REPORT TITLE:
Relating to Taxation


DESCRIPTION:
Addresses the taxation of certain medical services by providing
relief.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           47
TWENTIETH LEGISLATURE, 1999                                
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 health care
 
 2 industry in Hawaii is regularly taking measures to introduce new
 
 3 products and services such as telemedicine, and to restructure
 
 4 itself in order to deliver modern, efficient, and cost effective
 
 5 health care services to the public.  In part, these changes are a
 
 6 response to market conditions, and, in part, they are a response
 
 7 to cost containment policies instituted by the state and federal
 
 8 governments.  The legislature further finds that the application
 
 9 of the general excise tax to the health care industry in Hawaii
 
10 has not been reviewed or updated for over thirty years.
 
11      The legislature finds that by not reviewing the general
 
12 excise tax the ferment in the health care industry has led to
 
13 inordinately complex structuring and restructuring in order to
 
14 avoid the general excise tax.  In many instances, efficiencies
 
15 and cost savings have been lost, and the delivery of new products
 
16 and services has been hampered.  The general excise tax causes
 
17 problems and penalties which seldom occur in other states and
 
18 Hawaii's health care industry cannot compete on an even playing
 
19 field.
 

 
Page 2                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1      For example, if a vertically integrated nonprofit hospital
 
 2 that is exempt from the general excise tax contracts out patient
 
 3 billing or other services that had previously been performed
 
 4 internally, payments from the hospital to a for profit outside
 
 5 entity will generate income subject to the four per cent general
 
 6 excise tax where no income subject to the tax had existed before.
 
 7      Other examples of formerly tax exempt income becoming
 
 8 subject to the general excise tax can be found in the formation
 
 9 of joint ventures.  In many instances, a nonprofit entity, such
 
10 as a hospital that is exempt from the general excise tax, may
 
11 find it necessary or advisable to enter into a joint venture with
 
12 a for profit entity.  For example, it may be advisable for a
 
13 nonprofit hospital and an attached physician group to form a
 
14 joint venture to service capitated health plans.  The problem in
 
15 Hawaii is that all of the income of mixed nonprofit and for
 
16 profit entities in a joint venture is subject to the four per
 
17 cent general excise tax, including that portion that would have
 
18 been paid to the nonprofit entity for tax exempt health care
 
19 services.  This offsets the viability of the joint venture.  It
 
20 also reduces or eliminates the lower service costs to the
 
21 patients that might result.
 
22      In addition, the legislature finds that with the advent of
 
23 telemedicine in particular, advice by Hawaii physicians may be
 

 
Page 3                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1 given directly to physicians and health care facilities in other
 
 2 parts of the world.  While Hawaii health care providers may have
 
 3 to expend considerable time, effort, and expense outside of the
 
 4 State to develop these referrals, the physicians who are actually
 
 5 providing the services need not travel outside of Hawaii to
 
 6 render their services.  Hence, the income received for their
 
 7 advice cannot be apportioned out of Hawaii and will become
 
 8 subject to the four per cent general excise tax.  The legislature
 
 9 also finds that patients who are referred to Hawaii health care
 
10 providers by physicians and health care facilities in other areas
 
11 of the world must pay the four per cent general excise tax when
 
12 they pay for the health care services provided in Hawaii.
 
13      If Hawaii is to become the medical center of the Pacific,
 
14 the legislature finds that the general excise tax problems
 
15 discussed in this section and others must be eliminated, reduced,
 
16 or alleviated.  The legislature finds that health care service
 
17 restructuring, telemedicine, and foreign health care referrals
 
18 are in their infancy in Hawaii and that the changes to certain
 
19 general excise tax incidents found in this Act will result in
 
20 little revenue loss and produce many economic benefits and lower
 
21 health care costs for Hawaii.
 
22      The purpose of this Act is to address certain aspects of
 
23 Hawaii's tax structure by eliminating, reducing, or alleviating
 

 
Page 4                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1 Hawaii's taxation of certain health care service activities and
 
 2 health care delivery structures.  The legislature finds that
 
 3 these changes will be good for Hawaii's economy and will place
 
 4 Hawaii's health care industry on an equal footing with its
 
 5 mainland equivalents.
 
 6      SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended
 
 7 by adding a new grouping to be appropriately designated and to
 
 8 read as follows:
 
 9            "TREATMENT OF CERTAIN HEALTH CARE SERVICES
 
10      237-A  Definitions.  For sections 237-A to 237-G the
 
11 definitions contained in this section shall control.
 
12      "Foreign health care provider" means a properly licensed
 
13 health care facility that is located outside of Hawaii, and a
 
14 foreign jurisdiction's equivalent of a properly licensed
 
15 physician who provides health care services outside of Hawaii.
 
16      "Foreign health plan provider" means a foreign
 
17 jurisdiction's equivalent of a properly licensed health plan
 
18 provider in Hawaii that offers health care services under a
 
19 health care plan to individuals who are not residents of Hawaii,
 
20 and includes foreign governments.
 
21      "Health" includes physical and mental health.
 
22      "Health care facility" includes any program, institution,
 
23 place, building, or agency, or portion thereof, private or
 

 
Page 5                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1 public, whether organized for profit or not, used, operated, or
 
 2 designed to provide medical diagnosis, treatment, nursing,
 
 3 rehabilitative, or preventive care to any person or persons, that
 
 4 is subject to chapter 323D, is owned or operated by the federal
 
 5 or state government, or is affiliated with the John A. Burns
 
 6 school of medicine at the University of Hawaii.  The term
 
 7 includes, but is not limited to, health care facilities commonly
 
 8 referred to as hospitals, extended care and rehabilitation
 
 9 centers, nursing homes, skilled nursing facilities, intermediate
 
10 care facilities, hospices for the terminally ill that require
 
11 licensure or certification by the department of health or are
 
12 owned or operated by the federal or state government, kidney
 
13 disease treatment centers including freestanding hemodialysis
 
14 units, outpatient clinics, organized ambulatory health care
 
15 facilities, emergency care facilities and centers, home health
 
16 agencies, residency programs, faculty practice programs, health
 
17 maintenance organizations, and other similar facilities where
 
18 health care services are provided.
 
19      "Health care intermediary" means a person who enters into a
 
20 written contract for or on behalf of one or more physicians or
 
21 nurses to provide health care services to patients of a health
 
22 plan provider, a foreign health care provider, a foreign health
 
23 plan provider, or a health care provider, all of the gross income
 

 
Page 6                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1 or gross proceeds from which contract is taxable to the person
 
 2 under this chapter at the rate of four per cent, except as
 
 3 provided in this part.
 
 4      "Health care plan" means a written agreement under which
 
 5 health care providers will provide health care services to
 
 6 patients who either pay a monthly payment or premium to a health
 
 7 plan provider or directly to health care providers in return for
 
 8 which:
 
 9      (1)  The health plan provider or the health care providers
 
10           assume all or a portion of the risk for the cost of the
 
11           health care services, without regard to type, value, or
 
12           frequency of the services provided; or
 
13      (2)  The health care services are provided under a written
 
14           agreement in which the health care providers are paid
 
15           either directly, or through a health plan provider, for
 
16           all or part of their services by a mutual benefit
 
17           society or health maintenance organization or under an
 
18           insurance contract.
 
19      "Health care provider" means a Hawaii health care facility,
 
20 physician, nurse, or any combination thereof.
 
21      "Health care services" means those services which health
 
22 care providers may legally provide to patients under federal and
 
23 state law.
 

 
Page 7                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1      "Health plan provider" means a person, including a
 
 2 corporation, partnership, limited liability company, mutual
 
 3 benefit society, health maintenance organization, or insurance
 
 4 carrier, who offers the health care services of one or more
 
 5 health care facilities and one or more physicians under a health
 
 6 care plan to members of the public, employers, employee
 
 7 organizations, government agencies, or other health plan
 
 8 providers.
 
 9      "Nurse" means:
 
10      (1)  An individual licensed under chapter 457;
 
11      (2)  A professional corporation incorporated under
 
12           chapter 415A;
 
13      (3)  A Hawaii general or limited liability partnership
 
14           formed under chapter 425;
 
15      (4)  A Hawaii limited partnership formed under chapter 425D;
 
16           or
 
17      (5)  A Hawaii limited liability company formed under chapter
 
18           428;
 
19 engaged in the practice of nursing in Hawaii.
 
20      "Physician" means:
 
21      (1)  An individual licensed under chapter 453 or 460;
 
22      (2)  A professional corporation incorporated under
 
23           chapter 415A;
 

 
Page 8                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1      (3)  A Hawaii general or limited liability partnership
 
 2           formed under chapter 425; or
 
 3      (4)  A Hawaii limited partnership formed under chapter 425D;
 
 4 engaged in the practice of medicine or osteopathic medicine and
 
 5 surgery in Hawaii.
 
 6      "Service provider" means a person who pursuant to a written
 
 7 contract or other legally binding agreement provides nursing,
 
 8 ancillary health care, technological, computer, maintenance,
 
 9 repair, housekeeping, managerial, accounting, and other
 
10 administrative services exclusively to health care providers.
 
11      "Telemedicine consultation" means medical consultation by a
 
12 physician with a foreign health care provider or foreign health
 
13 plan provider through electronic, telephonic, fiberoptic,
 
14 internet, or other method of telecommunications.
 
15      237-B  Exemption of gross proceeds or gross income from
 
16 foreign health care providers and foreign health plan providers.
 
17 (a)  There shall be exempted from, and excluded from the measure
 
18 of, the taxes imposed by this chapter all of the gross income or
 
19 gross proceeds arising from the sale of health care services:
 
20      (1)  Provided by a physician on the premises of a foreign
 
21           health care provider;
 
22      (2)  Sold or exported by a physician to a foreign health
 
23           care provider or foreign health plan provider pursuant
 

 
Page 9                                                     
                                     S.B. NO.           47
                                                        
                                                        

 
 1           to a telemedicine consultation;
 
 2      (3)  Provided in Hawaii to a nonresident patient of a
 
 3           foreign health care provider or foreign health plan
 
 4           provider who has been referred to a Hawaii health care
 
 5           provider by the foreign health care provider or foreign
 
 6           health plan provider; or
 
 7      (4)  Provided in Hawaii to a nonresident patient referred to
 
 8           a Hawaii health care provider by a foreign health care
 
 9           provider or foreign health plan provider pursuant to a
 
10           written provider agreement.
 
11      Gross income or gross proceeds from health care services
 
12 provided to a nonresident individual who receives health care
 
13 services while in Hawaii and who was not referred to a Hawaii
 
14 health care provider by a foreign health care provider or foreign
 
15 health plan provider shall not qualify for the exemption under
 
16 this section.
 
17      (b)  In order to claim an exemption under subsection (a)(1)
 
18 and (2), a physician must have documentation showing that the
 
19 physician received gross income or gross proceeds from a foreign
 
20 health care provider, foreign health plan provider, or from a
 
21 nonresident patient of a foreign health care provider or foreign
 
22 health plan provider.  In order to claim an exemption under
 
23 subsection (a)(3) and (4), a Hawaii health care provider must
 

 
Page 10                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 have documentation showing that the nonresident patient was
 
 2 referred to the Hawaii health care provider by a foreign health
 
 3 care provider or foreign health plan provider.
 
 4      (c)  The documentation required by subsection (b) includes
 
 5 copies of billings, a written referral from a foreign health care
 
 6 provider or a foreign health plan provider, or a copy of the
 
 7 patient's out-of-state identification such as a passport or
 
 8 driver's license.
 
 9      The department may prescribe a certificate in a form that it
 
10 deems necessary that shall be furnished by the foreign health
 
11 care provider or foreign health plan provider who is receiving
 
12 the health care services or the telemedicine consultation in the
 
13 case of subsection (a)(1) and (2) or the referring foreign health
 
14 care provider or foreign health plan provider in the case of
 
15 subsection (a)(3) and (4).  If a certificate is required by the
 
16 department, the absence of the certificate is itself a
 
17 presumption that the taxpayer is not allowed the exemption under
 
18 this section.
 
19      237-C  Service providers; certain amounts received from
 
20 health care providers not taxable.(a)  This chapter shall not
 
21 apply to amounts received from a Hawaii health care provider by a
 
22 service provider equal to and which are disbursed by the service
 
23 provider for employee wages, salaries, payroll taxes, insurance
 

 
Page 11                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 premiums, and benefits, including retirement, vacation, sick pay,
 
 2 and health benefits, with respect to services provided to the
 
 3 Hawaii health care provider.
 
 4      (b)  This chapter shall not apply to amounts received by;
 
 5      (1)  A Hawaii health care provider as interest income earned
 
 6           on moneys loaned to a service provider providing
 
 7           services under a written contract to that Hawaii health
 
 8           care provider;
 
 9      (2)  A service provider as interest income earned on moneys
 
10           loaned to a Hawaii health care provider providing
 
11           services under a written contract to that service
 
12           provider;
 
13      (3)  A Hawaii health plan provider as interest income earned
 
14           on moneys loaned to a Hawaii health care provider
 
15           providing services under a written contract to that
 
16           Hawaii health plan provider; or
 
17      (4)  A Hawaii health care provider as interest income earned
 
18           on moneys loaned to a Hawaii health plan provider
 
19           providing services under a written contract to that
 
20           Hawaii health care provider.
 
21      (c)  As used in this section:
 
22      "Employee" means service provider employees who are directly
 
23 engaged in the provision of services taxable under this chapter
 

 
Page 12                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 to Hawaii health care providers.
 
 2      "Services" means those services described in the definition
 
 3 of service provider in section 237-A which may be performed by a
 
 4 service provider for Hawaii health care providers.
 
 5      237-D  Treatment of income derived from patient billing
 
 6 services.  In lieu of the tax levied by this chapter, there is
 
 7 hereby levied, and shall be assessed and collected annually, a
 
 8 privilege tax against a person engaging or continuing within the
 
 9 State in the business of providing patient billing services,
 
10 including the provision of patient billing software and services
 
11 directly related to the performance of the patient billing
 
12 software, under a written contract entered into after June 30,
 
13 1999, with a Hawaii or foreign health care provider to provide
 
14 those services, equal to one-half of one per cent of the gross
 
15 income or gross proceeds received by the person for billing
 
16 patients for health care services rendered by the health care
 
17 provider, where the patient pays the bill either to the person
 
18 providing the patient billing services or the health care
 
19 provider.
 
20      237-E  Treatment of income from leases of medical
 
21 equipment.  (a)  If a person subject to this chapter leases
 
22 medical equipment to a Hawaii health care provider, Hawaii blood
 
23 bank, or person providing clinical laboratory services in Hawaii
 

 
Page 13                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 to or for the patients of a Hawaii health care provider, and if
 
 2 the gross income or gross proceeds from that lease is subject to
 
 3 taxation under this chapter, then the person may deduct from
 
 4 gross income or gross proceeds an amount calculated by
 
 5 multiplying the gross proceeds or gross income from the lease of
 
 6 the medical equipment by .875.
 
 7      (b)  As used in this section:
 
 8      "Lease" means the rental of medical equipment under a
 
 9 written instrument entered into after June 30, 1999, by which one
 
10 conveys medical equipment for a specified term and for a
 
11 specified consideration or by which the lessee is allowed to
 
12 purchase the medical equipment at the end of a specified period.
 
13      "Medical equipment" means capital equipment:
 
14      (1)  That has a depreciable life of three years or more;
 
15      (2)  That is used in the provision of health care services
 
16           for a patient; and
 
17      (3)  Where the sale of the equipment to the lessor or lessee
 
18           was subject to the general excise tax at the rate of
 
19           four per cent or the use tax on the use of the
 
20           equipment was paid by the lessor or lessee at the four
 
21           per cent rate.
 
22 Medical equipment includes related computer hardware, software,
 
23 and telecommunications equipment which are directly necessary for
 

 
Page 14                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 the proper performance of the medical equipment.
 
 2      237-F  Treatment of gross income or gross proceeds of a
 
 3 health plan provider.(a)  Where a health plan provider receives
 
 4 gross income or gross proceeds that is taxable under this
 
 5 chapter, that is received from a health care plan, and all or
 
 6 part of which is paid to a Hawaii health care provider under the
 
 7 health care plan, the health plan provider shall deduct from the
 
 8 gross income or gross proceeds an amount equal to the payment to
 
 9 a Hawaii health care provider under the health care plan.
 
10      If the health plan provider is a joint venture, the joint
 
11 venture may deduct from the gross proceeds or gross income that
 
12 is taxable under this chapter and that is received from a health
 
13 care plan, an amount equal to the amount paid by the joint
 
14 venture to a Hawaii health care provider under the health care
 
15 plan, including payments to those health care providers who may
 
16 be partners, members, or managers of the joint venture.
 
17      (b)  As used in this section, "joint venture" means a
 
18 domestic partnership or limited liability company, with at least
 
19 one partner, member, or manager who is a Hawaii health care
 
20 provider under a health care plan to which the joint venture is a
 
21 party.
 
22      237-G  Treatment of gross income or gross proceeds received
 
23 from a health care intermediary.(a)  In lieu of the tax levied
 

 
Page 15                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 by this chapter, there is hereby levied, and shall be assessed
 
 2 and collected annually, a privilege tax against a physician or
 
 3 nurse engaging or continuing within the State in the business of
 
 4 providing health care services, pursuant to a written contract or
 
 5 agreement with a health care intermediary, equal to one-half of
 
 6 one per cent of the gross income or gross proceeds received by
 
 7 the physician or nurse for health care services rendered under
 
 8 the contract.
 
 9      (b)  The department may prescribe a resale certificate in a
 
10 form that it deems necessary that shall be furnished to the
 
11 physician or nurse covered by this section.  If a certificate is
 
12 required by the department, the absence of the certificate is
 
13 itself a presumption that the physician or nurse is not subject
 
14 to this section."
 
15      SECTION 3.  Section 237-24.3, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "237-24.3  Additional amounts not taxable.  In addition to
 
18 the amounts not taxable under section 237-24, this chapter shall
 
19 not apply to:
 
20      (1)  Amounts received from the loading, transportation, and
 
21           unloading of agricultural commodities shipped for a
 
22           producer or produce dealer on one island of this State
 
23           to a person, firm, or organization on another island of
 

 
Page 16                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           this State.  The terms "agricultural commodity",
 
 2           "producer", and "produce dealer" shall be defined in
 
 3           the same manner as they are defined in section 147-1;
 
 4           provided that agricultural commodities need not have
 
 5           been produced in the State;
 
 6      (2)  Amounts received from sales of:
 
 7           (A)  Intoxicating liquor as the term "liquor" is
 
 8                defined in chapter 244D;
 
 9           (B)  Cigarettes and tobacco products as defined in
 
10                chapter 245; and
 
11           (C)  Agricultural, meat, or fish products grown,
 
12                raised, or caught in Hawaii, to any person or
 
13                common carrier in interstate or foreign commerce,
 
14                or both, whether ocean-going or air, for
 
15                consumption out-of-state on the shipper's vessels
 
16                or airplanes;
 
17      (3)  Amounts received by the manager or board of directors
 
18           of:
 
19           (A)  An association of apartment owners of a
 
20                condominium property regime established in
 
21                accordance with chapter 514A; or
 
22           (B)  A nonprofit homeowners or community association
 
23                incorporated in accordance with chapter 415B or
 

 
Page 17                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1                any predecessor thereto and existing pursuant to
 
 2                covenants running with the land,
 
 3           in reimbursement of sums paid for common expenses;
 
 4      (4)  Amounts received or accrued from:
 
 5           (A)  The loading or unloading of cargo from ships,
 
 6                barges, vessels, or aircraft, whether or not the
 
 7                ships, barges, vessels, or aircraft travel between
 
 8                the State and other states or countries or between
 
 9                the islands of the State;
 
10           (B)  Tugboat services including pilotage fees performed
 
11                within the State, and the towage of ships, barges,
 
12                or vessels in and out of state harbors, or from
 
13                one pier to another; and
 
14           (C)  The transportation of pilots or governmental
 
15                officials to ships, barges, or vessels offshore;
 
16                rigging gear; checking freight and similar
 
17                services; standby charges; and use of moorings and
 
18                running mooring lines;
 
19      (5)  Amounts received by an employee benefit plan by way of
 
20           contributions, dividends, interest, and other income;
 
21           and amounts received by a nonprofit organization or
 
22           office, as payments for costs and expenses incurred for
 
23           the administration of an employee benefit plan;
 

 
Page 18                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           provided that this exemption shall not apply to any
 
 2           gross rental income or gross rental proceeds received
 
 3           after June 30, 1994, as income from investments in real
 
 4           property in this State; and provided further that gross
 
 5           rental income or gross rental proceeds from investments
 
 6           in real property received by an employee benefit plan
 
 7           after June 30, 1994, under written contracts executed
 
 8           prior to July 1, 1994, shall not be taxed until the
 
 9           contracts are renegotiated, renewed, or extended, or
 
10           until after December 31, 1998, whichever is earlier.
 
11           For the purposes of this paragraph, "employee benefit
 
12           plan" means any plan as defined in section 1002(3) of
 
13           title 29 of the United States Code, as amended;
 
14      (6)  Amounts received for purchases made with United States
 
15           Department of Agriculture food coupons under the
 
16           federal food stamp program, and amounts received for
 
17           purchases made with United States Department of
 
18           Agriculture food vouchers under the Special
 
19           Supplemental Foods Program for Women, Infants and
 
20           Children;
 
21      (7)  Amounts received by a hospital, infirmary, medical
 
22           clinic, health care facility, pharmacy, or a
 
23           practitioner licensed to administer the drug to an
 

 
Page 19                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           individual for selling prescription drugs or prosthetic
 
 2           devices to an individual[;], and amounts received from
 
 3           sales of prescription drugs or prosthetic devices to a
 
 4           health care facility as defined in section 237-A;
 
 5           provided that this paragraph shall not apply to any
 
 6           amounts received for services provided in selling
 
 7           prescription drugs or prosthetic devices.  As used in
 
 8           this paragraph:
 
 9           (A)  "Prescription drugs" are those drugs defined under
 
10                section [[]328-1[]] and dispensed by filling or
 
11                refilling a written or oral prescription by a
 
12                practitioner licensed under law to administer the
 
13                drug and sold by [a]:
 
14                (i)  A licensed pharmacist under section 328-16
 
15                     [or practitioners];
 
16               (ii)  A practitioner licensed to administer drugs;
 
17                     [and] or
 
18              (iii)  A licensed taxpayer who sells to a health
 
19                     care facility as defined in section 237-A;
 
20                     and
 
21           (B)  "Prosthetic device" means any artificial device or
 
22                appliance, instrument, apparatus, or contrivance,
 
23                including their components, parts, accessories,
 

 
Page 20                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1                and replacements thereof, used to replace a
 
 2                missing or surgically removed part of the human
 
 3                body, which is prescribed by a licensed
 
 4                practitioner of medicine, osteopathy, or podiatry
 
 5                and which is sold by [the]:
 
 6                (i)  A practitioner [or which is dispensed and
 
 7                     sold by a];
 
 8               (ii)  A dealer [of] that dispenses or sells
 
 9                     prosthetic devices; or
 
10              (iii)  A licensed taxpayer who sells to a health
 
11                     care facility as defined in section 237-A;
 
12                provided that "prosthetic device" shall not mean
 
13                any auditory, ophthalmic, dental, or ocular device
 
14                or appliance, instrument, apparatus, or
 
15                contrivance;
 
16      (8)  Taxes on transient accommodations imposed by chapter
 
17           237D and passed on and collected by operators holding
 
18           certificates of registration under that chapter;
 
19      (9)  Amounts received as dues by an unincorporated merchants
 
20           association from its membership for advertising media,
 
21           promotional, and advertising costs for the promotion of
 
22           the association for the benefit of its members as a
 
23           whole and not for the benefit of an individual member
 

 
Page 21                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           or group of members less than the entire membership;
 
 2           [and]
 
 3     (10)  Amounts received by a labor organization for real
 
 4           property leased to:
 
 5           (A)  A labor organization; or
 
 6           (B)  A trust fund established by a labor organization
 
 7                for the benefit of its members, families, and
 
 8                dependents for medical or hospital care, pensions
 
 9                on retirement or death of employees,
 
10                apprenticeship and training, and other membership
 
11                service programs.
 
12           As used in this paragraph, "labor organization" means a
 
13           labor organization exempt from federal income tax under
 
14           section 501(c)(5) of the Internal Revenue Code, as
 
15           amended[.]; and
 
16     (11)  Amounts received from the sale of tangible personal
 
17           property to a health care facility as defined in
 
18           section 237-A.  As used in this paragraph "tangible
 
19           personal property" means tangible personal property
 
20           that:
 
21           (A)  Is not an integral part of a building or
 
22                structure;
 
23           (B)  Has a depreciable life under section 167 or for
 

 
Page 22                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1                which a deduction may be taken under section 168
 
 2                of the Internal Revenue Code of 1986, as amended;
 
 3                and
 
 4           (C)  Is purchased and placed in service within Hawaii
 
 5                after June 30, 1999."
 
 6      SECTION 4.  Section 238-1, Hawaii Revised Statutes, is
 
 7 amended by amending the definition of "use" to read as follows:
 
 8      ""Use" (and any nounal, verbal, adjective, adverbial, and
 
 9 other equivalent form of the term) herein used interchangeably
 
10 means any use, whether the use is of such nature as to cause the
 
11 property to be appreciably consumed or not, or the keeping of the
 
12 property for such use or for sale, and shall include the exercise
 
13 of any right or power over tangible personal property incident to
 
14 the ownership of that property, but the term "use" shall not
 
15 include: 
 
16      (1)  Temporary use of property, not of a perishable or
 
17           quickly consumable nature, where the property is
 
18           imported into the State for temporary use (not sale)
 
19           therein by the person importing the same and is not
 
20           intended to be, and is not, kept permanently in the
 
21           State (as for example without limiting the generality
 
22           of the foregoing language:  (A) in the case of a
 
23           contractor importing permanent equipment for the
 

 
Page 23                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           performance of a construction contract, with intent to
 
 2           remove, and who does remove, the equipment out of the
 
 3           State upon completing the contract; (B) in the case of
 
 4           moving picture films imported for use in theaters in
 
 5           the State with intent or under contract to transport
 
 6           the same out of the State after completion of such use;
 
 7           (C) in the case of a transient visitor importing an
 
 8           automobile or other belongings into the State to be
 
 9           used by the transient visitor while therein but which
 
10           are to be used and are removed upon the transient
 
11           visitor's departure from the State); 
 
12      (2)  Use by the taxpayer of property acquired by the
 
13           taxpayer solely by way of gift;
 
14      (3)  Use which is limited to the receipt of articles and the
 
15           return thereof, to the person from whom acquired,
 
16           immediately or within a reasonable time either after
 
17           temporary trial or without trial; 
 
18      (4)  Use of goods imported into the State by the owner of a
 
19           vessel or vessels engaged in interstate or foreign
 
20           commerce and held for and used only as ship stores for
 
21           the vessels; 
 
22      (5)  The use or keeping for use of household goods, personal
 
23           effects, and private automobiles imported into the
 

 
Page 24                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           State for nonbusiness use by a person who (A) acquired
 
 2           them in another state, territory, district, or country,
 
 3           (B) at the time of the acquisition was a bona fide
 
 4           resident of another state, territory, district, or
 
 5           country, (C) acquired the property for use outside the
 
 6           State, and (D) made actual and substantial use thereof
 
 7           outside this State; provided that as to an article
 
 8           acquired less than three months prior to the time of
 
 9           its importation into the State it shall be presumed,
 
10           until and unless clearly proved to the contrary, that
 
11           it was acquired for use in the State and that its use
 
12           outside the State was not actual and substantial; 
 
13      (6)  The leasing or renting of any aircraft or the keeping
 
14           of any aircraft solely for leasing or renting to
 
15           lessees or renters using the aircraft for commercial
 
16           transportation of passengers and goods;
 
17      (7)  The use of oceangoing vehicles for passenger or
 
18           passenger and goods transportation from one point to
 
19           another within the State as a public utility as defined
 
20           in chapter 269; [and]
 
21      (8)  The use of material, parts, or tools imported or
 
22           purchased by a person licensed under chapter 237 which
 
23           are used for aircraft service and maintenance, or the
 

 
Page 25                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1           construction of an aircraft service and maintenance
 
 2           facility as those terms are defined in section
 
 3           237-24.9[.]; and
 
 4      (9)  The use of tangible personal property by a health care
 
 5           facility as defined in section 237-A.  As used in this
 
 6           paragraph "tangible personal property" means tangible
 
 7           personal property that:
 
 8           (A)  Is not an integral part of a building or
 
 9                structure;
 
10           (B)  Has a depreciable life under section 167 or for
 
11                which a deduction may be taken under section 168
 
12                of the Internal Revenue Code of 1986, as amended;
 
13                and
 
14           (C)  Is purchased and placed in service within Hawaii
 
15                after June 30, 1999.
 
16      With regard to purchases made and distributed under the
 
17 authority of chapter 421, a cooperative association shall be
 
18 deemed the user thereof."
 
19      SECTION 5.  Section 238-3, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "238-3 Application of tax, etc.(a)  The tax imposed by
 
22 this chapter shall not apply to any property, or to any use of
 
23 the property, which cannot legally be so taxed under the
 

 
Page 26                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 Constitution or laws of the United States, but only so long as,
 
 2 and only to the extent to which the State is without power to
 
 3 impose the tax.
 
 4      Any provision of law to the contrary notwithstanding,
 
 5 exemptions or exclusions from tax under this chapter allowed on
 
 6 or before April 1, 1978, under the provisions of the Constitution
 
 7 of the United States or an act of the Congress of the United
 
 8 States to persons or common carriers engaged in interstate or
 
 9 foreign commerce, or both, whether ocean-going or air, shall
 
10 continue undiminished and be available thereafter.
 
11      (b)  The tax imposed by this chapter shall not apply to any
 
12 use of property the transfer of which property to, or the
 
13 acquisition of which by, the person so using the same, has
 
14 actually been or actually is taxed under chapter 237.
 
15      (c)  The tax imposed by this chapter shall be paid only once
 
16 upon or in respect of the same property; provided that nothing in
 
17 this chapter contained shall be construed to exempt any property
 
18 or the use thereof from taxation under any other law of the
 
19 State.
 
20      (d)  The tax imposed by this chapter shall be in addition to
 
21 any other taxes imposed by any other laws of the State, except as
 
22 otherwise specifically provided herein; provided that if it be
 
23 finally held by any court of competent jurisdiction, that the tax
 

 
Page 27                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 imposed by this chapter may not legally be imposed in addition to
 
 2 any other tax or taxes imposed by any other law or laws with
 
 3 respect to the same property or the use thereof, then this
 
 4 chapter shall be deemed not to apply to the property and the use
 
 5 thereof under such specific circumstances, but such other laws
 
 6 shall be given full effect with respect to the property and use.
 
 7      (e)  The tax imposed by this chapter shall not apply to any
 
 8 use of property exempted by section 238-4.
 
 9      (f)  The tax imposed by this chapter shall not apply to any
 
10 use or consumption of aircraft and vessels, the transfer of which
 
11 aircraft or vessel to, or the acquisition of which by, the person
 
12 so using or consuming the same, or the rental for the use of the
 
13 aircraft or vessel, has actually been or actually is taxed under
 
14 chapter 237.
 
15      (g)  The tax imposed by this chapter shall not apply to any
 
16 intoxicating liquor as defined in chapter 244D and cigarettes and
 
17 tobacco products as defined in chapter 245, imported into the
 
18 State and sold to any person or common carrier in interstate
 
19 commerce, whether ocean-going or air, for consumption out-of-
 
20 state by the person, crew, or passengers on the shipper's vessels
 
21 or airplanes.
 
22      (h)  The tax imposed by this chapter shall not apply to any
 
23 use of vessels constructed under section 189-25 prior to July 1,
 

 
Page 28                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 1969.
 
 2      (i)  Each taxpayer liable for the tax imposed by this
 
 3 chapter on tangible personal property shall be entitled to full
 
 4 credit for the combined amount or amounts of legally imposed
 
 5 sales or use taxes paid by the taxpayer with respect to the same
 
 6 transaction and property to another state and any subdivision
 
 7 thereof, but such credit shall not exceed the amount of the use
 
 8 tax imposed under this chapter on account of the transaction and
 
 9 property.  The director of taxation may require the taxpayer to
 
10 produce the necessary receipts or vouchers indicating the payment
 
11 of the sales or use tax to another state or subdivision as a
 
12 condition for the allowance of the credit.
 
13      (j)  The tax imposed by this chapter shall not apply to any
 
14 use of property exempted by section 237-26 or [section] 237-29.
 
15      (k)  The tax imposed by this chapter shall not apply to any
 
16 use of air pollution control facility exempted by section
 
17 237-27.5.
 
18      (l)  The tax imposed by this chapter shall not apply to any
 
19 use of prescription drugs or prosthetic devices, as defined in
 
20 section 237-24.3(7), by a health care facility as defined in
 
21 section 237-A."
 
22      SECTION 6.  In codifying the new sections added by section 2
 
23 and referred to in other sections of this Act, the revisor of
 

 
Page 29                                                    
                                     S.B. NO.           47
                                                        
                                                        

 
 1 statutes shall substitute appropriate section numbers for the
 
 2 letters used in designating the new sections in this Act.
 
 3      SECTION 7.  Statutory material to be repealed is bracketed.
 
 4 New statutory material is underscored.
 
 5      SECTION 8.  This Act shall take effect on July 1, 1999, and
 
 6 shall apply to gross income or gross proceeds received after
 
 7 June 30, 1999.
 
 8 
 
 9                           INTRODUCED BY:  _______________________