REPORT TITLE: 
Taxation


DESCRIPTION:
Exempts from the general excise tax those amounts received by a
wholesaler on sales to a nonprofit organization when the resale
by the organization will benefit a public school.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1710       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO THE GENERAL EXCISE TAX.



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

 1      SECTION 1.  In Hawaii, the department of education as all
 
 2 other state departments, has experienced decreases in
 
 3 appropriations for its day-to-day operations, as well as funds to
 
 4 purchase much needed equipment, books, and supplies.  Parent-
 
 5 teacher organizations and other school groups have held various
 
 6 fundraising events to make up shortfalls and provide additional
 
 7 revenue to the schools.  Public schools are not considered to be
 
 8 taxable entities, and school-sponsored groups whose funds are
 
 9 processed through the schools are exempt from payment of the
 
10 general excise tax.  However, any wholesaler that sells products
 
11 to these organizations for subsequent resale must pay the general
 
12 excise tax at the rate of four per cent, rather than the
 
13 wholesale rate of one-half per cent.  This practice results in a
 
14 greater cost to the sponsoring organizations and a reduced profit
 
15 for the schools.
 
16      The purpose of this Act is to exempt from the general excise
 
17 tax, the sale of any product by any wholesaler that sells to any
 
18 qualified school-sponsored group, provided the revenue received
 
19 by the group is used to benefit the public school.
 

 
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 1      SECTION 2.  Section 237-24.7, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "237-24.7  Additional amounts not taxable.  In addition to
 
 4 the amounts not taxable under section 237-24, this chapter shall
 
 5 not apply to:
 
 6      (1)  Amounts received by the operator of a hotel from the
 
 7           owner of the hotel in amounts equal to and which are
 
 8           disbursed by the operator for employee wages, salaries,
 
 9           payroll taxes, insurance premiums, and benefits,
 
10           including retirement, vacation, sick pay, and health
 
11           benefits.  As used in this paragraph:
 
12                "Employee" means employees directly engaged in the
 
13           day-to-day operation of the hotel and employed by the
 
14           operator.
 
15                "Hotel" means an operation licensed under section
 
16           445-92.
 
17                "Operator" means any person who, pursuant to a
 
18           written contract with the owner of a hotel, operates or
 
19           manages the hotel for the owner.
 
20                "Owner" means the fee owner or lessee under a
 
21           recorded lease of a hotel;
 
22      (2)  Amounts received by the operator of a county
 
23           transportation system operated under an operating
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1           contract with a political subdivision, where the
 
 2           political subdivision is the owner of the county
 
 3           transportation system.  As used in this paragraph:
 
 4                "County transportation system" means a mass
 
 5           transit system of motorized buses providing regularly
 
 6           scheduled transportation within a county.
 
 7                "Operating contract" or "contract" means a
 
 8           contract to operate and manage a political
 
 9           subdivision's county transportation system, which
 
10           provides that:
 
11           (A)  The political subdivision shall exercise
 
12                substantial control over all aspects of the
 
13                operator's operation;
 
14           (B)  The political subdivision controls the development
 
15                of transit policy, service planning, routes, and
 
16                fares; and
 
17           (C)  The operator develops in advance a draft budget in
 
18                the same format as prescribed for agencies of the
 
19                political subdivision.  The budget must be subject
 
20                to the same constraints and controls regarding the
 
21                lawful expenditure of public funds as any public
 
22                sector agency, and deviations from the budget must
 
23                be subject to approval by the appropriate
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1                political subdivision officials involved in the
 
 2                budgetary process.
 
 3                "Operator" means any person who, pursuant to an
 
 4           operating contract with a political subdivision,
 
 5           operates or manages a county transportation system.
 
 6                "Owner" means a political subdivision that owns or
 
 7           is the lessee of all the properties and facilities of
 
 8           the county transportation system (including buses, real
 
 9           estate, parking garages, fuel pumps, maintenance
 
10           equipment, office supplies, etc.), and that owns all
 
11           revenues derived therefrom;
 
12      (3)  Surcharge taxes on rental motor vehicles imposed by
 
13           chapter 251 and passed on and collected by persons
 
14           holding certificates of registration under that
 
15           chapter;
 
16      (4)  Amounts received by the operator of orchard properties
 
17           from the owner of the orchard property in amounts equal
 
18           to and which are disbursed by the operator for employee
 
19           wages, salaries, payroll taxes, insurance premiums, and
 
20           benefits, including retirement, vacation, sick pay, and
 
21           health benefits.  As used in this paragraph:
 
22                "Employee" means an employee directly engaged in
 
23           the day-to-day operations of the orchard properties and
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1           employed by the operator.
 
 2                "Operator" means a producer who, pursuant to a
 
 3           written contract with the owner of the orchard
 
 4           property, operates or manages the orchard property for
 
 5           the owner where the property contains an area
 
 6           sufficient to make the undertaking economically
 
 7           feasible.
 
 8                "Orchard property" means any real property that is
 
 9           used to raise trees with a production life cycle of
 
10           fifteen years or more producing fruits or nuts having a
 
11           normal period of development from the initial planting
 
12           to the first commercially saleable harvest of not less
 
13           than three years.
 
14                "Owner" means a fee owner or lessee under a
 
15           recorded lease of orchard property;
 
16      (5)  Taxes on nursing facility income imposed by chapter
 
17           346E and passed on and collected by operators of
 
18           nursing facilities;
 
19      (6)  Amounts received under property and casualty insurance
 
20           policies for damage or loss of inventory used in the
 
21           conduct of a trade or business located within the State
 
22           or a portion thereof that is declared a natural
 
23           disaster area by the governor pursuant to section
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1           209-2;
 
 2      (7)  Amounts received as compensation by community
 
 3           organizations, school booster clubs, and nonprofit
 
 4           organizations under a contract with the chief election
 
 5           officer for the provision and compensation of precinct
 
 6           officials and other election-related personnel,
 
 7           services, and activities, pursuant to section 11-5;
 
 8      (8)  Interest received by a person domiciled outside the
 
 9           State from a trust company (as defined in section
 
10           412:8-101) acting as payment agent or trustee on behalf
 
11           of the issuer or payees of an interest bearing
 
12           instrument or obligation, if the interest would not
 
13           have been subject to tax under this chapter if paid
 
14           directly to the person domiciled outside the State
 
15           without the use of a paying agent or trustee; provided
 
16           that if the interest would otherwise be taxable under
 
17           this chapter if paid directly to the person domiciled
 
18           outside the State, it shall not be exempt solely
 
19           because of the use of a Hawaii trust company as a
 
20           paying agent or trustee;
 
21      (9)  Amounts received by a management company from related
 
22           entities engaged in the business of selling interstate
 
23           or foreign common carrier telecommunications services
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1           in amounts equal to and which are disbursed by the
 
 2           management company for employee wages, salaries,
 
 3           payroll taxes, insurance premiums, and benefits,
 
 4           including retirement, vacation, sick pay, and health
 
 5           benefits.  As used in this paragraph:
 
 6                "Employee" means employees directly engaged in the
 
 7           day-to-day operation of related entities engaged in the
 
 8           business of selling interstate or foreign common
 
 9           carrier telecommunications services and employed by the
 
10           management company.
 
11                "Management company" means any person who,
 
12           pursuant to a written contract with a related entity
 
13           engaged in the business of selling interstate or
 
14           foreign common carrier telecommunications services,
 
15           provides managerial or operational services to that
 
16           entity.
 
17                "Related entities" means:
 
18                (A)  An affiliated group of corporations within
 
19                     the meaning of section 1504 (with respect to
 
20                     affiliated group defined) of the federal
 
21                     Internal Revenue Code of 1986, as amended;
 
22                (B)  A controlled group of corporations within the
 
23                     meaning of section 1563 (with respect to
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1                     definitions and special rules) of the federal
 
 2                     Internal Revenue Code of 1986, as amended; or
 
 3                (C)  Those entities connected through ownership of
 
 4                     at least eighty per cent of the total value
 
 5                     of each such entity, including partnerships,
 
 6                     associations, trusts, S corporations,
 
 7                     nonprofit corporations, or any other group or
 
 8                     combination of these or other tax entities
 
 9                     acting as a business unit;
 
10                whether or not the entity is located within or
 
11                without the State or licensed under this chapter;
 
12                [and]
 
13     (10)  Amounts received as grants under section 206M-15[.];
 
14           and
 
15     (11)  Amounts received by any wholesaler or jobber on sales
 
16           to any nonprofit group or association exempt from
 
17           taxation under section 501(c)(3) of the Internal
 
18           Revenue Code of 1986, as amended, when the resale by
 
19           the nonprofit group or association is intended to
 
20           benefit any public school in the state."
 
21      SECTION 3.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored.
 
23      SECTION 4.  This Act, upon its approval, shall apply to
 

 
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                                     H.B. NO.1710       
                                                        
                                                        

 
 1 taxable years beginning after December 31, 1998.
 
 2 
 
 3                           INTRODUCED BY:  _______________________