, any tax specifically imposed by the terms of the
 
 7 public utility's franchise or under chapter 240, the use or
 
 8 consumption tax imposed by chapter 238, and employment taxes.
 
 9      The rate of the tax upon the gross income of the public
 
10 utility shall be determined as follows:
 
11      If the ratio of the net income of the company to its gross
 
12 income is fifteen per cent or less, the rate of the tax on gross
 
13 income shall be 5.885 per cent; for all companies having net
 
14 income in excess of fifteen per cent of the gross, the rate of
 
15 the tax on gross income shall increase continuously in proportion
 
16 to the increase in ratio of net income to gross, at such rate
 
17 that for each increase of one per cent in the ratio of net income
 
18 to gross, there shall be an increase of .2675 per cent in the
 
19 rate of the tax.
 
20      The following formula may be used to determine the rate, in
 
21 which formula the term "R" is the ratio of net income to gross
 
22 income, and "X" is the required rate of the tax on gross income
 
23 for the utility in question:
 

 
Page 5                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1                        X=(1.8725+26.75R)%;
 
 2 provided that in no case governed by the formula shall "X" be
 
 3 less than 5.885 per cent or more than 8.2 per cent.
 
 4      However, if the gross income is apportioned under section
 
 5 239-8(b) or (c), there shall be no adjustment of the rate of tax
 
 6 on the amount of gross income so apportioned to the State on
 
 7 account of the ratio of the net income to the gross income being
 
 8 in excess of fifteen per cent, and it shall be assumed in such
 
 9 case that the ratio is fifteen per cent or less.
 
10      (b)  Notwithstanding subsection (a), the rate of the tax
 
11 upon the portion of the gross income of a carrier of passengers
 
12 by land [which] that consists [in] of passenger fares for
 
13 transportation between points on a scheduled route, shall be 5.35
 
14 per cent.  However, if the carrier has other public utility gross
 
15 income, the fares nevertheless shall be included in applying
 
16 subsection (a) in determining the rate of tax upon the other
 
17 public utility gross income.
 
18      (c)  Notwithstanding subsection (a), the rate of tax upon
 
19 the portion of the gross income of a public utility [which] that
 
20 consists of the receipts from the sale of its products or
 
21 services to another public utility which resells [such] the
 
22 products or services shall be one-half of one per cent[,];
 
23 provided that the resale is subject to taxation under this
 

 
Page 6                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1 section[,]; and provided further that the public utility's
 
 2 exemption from real property taxes imposed by chapter 246 shall
 
 3 be reduced by the proportion that its public utility gross income
 
 4 described herein bears to its total public utility gross income.
 
 5 Whenever the public utility has other public utility gross
 
 6 income, the gross income from the sale of its products or
 
 7 services to another public utility shall be included in applying
 
 8 subsection (a) in determining the rate of tax upon the other
 
 9 public utility gross income.
 
10      (d)  Notwithstanding subsection (a) and subject to
 
11 subsection (c), the rate of taxation upon that portion of the
 
12 gross income of a public utility from its public utility business
 
13 generated in a county that elects not to participate in the
 
14 revenue sharing described in section 239-10 shall be the maximum
 
15 tax rate imposed under chapter 237."
 
16      SECTION 3.  Section 239-10, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "§239-10  Disposition of revenues.  (a)  All taxes collected
 
19 under this chapter shall be state realizations[.]; provided that
 
20 after June 30, 2000, the amount of taxes collected under section
 
21 239-5(a) from levy and assessment after June 30, 2000, in excess
 
22 of the maximum tax rate imposed under chapter 237, shall be kept
 
23 in the state treasury by the director of finance in special
 

 
Page 7                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1 accounts for each county (except Kalawao).  The director of
 
 2 finance may deduct any reasonable costs with respect to
 
 3 administering this section before paying the remaining balance to
 
 4 participating counties as provided for in this section.
 
 5      (b)  The director of taxation shall apportion and pay into
 
 6 the special accounts the taxes collected during the fiscal year
 
 7 under subsection (a).  Apportionment to the special accounts
 
 8 shall be based upon the proportional contribution of actual tax
 
 9 receipts generated under this chapter within each county, less
 
10 projected taxpayer refunds and other contingent liabilities such
 
11 as tax appeals.
 
12      (c)  On or before January 1 and July 1 of each year after
 
13 July 1, 2000, or after the disposition of any tax appeal with
 
14 respect to an assessment for periods after June 30, 2000, the
 
15 director of finance shall pay the amount due as provided in
 
16 subsection (b) to the director of finance of each county to
 
17 become a general realization of the county expendable as such,
 
18 except as otherwise provided by law.
 
19      (d)  Each county shall have until December 1, 2000, to make
 
20 a one-time irrevocable election to participate in the revenue
 
21 sharing provided for in this section.  Each county shall notify
 
22 the director of finance in writing of its election to either
 
23 participate in revenue sharing or not.
 

 
Page 8                                                     1944
                                     H.B. NO.           H.D. 2
                                                        S.D. 2
                                                        

 
 1      (e)  No county shall have the right to appeal any assessment
 
 2 of the public service company tax on a public utility subject to
 
 3 this chapter, nor shall any county have any access to any tax
 
 4 returns or tax return information submitted to the department of
 
 5 taxation under this chapter.
 
 6      (f)  Any county that elects not to participate in the
 
 7 revenue sharing as provided in this section shall not receive any
 
 8 tax moneys under this section.  All taxes kept in a non-
 
 9 participating county's special account shall be refunded to the
 
10 appropriate public utility.
 
11      (g)  Any county that elects to participate in the revenue
 
12 sharing provided for in this section shall not directly levy or
 
13 collect any real property tax from those public utilities subject
 
14 to taxation under section 239-5(a)."
 
15      SECTION 4.  If any provision of this Act, or the application
 
16 thereof to any person or circumstance is held invalid, the
 
17 invalidity does not affect other provisions or applications of
 
18 the Act which can be given effect without the invalid provision
 
19 or application, and to this end the provisions of this Act are
 
20 severable.
 
21      SECTION 5.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored.
 
23      SECTION 6.  This Act shall take effect on July 1, 3000.