REPORT TITLE:
Public Service Company Tax


DESCRIPTION:
Allows the counties to collect a part of the public service
company tax in exchange for not assessing the real property tax
on utility companies.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1944
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
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 provides that public utilities are exempt from the counties' real
 
 9 property taxes.  At the time of the enactment of chapter 239, the
 
10 power to tax real property was held by the State.  As a result of
 
11 the 1978 Constitutional Convention, the power to tax real
 
12 property was transferred to the counties.  Nonetheless the same
 
13 amendment that effected this transfer of taxing authority also
 
14 prescribed that for a period of eleven years following the
 
15 transfer, the various counties would follow the same real
 
16 property taxing system and continue to recognize real property
 
17 tax exemptions that had previously existed under the state
 
18 system.  That eleven-year transition period ended in 1989 giving
 
19 rise to a potential challenge to the continued operation of the
 

 
Page 2                                                     1944
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 3                                                     1944
                                     H.B. NO.           
                                                        
                                                        

 
 1 real property taxes.  That portion of a public utility's gross
 
 2 income from public utility business generated in any county which
 
 3 elects to forgo revenue sharing shall be subject to a public
 
 4 service company tax rate equal to the maximum general excise tax
 
 5 rate under chapter 237 (which is currently four per cent).
 
 6      SECTION 2.  Section 239-5, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "239-5 Public utilities, generally.(a)  There shall be
 
 9 levied and assessed upon each public utility, except airlines,
 
10 motor carriers, common carriers by water, and contract carriers
 
11 taxed by section 239-6, a tax of such rate per cent of its gross
 
12 income each year from its public utility business as shall be
 
13 determined in the manner hereinafter provided.  The tax imposed
 
14 by this section is in lieu of all taxes other than those below
 
15 set out, and is a means of taxing, on behalf of and as the agent
 
16 for those counties that elect to participate in the revenue
 
17 sharing provided for in section 239-10, the real property (owned
 
18 by the public utility or leased to it by a lease under which the
 
19 public utility is required to pay the taxes upon the property),
 
20 and the personal property of the public utility, tangible and
 
21 intangible, including going concern value.  In addition to the
 
22 tax imposed by this chapter there also are imposed income taxes,
 
23 the specific taxes imposed by chapter 249, the fees prescribed by
 

 
Page 4                                                     1944
                                     H.B. NO.           
                                                        
                                                        

 
 1 chapter 269, any tax specifically imposed by the terms of the
 
 2 public utility's franchise or under chapter 240, the use or
 
 3 consumption tax imposed by chapter 238, and employment taxes.
 
 4      The rate of the tax upon the gross income of the public
 
 5 utility shall be determined as follows:
 
 6      If the ratio of the net income of the company to its gross
 
 7 income is fifteen per cent or less, the rate of the tax on gross
 
 8 income shall be 5.885 per cent; for all companies having net
 
 9 income in excess of fifteen per cent of the gross, the rate of
 
10 the tax on gross income shall increase continuously in proportion
 
11 to the increase in ratio of net income to gross, at such rate
 
12 that for each increase of one per cent in the ratio of net income
 
13 to gross, there shall be an increase of .2675 per cent in the
 
14 rate of the tax.
 
15      The following formula may be used to determine the rate, in
 
16 which formula the term "R" is the ratio of net income to gross
 
17 income, and "X" is the required rate of the tax on gross income
 
18 for the utility in question:
 
19                        X=(1.8725+26.75R)%;
 
20 provided that in no case governed by the formula shall "X" be
 
21 less than 5.885 per cent or more than 8.2 per cent.
 
22      However, if the gross income is apportioned under section
 
23 239-8(b) or (c), there shall be no adjustment of the rate of tax
 

 
Page 5                                                     1944
                                     H.B. NO.           
                                                        
                                                        

 
 1 on the amount of gross income so apportioned to the State on
 
 2 account of the ratio of the net income to the gross income being
 
 3 in excess of fifteen per cent, and it shall be assumed in such
 
 4 case that the ratio is fifteen per cent or less.
 
 5      (b)  Notwithstanding subsection (a), the rate of the tax
 
 6 upon the portion of the gross income of a carrier of passengers
 
 7 by land which consists in passenger fares for transportation
 
 8 between points on a scheduled route, shall be 5.35 per cent.
 
 9 However, if the carrier has other public utility gross income the
 
10 fares nevertheless shall be included in applying subsection (a)
 
11 in determining the rate of tax upon the other public utility
 
12 gross income.
 
13      (c)  Notwithstanding subsection (a), the rate of tax upon
 
14 the portion of the gross income of a public utility which
 
15 consists of the receipts from the sale of its products or
 
16 services to another public utility which resells such products or
 
17 services shall be one-half of one per cent, provided that the
 
18 resale is subject to taxation under this section, and provided
 
19 further that the public utility's exemption from real property
 
20 taxes imposed by chapter 246 shall be reduced by the proportion
 
21 that its public utility gross income described herein bears to
 
22 its total public utility gross income.  Whenever the public
 
23 utility has other public utility gross income the gross income
 

 
Page 6                                                     1944
                                     H.B. NO.           
                                                        
                                                        

 
 1 from the sale of its products or services to another public
 
 2 utility shall be included in applying subsection (a) in
 
 3 determining the rate of tax upon the other public utility gross
 
 4 income.
 
 5      (d)  Notwithstanding subsection (a) and subject to
 
 6 subsection (c), the rate of taxation upon that portion of a
 
 7 public utility's gross income from its public utility business
 
 8 generated in a county which elects not to participate in the
 
 9 revenue sharing described in section 239-10 shall be the maximum
 
10 tax rate imposed under chapter 237."
 
11      SECTION 3.  Section 239-10, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "239-10  Disposition of revenues.  (a)  All taxes collected
 
14 under this chapter shall be state realizations[.]; provided that
 
15 after June 30, 2001, the amount of taxes collected under section
 
16 239-5(a) from levy and assessment after June 30, 2000, in excess
 
17 of the maximum tax rate imposed under chapter 237 on a public
 
18 utility's gross income, shall be kept in the state treasury by
 
19 the state director of finance in special accounts for each county
 
20 (except Kalawao).  The state director of finance may deduct any
 
21 reasonable costs with respect to administering this section
 
22 before paying the remaining balance to participating counties as
 
23 provided for in this section.  The payments shall be made within
 

 
Page 7                                                     1944
                                     H.B. NO.           
                                                        
                                                        

 
 1 five months of the end of the fiscal year.
 
 2      (b)  The director of taxation shall apportion and pay into
 
 3 the special accounts, the taxes collected during the previous
 
 4 fiscal year under subsection (a) before August 1 of each year.
 
 5 The apportionment to the special accounts shall be based upon the
 
 6 proportional contribution of actual tax receipts generated under
 
 7 this chapter within each county, less projected taxpayer refunds
 
 8 and other contingent liabilities such as tax appeals.
 
 9      (c)  Each county shall have until January 1, 2001, to make a
 
10 one-time irrevocable election to participate in the revenue
 
11 sharing provided for in this section.  Each county shall notify
 
12 the state director of finance in writing of its election to
 
13 either participate in revenue sharing or not.
 
14      (d)  No county shall have the right to appeal any assessment
 
15 of the public service company tax on a public utility subject to
 
16 this chapter, nor shall any county have any access to any tax
 
17 returns or tax return information submitted to the department of
 
18 taxation under this chapter.
 
19      (e)  Any county that elects not to participate in the
 
20 revenue sharing as provided herein shall not receive any tax
 
21 moneys under this section.  All taxes kept in a non-participating
 
22 county's special account shall be refunded to the appropriate
 
23 public utility.
 

 
Page 8                                                     1944
                                     H.B. NO.           
                                                        
                                                        

 
 1      (f)  Any county that elects to participate in the revenue
 
 2 sharing provided for in this section shall not directly levy or
 
 3 collect any real property tax from those public utilities subject
 
 4 to taxation under section 239-5(a)."
 
 5      SECTION 4.  If any provision of this Act, or the application
 
 6 thereof to any person or circumstance is held invalid, the
 
 7 invalidity does not affect other provisions or applications of
 
 8 the Act which can be given effect without the invalid provision
 
 9 or application, and to this end the provisions of this Act are
 
10 severable.
 
11      SECTION 5.  Statutory material to be repealed is bracketed.
 
12 New statutory material is underscored.
 
13      SECTION 6.  This Act shall take effect upon its approval.
 
14 
 
15                              INTRODUCED BY:______________________
 
16