HOUSE OF REPRESENTATIVES	H.B. NO.	1675
THIRTY-SECOND LEGISLATURE, 2024		H.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO THE GENERAL EXCISE TAX.

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

SECTION 1. The legislature finds that the annual report on findings from the Hawaii physician workforce assessment project, submitted to the 2024 legislature, determines that there is a twenty-one per cent physician shortage in the State. The physician shortage is more severe on the neighbor islands, measuring forty-one per cent in Hawaii county, forty-three per cent in Maui county, and thirty per cent in Kauai county. In recognition of the State's physician shortage, the federal government has designated Hawaii, Maui, and Kauai counties as health professional shortage areas. Additionally, Hawaii's congressional delegation has written to the Centers for Medicare and Medicaid Services, recognizing the risk to Hawaii's most vulnerable communities. Moreover, the legislature recognizes that the physician shortage will worsen unless mitigating steps are taken immediately.

The legislature further finds that the general excise tax and related county surcharges are levied on Hawaii businesses that engage in the sale of goods and services. The general excise tax applies to the sale of medical services provided by group and private practice physicians, making Hawaii the only state that taxes medical services in this way. The general excise tax and related county surcharges are applied to the gross receipts of Hawaii medical practices without regard to the high costs of providing medical services in a high-cost state. Community physicians often operate small businesses with narrow profit margins, and medicare, medicaid, and private insurer payments for medical services are well below national levels. The general excise tax and related county surcharges make medical practices unviable, resulting in practice closures and challenges in recruiting and retaining new or younger physicians.

The legislature also finds that the general excise tax and related county surcharges are highly regressive forms of taxation that disproportionately and adversely affect low-income and middle class families struggling to cope with the State's high cost of living. Currently, physicians who receive medicare, medicaid, and TRICARE payments are subject to the general excise tax, although they may recoup this cost from patients as a way to recover the expense. Most physicians do not currently pass along this cost to patients, but this practice may soon have to change.

The legislature further finds that while hospitals and their employed physicians are exempt from the general excise tax and related county surcharges, many Hawaii hospitals continue to operate at a loss. If the general excise tax were imposed on hospitals, it would result in nearly all hospitals having negative margins, essentially taxing the institutions out of business and significantly impairing patient access to health care. Therefore, in order to safeguard patient access to care, medical services performed within group and private practice should be exempt from the general excise tax and related county surcharges.

Accordingly, the purpose of this Act is to help reduce the negative impact of the general excise tax on physicians and advanced practice registered nurses in the State by exempting from the general excise tax all gross proceeds arising from the sale of medical services by licensed physicians and advanced practice registered nurses acting in the capacity of primary care providers.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237-    Exemption for medical services; physicians; advanced practice registered nurses. (a) In addition to any other applicable exemption provided under this chapter, beginning January 1, 2026, there shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds arising from the sale of medical services provided by a physician licensed under chapter 453 or an advanced practice registered nurse licensed pursuant to chapter 457 acting in the capacity of a primary care provider.

(b) As used in this section, "medical services" means professional services provided by a physician or an advanced practice registered nurse acting in the capacity of a primary care provider. "Medical services" includes services provided within hospitals, medical clinics, and private medical practices."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 3000.

Report Title:

General Excise Tax; Exemption; Medical Services; Physicians; Advanced Practice Registered Nurses

Description:

Beginning 1/1/2026, exempts medical services provided by licensed physicians and advanced practice registered nurses acting in the capacity of primary care providers from the general excise tax. Effective 7/1/3000. (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.