REPORT TITLE:
GET/Use taxes; Aircraft Leases


DESCRIPTION:
Establishes that amounts received from leasing aircraft for
commercial usage are not subject to general excise tax; clarifies
existing use tax exemption.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2706
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT
RELATING TO TAXATION.



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

 1      SECTION 1.  The legislature finds that the geographical
 
 2 nature of Hawaii is unique in that it is comprised of separate
 
 3 and distinct islands, and therefore travel among these islands is
 
 4 dependent solely on the availability of commercial modes of
 
 5 transportation, primarily air travel.
 
 6      The legislature further finds that interisland
 
 7 transportation needs of Hawaii's residents, as well as those
 
 8 tourists who wish to experience the beauty of each island, are
 
 9 currently served by the commercial air carriers that provide
 
10 frequent, affordable, and necessary means of intrastate
 
11 transportation to our residents and tourists alike, thus
 
12 differentiating these air carriers by the necessary service they
 
13 provide.
 
14      The legislature finds that Hawaii is currently served by two
 
15 major interisland air carriers that have made and will continue
 
16 to make capital investments in order to assure that our residents
 
17 continue to be best served in their interisland transportation
 
18 needs.  In addition, the service provided by these two
 
19 interisland carriers also provides a necessary service to
 

 
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 1 Hawaii's tourists and supports the tourism market on each major
 
 2 island.
 
 3      The purpose of this Act is to provide a general excise tax
 
 4 exemption for any amounts received as rent for the rental or
 
 5 leasing of aircraft or aircraft engine used for interisland air
 
 6 transportation of passengers and goods and to clarify the
 
 7 existing use tax exemption.
 
 8      SECTION 2.  Section 237-24.3, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "237-24.3  Additional amounts not taxable.  In addition to
 
11 the amounts not taxable under section 237-24, this chapter shall
 
12 not apply to:
 
13      (1)  Amounts received from the loading, transportation, and
 
14           unloading of agricultural commodities shipped for a
 
15           producer or produce dealer on one island of this State
 
16           to a person, firm, or organization on another island of
 
17           this State.  The terms "agricultural commodity",
 
18           "producer", and "produce dealer" shall be defined in
 
19           the same manner as they are defined in section 147-1;
 
20           provided that agricultural commodities need not have
 
21           been produced in the State;
 
22      (2)  Amounts received from sales of:
 
23           (A)  Intoxicating liquor as the term "liquor" is
 

 
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 1                defined in chapter 244D;
 
 2           (B)  Cigarettes and tobacco products as defined in
 
 3                chapter 245; and
 
 4           (C)  Agricultural, meat, or fish products grown,
 
 5                raised, or caught in Hawaii, to any person or
 
 6                common carrier in interstate or foreign commerce,
 
 7                or both, whether ocean-going or air, for
 
 8                consumption out-of-state on the shipper's vessels
 
 9                or airplanes;
 
10      (3)  Amounts received by the manager or board of directors
 
11           of:
 
12           (A)  An association of apartment owners of a
 
13                condominium property regime established in
 
14                accordance with chapter 514A; or
 
15           (B)  A nonprofit homeowners or community association
 
16                incorporated in accordance with chapter 415B or
 
17                any predecessor thereto and existing pursuant to
 
18                covenants running with the land,
 
19           in reimbursement of sums paid for common expenses;
 
20      (4)  Amounts received or accrued from:
 
21           (A)  The loading or unloading of cargo from ships,
 
22                barges, vessels, or aircraft, whether or not the
 
23                ships, barges, vessels, or aircraft travel between
 

 
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 1                the State and other states or countries or between
 
 2                the islands of the State;
 
 3           (B)  Tugboat services including pilotage fees performed
 
 4                within the State, and the towage of ships, barges,
 
 5                or vessels in and out of state harbors, or from
 
 6                one pier to another; and
 
 7           (C)  The transportation of pilots or governmental
 
 8                officials to ships, barges, or vessels offshore;
 
 9                rigging gear; checking freight and similar
 
10                services; standby charges; and use of moorings and
 
11                running mooring lines;
 
12      (5)  Amounts received by an employee benefit plan by way of
 
13           contributions, dividends, interest, and other income;
 
14           and amounts received by a nonprofit organization or
 
15           office, as payments for costs and expenses incurred for
 
16           the administration of an employee benefit plan;
 
17           provided that this exemption shall not apply to any
 
18           gross rental income or gross rental proceeds received
 
19           after June 30, 1994, as income from investments in real
 
20           property in this State; and provided further that gross
 
21           rental income or gross rental proceeds from investments
 
22           in real property received by an employee benefit plan
 
23           after June 30, 1994, under written contracts executed
 

 
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 1           prior to July 1, 1994, shall not be taxed until the
 
 2           contracts are renegotiated, renewed, or extended, or
 
 3           until after December 31, 1998, whichever is earlier.
 
 4           For the purposes of this paragraph, "employee benefit
 
 5           plan" means any plan as defined in section 1002(3) of
 
 6           title 29 of the United States Code, as amended;
 
 7      (6)  Amounts received for purchases made with United States
 
 8           Department of Agriculture food coupons under the
 
 9           federal food stamp program, and amounts received for
 
10           purchases made with United States Department of
 
11           Agriculture food vouchers under the Special
 
12           Supplemental Foods Program for Women, Infants and
 
13           Children;
 
14      (7)  Amounts received by a hospital, infirmary, medical
 
15           clinic, health care facility, pharmacy, or a
 
16           practitioner licensed to administer the drug to an
 
17           individual for selling prescription drugs or prosthetic
 
18           devices to an individual; provided that this paragraph
 
19           shall not apply to any amounts received for services
 
20           provided in selling prescription drugs or prosthetic
 
21           devices.  As used in this paragraph:
 
22           (A)  "Prescription drugs" are those drugs defined under
 
23                section [[]328-1[]] and dispensed by filling or
 

 
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 1                refilling a written or oral prescription by a
 
 2                practitioner licensed under law to administer the
 
 3                drug and sold by a licensed pharmacist under
 
 4                section 328-16 or practitioners licensed to
 
 5                administer drugs; and
 
 6           (B)  "Prosthetic device" means any artificial device or
 
 7                appliance, instrument, apparatus, or contrivance,
 
 8                including their components, parts, accessories,
 
 9                and replacements thereof, used to replace a
 
10                missing or surgically removed part of the human
 
11                body, which is prescribed by a licensed
 
12                practitioner of medicine, osteopathy, or podiatry
 
13                and which is sold by the practitioner or which is
 
14                dispensed and sold by a dealer of prosthetic
 
15                devices; provided that "prosthetic device" shall
 
16                not mean any auditory, ophthalmic, dental, or
 
17                ocular device or appliance, instrument, apparatus,
 
18                or contrivance;
 
19      (8)  Taxes on transient accommodations imposed by chapter
 
20           237D and passed on and collected by operators holding
 
21           certificates of registration under that chapter;
 
22      (9)  Amounts received as dues by an unincorporated merchants
 
23           association from its membership for advertising media,
 

 
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 1           promotional, and advertising costs for the promotion of
 
 2           the association for the benefit of its members as a
 
 3           whole and not for the benefit of an individual member
 
 4           or group of members less than the entire membership;
 
 5           [and]
 
 6     (10)  Amounts received by a labor organization for real
 
 7           property leased to:
 
 8           (A)  A labor organization; or
 
 9           (B)  A trust fund established by a labor organization
 
10                for the benefit of its members, families, and
 
11                dependents for medical or hospital care, pensions
 
12                on retirement or death of employees,
 
13                apprenticeship and training, and other membership
 
14                service programs.
 
15           As used in this paragraph, "labor organization" means a
 
16           labor organization exempt from federal income tax under
 
17           section 501(c)(5) of the Internal Revenue Code, as
 
18           amended[.]; and
 
19     (11)  Amounts received as rent for the rental or leasing of
 
20           aircraft or aircraft engine used by the lessees or
 
21           renters for interstate air transportation of passengers
 
22           and goods.  For purposes of this section, payments made
 
23           pursuant to a lease shall be considered rent regardless
 

 
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 1           of whether the lease is an operating lease or a
 
 2           financing lease.  The definition of "interstate air
 
 3           transportation" is the same as in 49 U.S.C. 40102."
 
 4      SECTION 3.  Section 238-1, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "238-1 Definitions, generally.  Whenever used in this
 
 7 chapter, unless otherwise required by the context:
 
 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      "General excise tax law" means chapter 237, as amended from
 
21 time to time.
 
22      "Import" (or any nounal, verbal, adverbial, adjective, or
 
23 other equivalent of the term) includes importation into the State
 

 
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 1 from any other part of the United States or its possessions or
 
 2 from any foreign country, whether in interstate or foreign
 
 3 commerce, or both.
 
 4      "Overhead" means continuous or general costs occurring in
 
 5 the normal course of a business, including but not limited to
 
 6 costs for labor, rent, taxes, royalties, interest, discounts
 
 7 paid, insurance, lighting, heating, cooling, accounting, legal
 
 8 fees, equipment and facilities, telephone systems, depreciation,
 
 9 and amortization.
 
10      "Person", "business", "engaging in business", "retailer",
 
11 "wholesaler",  "jobber", and "contractor" have the meanings
 
12 defined by chapter 237.
 
13      "Price" means the total amount for which tangible personal
 
14 property or services are purchased, valued in money, whether paid
 
15 in money or otherwise, and wheresoever paid; provided that cash
 
16 discounts allowed and taken on sales shall not be included.
 
17      "Property" means tangible personal property, but does not
 
18 include newspapers or other periodical publications purchased on
 
19 the subscription plan, issued at stated intervals as frequently
 
20 as four times a year, and of the class admitted to the United
 
21 States mails as second class matter under the laws and
 
22 regulations governing the postal service on January 1, 1965.
 
23      "Purchase" and "sale" means any transfer, exchange, or
 

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

 
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 1           be served, including the director of commerce and
 
 2           consumer affairs and the deputy director in the cases
 
 3           provided in section 415-14.
 
 4      "Seller" means any person engaged in the business of selling
 
 5 tangible personal property or services, wheresoever engaged, but
 
 6 does not include the United States or its wholly owned agencies
 
 7 or instrumentalities other than national banks, the State or a
 
 8 political subdivision thereof, or wholly owned agencies or
 
 9 instrumentalities of the State or a political subdivision.
 
10      "Service business or calling" includes all activities
 
11 engaged in for other persons for a consideration that involve the
 
12 rendering of a service as distinguished from the sale of tangible
 
13 personal property or the production and sale of tangible
 
14 property.  "Service business or calling" includes professional
 
15 services, but does not include services rendered by an employee
 
16 to the employee's employer.
 
17      "Unlicensed seller" means any seller who, with respect to
 
18 the particular sale, is not subject to the tax imposed by chapter
 
19 237, whether or not the seller holds a license under that
 
20 chapter, but does not include any seller with respect to any sale
 
21 which is expressly exempted from the tax imposed by chapter 237.
 
22      "Use" (and any nounal, verbal, adjectival, adverbial, and
 
23 other equivalent form of the term) herein used interchangeably
 

 
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 1 means any use, whether the use is of such nature as to cause the
 
 2 property or services to be appreciably consumed or not, or the
 
 3 keeping of the property or services for such use or for sale, and
 
 4 shall include the exercise of any right or power over tangible or
 
 5 intangible personal property incident to the ownership of that
 
 6 property, but the term "use" shall not include:
 
 7      (1)  Temporary use of property, not of a perishable or
 
 8           quickly consumable nature, where the property is
 
 9           imported into the State for temporary use (not sale)
 
10           therein by the person importing the same and is not
 
11           intended to be, and is not, kept permanently in the
 
12           State (as for example without limiting the generality
 
13           of the foregoing language:
 
14           (A)  In the case of a contractor importing permanent
 
15                equipment for the performance of a construction
 
16                contract, with intent to remove, and who does
 
17                remove, the equipment out of the State upon
 
18                completing the contract;
 
19           (B)  In the case of moving picture films imported for
 
20                use in theaters in the State with intent or under
 
21                contract to transport the same out of the State
 
22                after completion of such use; and
 
23           (C)  In the case of a transient visitor importing an
 

 
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 1                automobile or other belongings into the State to
 
 2                be used by the transient visitor while therein but
 
 3                which are to be used and are removed upon the
 
 4                transient visitor's departure from the State);
 
 5      (2)  Use by the taxpayer of property acquired by the
 
 6           taxpayer solely by way of gift;
 
 7      (3)  Use which is limited to the receipt of articles and the
 
 8           return thereof, to the person from whom acquired,
 
 9           immediately or within a reasonable time either after
 
10           temporary trial or without trial;
 
11      (4)  Use of goods imported into the State by the owner of a
 
12           vessel or vessels engaged in interstate or foreign
 
13           commerce and held for and used only as ship stores for
 
14           the vessels;
 
15      (5)  The use or keeping for use of household goods, personal
 
16           effects, and private automobiles imported into the
 
17           State for nonbusiness use by a person who:
 
18           (A)  Acquired them in another state, territory,
 
19                district, or country;
 
20           (B)  At the time of the acquisition was a bona fide
 
21                resident of another state, territory, district, or
 
22                country;
 
23           (C)  Acquired the property for use outside the State;
 

 
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 1                and
 
 2           (D)  Made actual and substantial use thereof outside
 
 3                this State;
 
 4           provided that as to an article acquired less than three
 
 5           months prior to the time of its importation into the
 
 6           State it shall be presumed, until and unless clearly
 
 7           proved to the contrary, that it was acquired for use in
 
 8           the State and that its use outside the State was not
 
 9           actual and substantial;
 
10      (6)  The leasing or renting of any aircraft or the keeping
 
11           of any aircraft solely for leasing or renting to
 
12           lessees or renters using the aircraft for commercial
 
13           transportation of passengers and goods[;] or the
 
14           acquisition or importation of any such aircraft or
 
15           aircraft engine by any lessee or renter engaged in
 
16           interstate air transportation.  For purposes of this
 
17           section, "leasing" shall include all forms of lease,
 
18           regardless of whether the lease is an operating lease
 
19           or a financing lease.  The definition of "interstate
 
20           air transportation" is the same as in 49 U.S.C. 40102.
 
21      (7)  The use of oceangoing vehicles for passenger or
 
22           passenger and goods transportation from one point to
 
23           another within the State as a public utility as defined
 

 
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                                     S.B. NO.           2706
                                                        
                                                        

 
 1           in chapter 269;
 
 2      (8)  The use of material, parts, or tools imported or
 
 3           purchased by a person licensed under chapter 237 which
 
 4           are used for aircraft service and maintenance, or the
 
 5           construction of an aircraft service and maintenance
 
 6           facility as those terms are defined in section
 
 7           237-24.9; and
 
 8      (9)  The use of services imported for resale to a foreign
 
 9           customer located outside the State to the extent the
 
10           services are resold, consumed, or used by that foreign
 
11           customer outside the State pursuant to section
 
12           237-29.53(a).
 
13      With regard to purchases made and distributed under the
 
14 authority of chapter 421, a cooperative association shall be
 
15 deemed the user thereof.
 
16      "Value" means fair and reasonable cash value at the time of
 
17 accrual of the tax." 
 
18      SECTION 4.  Statutory material to be repealed is bracketed.
 
19 New statutory material is underscored.
 
20      SECTION 5.  This Act shall take effect on July 1, 2000.
 
21 
 
22                           INTRODUCED BY:_________________________