Report Title:

Public Service Company Tax

 

Description:

Authorizes an apportionment of public service company taxes to the counties, in lieu of the authority to assess real property taxes on property owned by public utilities.

 

THE SENATE

S.B. NO.

595

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to public service company tax.

 

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

SECTION 1. Chapter 239, Hawaii Revised Statutes, was enacted to impose the public service company tax on certain public utilities in lieu of other taxes and as a means of taxing the real property (owned by a public utility or leased to it by a lease under which the public utility is required to pay the taxes upon the property) and the personal property of the public utility. Specifically, section 239-3, Hawaii Revised Statutes (HRS), provides that public utilities are exempt from the counties' real property taxes. At the time of the enactment of chapter 239, HRS, the power to tax real property was held by the State. As a result of the 1978 Constitutional Convention, the power to tax real property was transferred to the counties. Nonetheless, the same amendment that effected this transfer of taxing authority also prescribed that for a period of eleven years following the transfer, the various counties would follow the same real property taxing system and continue to recognize real property tax exemptions that had previously existed under the state system. That eleven-year transition period ended in 1989 giving rise to a potential challenge to the continued operation of the exemption from real property taxation set forth in chapter 239, HRS.

In 1999, the county of Hawaii amended its real property taxing ordinances and in January 2000, the county of Hawaii rejected the applications of public utilities for exemptions from real property taxation. This has led to the possibility that those public utilities will be forced to pay two different taxes on real property:

(1) One tax embedded in the existing chapter 239, HRS; and

(2) The other tax directly to the county of Hawaii.

Ultimately, the customers of those public utilities will pay for this two-tiered taxation in the form of higher utility bills.

To avoid having consumers bear the ultimate burden of two-tiered taxation, the legislature finds that it would be equitable for the State to offer to share a part of the public service company tax revenues with the counties to compensate them for unrealized real property tax revenues. This tax revenue sharing would also avoid the significant additional administrative costs and burdens that the counties would face in individually administering the direct assessment and collection of real property taxes upon public utilities.

The purpose of this Act is to provide the counties with the option of either:

(1) Sharing revenues collected under the public service company tax which are collected in lieu of real property taxes; or

(2) Foregoing the revenue sharing and collecting real property taxes. That portion of a public utility's gross income from public utility business generated in any county which elects to forgo revenue sharing shall be subject to a public service company tax rate equal to the maximum general excise tax rate under chapter 237, HRS (which is currently four per cent).

SECTION 2. Section 239-5, Hawaii Revised Statutes, is amended to read as follows:

"§239-5 Public utilities, generally. (a) There shall be levied and assessed upon each public utility, except airlines, motor carriers, common carriers by water, and contract carriers taxed by section 239-6, a tax of such rate per cent of its gross income each year from its public utility business as shall be determined in the manner hereinafter provided. The tax imposed by this section is in lieu of all taxes other than those below set out, and is a means of taxing, on behalf of and as the agent for those counties that elect to participate in the revenue sharing provided for in section 239-10, the real property (owned by the public utility or leased to it by a lease under which the public utility is required to pay the taxes upon the property), and the personal property of the public utility, tangible and intangible, including going concern value. In addition to the tax imposed by this chapter, there also are imposed income taxes, the specific taxes imposed by chapter 249, the fees prescribed by chapter 269, any tax specifically imposed by the terms of the public utility's franchise or under chapter 240, the use or consumption tax imposed by chapter 238, and employment taxes.

The rate of the tax upon the gross income of the public utility shall be determined as follows:

If the ratio of the net income of the company to its gross income is fifteen per cent or less, the rate of the tax on gross income shall be 5.885 per cent; for all companies having net income in excess of fifteen per cent of the gross, the rate of the tax on gross income shall increase continuously in proportion to the increase in ratio of net income to gross, at such rate that for each increase of one per cent in the ratio of net income to gross, there shall be an increase of .2675 per cent in the rate of the tax.

The following formula may be used to determine the rate, in which formula the term "R" is the ratio of net income to gross income, and "X" is the required rate of the tax on gross income for the utility in question:

X=(1.8725+26.75R)%;

provided that in no case governed by the formula shall "X" be less than 5.885 per cent or more than 8.2 per cent.

However, if the gross income is apportioned under section 239-8(b) or (c), there shall be no adjustment of the rate of tax on the amount of gross income so apportioned to the State on account of the ratio of the net income to the gross income being in excess of fifteen per cent, and it shall be assumed in such case that the ratio is fifteen per cent or less.

(b) Notwithstanding subsection (a), the rate of the tax upon the portion of the gross income of a carrier of passengers by land [which] that consists [in] of passenger fares for transportation between points on a scheduled route, shall be 5.35 per cent. However, if the carrier has other public utility gross income, the fares nevertheless shall be included in applying subsection (a) in determining the rate of tax upon the other public utility gross income.

(c) Notwithstanding subsection (a), the rate of tax upon the portion of the gross income of:

(1) A public utility that consists of the receipts from the sale of its products or services to another public utility that resells such products or services shall be one-half of one per cent; or

(2) A public utility engaged in the business of selling telecommunication services to a person defined in section 237-13(6)(D) who resells such products or services, shall be as follows:

(A) In calendar year 2000, 5.5 per cent;

(B) In calendar year 2001, 5.0 per cent;

(C) In calendar year 2002, 4.5 per cent;

(D) In calendar year 2003, 4.0 per cent;

(E) In calendar year 2004, 3.5 per cent;

(F) In calendar year 2005, 3.0 per cent;

(G) In calendar year 2006, 2.5 per cent; and

(H) In calendar year 2007, and thereafter, 0.5 per cent;

provided that the resale of the products, services, or telecommunication services is subject to taxation under this section or subject to taxation at the highest rate under section 237-13(6); and provided further that the public utility's exemption from real property taxes imposed by chapter 246 shall be reduced by the proportion that its public utility gross income described herein bears to its total public utility gross income. Whenever the public utility has other public utility gross income, the gross income from the sale of its products or services to another public utility or a person subject to section 237-13(6)(D) shall be included in applying subsection (a) in determining the rate of tax upon the other public utility gross income. The department shall have the authority to implement the tax rate changes in paragraph (2) by prescribing tax forms and instructions that require tax reporting and payment by deduction, allocation, or any other method to determine tax liability with due regard to the tax rate changes.

(d) Notwithstanding subsection (a) and subject to subsection (c), the rate of taxation upon that portion of the gross income of a public utility from its public utility business generated in a county that elects not to participate in the revenue sharing described in section 239-10 shall be the maximum tax rate imposed under chapter 237."

SECTION 3. Section 239-10, Hawaii Revised Statutes, is amended to read as follows:

"§239-10 Disposition of revenues. (a) All taxes collected under this chapter shall be state realizations[.]; provided that after June 30, 2001, the amount of taxes collected under section 239-5(a) from levy and assessment after June 30, 2001, in excess of the maximum tax rate imposed under chapter 237, shall be kept in the state treasury by the director of finance in special accounts for each county (except Kalawao). The director of finance may deduct any reasonable costs with respect to administering this section before paying the remaining balance to participating counties as provided for in this section.

(b) The director of taxation shall apportion and pay into the special accounts the taxes collected during the fiscal year under subsection (a). Apportionment to the special accounts shall be based upon the proportional contribution of actual tax receipts generated under this chapter within each county, less projected taxpayer refunds and other contingent liabilities such as tax appeals.

(c) On or before January 1 and July 1 of each year after July 1, 2001, or after the disposition of any tax appeal with respect to an assessment for periods after June 30, 2001, the director of finance shall pay the amount due as provided in subsection (b) to the director of finance of each county to become a general realization of the county expendable as such, except as otherwise provided by law.

(d) Each county shall have until December 1, 2001, to make a one-time irrevocable election to participate in the revenue sharing provided for in this section. Each county shall notify the director of finance in writing of its election to either participate in revenue sharing or not.

(e) No county shall have the right to appeal any assessment of the public service company tax on a public utility subject to this chapter, nor shall any county have any access to any tax returns or tax return information submitted to the department of taxation under this chapter.

(f) Any county that elects not to participate in the revenue sharing as provided in this section shall not receive any tax moneys under this section. All taxes kept in a nonparticipating county's special account shall be refunded to the appropriate public utility.

(g) Any county that elects to participate in the revenue sharing provided for in this section shall not directly levy or collect any real property tax from those public utilities subject to taxation under section 239-5(a)."

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. Statutory material to be repealed is bracketed. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2000.

INTRODUCED BY:

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