REPORT TITLE:



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HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  Section 237-4, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  "Wholesaler" or "jobber" applies only to a person
 
 4 making sales at wholesale.  Only the following are sales at
 
 5 wholesale:
 
 6      (1)  Sales to a licensed retail merchant, jobber, or other
 
 7           licensed seller for purposes of resale;
 
 8      (2)  Sales to a licensed manufacturer of materials or
 
 9           commodities that are to be incorporated by the
 
10           manufacturer into a finished or saleable product
 
11           (including the container or package in which the
 
12           product is contained) during the course of its
 
13           preservation, manufacture, or processing, including
 
14           preparation for market, and that will remain in such
 
15           finished or saleable product in such form as to be
 
16           perceptible to the senses, which finished or saleable
 
17           product is to be sold and not otherwise used by the
 
18           manufacturer;
 
19      (3)  Sales to a licensed producer or cooperative association
 

 
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 1           of materials or commodities that are to be incorporated
 
 2           by the producer or by the cooperative association into
 
 3           a finished or saleable product that is to be sold and
 
 4           not otherwise used by the producer or cooperative
 
 5           association, including specifically materials or
 
 6           commodities expended as essential to the planting,
 
 7           growth, nurturing, and production of commodities that
 
 8           are sold by the producer or by the cooperative
 
 9           association;
 
10      (4)  Sales to a licensed contractor, of materials or
 
11           commodities that are to be incorporated by the
 
12           contractor into the finished work or project required
 
13           by the contract and that will remain in such finished
 
14           work or project in such form as to be perceptible to
 
15           the senses;
 
16      (5)  Sales to a licensed producer, or to a cooperative
 
17           association described in section 237-23(a)(7) for sale
 
18           to a licensed producer, or to a licensed person
 
19           operating a feed lot, of poultry or animal feed,
 
20           hatching eggs, semen, replacement stock, breeding
 
21           services for the purpose of raising or producing animal
 
22           or poultry products for disposition as described in
 
23           section 237-5 or for incorporation into a manufactured
 

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

 
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 1           section 237-5 or to be incorporated in a manufactured
 
 2           product as described in paragraph (2);
 
 3      (7)  Sales to a licensed producer, or to a cooperative
 
 4           association described in section 237-23(a)(7) for sale
 
 5           to such producer; of polypropylene shade cloth; of
 
 6           polyfilm; of polyethylene film; of cartons and such
 
 7           other containers, wrappers, and sacks, and binders to
 
 8           be used for packaging eggs, vegetables, fruits, and
 
 9           other agricultural products; of seedlings and cuttings
 
10           for producing nursery plants; or of chick containers;
 
11           which cartons and such other containers, wrappers, and
 
12           sacks, binders, seedlings, cuttings, and containers are
 
13           to be used as described in section 237-5, or to be
 
14           incorporated in a manufactured product as described in
 
15           paragraph (2);
 
16      (8)  Sales of tangible personal property:
 
17           (A)  To a licensed seller engaged in a service business
 
18                or calling; provided that:
 
19                (i)  The property is not consumed or incidental to
 
20                     the performance of the services;
 
21               (ii)  There is a resale of the article at the
 
22                     retail rate of four per cent; and
 
23              (iii)  The resale of the article is separately
 

 
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 1                     charged or billed by the person rendering the
 
 2                     services; [and] or
 
 3           (B)  Where:
 
 4                (i)  Tangible personal property is sold upon the
 
 5                     order or request of a licensed seller for the
 
 6                     purpose of rendering a service in the course
 
 7                     of the person's service business or calling
 
 8                     or upon the order or request of a person,
 
 9                     subject to tax under section 237D-2, for the
 
10                     purpose of furnishing transient
 
11                     accommodations;
 
12               (ii)  The tangible personal property becomes or is
 
13                     used as an identifiable element of the
 
14                     service rendered; and
 
15              (iii)  The cost of the tangible personal property
 
16                     does not constitute overhead to the licensed
 
17                     seller;
 
18                the sale shall be subject to section 237-13.3.
 
19           (C)  Where the taxpayer is subject to both
 
20                subparagraphs (A) and (B), then the taxpayer shall
 
21                be taxed under subparagraph (A).  [Subparagraph]
 
22                Subparagraphs (A) and (C) shall be repealed on
 
23                January 1, 2006.
 

 
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 1      (9)  Sales to a licensed leasing company of capital goods
 
 2           that have a depreciable life, are purchased by the
 
 3           leasing company for lease to its customers, and are
 
 4           thereafter leased as a service to others;
 
 5     (10)  Sales of services to a licensed seller engaging in a
 
 6           business or calling whenever:
 
 7           (A)  Either:
 
 8                (i)  In the context of a service-to-service
 
 9                     transaction, a service is rendered upon the
 
10                     order or request of a licensed seller for the
 
11                     purpose of rendering another service in the
 
12                     course of the seller's service business or
 
13                     calling;
 
14               (ii)  In the context of a [service-to-goods]
 
15                     service-to-tangible personal property
 
16                     transaction, a service is rendered upon the
 
17                     order or request of a licensed seller for the
 
18                     purpose of manufacturing, producing, or
 
19                     preparing[, or acquiring] tangible personal
 
20                     property to be sold;
 
21              (iii)  In the context of a services-to-contracting
 
22                     transaction, a service is rendered upon the
 
23                     order or request of a licensed contractor as
 

 
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 1                     defined in section 237-6 for the purpose of
 
 2                     assisting that licensed contractor [in
 
 3                     executing a contract]; or
 
 4               (iv)  In the context of a services-to-transient
 
 5                     accommodations rental transaction, a service
 
 6                     is rendered upon the order or request of a
 
 7                     person subject to tax under section 237D-2
 
 8                     for the purpose of furnishing transient
 
 9                     accommodations;
 
10           (B)  The benefit of the service passes to the customer
 
11                of the licensed seller, licensed contractor, or
 
12                person furnishing transient accommodations as an
 
13                identifiable element of the other service or
 
14                property to be sold, the contracting, or the
 
15                furnishing of transient accommodations; [and]
 
16           (C)  The cost of the service does not constitute
 
17                overhead to the licensed seller, licensed
 
18                contractor, or person furnishing transient
 
19                accommodations[.];
 
20           (D)  The gross income of the licensed seller is not
 
21                divided between the licensed seller and another
 
22                licensed seller, contractor, or person furnishing
 
23                transient accommodations for the tax imposed under
 

 
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 1                this chapter;
 
 2           (E)  The gross income of the licensed seller is not
 
 3                subject to a deduction under this chapter or
 
 4                chapter 237D; and
 
 5           (F)  The resale of the service, tangible personal
 
 6                property, contracting, or transient accommodations
 
 7                is subject to the tax imposed under this chapter
 
 8                at the highest tax rate.
 
 9           Sales subject to this paragraph shall be subject to
 
10           section 237-13.3;
 
11     (11)  Sales to a licensed retail merchant, jobber, or other
 
12           licensed seller of bulk condiments or prepackaged
 
13           single-serving packets of condiments that are provided
 
14           to customers by the licensed retail merchant, jobber,
 
15           or other licensed seller;
 
16     (12)  Sales to a licensed retail merchant, jobber, or other
 
17           licensed seller of tangible personal property that will
 
18           be incorporated or processed by the licensed retail
 
19           merchant, jobber, or other licensed seller into a
 
20           finished or saleable product during the course of its
 
21           preparation for market (including disposable,
 
22           nonreturnable containers, packages, or wrappers, in
 
23           which the product is contained and that are generally
 

 
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 1           known and most commonly used to contain food or
 
 2           beverage for transfer or delivery), and which finished
 
 3           or saleable product is to be sold and not otherwise
 
 4           used by the licensed retail merchant, jobber, or other
 
 5           licensed seller[.];
 
 6     (13)  Sales of amusements subject to taxation under section
 
 7           237-13(4) to a licensed seller engaging in a business
 
 8           or calling whenever:
 
 9           (A)  Either:
 
10                (i)  In the context of an amusement-to-service
 
11                     transaction, an amusement is rendered upon
 
12                     the order or request of a licensed seller for
 
13                     the purpose of rendering another service in
 
14                     the course of the seller's service business
 
15                     or calling;
 
16               (ii)  In the context of an amusement-to-tangible
 
17                     personal property transaction, an amusement
 
18                     is rendered upon the order or request of a
 
19                     licensed seller for the purpose of selling
 
20                     tangible personal property; or
 
21              (iii)  In the context of an amusement-to-amusement
 
22                     transaction, an amusement is rendered upon
 
23                     the order or request of a licensed seller for
 

 
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 1                     the purpose of rendering another amusement in
 
 2                     the course of the person's amusement
 
 3                     business;
 
 4           (B)  The benefit of the amusement passes to the
 
 5                customer of the licensed seller as an identifiable
 
 6                element of the other service, tangible personal
 
 7                property to be sold, or amusement;
 
 8           (C)  The cost of the amusement does not constitute
 
 9                overhead to the licensed seller;
 
10           (D)  The gross income of the licensed seller is not
 
11                divided between the licensed seller and another
 
12                licensed seller, person furnishing transient
 
13                accommodations, or person rendering an amusement
 
14                for the tax imposed under chapter 237;
 
15           (E)  The gross income of the licensed seller is not
 
16                subject to a deduction under this chapter; and
 
17           (F)  The resale of the service, tangible personal
 
18                property, or amusement is subject to the tax
 
19                imposed under this chapter at the highest rate.
 
20           As used in this paragraph, amusement is defined as
 
21           entertainment provided as part of a show for which
 
22           there is an admission charge.  Sales subject to this
 
23           paragraph shall be subject to section 237-13.3."
 

 
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 1      SECTION 2.  Section 237-13, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "237-13  Imposition of tax.  There is hereby levied and
 
 4 shall be assessed and collected annually privilege taxes against
 
 5 persons on account of their business and other activities in the
 
 6 State measured by the application of rates against values of
 
 7 products, gross proceeds of sales, or gross income, whichever is
 
 8 specified, as follows:
 
 9      (1)  Tax on manufacturers.
 
10           (A)  Upon every person engaging or continuing within
 
11                the State in the business of manufacturing,
 
12                including compounding, canning, preserving,
 
13                packing, printing, publishing, milling,
 
14                processing, refining, or preparing for sale,
 
15                profit, or commercial use, either directly or
 
16                through the activity of others, in whole or in
 
17                part, any article or articles, substance or
 
18                substances, commodity or commodities, the amount
 
19                of the tax to be equal to the value of the
 
20                articles, substances, or commodities,
 
21                manufactured, compounded, canned, preserved,
 
22                packed, printed, milled, processed, refined, or
 
23                prepared for sale, as shown by the gross proceeds
 

 
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 1                derived from the sale thereof by the manufacturer
 
 2                or person compounding, preparing, or printing
 
 3                them, multiplied by one-half of one per cent.
 
 4           (B)  The measure of the tax on manufacturers is the
 
 5                value of the entire product for sale, regardless
 
 6                of the place of sale or the fact that deliveries
 
 7                may be made to points outside the State.
 
 8           (C)  If any person liable for the tax on manufacturers
 
 9                ships or transports the person's product, or any
 
10                part thereof, out of the State, whether in a
 
11                finished or unfinished condition, or sells the
 
12                same for delivery to points outside the State (for
 
13                example, consigned to a mainland purchaser via
 
14                common carrier f.o.b. Honolulu), the value of the
 
15                products in the condition or form in which they
 
16                exist immediately before entering interstate or
 
17                foreign commerce, determined as hereinafter
 
18                provided, shall be the basis for the assessment of
 
19                the tax imposed by this paragraph.  This tax shall
 
20                be due and payable as of the date of entry of the
 
21                products into interstate or foreign commerce,
 
22                whether the products are then sold or not.  The
 
23                department shall determine the basis for
 

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

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

 
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 1      (2)  Tax on business of selling tangible personal property;
 
 2           producing.
 
 3           (A)  Upon every person engaging or continuing in the
 
 4                business of selling any tangible personal property
 
 5                whatsoever (not including, however, bonds or other
 
 6                evidence of indebtedness, or stocks), there is
 
 7                likewise hereby levied, and shall be assessed and
 
 8                collected, a tax equivalent to four per cent of
 
 9                the gross proceeds of sales of the business;
 
10                provided that insofar as certain retailing is
 
11                taxed by section 237-16, the tax shall be that
 
12                levied by section 237-16, and in the case of a
 
13                wholesaler, the tax shall be equal to one-half of
 
14                one per cent of the gross proceeds of sales of the
 
15                business and provided that insofar as the [sales]
 
16                sale of tangible personal property is a wholesale
 
17                sale under section 237-4(a)(8)(B) the sale shall
 
18                be subject to section 237-13.3.  Upon every person
 
19                engaging or continuing within this State in the
 
20                business of a producer, the tax shall be equal to
 
21                one-half of one per cent of the gross proceeds of
 
22                sales of the business, or the value of the
 
23                products, for sale, if sold for delivery outside
 

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

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

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

 
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 1                (i)  Any purchaser who furnishes a certificate
 
 2                     shall be obligated to pay to the seller, upon
 
 3                     demand, the amount of the additional tax that
 
 4                     is imposed upon the seller whenever the sale
 
 5                     in fact is not at wholesale; and
 
 6               (ii)  The absence of a certificate in itself shall
 
 7                     give rise to the presumption that the sale is
 
 8                     not at wholesale unless the sales of the
 
 9                     business are exclusively at wholesale.
 
10      (3)  Tax upon contractors.
 
11           (A)  Upon every person engaging or continuing within
 
12                the State in the business of contracting, the tax
 
13                shall be equal to four per cent of the gross
 
14                income of the business; provided that insofar as
 
15                the business of contracting is taxed by section
 
16                237-16, which relates to certain retailing, the
 
17                tax shall be that levied by section 237-16.
 
18           (B)  In computing the tax levied under this paragraph
 
19                or section 237-16, there shall be deducted from
 
20                the gross income of the taxpayer so much thereof
 
21                as has been included in the measure of the tax
 
22                levied under subparagraph (A) or section 237-16,
 
23                on:
 

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

 
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 1                     reimbursement of costs incurred for
 
 2                     materials, plant, or equipment purchased from
 
 3                     a taxpayer licensed under this chapter, not
 
 4                     exceeding the gross proceeds of sale of the
 
 5                     taxpayer on account of the transaction; and
 
 6               (ii)  The taxpayer making the sale shall have
 
 7                     certified to the department that the taxpayer
 
 8                     is taxable with respect to the gross proceeds
 
 9                     of the sale, and that the taxpayer elects to
 
10                     have the tax on gross income computed the
 
11                     same as upon a sale to the state government.
 
12           (D)  A person who, as a business or as a part of a
 
13                business in which the person is engaged, erects,
 
14                constructs, or improves any building or structure,
 
15                of any kind or description, or makes, constructs,
 
16                or improves any road, street, sidewalk, sewer, or
 
17                water system, or other improvements on land held
 
18                by the person (whether held as a leasehold, fee
 
19                simple, or otherwise), upon the sale or other
 
20                disposition of the land or improvements, even if
 
21                the work was not done pursuant to a contract,
 
22                shall be liable to the same tax as if engaged in
 
23                the business of contracting, unless the person
 

 
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 1                shows that at the time the person was engaged in
 
 2                making the improvements the person intended, and
 
 3                for the period of at least one year after
 
 4                completion of the building, structure, or other
 
 5                improvements the person continued to intend to
 
 6                hold and not sell or otherwise dispose of the land
 
 7                or improvements.  The tax in respect of the
 
 8                improvements shall be measured by the amount of
 
 9                the proceeds of the sale or other disposition that
 
10                is attributable to the erection, construction, or
 
11                improvement of such building or structure, or the
 
12                making, constructing, or improving of the road,
 
13                street, sidewalk, sewer, or water system, or other
 
14                improvements.  The measure of tax in respect of
 
15                the improvements shall not exceed the amount which
 
16                would have been taxable had the work been
 
17                performed by another, subject as in other cases to
 
18                the deductions allowed by subparagraph (B).  Upon
 
19                the election of the taxpayer, this paragraph may
 
20                be applied notwithstanding that the improvements
 
21                were not made by the taxpayer, or were not made as
 
22                a business or as a part of a business, or were
 
23                made with the intention of holding the same.
 

 
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 1                However, this paragraph shall not apply in respect
 
 2                of any proceeds that constitute or are in the
 
 3                nature of rent; all such gross income shall be
 
 4                taxable under paragraph (9); provided that insofar
 
 5                as the business of renting or leasing real
 
 6                property under a lease is taxed under section 237-
 
 7                16.5, the tax shall be levied by section 237-16.5.
 
 8      (4)  Tax upon theaters, amusements, radio broadcasting
 
 9           stations, etc.
 
10           (A)  Upon every person engaging or continuing within
 
11                the State in the business of operating a theater,
 
12                opera house, moving picture show, vaudeville,
 
13                amusement park, dance hall, skating rink, radio
 
14                broadcasting station, or any other place at which
 
15                amusements are offered to the public, the tax
 
16                shall be equal to four per cent of the gross
 
17                income of the business[.], and in the case of a
 
18                sale of an amusement at wholesale under section
 
19                237-4(a)(13), the tax shall be subject to section
 
20                237-13.3.
 
21           (B)  The department may require that the person
 
22                rendering an amusement at wholesale take from the
 
23                licensed seller a certificate, in a form
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1                prescribed by the department, certifying that the
 
 2                sale is a sale at wholesale; provided that:
 
 3                (i)  Any licensed seller who furnishes a
 
 4                     certificate shall be obligated to pay to the
 
 5                     person rendering the amusement, upon demand,
 
 6                     the amount of additional tax that is imposed
 
 7                     upon the seller whenever the sale is not at
 
 8                     wholesale; and
 
 9               (ii)  The absence of a certificate in itself shall
 
10                     give rise to the presumption that the sale is
 
11                     not at wholesale unless the person rendering
 
12                     the sale is exclusively rendering the
 
13                     amusement at wholesale.
 
14      (5)  Tax upon sales representatives, etc. Upon every person
 
15           classified as a representative or purchasing agent
 
16           under section 237-1, engaging or continuing within the
 
17           State in the business of performing services for
 
18           another, other than as an employee, there is likewise
 
19           hereby levied and shall be assessed and collected a tax
 
20           equal to four per cent of the commissions and other
 
21           compensation attributable to the services so rendered
 
22           by the person.
 
23      (6)  Tax on service business.
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           (A)  Upon every person engaging or continuing within
 
 2                the State in any service business or calling,
 
 3                including professional services not otherwise
 
 4                specifically taxed under this chapter, there is
 
 5                likewise hereby levied and shall be assessed and
 
 6                collected a tax equal to four per cent of the
 
 7                gross income of the business, and in the case of a
 
 8                wholesaler under section 237-4(a)(10), the tax
 
 9                shall be equal to one-half of one per cent of the
 
10                gross income of the business.  [Sales subject to
 
11                this subparagraph] Notwithstanding the foregoing,
 
12                a wholesaler under section 237-4(a)(10) shall be
 
13                subject to section 237-13.3.
 
14           (B)  The department[, by rule,] may require that the
 
15                person rendering a service at wholesale take from
 
16                the licensed seller a certificate, in a form
 
17                prescribed by the department, certifying that the
 
18                sale is a sale at wholesale; provided that:
 
19                (i)  Any licensed seller who furnishes a
 
20                     certificate shall be obligated to pay to the
 
21                     person rendering the service, upon demand,
 
22                     the amount of additional tax that is imposed
 
23                     upon the seller whenever the sale is not at
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1                     wholesale; and
 
 2               (ii)  The absence of a certificate in itself shall
 
 3                     give rise to the presumption that the sale is
 
 4                     not at wholesale unless the person rendering
 
 5                     the sale is exclusively rendering services at
 
 6                     wholesale.
 
 7           (C)  Where any person engaging or continuing within the
 
 8                State in any service business or calling renders
 
 9                those services upon the order of or at the request
 
10                of another taxpayer who is engaged in the service
 
11                business, and who, in fact, acts as or in the
 
12                nature of an intermediary between the person
 
13                rendering those services and the ultimate
 
14                recipient of the benefits of those services, so
 
15                much of the gross income as is received by the
 
16                person rendering the services shall be subjected
 
17                to the tax at the rate of one-half of one per cent
 
18                and all of the gross income received by the
 
19                intermediary from the principal shall be subjected
 
20                to a tax at the rate of four per cent[;].  Where
 
21                the taxpayer is subject to both this subparagraph
 
22                and to the lowest tax rate under subparagraph (A),
 
23                the taxpayer shall be taxed under this
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1                subparagraph.  This subparagraph shall be repealed
 
 2                on January 1, 2006.
 
 3           (D)  Where any person is engaged in the business of
 
 4                selling interstate or foreign common carrier
 
 5                telecommunication services within and without the
 
 6                State, the tax shall be imposed on that portion of
 
 7                gross income received by a person from service
 
 8                which is originated or terminated in this State
 
 9                and is charged to a telephone number, customer, or
 
10                account in this State notwithstanding any other
 
11                state law (except for the exemption under section
 
12                237-23(a)(1)) to the contrary.  If, under the
 
13                Constitution and laws of the United States, the
 
14                entire gross income as determined under this
 
15                paragraph of a business selling interstate or
 
16                foreign common carrier telecommunication services
 
17                cannot be included in the measure of the tax, the
 
18                gross income shall be apportioned as provided in
 
19                section 237-21; provided that the apportionment
 
20                factor and formula shall be the same for all
 
21                persons providing those services in the State.
 
22      (7)  Tax on insurance solicitors and agents.  Upon every
 
23           person engaged as a licensed solicitor, general agent,
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           or subagent pursuant to chapter 431, there is hereby
 
 2           levied and shall be assessed and collected a tax equal
 
 3           to .15 per cent of the commissions due to that
 
 4           activity.
 
 5      (8)  Tax on receipts of sugar benefit payments.  Upon the
 
 6           amounts received from the United States government by
 
 7           any producer of sugar (or the producer's legal
 
 8           representative or heirs), as defined under and by
 
 9           virtue of the Sugar Act of 1948, as amended, or other
 
10           Acts of the Congress of the United States relating
 
11           thereto, there is hereby levied a tax of one-half of
 
12           one per cent of the gross amount received; provided
 
13           that the tax levied hereunder on any amount so received
 
14           and actually disbursed to another by a producer in the
 
15           form of a benefit payment shall be paid by the person
 
16           or persons to whom the amount is actually disbursed,
 
17           and the producer actually making a benefit payment to
 
18           another shall be entitled to claim on the producer's
 
19           return a deduction from the gross amount taxable
 
20           hereunder in the sum of the amount so disbursed.  The
 
21           amounts taxed under this paragraph shall not be taxable
 
22           under any other paragraph, subsection, or section of
 
23           this chapter.
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1      (9)  Tax on other business.  Upon every person engaging or
 
 2           continuing within the State in any business, trade,
 
 3           activity, occupation, or calling not included in the
 
 4           preceding paragraphs or any other provisions of this
 
 5           chapter, there is likewise hereby levied and shall be
 
 6           assessed and collected, a tax equal to four per cent of
 
 7           the gross income thereof.  In addition, the rate
 
 8           prescribed by this paragraph shall apply to a business
 
 9           taxable under one or more of the preceding paragraphs
 
10           or other provisions of this chapter, as to any gross
 
11           income thereof not taxed thereunder as gross income or
 
12           gross proceeds of sales or by taxing an equivalent
 
13           value of products, unless specifically exempted."
 
14      SECTION 3.  Section 237-13.3, Hawaii Revised Statutes, is
 
15 amended by amending the title and subsection (a) to read as
 
16 follows:
 
17      "237-13.3  Application of sections 237-4(a)(8), 237-
 
18 4(a)(10), 237-4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-
 
19 13(6)(A).(a)  Sections 237-4(a)(8), 237-4(a)(10), 237-
 
20 4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-13(6)(A) to the
 
21 contrary notwithstanding, instead of the tax levied under
 
22 [sections 237-4 and] section 237-13(2)(A) on wholesale sales
 
23 subject to section 237-4(a)(8)(B), under section 237-13(4)(A) on
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1 a wholesaler subject to section 237-4(a)(13), and under section
 
 2 237-13(6)(A) on a wholesaler subject to section 237-4(a)(10) at
 
 3 one-half of one per cent, during the period January 1, 2000, to
 
 4 December 31, 2005, the tax shall be as follows:
 
 5      (1)  In calendar year 2000, 3.5 per cent;
 
 6      (2)  In calendar year 2001, 3.0 per cent;
 
 7      (3)  In calendar year 2002, 2.5 per cent;
 
 8      (4)  In calendar year 2003, 2.0 per cent;
 
 9      (5)  In calendar year 2004, 1.5 per cent; and
 
10      (6)  In calendar year 2005, 1.0 per cent[; and
 
11      (7)].  In calendar year 2006 and thereafter, the tax shall
 
12 be 0.5 per cent."
 
13      SECTION 4.  Section 237-16, Hawaii Revised Statutes, is
 
14 amended by amending subsection (e) to read as follows:
 
15      "(e)  This section shall not apply to:
 
16      (1)  Sales of tangible personal property treated as a
 
17           wholesale sale under section 237-4(a)(8)(B) to a
 
18           licensed seller engaged in a service business or
 
19           calling or a licensed person furnishing transient
 
20           accommodations; or
 
21      (2)  Sales of services treated as a wholesale sale under
 
22           section 237-4(a)(10) to a licensed seller engaged in a
 
23           service business or calling, a licensed contractor as
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           defined in section 237-6, or a licensed person
 
 2           furnishing transient accommodations."
 
 3      SECTION 5.  Section 237-29.53, Hawaii Revised Statutes, is
 
 4 amended to read as follows:
 
 5      "237-29.53  Exemption for contracting or services exported
 
 6 out of State.(a)  There shall be exempted from, and excluded
 
 7 from the measure of, taxes imposed by this chapter, all of the
 
 8 value or gross income derived from contracting (as defined under
 
 9 section 237-6) or services performed by a person engaged in a
 
10 service business or calling in the State for [a customer located]
 
11 use outside the State where:
 
12      (1)  The contracting or services are for resale,
 
13           consumption, or use outside the State; and
 
14      (2)  The value or gross income derived from the contracting
 
15           or services performed would otherwise be subject to the
 
16           tax imposed under this chapter on contracting or
 
17           services at the highest rate.
 
18 For the purposes of this subsection, the seller or person
 
19 rendering the contracting or services exported and resold,
 
20 consumed, or used outside the State shall take from the customer,
 
21 a certificate or an equivalent, in a form the department
 
22 prescribes, certifying that the contracting or service purchased
 
23 is to be otherwise resold, consumed, or used outside the State.
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1 Any customer who furnishes this certificate or an equivalent
 
 2 shall be obligated to pay the seller or person rendering the
 
 3 contracting or services, upon demand, if the contracting or
 
 4 service purchased is not resold or otherwise consumed or used
 
 5 outside the State, the amount of the additional tax which by
 
 6 reason thereof is imposed upon the seller or person rendering the
 
 7 contracting or service.
 
 8      (b)  There shall be exempted from, and excluded from the
 
 9 measure of, taxes imposed by this chapter, all of the value or
 
10 gross income derived from contracting (as defined in section 237-
 
11 6) or services performed by a person engaged in a service
 
12 business or calling in the State for a purchaser who resells all
 
13 of the contracting or services for resale, consumption, or use
 
14 outside the State pursuant to subsection (a).  For the purposes
 
15 of this subsection, the seller or person rendering the
 
16 contracting or services for a purchaser who resells the
 
17 contracting or services for resale, consumption, or use outside
 
18 the State shall take from the purchaser, a certificate or an
 
19 equivalent, in a form that the department prescribes, certifying
 
20 that the contracting or services purchased is to be [resold to a
 
21 customer of the purchaser who has complied with] for resale,
 
22 consumption, or use outside the State pursuant to subsection (a).
 
23 Any purchaser who furnishes this certificate or an equivalent
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1 shall be obligated to pay the seller or person rendering the
 
 2 contracting or services, upon demand, if the contracting or
 
 3 services purchased is not resold in its entirety to a customer of
 
 4 the purchaser who has complied with subsection (a), the amount of
 
 5 the additional tax which by reason thereof is imposed upon the
 
 6 seller or the person rendering the contracting or service.
 
 7      [(c)  For purposes of this section, "service business or
 
 8 calling" includes all activities engaged in for other persons for
 
 9 a consideration that involve the rendering of a service as
 
10 distinguished from the sale of tangible personal property or the
 
11 production and sale of tangible personal property.  "Service
 
12 business or calling" includes professional services, but does not
 
13 include service rendered by an employee to the employee's
 
14 employer.]"
 
15      SECTION 6.  Section 238-1, Hawaii Revised Statutes, is
 
16 amended as follows:
 
17      (1)  By amending the definitions of "price", "purchase" and
 
18 "sale", "purchaser", "representation", "seller" and "use" to
 
19 read:
 
20      ""Price" means the total amount for which tangible personal
 
21 property [or], services, or contracting are purchased, valued in
 
22 money, whether paid in money or otherwise, and wheresoever paid;
 
23 provided that cash discounts allowed and taken on sales shall not
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1 be included.
 
 2      "Purchase" and "sale" means any transfer, exchange, or
 
 3 barter, conditional or otherwise, in any manner or by any means,
 
 4 wheresoever consummated, of tangible personal property [or],
 
 5 services, or contracting for a consideration.
 
 6      "Purchaser" means any person purchasing property [or],
 
 7 services, or contracting and "importer" means any person
 
 8 importing property[;], [or], services[;], or contracting;
 
 9 provided that the terms "purchaser" and "importer" shall not
 
10 include the State, its political subdivisions, or wholly owned
 
11 agencies or instrumentalities of the State or a political
 
12 subdivision; or the United States, its wholly owned agencies or
 
13 instrumentalities, or any person immune from the tax imposed by
 
14 this chapter under the Constitution and laws of the United States
 
15 but the terms shall include national banks.
 
16      "Representation" refers to any or all of the following:
 
17      (1)  A seller being present in the State;
 
18      (2)  A seller having in the State a salesperson, commission
 
19           agent, manufacturer's representative, broker, or other
 
20           person who is authorized or employed by the seller to
 
21           assist the seller in selling property [or], services,
 
22           or contracting for use or consumption in the State, by
 
23           procuring orders for the sales, making collections or
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           deliveries, or otherwise; and
 
 2      (3)  A seller having in the State a person upon whom process
 
 3           directed to the seller from the courts of the State may
 
 4           be served, including the director of commerce and
 
 5           consumer affairs and the deputy director in the cases
 
 6           provided in section 415-14.
 
 7      "Seller" means any person engaged in the business of selling
 
 8 tangible personal property [or], services, or contracting,
 
 9 wheresoever engaged, but does not include the United States or
 
10 its wholly owned agencies or instrumentalities other than
 
11 national banks, the State or a political subdivision thereof, or
 
12 wholly owned agencies or instrumentalities of the State or a
 
13 political subdivision."
 
14      "Use" (and any nounal, verbal, adjectival, adverbial, and
 
15 other equivalent form of the term) herein used interchangeably
 
16 means any use, whether the use is of such nature as to cause the
 
17 property [or], services, or contracting to be appreciably
 
18 consumed or not, or the keeping of the property or services for
 
19 such use or for sale, and shall include the exercise of any right
 
20 or power over tangible or intangible personal property incident
 
21 to the ownership of that property, but the term "use" shall not
 
22 include:
 
23      (1)  Temporary use of property, not of a perishable or
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           quickly consumable nature, where the property is
 
 2           imported into the State for temporary use (not sale)
 
 3           therein by the person importing the same and is not
 
 4           intended to be, and is not, kept permanently in the
 
 5           State (as for example without limiting the generality
 
 6           of the foregoing language:
 
 7           (A)  In the case of a contractor importing permanent
 
 8                equipment for the performance of a construction
 
 9                contract, with intent to remove, and who does
 
10                remove, the equipment out of the State upon
 
11                completing the contract;
 
12           (B)  In the case of moving picture films imported for
 
13                use in theaters in the State with intent or under
 
14                contract to transport the same out of the State
 
15                after completion of such use; and
 
16           (C)  In the case of a transient visitor importing an
 
17                automobile or other belongings into the State to
 
18                be used by the transient visitor while therein but
 
19                which are to be used and are removed upon the
 
20                transient visitor's departure from the State);
 
21      (2)  Use by the taxpayer of property acquired by the
 
22           taxpayer solely by way of gift;
 
23      (3)  Use which is limited to the receipt of articles and the
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           return thereof, to the person from whom acquired,
 
 2           immediately or within a reasonable time either after
 
 3           temporary trial or without trial;
 
 4      (4)  Use of goods imported into the State by the owner of a
 
 5           vessel or vessels engaged in interstate or foreign
 
 6           commerce and held for and used only as ship stores for
 
 7           the vessels;
 
 8      (5)  The use or keeping for use of household goods, personal
 
 9           effects, and private automobiles imported into the
 
10           State for nonbusiness use by a person who:
 
11           (A)  Acquired them in another state, territory,
 
12                district, or country;
 
13           (B)  At the time of the acquisition was a bona fide
 
14                resident of another state, territory, district, or
 
15                country;
 
16           (C)  Acquired the property for use outside the State;
 
17                and
 
18           (D)  Made actual and substantial use thereof outside
 
19                this State;
 
20           provided that as to an article acquired less than three
 
21           months prior to the time of its importation into the
 
22           State it shall be presumed, until and unless clearly
 
23           proved to the contrary, that it was acquired for use in
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           the State and that its use outside the State was not
 
 2           actual and substantial;
 
 3      (6)  The leasing or renting of any aircraft or the keeping
 
 4           of any aircraft solely for leasing or renting to
 
 5           lessees or renters using the aircraft for commercial
 
 6           transportation of passengers and goods;
 
 7      (7)  The use of oceangoing vehicles for passenger or
 
 8           passenger and goods transportation from one point to
 
 9           another within the State as a public utility as defined
 
10           in chapter 269;
 
11      (8)  The use of material, parts, or tools imported or
 
12           purchased by a person licensed under chapter 237 which
 
13           are used for aircraft service and maintenance, or the
 
14           construction of an aircraft service and maintenance
 
15           facility as those terms are defined in section 237-
 
16           24.9; and
 
17      (9)  The use of services or contracting imported for resale
 
18           [to a foreign customer located outside the State to the
 
19           extent the services are resold, consumed, or used by
 
20           that foreign customer outside the State pursuant to
 
21           section 237-29.53(a).] that become an identifiable
 
22           element of a finished or saleable service or product or
 
23           contracting to the extent:
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           (A)  The services or contracting are resold, consumed,
 
 2                or used outside the State pursuant to section 237-
 
 3                29.53(a);
 
 4           (B)  The benefit of the services or contracting passes
 
 5                to the customer of a person engaged in a service
 
 6                business or calling or contracting, as an
 
 7                identifiable element of:
 
 8                (i)  Another service or tangible personal property
 
 9                     to be sold, produced, or prepared; or
 
10               (ii)  Contracting;
 
11           (C)  The cost of the services or contracting does not
 
12                constitute overhead to the licensed person engaged
 
13                in a service business or calling or contracting;
 
14           (D)  The gross income is not divided between the
 
15                licensed seller and the licensed person engaged in
 
16                a service business or contracting; and
 
17           (E)  The gross income is not subject to a deduction
 
18                under chapter 237;
 
19           and where a service or contracting resold is an
 
20           identifiable element, the taxpayer establishes that
 
21           fact to the satisfaction of the director.
 
22     (10)  The use of contracting imported or purchased by a
 
23           contractor as defined in section 237-6 who is:
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           (A)  Licensed under chapter 237;
 
 2           (B)  Engaged in business as a contractor; and
 
 3           (C)  Subject to the tax imposed under section 238-2.3.
 
 4      With regard to purchases made and distributed under the
 
 5 authority of chapter 421, a cooperative association shall be
 
 6 deemed the user thereof."
 
 7      (2)  By repealing the definition of "foreign customer":
 
 8      [""Foreign customer" means a nonresident person who:
 
 9      (1)  Is not subject to chapter 237;
 
10      (2)  Has not been physically present in the State for more
 
11           than thirty days in the six months prior to entering
 
12           into a written exported contracting or services
 
13           agreement with a person licensed under chapter 237
 
14           engaged in contracting (as defined in section 237-6) or
 
15           a service business or calling; and
 
16      (3)  Is the sole recipient of the exported contracting or
 
17           services provided through a person in Hawaii engaged in
 
18           contracting or a service business or calling and
 
19           licensed under chapter 237."]
 
20      SECTION 7.  Section 238-2, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "238-2  Imposition of tax; exemptions.  There is hereby
 
23 levied an excise tax on the use in this State of tangible
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1 personal property which is imported, or purchased from an
 
 2 unlicensed seller, for use in this State.  The tax imposed by
 
 3 this chapter shall accrue when the property is acquired by the
 
 4 importer or purchaser and becomes subject to the taxing
 
 5 jurisdiction of the State.  The rates of the tax hereby imposed
 
 6 and the exemptions thereof are as follows:
 
 7      (1)  If the importer or purchaser is licensed under chapter
 
 8           237 and is:
 
 9           (A)  A wholesaler or jobber importing or purchasing for
 
10                purposes of resale; or
 
11           (B)  A manufacturer importing or purchasing material or
 
12                commodities which are to be incorporated by the
 
13                manufacturer into a finished or saleable product
 
14                (including the container or package in which the
 
15                product is contained) wherein it will remain in
 
16                such form as to be perceptible to the senses, and
 
17                which finished or saleable product is to be sold
 
18                in such manner as to result in a further tax on
 
19                the activity of the manufacturer as the
 
20                manufacturer or as a wholesaler, and not as a
 
21                retailer,
 
22           there shall be no tax; provided that if the wholesaler,
 
23           jobber, or manufacturer is also engaged in business as
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           a retailer (so classed under chapter 237), paragraph
 
 2           (2) shall apply to the wholesaler, jobber, or
 
 3           manufacturer, but the director of taxation shall refund
 
 4           to the wholesaler, jobber, or manufacturer, in the
 
 5           manner provided under section 231-23(c) such amount of
 
 6           tax as the wholesaler, jobber, or manufacturer shall,
 
 7           to the satisfaction of the director, establish to have
 
 8           been paid by the wholesaler, jobber, or manufacturer to
 
 9           the director with respect to property which has been
 
10           used by the wholesaler, jobber, or manufacturer for the
 
11           purposes stated in this paragraph;
 
12      (2)  If the importer or purchaser is licensed under chapter
 
13           237 and is:
 
14           (A)  A retailer or other person importing or purchasing
 
15                for purposes of resale, not exempted by paragraph
 
16                (1);
 
17           (B)  A manufacturer importing or purchasing material or
 
18                commodities which are to be incorporated by the
 
19                manufacturer into a finished or saleable product
 
20                (including the container or package in which the
 
21                product is contained) wherein it will remain in
 
22                such form as to be perceptible to the senses, and
 
23                which finished or saleable product is to be sold
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1                at retail in this State, in such manner as to
 
 2                result in a further tax on the activity of the
 
 3                manufacturer in selling such products at retail;
 
 4           (C)  A contractor importing or purchasing material or
 
 5                commodities which are to be incorporated by the
 
 6                contractor into the finished work or project
 
 7                required by the contract and which will remain in
 
 8                such finished work or project in such form as to
 
 9                be perceptible to the senses; or
 
10           (D)  A person engaged in a service business or calling
 
11                as defined in section 237-7, or a person
 
12                furnishing transient accommodations subject to the
 
13                tax imposed by section 237D-2, in which the import
 
14                or purchase of tangible personal property would
 
15                have qualified as a sale at wholesale as defined
 
16                in section 237-4(a)(8) had the seller of the
 
17                property been subject to the tax in chapter 237,
 
18           the tax shall be one-half of one per cent of the
 
19           purchase price of the property, if the purchase and
 
20           sale are consummated in Hawaii; or, if there is no
 
21           purchase price applicable thereto, or if the purchase
 
22           [or a person furnishing transient accommodations
 
23           subject to the tax imposed by section 237D-2,] or sale
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1           is consummated outside of Hawaii, then one-half of one
 
 2           per cent of the value of such property; and
 
 3      (3)  In all other cases, four per cent of the value of the
 
 4           property."
 
 5      SECTION 8.  Section 238-2.3, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "238-2.3  Imposition of tax on imported services;
 
 8 exemptions.  [(a)] There is hereby levied an excise tax on the
 
 9 value of services or contracting as defined in section 237-6 that
 
10 are performed by an unlicensed seller at a point outside the
 
11 State and imported or purchased for use in this State.  The tax
 
12 imposed by this chapter shall accrue when the service or
 
13 contracting as defined in section 237-6 is received 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 from the tax are as follows:
 
17      (1)  If the importer or purchaser is licensed under chapter
 
18           237 and is:
 
19           (A)  Engaged in a service business or calling in which
 
20                the imported or purchased services or contracting
 
21                become identifiable elements, excluding overhead,
 
22                of the services rendered[,] by the importer or
 
23                purchaser, and the gross income of the importer or
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1                purchaser is subject to the tax imposed under
 
 2                chapter 237 on services at the rate of one-half of
 
 3                one per cent[;] or the rate of tax imposed under
 
 4                section 237-13.3; or
 
 5           (B)  A manufacturer importing or purchasing services or
 
 6                contracting that become identifiable elements,
 
 7                excluding overhead, of a finished or saleable
 
 8                product (including the container or package in
 
 9                which the product is contained) and the finished
 
10                or saleable product is to be sold in a manner that
 
11                results in a further tax on the activity of the
 
12                manufacturer as a wholesaler, and not a retailer;
 
13           there shall be no tax imposed on the value of the
 
14           imported or purchased services[;] or contracting;
 
15           provided that if the manufacturer is also engaged in
 
16           business as a retailer as classified under chapter 237,
 
17           paragraph (2) shall apply to the manufacturer, but the
 
18           director of taxation shall refund to the manufacturer,
 
19           in the manner provided under section 231-23(c), that
 
20           amount of tax that the manufacturer, to the
 
21           satisfaction of the director, shall establish to have
 
22           been paid by the manufacturer to the director with
 
23           respect to services that have been used by the
 

 
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 1           manufacturer for the purposes stated in this paragraph.
 
 2      (2)  If the importer or purchaser is a person licensed under
 
 3           chapter 237 and is:
 
 4           (A)  Engaged in a service business or calling in which
 
 5                the imported or purchased services or contracting
 
 6                become identifiable elements, excluding overhead,
 
 7                of the services rendered[,] by the importer or
 
 8                purchaser, and the gross income from those
 
 9                services when sold by the importer or purchaser is
 
10                subject to the tax imposed under chapter 237 at
 
11                the highest rate; or
 
12           (B)  A manufacturer importing or purchasing services or
 
13                contracting that become identifiable elements,
 
14                excluding overhead, of the finished or saleable
 
15                manufactured product (including the container or
 
16                package in which the product is contained) and the
 
17                finished or saleable product is to be sold in a
 
18                manner that results in a further tax under chapter
 
19                237 on the activity of the manufacturer as a
 
20                retailer; or
 
21           (C)  A contractor importing or purchasing services or
 
22                contracting that become identifiable elements,
 
23                excluding overhead, of the finished work or
 

 
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 1                project required, under the contract, and where
 
 2                the gross proceeds derived by the contractor are
 
 3                subject to the tax under section 237-13(3) or 237-
 
 4                16 as a contractor;
 
 5           the tax shall be one-half of one per cent of the value
 
 6           of the imported or purchased services[.] or
 
 7           contracting.
 
 8      (3)  In all other cases, the importer or purchaser is
 
 9           subject to the tax at the rate of four per cent on the
 
10           value of the imported or purchased services[.] or
 
11           contracting."
 
12      SECTION 9.  Section 238-3, Hawaii Revised Statutes, is
 
13 amended as follows:
 
14 1.   By amending subsections (a), (b), (c), and (d) to read as
 
15 follows:
 
16      "(a)  The tax imposed by this chapter shall not apply to any
 
17 property [or], services, or contracting or to any use of the
 
18 property [or], services, or contracting which cannot legally be
 
19 so taxed under the Constitution or laws of the United States, but
 
20 only so long as, and only to the extent to which the State is
 
21 without power to impose the tax.
 
22 To the extent that any exemption, exclusion, or apportionment is
 
23 necessary to comply with the preceding sentence, the director of
 

 
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 1 taxation shall:
 
 2      (1)  Exempt or exclude from the tax under this chapter
 
 3           property, services, or contracting or the use of
 
 4           property, services, or contracting exempted under
 
 5           chapter 237; or
 
 6      (2)  Apportion the gross value of services or contracting
 
 7           sold to customers within the State by persons engaged
 
 8           in business both within and without the State to
 
 9           determine the value of that portion of the services or
 
10           contracting that is subject to taxation under chapter
 
11           237 for the purposes of section 237-21.
 
12      Any provision of law to the contrary notwithstanding,
 
13 exemptions or exclusions from tax under this chapter allowed on
 
14 or before April 1, 1978, under the provisions of the Constitution
 
15 of the United States or an act of the Congress of the United
 
16 States to persons or common carriers engaged in interstate or
 
17 foreign commerce, or both, whether ocean-going or air, shall
 
18 continue undiminished and be available thereafter.
 
19      (b)  The tax imposed by this chapter shall not apply to any
 
20 use of property [or], services, or contracting the transfer of
 
21 which property [or], services, or contracting to, or the
 
22 acquisition of which by, the person so using the same, has
 
23 actually been or actually is taxed under chapter 237.
 

 
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 1      (c)  The tax imposed by this chapter shall be paid only once
 
 2 upon or in respect of the same property [or], services[;] or
 
 3 contracting; provided that nothing in this chapter contained
 
 4 shall be construed to exempt any property [or], services, or
 
 5 contracting, or the use thereof from taxation under any other law
 
 6 of the State.
 
 7      (d)  The tax imposed by this chapter shall be in addition to
 
 8 any other taxes imposed by any other laws of the State, except as
 
 9 otherwise specifically provided herein; provided that if it be
 
10 finally held by any court of competent jurisdiction, that the tax
 
11 imposed by this chapter may not legally be imposed in addition to
 
12 any other tax or taxes imposed by any other law or laws with
 
13 respect to the same property [or], services, or contracting, or
 
14 the use thereof, then this chapter shall be deemed not to apply
 
15 to the property [or], services, or contracting and the use
 
16 thereof under such specific circumstances, but such other laws
 
17 shall be given full effect with respect to the property [or],
 
18 services, or contracting and use."
 
19      2.  By amending subsections (i) and (j) to read as follows:
 
20      "(i)  Each taxpayer liable for the tax imposed by this
 
21 chapter on tangible personal property [or], services, or
 
22 contracting shall be entitled to full credit for the combined
 
23 amount or amounts of legally imposed sales or use taxes paid by
 

 
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 1 the taxpayer with respect to the same transaction and property
 
 2 [or], services, or contracting to another state and any
 
 3 subdivision thereof, but such credit shall not exceed the amount
 
 4 of the use tax imposed under this chapter on account of the
 
 5 transaction and property [or], services[.], or contracting.  The
 
 6 director of taxation may require the taxpayer to produce the
 
 7 necessary receipts or vouchers indicating the payment of the
 
 8 sales or use tax to another state or subdivision as a condition
 
 9 for the allowance of the credit.
 
10      (j)  The tax imposed by this chapter shall not apply to any
 
11 use of property [or], services, or contracting exempted by
 
12 section 237-26 or section 237-29."
 
13      SECTION 10.  Section 238-5, Hawaii Revised Statutes, is
 
14 amended by amending subsection (a) to read as follows:
 
15      "(a)  On or before the last day of each calendar month, any
 
16 person who has become liable for the payment of a tax under this
 
17 chapter during the preceding calendar month in respect of any
 
18 property [or], services, or contracting or the use thereof, shall
 
19 file a return with the assessor of the taxation district in which
 
20 the property was held or the services or contracting were
 
21 received when the tax first became payable, or with the director
 
22 of taxation at Honolulu, setting forth a description of the
 
23 property [or], services, or contracting and the character and
 

 
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 1 quantity thereof in sufficient detail to identify the same or
 
 2 otherwise in such reasonable detail as the director by rule shall
 
 3 require, and the purchase price or value thereof as the case may
 
 4 be.  The return shall be accompanied by a remittance in full of
 
 5 the tax, computed at the rate specified in section 238-2 or 238-
 
 6 2.3 upon the price or value so returned.  Any tax remaining
 
 7 unpaid after the last day following the end of the calendar month
 
 8 during which the tax first became payable shall become
 
 9 delinquent; provided that a receipt from a seller required or
 
10 authorized to collect the tax, given to a taxpayer in accordance
 
11 with section 238-6, shall be sufficient to relieve the taxpayer
 
12 from further liability for the tax to which the receipt may
 
13 refer, or for the return thereof."
 
14      SECTION 11.  Section 238-6, Hawaii Revised Statutes, is
 
15 amended by amending subsection (a) to read as follows:
 
16      "(a)  For purposes of the taxes due under sections 238-2(3),
 
17 238-2.5, and 238-2.3, every seller having in the State, regularly
 
18 or intermittently, any property, tangible or intangible, any
 
19 place of business, or any representation as hereinabove defined,
 
20 (and irrespective of the seller's having or not having qualified
 
21 to do business in the State) shall, if the seller makes sales of
 
22 property [or], services, or contracting for use in the State
 
23 (whether or not the sales are made in the State), collect from
 

 
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 1 the purchaser the taxes imposed by sections 238-2(3), 238-2.5,
 
 2 and 238-2.3, on the use of the property [or], services, or
 
 3 contracting so sold by the seller.  The collection shall be made
 
 4 within twenty days after the accrual of the tax or within such
 
 5 other period as shall be fixed by the director of taxation upon
 
 6 the application of the seller, and the seller shall give to the
 
 7 purchaser a receipt therefor in the manner and form prescribed by
 
 8 the director; provided that this subsection shall not apply to
 
 9 vehicles registered under section 286-50."
 
10      SECTION 12.  Section 238-9, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "238-9  Records.  Every person who is engaged in any
 
13 business in the State and who is required under this chapter to
 
14 make returns, shall keep in the English language in the State and
 
15 preserve for a period of three years, books of account or other
 
16 records in sufficient detail to enable the director of taxation,
 
17 as far as reasonably practicable, to determine whether or not any
 
18 taxes imposed by this chapter are payable in respect of the
 
19 property [or], services, or contracting concerned, and if so
 
20 payable, the amount thereof."
 
21      SECTION 13.  Section 239-5, Hawaii Revised Statutes, is
 
22 amended by amending subsection (c) to read as follows:
 
23      "(c)  Notwithstanding subsection (a), the rate of tax upon
 

 
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 1 the portion of the gross income of:
 
 2      (1)  [a] A public utility which consists of the receipts
 
 3           from the sale of its products or services to another
 
 4           public utility which resells such products or services
 
 5           shall be one-half of one per cent[,]; or
 
 6      (2)  A public utility engaged in the business of selling
 
 7           telecommunication services to a person defined in
 
 8           section 237-13(6)(D) who resells such products or
 
 9           services, shall be as follows:
 
10           (A)  In calendar year 2000, 3.5 per cent;
 
11           (B)  In calendar year 2001, 3.0 per cent;
 
12           (C)  In calendar year 2002, 2.5 per cent;
 
13           (D)  In calendar year 2003, 2.0 per cent;
 
14           (E)  In calendar year 2004, 1.5 per cent;
 
15           (F)  In calendar year 2005, 1.0 per cent; and
 
16           (G)  In calendar year 2006, and thereafter, 0.5 per
 
17                cent;
 
18 provided that the resale of the products or services or
 
19 telecommunication services is subject to taxation under this
 
20 section[,] or subject to taxation at the highest rate under
 
21 section 237-13(6); and provided further that the public utility's
 
22 exemption from real property taxes imposed by chapter 246 shall
 
23 be reduced by the proportion that its public utility gross income
 

 
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 1 described herein bears to its total public utility gross income.
 
 2 Whenever the public utility has other public utility gross
 
 3 income, the gross income from the sale of its products or
 
 4 services to another public utility or a person subject to section
 
 5 237-13(6)(D) shall be included in applying subsection (a) in
 
 6 determining the rate of tax upon the other public utility gross
 
 7 income.  The department shall have the authority to implement the
 
 8 tax rate changes in paragraph (2) by prescribing tax forms and
 
 9 instructions that require tax reporting and payment by deduction,
 
10 allocation, or any other method to determine tax liability with
 
11 due regard to the tax rate changes."
 
12      SECTION 14.  Section 239-6, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "239-6  Airlines, certain carriers.  (a)  There shall be
 
15 levied and assessed upon each airline a tax of four per cent of
 
16 its gross income each year from the airline business; provided
 
17 that if an airline adopts a rate schedule for students in grade
 
18 twelve or below traveling in school groups providing such
 
19 students at reasonable hours a rate less than one-half of the
 
20 regular adult fare, the tax shall be three per cent of its gross
 
21 income each year from the airline business.
 
22      (b)  There shall be levied and assessed upon each motor
 
23 carrier, each common carrier by water, and upon each contract
 

 
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                                     H.B. NO.           
                                                        
                                                        


 1 carrier other than a motor carrier, a tax of four per cent of its
 
 2 gross income each year from the motor carrier or contract carrier
 
 3 business.
 
 4      (c)  The tax imposed by this section is a means of taxing
 
 5 the personal property of the airline or other carrier, tangible
 
 6 and intangible, including going concern value, and is in lieu of
 
 7 the tax imposed by chapter 237 but is not in lieu of any other
 
 8 tax.
 
 9      (d)  Notwithstanding subsections (a), (b), and (c), the rate
 
10 of tax upon the portion of the gross income of a motor carrier or
 
11 contract carrier which consists of the receipts from the sale of
 
12 its products or services to a person defined in section 237-6
 
13 shall be as follows:
 
14      (1)  In calendar year 2000, 3.5 per cent;
 
15      (2)  In calendar year 2001, 3.0 per cent;
 
16      (3)  In calendar year 2002, 2.5 per cent;
 
17      (4)  In calendar year 2003, 2.0 per cent;
 
18      (5)  In calendar year 2004, 1.5 per cent;
 
19      (6)  In calendar year 2005, 1.0 per cent; and
 
20      (7)  In calendar year 2006, and thereafter, 0.5 per cent;
 
21 provided that there is a resale of the products or services and
 
22 the resale by the person defined in section 237-6 is subject to
 
23 taxation at the highest rate under section 237-13 or 237-16; the
 

 
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 1 gross income of the motor carrier or contract carrier is not
 
 2 divided as provided in the definition of "gross income" in
 
 3 section 239-2 for the tax imposed under this chapter or chapter
 
 4 237; and the gross income of the motor carrier or contract
 
 5 carrier from the sale of its products or services to a person
 
 6 defined in section 237-6 is not subject to a deduction under
 
 7 chapter 237 by the person defined in section 237-6.
 
 8      The department shall have the authority to implement the tax
 
 9 rate changes in paragraphs (1) through (7) by prescribing tax
 
10 forms and instructions that require tax reporting and payment by
 
11 deduction, allocation, or any other method to determine tax
 
12 liability with due regard to the tax rate changes."
 
13      SECTION 15.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored.
 
15      SECTION 16.  This Act, upon its approval, shall apply to
 
16 gross income or gross proceeds received after December 31, 1999;
 
17 provided that sections 1 and 9 to 15, shall apply to taxes
 
18 accruing after December 31, 1999; and provided sections 13 and 14
 
19 shall take effect on January 1, 2001, so that the amendments made
 
20 by sections 13 and 14 shall apply to the entire gross income
 
21 received by a public service company for the calendar year
 
22 preceding January 1, 2001, and for the calendar years thereafter.
 
23 In the case of a public service company operating on a fiscal
 

 
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 1 year basis, the amendments made by sections 13 and 14 shall apply
 
 2 to the entire gross income received for the fiscal year in which
 
 3 January 1, 2001, occurs and for fiscal years thereafter.
 
 4 
 
 5                           INTRODUCED BY:  _______________________
 

 
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