REPORT TITLE: 
General excise tax on services


DESCRIPTION:
Establishes a general excise tax structure for services similar
to that of goods.  The new structure retains the four per cent
tax on the final service provided and gradually over a period of
seven years lowers the tax on intermediary services to half a
per cent, the same as applied to the sale of wholesale goods.
(HB232 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        232
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
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.  Section 237-1, Hawaii Revised Statutes, is
 
 2 amended by adding a new definition to be appropriately inserted
 
 3 and to read as follows:
 
 4      ""Overhead" means continuous or general costs of property or
 
 5 services that are not specifically or directly associated with
 
 6 the manufacture, preparation, production, or acquisition of
 
 7 identifiable goods or services to be sold."
 
 8      SECTION 2.  Section 237-4, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "237-4 "Wholesaler", "jobber", defined.  (a)  "Wholesaler"
 
11 or "jobber" applies only to a person making sales at wholesale.
 
12 Only the following are sales at wholesale:
 
13      (1)  Sales to a licensed retail merchant, jobber, or other
 
14           licensed seller for purposes of resale;
 
15      (2)  Sales to a licensed manufacturer of [material]
 
16           materials or commodities [which] that are to be
 
17           incorporated by the manufacturer into a finished or
 
18           saleable product (including the container or package in
 
19           which the product is contained) during the course of
 
20           its preservation, manufacture, or processing, including
 

 
Page 2                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           preparation for market, and [which] that will remain in
 
 2           [such] the finished or saleable product in such form as
 
 3           to be perceptible to the senses, which finished or
 
 4           saleable product is to be sold and not otherwise used
 
 5           by the manufacturer;
 
 6      (3)  Sales to a licensed producer or cooperative association
 
 7           of materials or commodities [which] that are to be
 
 8           incorporated by the producer or by the cooperative
 
 9           association into a finished or saleable product [which]
 
10           that is to be sold and not otherwise used by the
 
11           producer or cooperative association, including
 
12           specifically materials or commodities expended as
 
13           essential to the planting, growth, nurturing, and
 
14           production of commodities [which] that are sold by the
 
15           producer or by the cooperative association;
 
16      (4)  Sales to a licensed contractor, of [material] materials
 
17           or commodities [which] that are to be incorporated by
 
18           the contractor into the finished work or project
 
19           required by the contract and [which] that will remain
 
20           in [such] the finished work or project in such form as
 
21           to be perceptible to the senses;
 
22      (5)  Sales to a licensed producer, or to a cooperative
 
23           association described in section 237-23(a)(7) for sale
 

 
Page 3                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 4                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 5                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 6                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           (A)  Either:
 
 2                (i)  In the context of a service-to-service
 
 3                     transaction, a service is rendered upon the
 
 4                     order or request of a licensed seller for the
 
 5                     purpose of rendering another service in the
 
 6                     course of the seller's service business or
 
 7                     calling; or
 
 8               (ii)  In the context of a service-to-goods
 
 9                     transaction, a service is rendered upon the
 
10                     order or request of a licensed seller for the
 
11                     purpose of manufacturing, producing,
 
12                     preparing, or acquiring tangible personal
 
13                     property to be sold;
 
14           (B)  The benefit of the service passes to the customer
 
15                of the licensed seller as an integral part of the
 
16                other service or property to be sold; and
 
17           (C)  The cost of the service rendered does not
 
18                constitute overhead to the licensed seller.
 
19     (b)  If the use tax law is finally held by a court of
 
20 competent jurisdiction to be unconstitutional or invalid insofar
 
21 as it purports to tax the use or consumption of tangible personal
 
22 property imported into the State in interstate or foreign
 
23 commerce or both, wholesalers and jobbers shall be taxed
 

 
Page 7                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 thereafter under this chapter in accordance with the following
 
 2 definition (which shall supersede the preceding paragraph
 
 3 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
 4 "jobber" means a person, or a definitely organized division
 
 5 thereof, definitely organized to render and rendering a general
 
 6 distribution service [which] that buys and maintains at the
 
 7 person's place of business a stock or lines of merchandise
 
 8 [which] that the person distributes[;], and [which,] that the
 
 9 person, through salespersons, advertising, or sales promotion
 
10 devices, sells to licensed retailers, to institutional or
 
11 licensed commercial or industrial users, in wholesale quantities
 
12 and at wholesale rates.  A corporation deemed not to be carrying
 
13 on a trade or business in this State under section 235-6 shall
 
14 nevertheless be deemed to be a wholesaler and shall be subject to
 
15 the tax imposed by this chapter."
 
16     SECTION 3.  Section 237-7, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18     "237-7 "Service business or calling", defined."Service
 
19 business or calling" includes all activities engaged in for other
 
20 persons for a consideration [which] that involve the rendering of
 
21 a service, such as professional and transient accommodation
 
22 services, as distinguished from the sale of tangible property or
 
23 the production and sale of tangible property.  "Service business
 

 
Page 8                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1 or calling" does not include the services rendered by an employee
 
 2 to the employee's employer."
 
 3     SECTION 4.  Section 237-13, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5     "237-13  Imposition of tax.  There is hereby levied and
 
 6 shall be assessed and collected annually privilege taxes against
 
 7 persons on account of their business and other activities in the
 
 8 State measured by the application of rates against values of
 
 9 products, gross proceeds of sales, or gross income, whichever is
 
10 specified, as follows:
 
11     (1)   Tax on manufacturers.
 
12           (A)  Upon every person engaging or continuing within
 
13                the State in the business of manufacturing,
 
14                including compounding, canning, preserving,
 
15                packing, printing, publishing, milling,
 
16                processing, refining, or preparing for sale,
 
17                profit, or commercial use, either directly or
 
18                through the activity of others, in whole or in
 
19                part, any article or articles, substance or
 
20                substances, commodity or commodities, the amount
 
21                of the tax to be equal to the value of the
 
22                articles, substances, or commodities,
 
23                manufactured, compounded, canned, preserved,
 

 
Page 9                                                     232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                packed, printed, milled, processed, refined, or
 
 2                prepared[,] for sale, as shown by the gross
 
 3                proceeds derived from the sale thereof by the
 
 4                manufacturer or person compounding, preparing, or
 
 5                printing them, multiplied by one-half of one per
 
 6                cent.
 
 7           (B)  The measure of the tax on manufacturers is the
 
 8                value of the entire product for sale, regardless
 
 9                of the place of sale or the fact that deliveries
 
10                may be made to points outside the State.
 
11           (C)  If any person liable for the tax on manufacturers
 
12                ships or transports the person's product, or any
 
13                part thereof, out of the State, whether in a
 
14                finished or unfinished condition, or sells the
 
15                same for delivery to points outside [of] the State
 
16                (for example, consigned to a mainland purchaser
 
17                via common carrier f.o.b. Honolulu), the value of
 
18                the products in the condition or form in which
 
19                they exist immediately before entering interstate
 
20                or foreign commerce, determined as hereinafter
 
21                provided, shall be the basis for the assessment of
 
22                the tax imposed by this paragraph.  This tax shall
 
23                be due and payable as of the date of entry of the
 

 
Page 10                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                products into interstate or foreign commerce,
 
 2                whether the products are then sold or not.  The
 
 3                department [of taxation] shall determine the basis
 
 4                for assessment, as provided by this paragraph, as
 
 5                follows:
 
 6                (i)  If the products at the time of their entry
 
 7                     into interstate or foreign commerce already
 
 8                     have been sold, the gross proceeds of sale,
 
 9                     less the transportation expenses, if any,
 
10                     incurred in realizing the gross proceeds for
 
11                     transportation from the time of entry of the
 
12                     products into interstate or foreign commerce,
 
13                     including insurance and storage in transit,
 
14                     shall be the measure of the value of the
 
15                     products[.];
 
16               (ii)  If the products have not been sold at the
 
17                     time of their entry into interstate or
 
18                     foreign commerce, and in cases governed by
 
19                     clause (i) in which the products are sold
 
20                     under circumstances such that the gross
 
21                     proceeds of sale are not indicative of the
 
22                     true value of the products, the value of the
 
23                     products constituting the basis for
 

 
Page 11                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 12                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                     deduct the portion of the value as is
 
 2                     attributable to the finishing of the goods
 
 3                     outside the State.
 
 4     (2)   Tax on business of selling tangible personal property;
 
 5           producing.
 
 6           (A)  Upon every person engaging or continuing in the
 
 7                business of selling any tangible personal property
 
 8                whatsoever (not including, however, bonds or other
 
 9                evidence of indebtedness, or stocks), there is
 
10                likewise hereby levied, and shall be assessed and
 
11                collected, a tax equivalent to four per cent of
 
12                the gross proceeds of sales of the business;
 
13                provided that insofar as certain retailing is
 
14                taxed by section 237-16, the tax shall be that
 
15                levied by section 237-16, and in the case of a
 
16                wholesaler, the tax shall be equal to one-half of
 
17                one per cent of the gross proceeds of sales of the
 
18                business[.]; and provided further that in the case
 
19                of a wholesaler engaging or continuing in the
 
20                business of selling any tangible personal property
 
21                to a licensed seller engaged in a service business
 
22                or calling, the tax shall be equal to:
 

 
 
 
Page 13                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                (i)  Beginning January 1, 2000, three and one-half
 
 2                     per cent of the gross proceeds of sales of
 
 3                     the business;
 
 4               (ii)  Beginning January 1, 2001, three per cent of
 
 5                     the gross proceeds of sales of the business;
 
 6              (iii)  Beginning January 1, 2002, two and one-half
 
 7                     per cent of the gross proceeds of the sales
 
 8                     of the business;
 
 9               (iv)  Beginning January 1, 2003, two per cent of
 
10                     the gross proceeds of the sales of the
 
11                     business;
 
12                (v)  Beginning January 1, 2004, one and one-half
 
13                     per cent of the gross proceeds of the sales
 
14                     of the business;
 
15               (vi)  Beginning January 1, 2005, one per cent of
 
16                     the gross proceeds of the sales of the
 
17                     business; and
 
18              (vii)  Beginning January 1, 2006, one-half of one
 
19                     per cent of the gross proceeds of the sales
 
20                     of the business.
 
21                Upon every person engaging or continuing within
 
22                this State in the business of a producer, the tax
 
23                shall be equal to one-half of one per cent of the
 

 
Page 14                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                gross proceeds of sales of the business, or the
 
 2                value of the products, for sale, if sold for
 
 3                delivery outside the State or shipped or
 
 4                transported out of the State, and the value of the
 
 5                products shall be determined in the same manner as
 
 6                the value of manufactured products covered in the
 
 7                cases under paragraph (1)(C).
 
 8           (B)  Gross proceeds of sales of tangible property in
 
 9                interstate and foreign commerce shall constitute a
 
10                part of the measure of the tax imposed on persons
 
11                in the business of selling tangible personal
 
12                property, to the extent, under the conditions, and
 
13                in accordance with the provisions of the
 
14                Constitution of the United States and the Acts of
 
15                the Congress of the United States which may be now
 
16                in force or may be hereafter adopted, and whenever
 
17                there occurs in the State an activity to which,
 
18                under the Constitution and Acts of Congress, there
 
19                may be attributed gross proceeds of sales, the
 
20                gross proceeds shall be so attributed.
 
21           (C)  No manufacturer or producer, engaged in such
 
22                business in the State and selling the
 
23                manufacturer's or producer's products for delivery
 

 
Page 15                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                outside of the State (for example, consigned to a
 
 2                mainland purchaser via common carrier f.o.b.
 
 3                Honolulu), shall be required to pay the tax
 
 4                imposed in this chapter for the privilege of so
 
 5                selling the products, and the value or gross
 
 6                proceeds of sales of the products shall be
 
 7                included only in determining the measure of the
 
 8                tax imposed upon the manufacturer or producer.
 
 9           (D)  When a manufacturer or producer, engaged in such
 
10                business in the State, also is engaged in selling
 
11                the manufacturer's or producer's products in the
 
12                State at wholesale, retail, or in any other
 
13                manner, the tax for the privilege of engaging in
 
14                the business of selling the products in the State
 
15                shall apply to the manufacturer or producer as
 
16                well as the tax for the privilege of manufacturing
 
17                or producing in the State, and the manufacturer or
 
18                producer shall make the returns of the gross
 
19                proceeds of the wholesale, retail, or other sales
 
20                required for the privilege of selling in the
 
21                State, as well as making the returns of the value
 
22                or gross proceeds of sales of the products
 
23                required for the privilege of manufacturing or
 

 
Page 16                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 17                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                form [as] prescribed by the department [shall
 
 2                prescribe], certifying that the sale is a sale at
 
 3                wholesale[.  If the certificate is so provided for
 
 4                by rule of the department:]; provided that:
 
 5                (i)  Any purchaser who furnishes a certificate
 
 6                     shall be obligated to pay to the seller, upon
 
 7                     demand, [if the sale in fact is not at
 
 8                     wholesale,] the amount of the additional tax
 
 9                     [which by reason thereof] that is imposed
 
10                     upon the seller[;] whenever the sale in fact
 
11                     is not at wholesale; and
 
12               (ii)  The absence of a certificate[, unless the
 
13                     sales of the business are exclusively at
 
14                     wholesale,] in itself shall give rise to the
 
15                     presumption that the sale is not at
 
16                     wholesale[.] unless the sales of the business
 
17                     are exclusively at wholesale.
 
18     (3)   Tax upon contractors.
 
19           (A)  Upon every person engaging or continuing within
 
20                the State in the business of contracting, the tax
 
21                shall be equal to four per cent of the gross
 
22                income of the business; provided that insofar as
 
23                the business of contracting is taxed by section
 

 
Page 18                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                237-16, which relates to certain retailing, the
 
 2                tax shall be that levied by section 237-16.
 
 3           (B)  In computing the tax levied under this paragraph
 
 4                or section 237-16, there shall be deducted from
 
 5                the gross income of the taxpayer so much thereof
 
 6                as has been included in the measure of the tax
 
 7                levied under subparagraph (A) or section 237-16,
 
 8                on:
 
 9                (i)  Another taxpayer who is a contractor, as
 
10                     defined in section 237-6;
 
11               (ii)  A specialty contractor, duly licensed by the
 
12                     department of commerce and consumer affairs
 
13                     pursuant to section 444-9, in respect of the
 
14                     specialty contractor's business; or
 
15              (iii)  A specialty contractor who is not licensed by
 
16                     the department of commerce and consumer
 
17                     affairs pursuant to section 444-9, but who
 
18                     performs contracting activities on federal
 
19                     military installations and nowhere else in
 
20                     this State;
 
21                but any person claiming a deduction under this
 
22                paragraph shall be required to show in the
 
23                person's return the name and general excise number
 

 
Page 19                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                of the person paying the tax on the amount
 
 2                deducted by the person.
 
 3           (C)  In computing the tax levied under this paragraph
 
 4                against any federal cost-plus contractor, there
 
 5                shall be excluded from the gross income of the
 
 6                contractor so much thereof as fulfills the
 
 7                following requirements:
 
 8                (i)  The gross income exempted shall constitute
 
 9                     reimbursement of costs incurred for
 
10                     materials, plant, or equipment purchased from
 
11                     a taxpayer licensed under this chapter, not
 
12                     exceeding the gross proceeds of sale of the
 
13                     taxpayer on account of the transaction; and
 
14               (ii)  The taxpayer making the sale shall have
 
15                     certified to the department that the taxpayer
 
16                     is taxable with respect to the gross proceeds
 
17                     of the sale, and that the taxpayer elects to
 
18                     have the tax on gross income computed the
 
19                     same as upon a sale to the state government.
 
20           (D)  A person who, as a business or as a part of a
 
21                business in which the person is engaged, erects,
 
22                constructs, or improves any building or structure,
 
23                of any kind or description, or makes, constructs,
 

 
Page 20                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 21                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                the improvements shall not exceed the amount which
 
 2                would have been taxable had the work been
 
 3                performed by another, subject as in other cases to
 
 4                the deductions allowed by subparagraph (B).  Upon
 
 5                the election of the taxpayer, this paragraph may
 
 6                be applied notwithstanding that the improvements
 
 7                were not made by the taxpayer, or were not made as
 
 8                a business or as a part of a business, or were
 
 9                made with the intention of holding the same.
 
10                However, this paragraph shall not apply in respect
 
11                of any proceeds that constitute or are in the
 
12                nature of rent[; all such] which gross income
 
13                shall be taxable under paragraph [(10)] (9);
 
14                provided that insofar as the business of renting
 
15                or leasing real property under a lease is taxed
 
16                under section 237-16.5, the tax shall be levied by
 
17                section 237-16.5.
 
18     (4)   Tax upon theaters, amusements, radio broadcasting
 
19           stations, etc.  Upon every person engaging or
 
20           continuing within the State in the business of
 
21           operating a theater, opera house, moving picture show,
 
22           vaudeville, amusement park, dance hall, skating rink,
 
23           radio broadcasting station, or any other place at which
 

 
Page 22                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 23                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                who is engaged in the service business and who, in
 
 2                fact, acts as or acts in the nature of an
 
 3                intermediary between the person rendering those
 
 4                services and the ultimate recipient of the
 
 5                benefits of those services, so much of the gross
 
 6                income as is received by the person rendering the
 
 7                services shall be subjected to the tax at the rate
 
 8                of one-half of one per cent and all of the gross
 
 9                income received by the intermediary from the
 
10                principal shall be subjected to a tax at the rate
 
11                of four per cent; and provided that where], and in
 
12                the case of a wholesaler, the tax shall be equal
 
13                to:
 
14                (i)  Beginning January 1, 2000, three and one-half
 
15                     per cent of the gross income of the business;
 
16               (ii)  Beginning January 1, 2001, three per cent of
 
17                     the gross income of the business;
 
18              (iii)  Beginning January 1, 2002, two and one-half
 
19                     per cent of the gross income of the business;
 
20               (iv)  Beginning January 1, 2003, two per cent of
 
21                     the gross income of the business;
 
22                (v)  Beginning January 1, 2004, one and one-half
 
23                     per cent of the gross income of the business;
 

 
Page 24                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1               (vi)  Beginning January 1, 2005, one per cent of
 
 2                     the gross income of the business; and
 
 3              (vii)  Beginning January 1, 2006, one-half of one
 
 4                     per cent of the gross income of the business.
 
 5           (B)  The department, by rule, may require that the
 
 6                person rendering the service take from the
 
 7                licensed seller a certificate, in a 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 the additional tax that is
 
14                     imposed upon the person rendering the service
 
15                     whenever the sale in fact is not at
 
16                     wholesale; and
 
17               (ii)  The absence of a certificate in itself shall
 
18                     give rise to the presumption that the sale is
 
19                     not at wholesale unless the person rendering
 
20                     the service is exclusively rendering service
 
21                     at wholesale.
 
22           (C)  Where any person is engaged in the business of
 
23                selling interstate or foreign common carrier
 

 
Page 25                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                telecommunication services within and without the
 
 2                State, the tax shall be imposed on that portion of
 
 3                gross income received by a person from service
 
 4                which is originated or terminated in this State
 
 5                and is charged to a telephone number, customer, or
 
 6                account in this State notwithstanding any other
 
 7                state law (except for the exemption under section
 
 8                237-23(a)(1)) to the contrary.  If, under the
 
 9                Constitution and laws of the United States, the
 
10                entire gross income as determined under this
 
11                paragraph of a business selling interstate or
 
12                foreign common carrier telecommunication services
 
13                cannot be included in the measure of the tax, the
 
14                gross income shall be apportioned as provided in
 
15                section 237-21; provided that the apportionment
 
16                factor and formula shall be the same for all
 
17                persons providing those services in the State.
 
18     (7)   Tax on insurance solicitors and agents.  Upon every
 
19           person engaged as a licensed solicitor, general agent,
 
20           or subagent pursuant to chapter 431, there is hereby
 
21           levied and shall be assessed and collected a tax equal
 
22           to .15 per cent of the commissions due to that
 
23           activity.
 

 
Page 26                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 27                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
Page 28                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           in a service business or calling, as defined, to a
 
 2           person who is not purchasing the services for resale,
 
 3           but does not relate to the sale or rental of tangible
 
 4           personal property or the rendering of services to the
 
 5           State, its political subdivisions, or agencies or
 
 6           instrumentalities of the State or a political
 
 7           subdivision, or to the United States or its agencies or
 
 8           instrumentalities (other than national banks), or to a
 
 9           corporation, organization, or other person designated
 
10           in section 237-23 who is not subject to the tax imposed
 
11           by this chapter, or to a person licensed under this
 
12           chapter in connection with the person's business.
 
13      (2)  This section relates to the business of a contractor,
 
14           as defined, but does not relate to contracting with, or
 
15           any gross income or proceeds of a subcontractor if the
 
16           principal contract is with the State, its political
 
17           subdivisions, or agencies or instrumentalities of the
 
18           State or a political subdivision, or with the United
 
19           States or its agencies or instrumentalities (other than
 
20           national banks), or with a person designated in section
 
21           237-23 who is not subject to the tax imposed by this
 
22           chapter, or with a person licensed under this chapter
 
23           in connection with the person's business.
 

 
Page 29                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

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

 
 
 
Page 30                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (1)  Sales of tangible personal property to a licensed
 
 2           seller engaged in a service business or calling as
 
 3           defined in section 237-4(a)(8); or
 
 4      (2)  Sales of services to a licensed seller engaged in a
 
 5           business or calling as defined in section 237-
 
 6           4(a)(10)."
 
 7      SECTION 6.  Section 238-2, Hawaii Revised Statutes, is
 
 8 amended to read as follows:
 
 9      "238-2 Imposition of tax; exemptions.  There is hereby
 
10 levied an excise tax on the use in this State of tangible
 
11 personal property which is imported, or purchased from an
 
12 unlicensed seller, for use in this State.  The tax imposed by
 
13 this chapter shall accrue when the property is acquired by the
 
14 importer or purchaser and becomes subject to the taxing
 
15 jurisdiction of the State.  The rates of the tax hereby imposed
 
16 and the exemptions thereof are as follows:
 
17      (1)  If the importer or purchaser is licensed under chapter
 
18           237 and is [(A) a]:
 
19           (A)  A wholesaler or jobber importing or purchasing for
 
20                purposes of resale[,] or; [(B) a]
 
21           (B)  A manufacturer importing or purchasing [material]
 
22                materials or commodities [which] that are to be
 
23                incorporated by the manufacturer into a finished
 

 
Page 31                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1                or saleable product (including the container or
 
 2                package in which the product is contained) wherein
 
 3                it will remain in such form as to be perceptible
 
 4                to the senses, and which finished or saleable
 
 5                product is to be sold in such manner as to result
 
 6                in a further tax on the activity of the
 
 7                manufacturer as the manufacturer or as a
 
 8                wholesaler, and not as a retailer, 
 
 9           there shall be no tax[,]; provided that if the
 
10           wholesaler, jobber, or manufacturer is also engaged in
 
11           business as a retailer ([so classed] as defined under
 
12           chapter 237), paragraph (2) shall apply to the
 
13           wholesaler, jobber, or manufacturer, but the director
 
14           of taxation shall refund to the wholesaler, jobber, or
 
15           manufacturer, in the manner provided under section
 
16           231-23(c) such amount of tax as the wholesaler, jobber,
 
17           or manufacturer shall, to the satisfaction of the
 
18           director, establish to have been paid by the
 
19           wholesaler, jobber, or manufacturer to the director
 
20           with respect to property which has been used by the
 
21           wholesaler, jobber, or manufacturer for the purposes
 
22           stated in this paragraph[.];
 

 
 
 
Page 32                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1      (2)  If the importer or purchaser is licensed under chapter
 
 2           237 and is [(A) a]:
 
 3           (A)  A retailer or other person importing or purchasing
 
 4                for purposes of resale, not exempted by paragraph
 
 5                (1)[, or (B) a];
 
 6           (B)  A manufacturer importing or purchasing [material]
 
 7                materials or commodities [which] that are to be
 
 8                incorporated by the manufacturer into a finished
 
 9                or saleable product (including the container or
 
10                package in which the product is contained)
 
11                [wherein it] and that will remain in the finished
 
12                or saleable product in such form as to be
 
13                perceptible to the senses, and which finished or
 
14                saleable product is to be sold at retail in this
 
15                State, in such manner as to result in a further
 
16                tax on the activity of the manufacturer in selling
 
17                such products at retail[, or (C) a];
 
18           (C)  A contractor importing or purchasing [material]
 
19                materials or commodities [which] that are to be
 
20                incorporated by the contractor into the finished
 
21                work or project required by the contract and
 
22                [which] that will remain in [such] the finished
 
23                work or project in such form as to be perceptible
 
24                to the senses[,]; or
 

 
Page 33                                                    232
                                     H.B. NO.           H.D. 2
                                                        
                                                        

 
 1           (D)  A person engaged in a service business or calling
 
 2                as defined in section 237-7, in which the import
 
 3                or purchase of tangible personal property would
 
 4                have qualified as a sale at wholesale as defined
 
 5                in section 237-4(a)(8) had the seller of the
 
 6                property been subject to tax under chapter 237,
 
 7           the tax shall be one-half of one per cent of the
 
 8           purchase price of the property, if the purchase and
 
 9           sale are consummated in Hawaii; or, if there is no
 
10           purchase price applicable thereto, or if the purchase
 
11           or sale is consummated outside of Hawaii, then one-half
 
12           of one per cent of the value of such property[.]; and
 
13      (3)  In all other cases, four per cent of the value of the
 
14           property."
 
15      SECTION 7.  Statutory material to be repealed is bracketed.
 
16 New statutory material is underscored.
 
17      SECTION 8.  This Act shall take effect upon its approval and
 
18 shall apply to gross receipts received on or after January 1,
 
19 2000.