GET; Federal Contracts

Exempts from the general excise tax amounts received from federal
contractors by contractors or subcontractors provided 85% of the
stockholders, owners, managers, and 100% of the employees are
residents.  Requires a state contracting license for federal
construction projects in Hawaii to the extent allowed under
federal law. (SD2)

THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that attention must be
 2 focused on Hawaii's struggling construction industry.  Due to
 3 fierce competition from foreign contractors and the high costs to
 4 do business in this State, Hawaii's contractors and
 5 subcontractors have been experiencing serious economic declines.
 6      The purpose of this Act is to provide tax exemptions for
 7 Hawaii's contractors and subcontractors to help rejuvenate their
 8 businesses and provide Hawaii's construction industry with more
 9 business and employment opportunities.
10      SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended
11 by adding a new section to be appropriately designated and to
12 read as follows:
13      "237-     Exemption of federal construction contracts.  (a)
14 Any provision of the law to the contrary notwithstanding, there
15 shall be exempted from, and excluded from the measure of the
16 taxes imposed by this chapter, all of the gross proceeds arising
17 from federal construction contracts and received by state
18 contractors and subcontractors licensed under chapter 444 and
19 doing business in the State.

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                                     S.B. NO.           S.D. 2

 1      (b)  For the purposes of this section:
 2      "State contractor" and "state subcontractor" means a
 3 contractor who is licensed by the State as a contractor, is doing
 4 business in the State, and if the contractor is:
 5      (1)  An individual, the individual, and at least one-hundred
 6           per cent of the individual's employees shall be state
 7           residents;
 8      (2)  A corporation or limited liability company, not less
 9           than eighty-five per cent of the total number of
10           officers, directors, members, and shareholders, and
11           one-hundred per cent of the employees of the
12           corporation or limited liability company shall be state
13           residents;
14      (3)  A partnership or limited partnership, not less than
15           eighty-five per cent of the total number of general and
16           limited partners, and one-hundred per cent of the
17           employees of the partnership shall be state residents;
18      (4)  A joint venture or other business entity, not less than
19           eighty-five per cent of the total number of owners,
20           officers, and other individuals with a monetary
21           investment in the business entity, and one-hundred per
22           cent of the employees of the joint venture or business
23           entity shall be state residents; or

Page 3                                                     1556
                                     S.B. NO.           S.D. 2

 1      (5)  A combination of the foregoing business entities, not
 2           less than eighty-five per cent of the total number of
 3           officers, directors, shareholders, general and limited
 4           partners, and members with a monetary investment in the
 5           entity, and one-hundred per cent of the employees of
 6           the business entity shall be state residents.
 7      "State resident" means an individual who:
 8      (1)  Resides in the State at least two hundred days of the
 9           year; and
10      (2)  Has filed a Hawaii resident income tax return in the
11           taxable year immediately preceding a bid for a state
12           contract by the individual's employer or business that
13           is a state contractor; provided that an individual who
14           was a state resident, left the State to attend school
15           or serve in the armed forces of the United States of
16           America, and returned to the State to work for a state
17           contractor is a state resident, even though the
18           individual has not yet resided in the State for at
19           least two hundred days or filed a Hawaii resident
20           income tax return."
21      SECTION 3.  Section 444-1, Hawaii Revised Statutes, is
22 amended by amending the definition of "contractor" to read as
23 follows:

Page 4                                                     1556
                                     S.B. NO.           S.D. 2

 1      ""Contractor" means any person who by oneself or through
 2 others offers to undertake, or holds oneself out as being able to
 3 undertake, or does undertake to alter, add to, subtract from,
 4 improve, enhance, or beautify any realty or construct, alter,
 5 repair, add to, subtract from, improve, move, wreck, or demolish
 6 any building, highway, road, railroad, excavation, or other
 7 structure, project, development, or improvement, or do any part
 8 thereof, including the erection of scaffolding or other
 9 structures or works in connection therewith.
10      "Contractor" includes a subcontractor, a specialty
11 contractor, and any person, general engineering, general
12 building, or specialty contractor who performs any of the
13 activities listed in the previous paragraph directly or
14 indirectly for the federal government[.], to the extent allowed
15 under federal law."
16      SECTION 4.  Statutory material to be repealed is bracketed.
17 New statutory material is underscored.
18      SECTION 5.  This Act shall take effect on July 1, 1999.