Report Title:
Taxation of Mobile Telecommunications Services
Description:
Conforms the Tax Code to the federal Mobile Telecommunications Sourcing Act income sourcing method. (HB2567 HD1)
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HOUSE OF REPRESENTATIVES |
H.B. NO. |
2567 |
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TWENTY-FIRST LEGISLATURE, 2002 |
H.D. 1 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO THE TAXATION OF MOBILE TELECOMMUNICATIONS SERVICES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The purpose of this Act is to conform the tax code to the federal Mobile Telecommunications Sourcing Act, P.L. 106-252 (July 28, 2000), which takes effect on August 1, 2002. In 2000, the United States Congress passed the Mobile Telecommunications Sourcing Act, which mandates a new method of sourcing the income received by home service providers. "Home service provider" is a term of art used to describe wireless telecommunications companies, including Verizon Wireless, AT&T Wireless, and Sprint Personal Communications System. Members of the wireless telecommunications industry and the Federation of Tax Administrators (representing the states) worked closely with Congress on these new sourcing rules. These federal sourcing rules were enacted to simplify tax reporting for home service providers. In adopting the Mobile Telecommunications Sourcing Act under Hawaii's tax laws, the representatives of the department of taxation, the wireless telecommunications industry, and other interested parties met in May of 2001. This Act is the result of those discussions.
Under most states' laws, a state may tax interstate telecommunications if the call either originates or terminates in that state and if the call is charged to a service address in that state. Goldberg v. Sweet, 488 U.S. 252 (1989). The Goldberg method, however, is not easily applied to wireless telecommunications because of the difficulty in identifying the precise location from which a call is placed or in which it terminates. For example, a wireless phone would allow a Hawaii resident driving through California to place a call to someone in Oklahoma and continue to drive into Nevada while still on the call. In this instance, the call originated in both California and Nevada and terminated in Oklahoma, but the Hawaii resident will probably be billed in Hawaii for the call. Thus, Goldberg is not instructive for the home service provider or the Hawaii resident (the customer) who must establish which state's taxes should apply to the call.
Under the Mobile Telecommunications Sourcing Act, all wireless calls are sourced to the subscriber's residential or primary business street address, whichever is the place of primary use. The Mobile Telecommunications Sourcing Act has developed a uniform method of sourcing wireless services for all states (and local governments within each state which constitute separate taxing jurisdictions). The wireless telecommunications industry and its customers can now determine where all calls will be taxed by simply determining the customer's place of primary use. This Act does not impose a new tax burden on the wireless telecommunications industry or its subscribers.
Under this Act, the sourcing rules will become effective on July 1, 2002, and apply to gross income received on or after August 1, 2002, to correspond to the effective date of the federal Mobile Telecommunications Sourcing Act.
This Act also simplifies the tax filing and reporting requirements for home service providers by allowing them to elect to be taxed solely under the general excise tax system for all of its income. Currently, home service providers must file both general excise tax returns for gross income earned from long distance calls and public service company tax returns for gross income earned from intrastate phone calls. Segregating the income by the customer's usage of the wireless phone is an administrative burden that the election aims to remedy. If a home service provider elects to be taxed solely under the general excise tax system in lieu of the public service tax, it will also be subject to the county real property taxes. To give the counties time to value and assess real property taxes, a home service provider can make an election to convert to the general excise tax system no earlier than July 1, 2004.
To further simplify filing and reporting for home service providers, this Act also exempts from both the general excise tax and public service company tax wholesale sales of mobile telecommunication services made between home service providers. These sales occur when a home service provider's customer places a phone call to or from an area for which the home service provider does not have a license (granted by the Federal Communication Commission) to operate. In those cases, the home service provider must purchase mobile telecommunications service from another home service provider (referred to as a "serving carrier") who does hold a license for that particular area. The income from these sales would normally be included in the gross income of a home service provider, but this Act exempts such income on a going-forward basis.
SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:
"PART . MOBILE TELECOMMUNICATIONS SERVICES
§237-A Application. Sections 237-A to 237-F shall apply to home service providers as defined in section 237-B; provided that if the home service provider elects under section 239-5(d) to be subject to the tax imposed under this part in lieu of the tax imposed under chapter 239, then section 237-E shall apply only to gross income received on or after July 1 of the year for which the election was made, but no earlier than July 1, 2004.
§237-B Definitions. As used in this part:
"Charges for mobile telecommunications services" means any charge for, or associated with, the provision of commercial mobile radio service, as defined in title 47 Code of Federal Regulations section 20.3 as in effect on June 1, 1999, or any charge for, or associated with, a service provided as an adjunct to a commercial mobile radio service that is billed to the customer by or for the customer's home service provider, regardless of whether individual transmissions originate or terminate within the licensed service area of the home service provider.
"Customer" means:
(1) The person or entity that contracts with the home service provider for mobile telecommunications services; or
(2) If the end user of mobile telecommunications services is not the contracting party, "customer" means the end user of the mobile telecommunications service; provided that this paragraph shall apply only for the purpose of determining the place of primary use.
Without implication for the general definition of "customer", the term does not include a reseller of mobile telecommunications service or a serving carrier under an arrangement to serve the customer outside the home service provider's licensed service area.
"Gross income" for the purposes of this part with respect to a home service provider of mobile telecommunications services means income from mobile telecommunications services, the charges for which are billed by or for the home service provider, that are provided by any person in any taxing jurisdiction regardless of where the mobile telecommunications services originate, terminate, or pass through, to such home service provider's customers whose place of primary use is in this State. "Gross income" does not include any charges for or receipts from mobile telecommunications services provided to:
"Home service provider" means the facilities-based carrier or reseller with whom the customer contracts for the provision of mobile telecommunications services.
"Licensed service area" means the geographic area in which the home service provider is authorized by law or contract to provide commercial mobile radio service to the customer.
"Mobile telecommunications service" means commercial mobile radio service, as defined in title 47 Code of Federal Regulations section 20.3 as in effect on June 1, 1999.
"Place of primary use" means the street address representative of where the customer's use of the mobile telecommunications service primarily occurs, which must be:
(1) The residential street address or the primary business street address of the customer; and
(2) Within the licensed service area of the home service provider.
"Prepaid telephone calling service" means the right to purchase exclusively telecommunications services that must be paid for in advance, that enables the origination of calls using an access number, authorization code, or both, whether manually or electronically dialed, if the remaining amount of units of service that have been prepaid is known by the provider of the prepaid service on a continuous basis.
"Reseller" means a provider who purchases telecommunications services from another telecommunications service provider and then resells, uses as a component part of, or integrates the purchased services into a mobile telecommunications service. "Reseller" does not include a serving carrier with which a home service provider arranges for the services to its customers outside the home service provider's licensed service area.
"Serving carrier" means a facilities-based carrier providing mobile telecommunications service to a customer outside a home service provider or reseller's licensed service area.
"Taxing jurisdiction" means any of the several states, the District of Columbia, or any territory or possession of the United States, any municipality, city, county, township, parish, transportation district, or assessment jurisdiction, or other political subdivision within the territorial limits of the United States with the authority to impose a tax, charge, or fee.
§237-C Mobile telecommunications definitions. The definitions relating to mobile telecommunications services set forth under section 237-B shall apply to give effect to the federal Mobile Telecommunications Sourcing Act, title 4 United State Code sections 116 to 126, and shall have no impact on the interpretation of the laws of this State except as expressly set forth in this part.
§237-D Effect of customer's failure to provide its place of primary use; effect of aggregation or segregation of charges. (a) Nothing in this part modifies, impairs, supersedes, or authorizes the modification, impairment, or supercession of any law allowing a taxing jurisdiction to collect a tax, charge, or fee from a customer that has failed to provide its place of primary use.
(b) If a taxing jurisdiction does not otherwise subject charges for mobile telecommunications services to taxation and if these charges are aggregated with and not separately stated from charges that are subject to taxation, then the charges for nontaxable mobile telecommunications services may be subject to taxation unless the home service provider can reasonably identify charges not subject to the tax, charge, or fee from its books and records that are kept in the regular course of business.
(c) If a taxing jurisdiction does not subject charges for mobile telecommunications services to taxation, a customer may not rely upon the nontaxability of charges for mobile telecommunications services unless the customer's home service provider separately states the charges for nontaxable mobile telecommunications services from taxable charges or the home service provider elects, after receiving a written request from the customer in the form required by the provider, to provide verifiable data based upon the home service provider's books and records that are kept in the regular course of business that reasonably identifies the nontaxable charges.
§237-E Taxation of home service providers. There is hereby levied, and shall be assessed and collected annually, a privilege tax against home service providers engaging or continuing within the State in the business of providing mobile telecommunications services equal to four per cent of the gross income received or derived from providing mobile telecommunications services; provided that income from charges specifically for interstate services as determined by books and records that are kept in the regular course of business by the home service provider shall be apportioned under any apportionment factor or formula adopted under section 237-13(6)(D).
§237-F Nonseverability. If a court of competent jurisdiction enters a final judgment on the merits that:
(1) Is based on federal law;
(2) Is no longer subject to appeal; and
(3) Substantially limits or impairs the essential elements of sections 237-A to 237-E,
then sections 237-A to 237-E shall be invalid and have no legal effect as of the date of entry of the judgment."
SECTION 3. Section 239-2, Hawaii Revised Statutes, is amended as follows:
1. By amending the definition of "gross income" to read:
"Gross income" means the gross income from public service company business as follows:
[(A)] (1) Gross income from the production, conveyance, transmission, delivery, or furnishing of light, power, heat, cold, water, gas, or oil;
[(B)] (2) Gross income from the transportation of passengers or freight, or the conveyance or transmission of telephone or telegraph messages, or the furnishing of facilities for the transmission of intelligence by electricity, by land or water or air:
[(i)] (A) Originating and terminating within this State;
[(ii)] (B) By means of vessels or aircraft having their home port in the State and operating between ports or airports in the State, with respect to the transportation so effected; or
[(iii)] (C) By means of plant or equipment located in the State, between points in the State; or
[(C)] (3) Gross income from the transportation of freight by motor carriers (other than as stated in [subparagraph (B)),] paragraph (2)), or the conveyance or transmission of messages or intelligence through wires or cables located or partly located in the State (other than as stated in [subparagraph (B)).] paragraph (2) or (4)); or
(4) With respect to a home service provider of mobile telecommunications services who chooses not to make the election under section 239-5(d), "gross income" includes gross income from mobile telecommunications services, the charges for which are billed by or for the home service provider, that are provided by any person in any taxing jurisdiction and regardless of where the mobile telecommunications services originate, terminate, or pass through, to such home service provider's customers whose place of primary use is in this State; provided that income from charges specifically for interstate services as determined by books and records that are kept in the regular course of business by the home service provider shall be apportioned under any apportionment factor or formula adopted and subject to the tax under section 237-13(6)(D) and excludes:
(A) Any charges for or receipts from mobile telecommunications services provided to persons other than the home service provider's customers or customers of the home service provider whose place of primary use is outside this State; and
(B) Any receipts of a serving carrier from mobile telecommunications services provided to a home service provider's customer.
For the purposes of this paragraph, "customer", "home service provider", "licensed service area", "mobile telecommunications services", "place of primary use", "serving carrier", and "taxing jurisdiction" have the same meaning as in section 237-B.
The words "gross income" and "gross income from public service company business" shall not be construed to include dividends (as defined by [
Where the transportation of passengers or property is furnished through arrangements between motor carriers, and the gross income is divided between the motor carriers, any tax imposed by this chapter shall apply to each motor carrier with respect to each motor carriers' respective portion of the proceeds.
Where tourism related services are furnished through arrangements made by a travel agency or tour packager and the gross income is divided between the provider of the services on the one hand and the travel agency or tour packager on the other hand, any tax imposed by this chapter shall apply to each person with respect to each person's respective portion of the proceeds.
Accounts found to be worthless and actually charged off for income tax purposes, at corresponding periods, may be deducted from gross income as specified under this chapter so far as they reflect taxable sales, but shall be added to gross income when and if subsequently collected.
As used in this paragraph "tourism related services" means motor carriers of passengers regulated by the public utilities commission."
2. By amending the definition of "public utility" to read as follows:
""Public utility" has the meaning given that term in section 269-1[.], except "public utility" shall not include a home service provider of mobile telecommunications services as those terms are defined in section 237-B for gross income received on or after July 1 of the year for which the home service provider has made the election under section 239-5(d)."
SECTION 4. Section 239-5, Hawaii Revised Statutes, is amended to read as follows:
"§239-5 Public utilities, generally. (a) There shall be levied and assessed upon each public utility, except
airlines, motor carriers, common carriers by water, and contract carriers taxed by section 239-6, a tax of such rate per cent of its gross income each year from its public utility business as shall be determined in the manner hereinafter provided. The tax imposed by this section is in lieu of all taxes other than those below set out, and is a means of taxing the personal property of the public utility, tangible and intangible, including going concern value. In addition to the tax imposed by this chapter there also are imposed income taxes, the specific taxes imposed by chapter 249, the fees prescribed by chapter 269, any tax specifically imposed by the terms of the public utility's franchise or under chapter 240, the use or consumption tax imposed by chapter 238, and employment taxes.
The rate of the tax upon the gross income of the public utility shall be four per cent; provided that if:
(1) A county provides by ordinance for a real property tax exemption for real property used by a public utility in its public utility business and owned by the public utility (or leased to it by a lease under which the public utility is required to pay the taxes upon the property), and
(2) The county has not denied the exemption to the public utility, but excluding a denial based upon a dispute as to the ownership, lease, or use of a specific parcel of real property,
then there shall be levied and assessed a tax in excess of the four per cent rate determined in the manner hereinafter provided upon the gross income allocable to such county. The revenues generated from the tax in excess of the four per cent rate hereinbefore established shall be paid by the public utility directly to such county based upon the proportion of gross income from its public utility business attributable to such county, based upon the allocation made in the public utility's filings with the State of Hawaii; provided that if the gross income from the public utility business attributable to such county is not so allocated in the public utility's State filings, then the gross income from the public utility business shall be equitably allocated to each county. The relative number of access lines in each county shall be deemed an acceptable basis of equitable allocation for telecommunication companies.
The rate of the tax in excess of four per cent rate hereinbefore established upon the gross income from the public utility business shall be determined as follows:
If the ratio of the net income of the company to its gross income is fifteen per cent or less, the rate of tax in excess of four per cent rate on gross income shall be 1.885 per cent; for all companies having net income in excess of fifteen per cent of the gross, the rate of the tax on gross income shall increase continuously in proportion to the increase in ratio of net income to gross, at such rate that for each increase of one per cent in the ratio of net income to gross, there shall be an increase of .2675 per cent in the rate of the tax.
The following formula may be used to determine the rate, in which formula the term "R" is the ratio of net income to gross income, and "X" is the required rate of the tax on gross income for the utility in question:
X=(26.75R-2.1275)%;
provided that in no case governed by the formula shall "X" be less than 1.885 per cent or more than 4.2 per cent.
However, if the gross income is apportioned under section 239-8(b) or (c), there shall be no adjustment of the rate of tax on the amount of gross income so apportioned to the State on account of the ratio of the net income to the gross income being in excess of fifteen per cent, and it shall be assumed in such case that the ratio is fifteen per cent or less.
(b) Notwithstanding subsection (a), the rate of the tax upon the portion of the gross income of a carrier of
passengers by land which consists in passenger fares for transportation between points on a scheduled route, shall be 5.35 per cent. However, if the carrier has other public utility gross income the fares nevertheless shall be included in applying subsection (a) in determining the rate of tax upon the other public utility gross income.
(c) Notwithstanding subsection (a), the rate of tax upon the portion of the gross income of:
(1) A public utility that consists of the receipts from the sale of its products or services to another public utility that resells such products or services shall be one-half of one per cent; or
(2) A public utility engaged in the business of selling telecommunication services to a person defined in section 237-13(6)(D) who resells such products or services, shall be as follows:
(A) In calendar year 2000, 5.5 per cent;
(B) In calendar year 2001, 5.0 per cent;
(C) In calendar year 2002, 4.5 per cent;
(D) In calendar year 2003, 4.0 per cent;
(E) In calendar year 2004, 3.5 per cent;
(F) In calendar year 2005, 3.0 per cent;
(G) In calendar year 2006, 2.5 per cent; and
(H) In calendar year 2007, and thereafter, 0.5 per cent;
provided that the resale of the products, services, or telecommunication services is subject to taxation under this section or subject to taxation at the highest rate under section 237-13(6); and provided further that the public utility's exemption from real property taxes imposed by [chapter 246] county ordinance shall be reduced by the proportion that its public utility gross income described herein bears to its total public utility gross income. Whenever the public utility has other public utility gross income, the gross income from the sale of its products or services to another public utility or a person subject to section 237-13(6)(D) shall be included in applying subsection (a) in determining the rate of tax upon the other public utility gross income. The department shall have the authority to implement the tax rate changes in paragraph (2) by prescribing tax forms and instructions that require tax reporting and payment by deduction, allocation, or any other method to determine tax liability with due regard to the tax rate changes.
(d) Notwithstanding subsection (a), a home service provider may elect to be subject to the tax imposed by part of chapter 237 (as provided in sections 237-A to 237-F) in lieu of the tax under this chapter; provided that if such an election is made, then beginning on July 1 of the calendar year following the election, the election will become effective.
The election shall be made no later than September 1 of the year preceding the year to which the election will apply. The home service provider shall make the election in writing to the department and the real property tax assessor of the appropriate county. Once the election has been made, it shall be final. In all cases, the election, if made by a home service provider, shall be effective no earlier than July 1, 2004.
For taxpayers making this election, the tax due under this chapter shall be abated in an amount equal to the taxes due and payable on the first day of the taxpayer's taxable year divided by twelve (or the number of months in the taxpayer's taxable year, if a first year filer) and multiplied by the remaining months in the taxpayer's taxable year after the election becomes effective.
This subsection, paragraph (4) of the definition of "gross income" in section 239-2, and the definition of "public utility" as it relates to home service providers in section 239-2, shall be subject to the nonseverability provisions of section 237-F."
SECTION 5. Notwithstanding any provision of this Act to the contrary, nothing in this Act shall affect or shall be construed to affect the taxation of prepaid telephone calling service under section 237-13.8, Hawaii Revised Statutes.
SECTION 6. In codifying the new sections added by section 2 of this Act and referred to in this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 7. Sections 2, 3, and 4 of this Act with respect to tax liabilities shall apply only to charges on or revenues from customer bills issued on or after August 1, 2002.
SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 9. This Act shall take effect on July 1, 2002.