REPORT TITLE:
Taxation; Aircraft Leases


DESCRIPTION:
Gives a taxpayer the option of:  (1) Taking a general excise tax
exemption for amounts received as rent for the leasing or rental
of aircraft or aircraft engine used by lessees or renters for
interstate air transportation of passengers and goods; or (2)
Receiving an aircraft operating lease investment income tax
credit, which shall be deductible from the net income tax
liability for a lessee of an aircraft under an operating lease
who is subject to the income tax.  Exempts from the use tax, the
acquisition or importation of any such aircraft or aircraft
engine by any lessee or renter engaged in interstate air
transportation.   (SB2706 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2706
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 2
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 composed of separate and
 
 3 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 the 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 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 to assure that our residents continue
 
17 to be best served in their interisland transportation needs.  In
 
18 addition, the service provided by these two interisland carriers
 
19 also provides a necessary service to Hawaii's tourists and
 
20 supports the tourism market on each major island.
 

 
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 1      The purpose of this Act is to give a taxpayer the option of:
 
 2      (1)  Taking a general excise tax exemption for amounts
 
 3           received as rent for the leasing or rental of aircraft
 
 4           or aircraft engine used by lessees or renters for
 
 5           interstate air transportation of passengers and goods;
 
 6           or
 
 7      (2)  Receiving an aircraft operating lease investment income
 
 8           tax credit, which shall be deductible from the net
 
 9           income tax liability of a lessee of an aircraft under
 
10           an operating lease who is subject to the income tax.
 
11 This Act also exempts from the use tax, the acquisition or
 
12 importation of any such aircraft or aircraft engine by any lessee
 
13 or renter engaged in interstate air transportation.
 
14      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
15 by adding a new section to be appropriately designated and to
 
16 read as follows:
 
17      "235-    Aircraft operating lease investment tax credit.
 
18 (a)  There shall be allowed to each lessee of an aircraft under
 
19 an operating lease who is subject to the tax imposed by this
 
20 chapter, an aircraft operating lease investment tax credit which
 
21 shall be deductible from the lessee's net income tax liability,
 
22 if any, imposed by this chapter for the taxable year in which the
 
23 credit is properly claimed.
 

 
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 1      (b)  The credit shall be an amount equal to four per cent of
 
 2 the lease rent paid by the lessee to a lessor for an aircraft
 
 3 under an operating lease during the taxable year.
 
 4      (c)  If the aircraft operating lease investment tax credit
 
 5 allowed under subsection (a) exceeds the lessee's net income tax
 
 6 liability, the excess of credit over liability shall be refunded
 
 7 to the lessee; provided that no refunds or payment on account of
 
 8 the tax credit allowed by this section shall be made for amounts
 
 9 less than $1.
 
10      (d)  All claims for tax credits under this section,
 
11 including any amended claims, shall be filed on or before the end
 
12 of the twelfth month following the close of the taxable year for
 
13 which the credits may be claimed; provided that a taxpayer shall
 
14 not claim a credit under this section if the taxpayer receives a
 
15 general excise tax exemption under section 237-24.3(11) .
 
16 Failure to comply with the foregoing provision shall constitute a
 
17 waiver of the right to claim the credit.
 
18      (e)  Application for the aircraft operating lease investment
 
19 tax credit shall be upon forms provided by the department of
 
20 taxation.
 
21      (f)  As used in this section:
 
22      "Aircraft" means any craft or artificial contrivance used
 
23 for navigation through the air, all related components, including
 

 
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 1 without limitation, engines, hydraulic and electrical systems,
 
 2 and all other components which are or are designed to be an
 
 3 integral part of an aircraft, which are:
 
 4      (1)  Leased to a lessee under an operating lease entered
 
 5           into after June 30, 2000; and
 
 6      (2)  Used by the lessee for commercial transportation for
 
 7           compensation or hire of passengers or goods or other
 
 8           tangible personal property between points in this
 
 9           State.
 
10      "Operating lease" means a lease for an aircraft:
 
11      (1)  The lease rent from which is subject to the general
 
12           excise tax under chapter 237 at the rate of four per
 
13           cent; and
 
14      (2)  That is not a financing, capital, or other lease which
 
15           would allow the lessee to claim a capital goods excise
 
16           tax credit under section 235-110.7."
 
17      SECTION 3.  Section 237-13, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      "237-13  Imposition of tax.  There is hereby levied and
 
20 shall be assessed and collected annually privilege taxes against
 
21 persons on account of their business and other activities in the
 
22 State measured by the application of rates against values of
 
23 products, gross proceeds of sales, or gross income, whichever is
 
24 specified, as follows:
 

 
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 1      (1)  Tax on manufacturers.
 
 2           (A)  Upon every person engaging or continuing within
 
 3                the State in the business of manufacturing,
 
 4                including compounding, canning, preserving,
 
 5                packing, printing, publishing, milling,
 
 6                processing, refining, or preparing for sale,
 
 7                profit, or commercial use, either directly or
 
 8                through the activity of others, in whole or in
 
 9                part, any article or articles, substance or
 
10                substances, commodity or commodities, the amount
 
11                of the tax to be equal to the value of the
 
12                articles, substances, or commodities,
 
13                manufactured, compounded, canned, preserved,
 
14                packed, printed, milled, processed, refined, or
 
15                prepared for sale, as shown by the gross proceeds
 
16                derived from the sale thereof by the manufacturer
 
17                or person compounding, preparing, or printing
 
18                them, multiplied by one-half of one per cent.
 
19           (B)  The measure of the tax on manufacturers is the
 
20                value of the entire product for sale, regardless
 
21                of the place of sale or the fact that deliveries
 
22                may be made to points outside the State.
 

 
 
 
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 1           (C)  If any person liable for the tax on manufacturers
 
 2                ships or transports the person's product, or any
 
 3                part thereof, out of the State, whether in a
 
 4                finished or unfinished condition, or sells the
 
 5                same for delivery to points outside the State (for
 
 6                example, consigned to a mainland purchaser via
 
 7                common carrier f.o.b. Honolulu), the value of the
 
 8                products in the condition or form in which they
 
 9                exist immediately before entering interstate or
 
10                foreign commerce, determined as hereinafter
 
11                provided, shall be the basis for the assessment of
 
12                the tax imposed by this paragraph.  This tax shall
 
13                be due and payable as of the date of entry of the
 
14                products into interstate or foreign commerce,
 
15                whether the products are then sold or not.  The
 
16                department shall determine the basis for
 
17                assessment, as provided by this paragraph, as
 
18                follows:
 
19                (i)  If the products at the time of their entry
 
20                     into interstate or foreign commerce already
 
21                     have been sold, the gross proceeds of sale,
 
22                     less the transportation expenses, if any,
 
23                     incurred in realizing the gross proceeds for
 

 
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 1                     transportation from the time of entry of the
 
 2                     products into interstate or foreign commerce,
 
 3                     including insurance and storage in transit,
 
 4                     shall be the measure of the value of the
 
 5                     products;
 
 6               (ii)  If the products have not been sold at the
 
 7                     time of their entry into interstate or
 
 8                     foreign commerce, and in cases governed by
 
 9                     clause (i) in which the products are sold
 
10                     under circumstances such that the gross
 
11                     proceeds of sale are not indicative of the
 
12                     true value of the products, the value of the
 
13                     products constituting the basis for
 
14                     assessment shall correspond as nearly as
 
15                     possible to the gross proceeds of sales for
 
16                     delivery outside the State, adjusted as
 
17                     provided in clause (i), or if sufficient data
 
18                     are not available, sales in the State, of
 
19                     similar products of like quality and
 
20                     character and in similar quantities, made by
 
21                     the taxpayer (unless not indicative of the
 
22                     true value) or by others.  Sales outside the
 
23                     State, adjusted as provided in clause (i),
 

 
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 1                     may be considered when they constitute the
 
 2                     best available data.  The department shall
 
 3                     prescribe uniform and equitable rules for
 
 4                     ascertaining the values;
 
 5              (iii)  At the election of the taxpayer and with the
 
 6                     approval of the department, the taxpayer may
 
 7                     make the taxpayer's returns under clause (i)
 
 8                     even though the products have not been sold
 
 9                     at the time of their entry into interstate or
 
10                     foreign commerce; and
 
11               (iv)  In all cases in which products leave the
 
12                     State in an unfinished condition, the basis
 
13                     for assessment shall be adjusted so as to
 
14                     deduct the portion of the value as is
 
15                     attributable to the finishing of the goods
 
16                     outside the State.
 
17      (2)  Tax on business of selling tangible personal property;
 
18           producing.
 
19           (A)  Upon every person engaging or continuing in the
 
20                business of selling any tangible personal property
 
21                whatsoever (not including, however, bonds or other
 
22                evidence of indebtedness, or stocks), there is
 
23                likewise hereby levied, and shall be assessed and
 

 
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 1                collected, a tax equivalent to four per cent of
 
 2                the gross proceeds of sales of the business;
 
 3                provided that insofar as certain retailing is
 
 4                taxed by section 237-16, the tax shall be that
 
 5                levied by section 237-16, and in the case of a
 
 6                wholesaler, the tax shall be equal to one-half of
 
 7                one per cent of the gross proceeds of sales of the
 
 8                business and provided that insofar as the sales of
 
 9                tangible personal property is a wholesale sale
 
10                under section 237-4(a)(8)(B) the sale shall be
 
11                subject to section 237-13.3.  Upon every person
 
12                engaging or continuing within this State in the
 
13                business of a producer, the tax shall be equal to
 
14                one-half of one per cent of the gross proceeds of
 
15                sales of the business, or the value of the
 
16                products, for sale, if sold for delivery outside
 
17                the State or shipped or transported out of the
 
18                State, and the value of the products shall be
 
19                determined in the same manner as the value of
 
20                manufactured products covered in the cases under
 
21                paragraph (1)(C).
 

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

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

 
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 1                manufacturing or producing in the State; except
 
 2                that no producer of agricultural products who
 
 3                sells the products to a purchaser who will process
 
 4                the products outside the State shall be required
 
 5                to pay the tax imposed in this chapter for the
 
 6                privilege of producing or selling those products.
 
 7           (E)  A taxpayer selling to a federal cost-plus
 
 8                contractor may make the election provided for by
 
 9                paragraph (3)(C), and in that case the tax shall
 
10                be computed pursuant to the election,
 
11                notwithstanding this paragraph or paragraph (1) to
 
12                the contrary.
 
13           (F)  The department, by rule, may require that a seller
 
14                take from the purchaser of tangible personal
 
15                property a certificate, in a form prescribed by
 
16                the department, certifying that the sale is a sale
 
17                at wholesale; provided that:
 
18                (i)  Any purchaser who furnishes a certificate
 
19                     shall be obligated to pay to the seller, upon
 
20                     demand, the amount of the additional tax that
 
21                     is imposed upon the seller whenever the sale
 
22                     in fact is not at wholesale; and
 

 
 
 
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 1               (ii)  The absence of a certificate in itself shall
 
 2                     give rise to the presumption that the sale is
 
 3                     not at wholesale unless the sales of the
 
 4                     business are exclusively at wholesale.
 
 5      (3)  Tax upon contractors.
 
 6           (A)  Upon every person engaging or continuing within
 
 7                the State in the business of contracting, the tax
 
 8                shall be equal to four per cent of the gross
 
 9                income of the business; provided that insofar as
 
10                the business of contracting is taxed by section
 
11                237-16, which relates to certain retailing, the
 
12                tax shall be that levied by section 237-16.
 
13           (B)  In computing the tax levied under this paragraph
 
14                or section 237-16, there shall be deducted from
 
15                the gross income of the taxpayer so much thereof
 
16                as has been included in the measure of the tax
 
17                levied under subparagraph (A) or section 237-16,
 
18                on:
 
19                (i)  Another taxpayer who is a contractor, as
 
20                     defined in section 237-6;
 
21               (ii)  A specialty contractor, duly licensed by the
 
22                     department of commerce and consumer affairs
 
23                     pursuant to section 444-9, in respect of the
 
24                     specialty contractor's business; or
 

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

 
 
 
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 1               (ii)  The taxpayer making the sale shall have
 
 2                     certified to the department that the taxpayer
 
 3                     is taxable with respect to the gross proceeds
 
 4                     of the sale, and that the taxpayer elects to
 
 5                     have the tax on gross income computed the
 
 6                     same as upon a sale to the state government.
 
 7           (D)  A person who, as a business or as a part of a
 
 8                business in which the person is engaged, erects,
 
 9                constructs, or improves any building or structure,
 
10                of any kind or description, or makes, constructs,
 
11                or improves any road, street, sidewalk, sewer, or
 
12                water system, or other improvements on land held
 
13                by the person (whether held as a leasehold, fee
 
14                simple, or otherwise), upon the sale or other
 
15                disposition of the land or improvements, even if
 
16                the work was not done pursuant to a contract,
 
17                shall be liable to the same tax as if engaged in
 
18                the business of contracting, unless the person
 
19                shows that at the time the person was engaged in
 
20                making the improvements the person intended, and
 
21                for the period of at least one year after
 
22                completion of the building, structure, or other
 
23                improvements the person continued to intend to
 

 
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 1                hold and not sell or otherwise dispose of the land
 
 2                or improvements.  The tax in respect of the
 
 3                improvements shall be measured by the amount of
 
 4                the proceeds of the sale or other disposition that
 
 5                is attributable to the erection, construction, or
 
 6                improvement of such building or structure, or the
 
 7                making, constructing, or improving of the road,
 
 8                street, sidewalk, sewer, or water system, or other
 
 9                improvements.  The measure of tax in respect of
 
10                the improvements shall not exceed the amount which
 
11                would have been taxable had the work been
 
12                performed by another, subject as in other cases to
 
13                the deductions allowed by subparagraph (B).  Upon
 
14                the election of the taxpayer, this paragraph may
 
15                be applied notwithstanding that the improvements
 
16                were not made by the taxpayer, or were not made as
 
17                a business or as a part of a business, or were
 
18                made with the intention of holding the same.
 
19                However, this paragraph shall not apply in respect
 
20                of any proceeds that constitute or are in the
 
21                nature of rent; all such gross income shall be
 
22                taxable under paragraph (9); provided that insofar
 

 
 
 
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 1                as the business of renting or leasing real
 
 2                property under a lease is taxed under section
 
 3                237-16.5, the tax shall be levied by section 237-
 
 4                16.5.
 
 5      (4)  Tax upon theaters, amusements, radio broadcasting
 
 6           stations, etc.  Upon every person engaging or
 
 7           continuing within the State in the business of
 
 8           operating a theater, opera house, moving picture show,
 
 9           vaudeville, amusement park, dance hall, skating rink,
 
10           radio broadcasting station, or any other place at which
 
11           amusements are offered to the public, the tax shall be
 
12           equal to four per cent of the gross income of the
 
13           business.
 
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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 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 shall be subject to section
 
12                237-13.3.
 
13           (B)  The department, by rule, may require that the
 
14                person rendering a service at wholesale take from
 
15                the licensed seller a certificate, in a form
 
16                prescribed by the department, certifying that the
 
17                sale is a sale at wholesale; provided that:
 
18                (i)  Any licensed seller who furnishes a
 
19                     certificate shall be obligated to pay to the
 
20                     person rendering the service, upon demand,
 
21                     the amount of additional tax that is imposed
 
22                     upon the seller whenever the sale is not at
 
23                     wholesale; and
 

 
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 1               (ii)  The absence of a certificate in itself shall
 
 2                     give rise to the presumption that the sale is
 
 3                     not at wholesale unless the person rendering
 
 4                     the sale is exclusively rendering services at
 
 5                     wholesale.
 
 6           (C)  Where any person engaging or continuing within the
 
 7                State in any service business or calling renders
 
 8                those services upon the order of or at the request
 
 9                of another taxpayer who is engaged in the service
 
10                business and who, in fact, acts as or acts in the
 
11                nature of an intermediary between the person
 
12                rendering those services and the ultimate
 
13                recipient of the benefits of those services, so
 
14                much of the gross income as is received by the
 
15                person rendering the services shall be subjected
 
16                to the tax at the rate of one-half of one per cent
 
17                and all of the gross income received by the
 
18                intermediary from the principal shall be subjected
 
19                to a tax at the rate of four per cent.  Where the
 
20                taxpayer is subject to both this subparagraph and
 
21                to the lowest tax rate under subparagraph (A), the
 
22                taxpayer shall be taxed under this subparagraph.
 
23                This subparagraph shall be repealed on January 1,
 
24                2006.
 

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

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

 
 
 
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 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     (10)  Tax on lessors of aircraft or aircraft engines.  Upon
 
15           the amounts received as rent for the leasing or rental
 
16           of any aircraft or aircraft engine used by lessees or
 
17           renters for interstate air transportation of passengers
 
18           and goods, there is hereby levied and shall be assessed
 
19           and collected a tax of one half of one per cent of the
 
20           gross amount received.  For purposes of this paragraph,
 
21           payments made pursuant to a lease shall be considered
 
22           rent regardless of whether the lease is an operating
 
23           lease or a financing lease.  The definition of
 

 
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 1           "interstate air transportation" shall be the same as in
 
 2           49 U.S.C. 40102."
 
 3      SECTION 4.  Section 237-16, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (a) to read as follows:
 
 5      "(a)  This section relates to certain retailing in the State
 
 6 as follows:
 
 7      (1)  This section relates to the sale of tangible personal
 
 8           property, for consumption or use by the purchaser and
 
 9           not for resale, the renting of tangible personal
 
10           property, and the rendering of services by one engaged
 
11           in a service business or calling, as defined, to a
 
12           person who is not purchasing the services for resale,
 
13           but does not relate to the sale or rental of tangible
 
14           personal property or the rendering of services to the
 
15           State, its political subdivisions, or agencies or
 
16           instrumentalities of the State or a political
 
17           subdivision, or to the United States or its agencies or
 
18           instrumentalities (other than national banks), or to a
 
19           corporation, organization, or other person designated
 
20           in section 237-23 who is not subject to the tax imposed
 
21           by this chapter, or to a person licensed under this
 
22           chapter in connection with the person's business[.];
 

 
 
 
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 1      (2)  This section relates to the business of a contractor,
 
 2           as defined, but does not relate to contracting with, or
 
 3           any gross income or proceeds of a subcontractor if the
 
 4           principal contract is with the State, its political
 
 5           subdivisions, or agencies or instrumentalities of the
 
 6           State or a political subdivision, or with the United
 
 7           States or its agencies or instrumentalities (other than
 
 8           national banks), or with a person designated in section
 
 9           237-23 who is not subject to the tax imposed by this
 
10           chapter, or with a person licensed under this chapter
 
11           in connection with the person's business[.];
 
12      (3)  This section relates to furnishing of transient
 
13           accommodations in a hotel, apartment hotel, or other
 
14           place in which lodgings are regularly furnished to
 
15           transients for a consideration which includes the
 
16           rendering of services[.]; and
 
17      (4)  This section does not relate to the leasing of aircraft
 
18           or aircraft engines subject to tax imposed by this
 
19           chapter under 237-13."
 
20      SECTION 5.  Section 237-24.3, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "237-24.3  Additional amounts not taxable.  In addition to
 
23 the amounts not taxable under section 237-24, this chapter shall
 
24 not apply to:
 

 
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                                                        H.D. 2
                                                        

 
 1      (1)  Amounts received from the loading, transportation, and
 
 2           unloading of agricultural commodities shipped for a
 
 3           producer or produce dealer on one island of this State
 
 4           to a person, firm, or organization on another island of
 
 5           this State.  The terms "agricultural commodity",
 
 6           "producer", and "produce dealer" shall be defined in
 
 7           the same manner as they are defined in section 147-1;
 
 8           provided that agricultural commodities need not have
 
 9           been produced in the State;
 
10      (2)  Amounts received from sales of:
 
11           (A)  Intoxicating liquor as the term "liquor" is
 
12                defined in chapter 244D;
 
13           (B)  Cigarettes and tobacco products as defined in
 
14                chapter 245; and
 
15           (C)  Agricultural, meat, or fish products grown,
 
16                raised, or caught in Hawaii, to any person or
 
17                common carrier in interstate or foreign commerce,
 
18                or both, whether ocean-going or air, for
 
19                consumption out-of-state on the shipper's vessels
 
20                or airplanes;
 
21      (3)  Amounts received by the manager or board of directors
 
22           of:
 

 
 
 
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                                                        H.D. 2
                                                        

 
 1           (A)  An association of apartment owners of a
 
 2                condominium property regime established in
 
 3                accordance with chapter 514A; or
 
 4           (B)  A nonprofit homeowners or community association
 
 5                incorporated in accordance with chapter 415B or
 
 6                any predecessor thereto and existing pursuant to
 
 7                covenants running with the land[,];
 
 8           in reimbursement of sums paid for common expenses;
 
 9      (4)  Amounts received or accrued from:
 
10           (A)  The loading or unloading of cargo from ships,
 
11                barges, vessels, or aircraft, whether or not the
 
12                ships, barges, vessels, or aircraft travel between
 
13                the State and other states or countries or between
 
14                the islands of the State;
 
15           (B)  Tugboat services including pilotage fees performed
 
16                within the State, and the towage of ships, barges,
 
17                or vessels in and out of state harbors, or from
 
18                one pier to another; and
 
19           (C)  The transportation of pilots or governmental
 
20                officials to ships, barges, or vessels offshore;
 
21                rigging gear; checking freight and similar
 
22                services; standby charges; and use of moorings and
 
23                running mooring lines;
 

 
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                                                        H.D. 2
                                                        

 
 1      (5)  Amounts received by an employee benefit plan by way of
 
 2           contributions, dividends, interest, and other income;
 
 3           and amounts received by a nonprofit organization or
 
 4           office, as payments for costs and expenses incurred for
 
 5           the administration of an employee benefit plan;
 
 6           provided that this exemption shall not apply to any
 
 7           gross rental income or gross rental proceeds received
 
 8           after June 30, 1994, as income from investments in real
 
 9           property in this State; and provided further that gross
 
10           rental income or gross rental proceeds from investments
 
11           in real property received by an employee benefit plan
 
12           after June 30, 1994, under written contracts executed
 
13           prior to July 1, 1994, shall not be taxed until the
 
14           contracts are renegotiated, renewed, or extended, or
 
15           until after December 31, 1998, whichever is earlier.
 
16           For the purposes of this paragraph, "employee benefit
 
17           plan" means any plan as defined in section 1002(3) of
 
18           title 29 of the United States Code, as amended;
 
19      (6)  Amounts received for purchases made with United States
 
20           Department of Agriculture food coupons under the
 
21           federal food stamp program, and amounts received for
 
22           purchases made with United States Department of
 

 
 
 
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                                                        H.D. 2
                                                        

 
 1           Agriculture food vouchers under the Special
 
 2           Supplemental Foods Program for Women, Infants and
 
 3           Children;
 
 4      (7)  Amounts received by a hospital, infirmary, medical
 
 5           clinic, health care facility, pharmacy, or a
 
 6           practitioner licensed to administer the drug to an
 
 7           individual for selling prescription drugs or prosthetic
 
 8           devices to an individual; provided that this paragraph
 
 9           shall not apply to any amounts received for services
 
10           provided in selling prescription drugs or prosthetic
 
11           devices.  As used in this paragraph:
 
12           (A)  "Prescription drugs" are those drugs defined under
 
13                section [[]328-1[]] and dispensed by filling or
 
14                refilling a written or oral prescription by a
 
15                practitioner licensed under law to administer the
 
16                drug and sold by a licensed pharmacist under
 
17                section 328-16 or practitioners licensed to
 
18                administer drugs; and
 
19           (B)  "Prosthetic device" means any artificial device or
 
20                appliance, instrument, apparatus, or contrivance,
 
21                including their components, parts, accessories,
 
22                and replacements thereof, used to replace a
 
23                missing or surgically removed part of the human
 

 
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                                                        H.D. 2
                                                        

 
 1                body, which is prescribed by a licensed
 
 2                practitioner of medicine, osteopathy, or podiatry
 
 3                and which is sold by the practitioner or which is
 
 4                dispensed and sold by a dealer of prosthetic
 
 5                devices; provided that "prosthetic device" shall
 
 6                not mean any auditory, ophthalmic, dental, or
 
 7                ocular device or appliance, instrument, apparatus,
 
 8                or contrivance;
 
 9      (8)  Taxes on transient accommodations imposed by chapter
 
10           237D and passed on and collected by operators holding
 
11           certificates of registration under that chapter;
 
12      (9)  Amounts received as dues by an unincorporated merchants
 
13           association from its membership for advertising media,
 
14           promotional, and advertising costs for the promotion of
 
15           the association for the benefit of its members as a
 
16           whole and not for the benefit of an individual member
 
17           or group of members less than the entire membership;
 
18           [and]
 
19     (10)  Amounts received by a labor organization for real
 
20           property leased to:
 
21           (A)  A labor organization; or
 
22           (B)  A trust fund established by a labor organization
 
23                for the benefit of its members, families, and
 

 
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                                                        H.D. 2
                                                        

 
 1                dependents for medical or hospital care, pensions
 
 2                on retirement or death of employees,
 
 3                apprenticeship and training, and other membership
 
 4                service programs.
 
 5           As used in this paragraph, "labor organization" means a
 
 6           labor organization exempt from federal income tax under
 
 7           section 501(c)(5) of the Internal Revenue Code, as
 
 8           amended[.]; and
 
 9     (11)  Amounts received as rent for the leasing or rental of
 
10           any aircraft or aircraft engine used by lessees or
 
11           renters for interstate air transportation of passengers
 
12           and goods; provided that a taxpayer shall not receive a
 
13           general excise tax exemption under this paragraph if
 
14           the taxpayer claims an aircraft operating lease
 
15           investment tax credit under section 235-  .  For
 
16           purposes of this paragraph, "rent" means payments made
 
17           pursuant to a lease, regardless of whether the lease is
 
18           an operating lease or a financing lease."
 
19      SECTION 6.  Section 238-1, Hawaii Revised Statutes, is
 
20 amended by amending the definition of "use" to read as follows:
 
21      ""Use" (and any nounal, verbal, adjectival, adverbial, and
 
22 other equivalent form of the term) herein used interchangeably
 
23 means any use, whether the use is of [such] the nature as to
 

 
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                                                        H.D. 2
                                                        

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

 
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                                                        H.D. 2
                                                        

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

 
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                                                        H.D. 2
                                                        

 
 1           (D)  Made actual and substantial use thereof outside
 
 2                this State;
 
 3           provided that as to an article acquired less than three
 
 4           months prior to the time of its importation into the
 
 5           State it shall be presumed, until and unless clearly
 
 6           proved to the contrary, that it was acquired for use in
 
 7           the State and that its use outside the State was not
 
 8           actual and substantial;
 
 9      (6)  The leasing or renting of any aircraft or the keeping
 
10           of any aircraft solely for leasing or renting to
 
11           lessees or renters using the aircraft for commercial
 
12           transportation of passengers and goods[;], or the
 
13           acquisition or importation of any such aircraft or
 
14           aircraft engine by any lessee or renter engaged in
 
15           interstate air transportation.  For purposes of this
 
16           section, "leasing" shall include all forms of lease,
 
17           regardless of whether the lease is an operating lease
 
18           or a financing lease.  The definition of "interstate
 
19           air transportation" shall be the same as in 49 U.S.C.
 
20           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
 
24           in chapter 269;
 

 
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 1      (8)  The use of material, parts, or tools imported or
 
 2           purchased by a person licensed under chapter 237
 
 3           [which] that are used for aircraft service and
 
 4           maintenance, or the construction of an aircraft service
 
 5           and maintenance facility as those terms are defined in
 
 6           section 237-24.9; and
 
 7      (9)  The use of services imported for resale to a foreign
 
 8           customer located outside the State to the extent the
 
 9           services are resold, consumed, or used by that foreign
 
10           customer outside the State pursuant to section
 
11           237-29.53(a).
 
12      With regard to purchases made and distributed under the
 
13 authority of chapter 421, a cooperative association shall be
 
14 deemed the user thereof."
 
15      SECTION 7.  Statutory material to be repealed is bracketed.
 
16 New statutory material is underscored.
 
17      SECTION 8.  This Act shall take effect on July 1, 2020.