REPORT TITLE:
Taxation


DESCRIPTION:
Addresses the pyramiding of the general excise tax on services.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           1225
TWENTIETH LEGISLATURE, 1999                                
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.  Chapter 237, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "237-    Treatment of wholesale services.  (a)  This
 
 5 section relates to the wholesale of services and applies to all
 
 6 service businesses under section 237-7.
 
 7      (b)  A wholesale sale of services by a taxpayer occurs
 
 8 where:
 
 9      (1)  The services are acquired by the taxpayer from a
 
10           licensed person on behalf of the ultimate recipient or
 
11           in connection with the rendering of services by the
 
12           taxpayer to the ultimate recipient.  The services may
 
13           or may not be furnished pursuant to an existing
 
14           contract between the licensed person and the taxpayer;
 
15      (2)  The taxpayer has not consumed the services; provided
 
16           that the taxpayer must bill the ultimate recipient
 
17           separately for those services; and
 
18      (3)  The licensed person furnishing the taxpayer with
 
19           services is subject to the four per cent tax rate under 
 

 
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 1 this chapter upon the gross income or gross proceeds received by
 
 2 the licensed person for the services furnished to the taxpayer.
 
 3      (c)  A deduction shall be allowed from the gross proceeds or
 
 4 gross income of the taxpayer subject to subsection (b) in an
 
 5 amount calculated by multiplying the gross amount paid by the
 
 6 taxpayer for the services acquired from the licensed person by
 
 7 .875.
 
 8      The amount calculated shall be deducted from the taxpayer's
 
 9 total reported gross proceeds or gross income.  The deduction
 
10 allowed by this subsection may be taken by fiscal and calendar
 
11 year taxpayers.  All deductions claimed under this section shall
 
12 be accompanied by the name and general excise tax number of the
 
13 licensed person furnishing the services to the taxpayer.
 
14      (d)  The taxpayer shall obtain from the licensed person a
 
15 certificate in a form that the department may prescribe
 
16 certifying that the licensed person is subject to tax at the rate
 
17 of four per cent under this chapter on the gross proceeds or
 
18 gross income received from the taxpayer.  The absence of the
 
19 certificate, if required, is itself a presumption that the
 
20 taxpayer is not allowed a deduction under this section.
 
21      (e)  A wholesale of services does not occur when the
 
22 business activity involves the production or sale of tangible
 
23 personal property, contracting, or retailing.  Any services
 

 
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                                     S.B. NO.           1225
                                                        
                                                        

 
 1 involved in those business activities shall not be severable and
 
 2 shall not qualify for a deduction under this section.
 
 3      (f)  As used in this section:
 
 4      "Licensed person" means a person licensed under this chapter
 
 5 to engage in a service business or calling under section 237-7.
 
 6      "Taxpayer" means any person subject to taxation under
 
 7 section 237-13(6).
 
 8      "Ultimate recipient" means a person who receives the
 
 9 services or the benefits of the services and who uses or consumes
 
10 the services."
 
11      SECTION 2.  Section 237-3, Hawaii Revised Statutes, is
 
12 amended by amending subsection (b) to read as follows:
 
13      "(b)  The words "gross income" and "gross proceeds of sales"
 
14 shall not be construed to include:  the amounts of taxes imposed
 
15 by this chapter on licensees and passed on, collected, and
 
16 received from a person as part of the gross income or gross
 
17 proceeds received by a licensee for activities subject to the
 
18 four per cent tax rate in this chapter, gross receipts from the
 
19 sale of securities as defined in 15 United States Code
 
20 section 78c or similar laws of jurisdictions outside the United
 
21 States, contracts for the sale of a commodity for future delivery
 
22 and other agreements, options, and rights as defined in 7 United
 
23 States Code section 2 that are permitted to be traded on a board