REPORT TITLE: 
General excise tax on services


DESCRIPTION:
Establishes a general excise tax structure for services similar
to that of goods.  The new structure retains the four per cent
tax on the final service provided and lowers the tax on
intermediary services to half a per cent, the same as applied to
the sale of wholesale goods.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                            232         
HOUSE OF REPRESENTATIVES                H.B. NO.           
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.  Section 237-1, Hawaii Revised Statutes, is
 
 2 amended by adding a new definition to be appropriately inserted
 
 3 and to read as follows:
 
 4      ""Overhead" means continuous or general costs of property or
 
 5 services which are not specifically or directly associated with
 
 6 the manufacture, preparation, production, or acquisition of
 
 7 identifiable goods or services to be sold."
 
 8      SECTION 2.  Section 237-4, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "237-4 "Wholesaler", "jobber", defined.  (a)  "Wholesaler"
 
11 or "jobber" applies only to a person making sales at wholesale.
 
12 Only the following are sales at wholesale:
 
13      (1)  Sales to a licensed retail merchant, jobber, or other
 
14           licensed seller for purposes of resale;
 
15      (2)  Sales to a licensed manufacturer of material or
 
16           commodities which are to be incorporated by the
 
17           manufacturer into a finished or saleable product
 
18           (including the container or package in which the
 
19           product is contained) during the course of its
 

 
Page 2                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1           preservation, manufacture, or processing, including
 
 2           preparation for market, and which will remain in such
 
 3           finished or saleable product in such form as to be
 
 4           perceptible to the senses, which finished or saleable
 
 5           product is to be sold and not otherwise used by the
 
 6           manufacturer;
 
 7      (3)  Sales to a licensed producer or cooperative association
 
 8           of materials or commodities which are to be
 
 9           incorporated by the producer or by the cooperative
 
10           association into a finished or saleable product which
 
11           is to be sold and not otherwise used by the producer or
 
12           cooperative association, including specifically
 
13           materials or commodities expended as essential to the
 
14           planting, growth, nurturing, and production of
 
15           commodities which are sold by the producer or by the
 
16           cooperative association;
 
17      (4)  Sales to a licensed contractor, of material or
 
18           commodities which are to be incorporated by the
 
19           contractor into the finished work or project required
 
20           by the contract and which will remain in such finished
 
21           work or project in such form as to be perceptible to
 
22           the senses;
 

 
 
 
Page 3                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1      (5)  Sales to a licensed producer, or to a cooperative
 
 2           association described in section 237-23(a)(7) for sale
 
 3           to such producer, or to a licensed person operating a
 
 4           feed lot, of poultry or animal feed, hatching eggs,
 
 5           semen, replacement stock, breeding services for the
 
 6           purpose of raising or producing animal or poultry
 
 7           products for disposition as described in section 237-5
 
 8           or to be incorporated in a manufactured product as
 
 9           described in paragraph (2) or for the purpose of
 
10           breeding, hatching, milking, or egg laying other than
 
11           for the customer's own consumption of the meat,
 
12           poultry, eggs, or milk so produced; provided that in
 
13           the case of a feed lot operator, only the segregated
 
14           cost of the feed furnished by the feed lot operator as
 
15           part of the feed lot operator's service to a licensed
 
16           producer of poultry or animals to be butchered or to a
 
17           cooperative association described in section
 
18           237-23(a)(7) of such licensed producers shall be deemed
 
19           to be a sale at wholesale; and provided further that
 
20           any amount derived from the furnishing of feed lot
 
21           services, other than the segregated cost of feed, shall
 
22           be deemed taxable at the service business rate.  This
 
23           paragraph shall not apply to the sale of feed for
 

 
Page 4                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1           poultry or animals to be used for hauling,
 
 2           transportation, or sports purposes;
 
 3      (6)  Sales to a licensed producer, or to a cooperative
 
 4           association described in section 237-23(a)(7) for sale
 
 5           to the producer, of seed for producing agricultural
 
 6           products, or bait for catching fish (including the
 
 7           catching of bait for catching fish), which agricultural
 
 8           products or fish are to be disposed of as described in
 
 9           section 237-5 or to be incorporated in a manufactured
 
10           product as described in paragraph (2);
 
11      (7)  Sales to a licensed producer, or to a cooperative
 
12           association described in section 237-23(a)(7) for sale
 
13           to such producer; of polypropylene shade cloth; of
 
14           polyfilm; of polyethylene film; of cartons and such
 
15           other containers, wrappers, and sacks, and binders to
 
16           be used for packaging eggs, vegetables, fruits, and
 
17           other agricultural products; of seedlings and cuttings
 
18           for producing nursery plants; or of chick containers;
 
19           which cartons and such other containers, wrappers, and
 
20           sacks, binders, seedlings, cuttings, and containers are
 
21           to be used as described in section 237-5, or to be
 
22           incorporated in a manufactured product as described in
 
23           paragraph (2);
 

 
Page 5                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1      (8)  Sales of tangible personal property to a licensed
 
 2           [person] seller engaged in [the] a service business[;]
 
 3           or calling; provided that [(A) the property is not
 
 4           consumed or incidental to the performance of the
 
 5           services; (B) there is a resale of the article at the
 
 6           retail rate of four per cent; and (C) the resale of the
 
 7           article is separately charged or billed by the person
 
 8           rendering the services;]:
 
 9           (A)  The property is sold upon the order or request of
 
10                the licensed seller for the purpose of rendering a
 
11                service in the course of the seller's service
 
12                business or calling;
 
13           (B)  The property becomes or is used as an integral
 
14                part of the service rendered; and
 
15           (C)  The cost of the property does not constitute
 
16                overhead to the licensed seller.
 
17      (9)  Sales to a licensed leasing company of capital goods
 
18           which have a depreciable life, are purchased by the
 
19           leasing company for lease to its customers, and are
 
20           thereafter leased as a service to others[.  Capital
 
21           goods means goods which have a depreciable life and
 
22           which are purchased by the leasing company for lease to
 
23           its customers.]; and
 

 
Page 6                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1     (10)  Sales of services to a licensed seller engaged in a
 
 2           business or calling whenever:
 
 3           (A)  Either:
 
 4                (i)  In the context of a service-to-service
 
 5                     transaction, a service is rendered upon the
 
 6                     order or request of a licensed seller for the
 
 7                     purpose of rendering another service in the
 
 8                     course of the seller's service business or
 
 9                     calling; or
 
10               (ii)  In the context of a service-to-goods
 
11                     transaction, a service is rendered upon the
 
12                     order or request of a licensed seller for the
 
13                     purpose of manufacturing, producing,
 
14                     preparing, or acquiring tangible personal
 
15                     property to be sold;
 
16           (B)  The benefit of the service passes to the customer
 
17                of the licensed seller as an integral part of the
 
18                other service or property to be sold; and
 
19           (C)  The cost of the service rendered does not
 
20                constitute overhead to the licensed seller.
 
21     (b)  If the use tax law is finally held by a court of
 
22 competent jurisdiction to be unconstitutional or invalid insofar
 
23 as it purports to tax the use or consumption of tangible personal
 

 
Page 7                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1 property imported into the State in interstate or foreign
 
 2 commerce or both, wholesalers and jobbers shall be taxed
 
 3 thereafter under this chapter in accordance with the following
 
 4 definition (which shall supersede the preceding paragraph
 
 5 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
 6 "jobber" means a person, or a definitely organized division
 
 7 thereof, definitely organized to render and rendering a general
 
 8 distribution service which buys and maintains at the person's
 
 9 place of business a stock or lines of merchandise which the
 
10 person distributes; and which, through salespersons, advertising,
 
11 or sales promotion devices, sells to licensed retailers, to
 
12 institutional or licensed commercial or industrial users, in
 
13 wholesale quantities and at wholesale rates.  A corporation
 
14 deemed not to be carrying on a trade or business in this State
 
15 under section 235-6 shall nevertheless be deemed to be a
 
16 wholesaler and shall be subject to the tax imposed by this
 
17 chapter."
 
18     SECTION 3.  Section 237-7, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20     "237-7 "Service business or calling", defined."Service
 
21 business or calling" includes all activities engaged in for other
 
22 persons for a consideration which involve the rendering of a
 
23 service, such as professional and transient accommodation
 

 
Page 8                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1 services, as distinguished from the sale of tangible property or
 
 2 the production and sale of tangible property.  "Service business
 
 3 or calling" does not include the services rendered by an employee
 
 4 to the employee's employer."
 
 5     SECTION 4.  Section 237-13, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7     "237-13  Imposition of tax.  There is hereby levied and
 
 8 shall be assessed and collected annually privilege taxes against
 
 9 persons on account of their business and other activities in the
 
10 State measured by the application of rates against values of
 
11 products, gross proceeds of sales, or gross income, whichever is
 
12 specified, as follows:
 
13     (1)   Tax on manufacturers.
 
14           (A)  Upon every person engaging or continuing within
 
15                the State in the business of manufacturing,
 
16                including compounding, canning, preserving,
 
17                packing, printing, publishing, milling,
 
18                processing, refining, or preparing for sale,
 
19                profit, or commercial use, either directly or
 
20                through the activity of others, in whole or in
 
21                part, any article or articles, substance or
 
22                substances, commodity or commodities, the amount
 
23                of the tax to be equal to the value of the
 

 
Page 9                                         232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                articles, substances, or commodities,
 
 2                manufactured, compounded, canned, preserved,
 
 3                packed, printed, milled, processed, refined, or
 
 4                prepared, for sale, as shown by the gross proceeds
 
 5                derived from the sale thereof by the manufacturer
 
 6                or person compounding, preparing, or printing
 
 7                them, multiplied by one-half of one per cent.
 
 8           (B)  The measure of the tax on manufacturers is the
 
 9                value of the entire product for sale, regardless
 
10                of the place of sale or the fact that deliveries
 
11                may be made to points outside the State.
 
12           (C)  If any person liable for the tax on manufacturers
 
13                ships or transports the person's product, or any
 
14                part thereof, out of the State, whether in a
 
15                finished or unfinished condition, or sells the
 
16                same for delivery outside of the State (for
 
17                example, consigned to a mainland purchaser via
 
18                common carrier f.o.b. Honolulu), the value of the
 
19                products in the condition or form in which they
 
20                exist immediately before entering interstate or
 
21                foreign commerce, determined as hereinafter
 
22                provided, shall be the basis for the assessment of
 
23                the tax imposed by this paragraph.  This tax shall
 

 
Page 10                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                be due and payable as of the date of entry of the
 
 2                products into interstate or foreign commerce,
 
 3                whether the products are then sold or not.  The
 
 4                department of taxation shall determine the basis
 
 5                for assessment, as provided by this paragraph, as
 
 6                follows:
 
 7                (i)  If the products at the time of their entry
 
 8                     into interstate or foreign commerce already
 
 9                     have been sold, the gross proceeds of sale,
 
10                     less the transportation expenses, if any,
 
11                     incurred in realizing the gross proceeds for
 
12                     transportation from the time of entry of the
 
13                     products into interstate or foreign commerce,
 
14                     including insurance and storage in transit,
 
15                     shall be the measure of the value of the
 
16                     products.
 
17               (ii)  If the products have not been sold at the
 
18                     time of their entry into interstate or
 
19                     foreign commerce, and in cases governed by
 
20                     clause (i) in which the products are sold
 
21                     under circumstances such that the gross
 
22                     proceeds of sale are not indicative of the
 
23                     true value of the products, the value of the
 

 
Page 11                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                     products constituting the basis for
 
 2                     assessment shall correspond as nearly as
 
 3                     possible to the gross proceeds of sales for
 
 4                     delivery outside the State, adjusted as
 
 5                     provided in clause (i), or if sufficient data
 
 6                     are not available, sales in the State, of
 
 7                     similar products of like quality and
 
 8                     character and in similar quantities, made by
 
 9                     the taxpayer (unless not indicative of the
 
10                     true value) or by others.  Sales outside the
 
11                     State, adjusted as provided in clause (i),
 
12                     may be considered when they constitute the
 
13                     best available data.  The department shall
 
14                     prescribe uniform and equitable rules for
 
15                     ascertaining the values.
 
16              (iii)  At the election of the taxpayer and with the
 
17                     approval of the department, the taxpayer may
 
18                     make the taxpayer's returns under clause (i)
 
19                     even though the products have not been sold
 
20                     at the time of their entry into interstate or
 
21                     foreign commerce.
 
22               (iv)  In all cases in which products leave the
 
23                     State in an unfinished condition, the basis
 

 
Page 12                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                     for assessment shall be adjusted so as to
 
 2                     deduct the portion of the value as is
 
 3                     attributable to the finishing of the goods
 
 4                     outside the State.
 
 5     (2)   Tax on business of selling tangible personal property;
 
 6           producing.
 
 7           (A)  Upon every person engaging or continuing in the
 
 8                business of selling any tangible personal property
 
 9                whatsoever (not including, however, bonds or other
 
10                evidence of indebtedness, or stocks), there is
 
11                likewise hereby levied, and shall be assessed and
 
12                collected, a tax equivalent to four per cent of
 
13                the gross proceeds of sales of the business;
 
14                provided that insofar as certain retailing is
 
15                taxed by section 237-16, the tax shall be that
 
16                levied by section 237-16, and in the case of a
 
17                wholesaler, the tax shall be equal to one-half of
 
18                one per cent of the gross proceeds of sales of the
 
19                business.  Upon every person engaging or
 
20                continuing within this State in the business of a
 
21                producer, the tax shall be equal to one-half of
 
22                one per cent of the gross proceeds of sales of the
 
23                business, or the value of the products, for sale,
 

 
Page 13                                        232         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 14                                        232         
                                     H.B. NO.           
                                                        
                                                        

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

 
Page 15                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                for the privilege of selling its products in the
 
 2                State, and the value or gross proceeds of sales of
 
 3                the products, thus subjected to tax, may be
 
 4                deducted insofar as duplicated as to the same
 
 5                products by the measure of the tax upon the
 
 6                manufacturer or producer for the privilege of
 
 7                manufacturing or producing in the State; except
 
 8                that no producer of agricultural products who
 
 9                sells the products to a purchaser who will process
 
10                the products outside the State shall be required
 
11                to pay the tax imposed in this chapter for the
 
12                privilege of producing or selling those products.
 
13           (E)  A taxpayer selling to a federal cost-plus
 
14                contractor may make the election provided for by
 
15                paragraph (3)(C), and in that case the tax shall
 
16                be computed pursuant to the election,
 
17                notwithstanding this paragraph or paragraph (1) to
 
18                the contrary.
 
19           (F)  The department, by rule, may [provide] require
 
20                that a seller may take from the purchaser of
 
21                tangible personal property a certificate, in a
 
22                form [as] prescribed by the department [shall
 
23                prescribe], certifying that the sale is a sale at
 

 
Page 16                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                wholesale[.  If the certificate is so provided for
 
 2                by rule of the department:]; provided that:
 
 3                (i)  Any purchaser who furnishes a certificate
 
 4                     shall be obligated to pay to the seller, upon
 
 5                     demand, if the sale in fact is not at
 
 6                     wholesale, the amount of the additional tax
 
 7                     [which by reason thereof] that is imposed
 
 8                     upon the seller[;] whenever the sale in fact
 
 9                     is not at wholesale; and
 
10               (ii)  The absence of a certificate[, unless the
 
11                     sales of the business are exclusively at
 
12                     wholesale,] in itself shall give rise to the
 
13                     presumption that the sale is not at
 
14                     wholesale[.] unless the sales of the business
 
15                     are exclusively at wholesale.
 
16     (3)   Tax upon contractors.
 
17           (A)  Upon every person engaging or continuing within
 
18                the State in the business of contracting, the tax
 
19                shall be equal to four per cent of the gross
 
20                income of the business; provided that insofar as
 
21                the business of contracting is taxed by section
 
22                237-16, which relates to certain retailing, the
 
23                tax shall be that levied by section 237-16.
 

 
Page 17                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1           (B)  In computing the tax levied under this paragraph
 
 2                or section 237-16, there shall be deducted from
 
 3                the gross income of the taxpayer so much thereof
 
 4                as has been included in the measure of the tax
 
 5                levied under subparagraph (A) or section 237-16,
 
 6                on:
 
 7                (i)  Another taxpayer who is a contractor, as
 
 8                     defined in section 237-6;
 
 9               (ii)  A specialty contractor, duly licensed by the
 
10                     department of commerce and consumer affairs
 
11                     pursuant to section 444-9, in respect of the
 
12                     specialty contractor's business; or
 
13              (iii)  A specialty contractor who is not licensed by
 
14                     the department of commerce and consumer
 
15                     affairs pursuant to section 444-9, but who
 
16                     performs contracting activities on federal
 
17                     military installations and nowhere else in
 
18                     this State;
 
19                but any person claiming a deduction under this
 
20                paragraph shall be required to show in the
 
21                person's return the name and general excise number
 
22                of the person paying the tax on the amount
 
23                deducted by the person.
 

 
Page 18                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1           (C)  In computing the tax levied under this paragraph
 
 2                against any federal cost-plus contractor, there
 
 3                shall be excluded from the gross income of the
 
 4                contractor so much thereof as fulfills the
 
 5                following requirements:
 
 6                (i)  The gross income exempted shall constitute
 
 7                     reimbursement of costs incurred for
 
 8                     materials, plant, or equipment purchased from
 
 9                     a taxpayer licensed under this chapter, not
 
10                     exceeding the gross proceeds of sale of the
 
11                     taxpayer on account of the transaction; and
 
12               (ii)  The taxpayer making the sale shall have
 
13                     certified to the department that the taxpayer
 
14                     is taxable with respect to the gross proceeds
 
15                     of the sale, and that the taxpayer elects to
 
16                     have the tax on gross income computed the
 
17                     same as upon a sale to the state government.
 
18           (D)  A person who, as a business or as a part of a
 
19                business in which the person is engaged, erects,
 
20                constructs, or improves any building or structure,
 
21                of any kind or description, or makes, constructs,
 
22                or improves any road, street, sidewalk, sewer, or
 
23                water system, or other improvements on land held
 

 
Page 19                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                by the person (whether held as a leasehold, fee
 
 2                simple, or otherwise), upon the sale or other
 
 3                disposition of the land or improvements, even if
 
 4                the work was not done pursuant to a contract,
 
 5                shall be liable to the same tax as if engaged in
 
 6                the business of contracting, unless the person
 
 7                shows that at the time the person was engaged in
 
 8                making the improvements it was, and for the period
 
 9                of at least one year after completion of the
 
10                building, structure, or other improvements, it
 
11                continued to be the person's purpose to hold and
 
12                not sell or otherwise dispose of the land or
 
13                improvements.  The tax in respect of the
 
14                improvements shall be measured by the amount of
 
15                the proceeds of the sale or other disposition that
 
16                is attributable to the erection, construction, or
 
17                improvement of such building or structure, or the
 
18                making, constructing, or improving of the road,
 
19                street, sidewalk, sewer, or water system, or other
 
20                improvements.  The measure of tax in respect of
 
21                the improvements shall not exceed the amount which
 
22                would have been taxable had the work been
 
23                performed by another, subject as in other cases to
 

 
Page 20                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                the deductions allowed by subparagraph (B).  Upon
 
 2                the election of the taxpayer, this paragraph may
 
 3                be applied notwithstanding the improvements were
 
 4                not made by the taxpayer, or were not made as a
 
 5                business or as a part of a business, or were made
 
 6                with the intention of holding the same.  However,
 
 7                this paragraph shall not apply in respect of any
 
 8                proceeds that constitute or are in the nature of
 
 9                rent; all such gross income shall be taxable under
 
10                paragraph (10); provided that insofar as the
 
11                business of renting or leasing real property under
 
12                a lease is taxed under section 237-16.5, the tax
 
13                shall be levied by section 237-16.5.
 
14     (4)   Tax upon theaters, amusements, radio broadcasting
 
15           stations, etc.  Upon every person engaging or
 
16           continuing within the State in the business of
 
17           operating a theater, opera house, moving picture show,
 
18           vaudeville, amusement park, dance hall, skating rink,
 
19           radio broadcasting station, or any other place at which
 
20           amusements are offered to the public, the tax shall be
 
21           equal to four per cent of the gross income of the
 
22           business.
 

 
 
 
Page 21                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1     (5)   Tax upon sales representatives, etc.  Upon every person
 
 2           classified as a representative or purchasing agent
 
 3           under section 237-1, engaging or continuing within the
 
 4           State in the business of performing services for
 
 5           another, other than as an employee, there is likewise
 
 6           hereby levied and shall be assessed and collected a tax
 
 7           equal to four per cent of the commissions and other
 
 8           compensation attributable to the services so rendered
 
 9           by the person.
 
10     (6)   Tax on service business.
 
11           (A)  Upon every person engaging or continuing within
 
12                the State in any service business or calling [not
 
13                otherwise specifically taxed under this chapter],
 
14                there is likewise hereby levied and shall be
 
15                assessed and collected a tax equal to four per
 
16                cent of the gross income of the business[;
 
17                provided that where any person engaging or
 
18                continuing within the State in any service
 
19                business or calling renders those services upon
 
20                the order of or at the request of another taxpayer
 
21                who is engaged in the service business and who, in
 
22                fact, acts as or acts in the nature of an
 
23                intermediary between the person rendering those
 

 
Page 22                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                services and the ultimate recipient of the
 
 2                benefits of those services, so much of the gross
 
 3                income as is received by the person rendering the
 
 4                services shall be subjected to the tax at the rate
 
 5                of one-half of one per cent and all of the gross
 
 6                income received by the intermediary from the
 
 7                principal shall be subjected to a tax at the rate
 
 8                of four per cent; and provided that where], and in
 
 9                the case of a wholesaler, the tax shall be equal
 
10                to one-half of one per cent of the gross income of
 
11                the business.
 
12           (B)  The department, by rule, may require that the
 
13                person rendering the service take from the
 
14                licensed seller a certificate, in such form as
 
15                prescribed by the department, certifying that the
 
16                sale is a sale at wholesale; provided that:
 
17                (i)  Any licensed seller who furnishes such a
 
18                     certificate shall be obligated to pay to the
 
19                     person rendering the service, upon demand,
 
20                     the amount of the additional tax that is
 
21                     imposed upon the person rendering the service
 
22                     whenever the sale in fact is not a sale at
 
23                     wholesale; and
 

 
Page 23                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1               (ii)  The absence of a certificate in itself shall
 
 2                     give rise to the presumption that the sale is
 
 3                     not a sale at wholesale unless the person
 
 4                     rendering the service is exclusively
 
 5                     rendering service at wholesale.
 
 6           (C)  Where any person is engaged in the business of
 
 7                selling interstate or foreign common carrier
 
 8                telecommunication services within and without the
 
 9                State, the tax shall be imposed on that portion of
 
10                gross income received by a person from service
 
11                which is originated or terminated in this State
 
12                and is charged to a telephone number, customer, or
 
13                account in this State notwithstanding any other
 
14                state law (except for the exemption under section
 
15                237-23(a)(1)) to the contrary.  If, under the
 
16                Constitution and laws of the United States, the
 
17                entire gross income as determined under this
 
18                paragraph of a business selling interstate or
 
19                foreign common carrier telecommunication services
 
20                cannot be included in the measure of the tax, the
 
21                gross income shall be apportioned as provided in
 
22                section 237-21; provided that the apportionment
 
23                factor and formula shall be the same for all
 
24                persons providing those services in the State.
 

 
Page 24                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1     (7)   Tax on insurance solicitors and agents.  Upon every
 
 2           person engaged as a licensed solicitor, general agent,
 
 3           or subagent pursuant to chapter 431, there is hereby
 
 4           levied and shall be assessed and collected a tax equal
 
 5           to .15 per cent of the commissions due to that
 
 6           activity.
 
 7    [(8)   Professions.  Upon every person engaging or continuing
 
 8           within the State in the practice of a profession,
 
 9           including those expounding the religious doctrines of
 
10           any church, there is likewise hereby levied and shall
 
11           be assessed and collected a tax equal to four per cent
 
12           of the gross income on the practice or exposition.
 
13    (9)]   (8)  Tax on receipts of sugar benefit payments.  Upon
 
14           the amounts received from the United States government
 
15           by any producer of sugar (or the producer's legal
 
16           representative or heirs), as defined under and by
 
17           virtue of the Sugar Act of 1948, as amended, or other
 
18           Acts of the Congress of the United States relating
 
19           thereto, there is hereby levied a tax of one-half of
 
20           one per cent of the gross amount received, provided
 
21           that the tax levied hereunder on any amount so received
 
22           and actually disbursed to another by a producer in the
 
23           form of a benefit payment shall be paid by the person
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1           or persons to whom the amount is actually disbursed,
 
 2           and the producer actually making a benefit payment to
 
 3           another shall be entitled to claim on the producer's
 
 4           return a deduction from the gross amount taxable
 
 5           hereunder in the sum of the amount so disbursed.  The
 
 6           amounts taxed under this paragraph shall not be taxable
 
 7           under any other paragraph, subsection, or section of
 
 8           this chapter.
 
 9   [(10)]  (9)  Tax on other business.  Upon every person engaging
 
10           or continuing within the State in any business, trade,
 
11           activity, occupation, or calling not included in the
 
12           preceding paragraphs or any other provisions of this
 
13           chapter, there is likewise hereby levied and shall be
 
14           assessed and collected, a tax equal to four per cent of
 
15           the gross income thereof.  In addition, the rate
 
16           prescribed by this paragraph shall apply to a business
 
17           taxable under one or more of the preceding paragraphs
 
18           or other provisions of this chapter, as to any gross
 
19           income thereof not taxed thereunder as gross income or
 
20           gross proceeds of sales or by taxing an equivalent
 
21           value of products, unless specifically exempted."
 

 
 
 
 
 
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                                     H.B. NO.           
                                                        
                                                        

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

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1           principal contract is with the State, its political
 
 2           subdivisions, or agencies or instrumentalities of the
 
 3           State or a political subdivision, or with the United
 
 4           States or its agencies or instrumentalities (other than
 
 5           national banks), or with a person designated in section
 
 6           237-23 who is not subject to the tax imposed by this
 
 7           chapter, or with a person licensed under this chapter
 
 8           in connection with the person's business.
 
 9      (3)  This section relates to furnishing of transient
 
10           accommodations in a hotel, apartment hotel, or other
 
11           place in which lodgings are regularly furnished to
 
12           transients for a consideration which includes the
 
13           rendering of services.
 
14      (b)  There is hereby levied, and shall be assessed and
 
15 collected annually, a privilege tax against persons engaging or
 
16 continuing within the State in the retailing to which this
 
17 section relates, on account of such retailing activities, as set
 
18 forth in subsection (a), equal to four per cent of the gross
 
19 proceeds of sale or gross income received or derived from such
 
20 retailing.  Persons on whom a tax is imposed by this section
 
21 hereinafter are called "retailers".
 
22      (c)  No retailer shall advertise or hold out to the public
 
23 in any manner, directly or indirectly, that the tax imposed by
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1 this section is not considered as an element in the price to the
 
 2 consumer.  Any person violating this subsection shall be fined
 
 3 not more than $50 for each offense.
 
 4      (d)  This section shall not cause the tax upon a taxpayer,
 
 5 with respect to any item of the taxpayer's gross income, to
 
 6 exceed four per cent.
 
 7      (e)  This section shall not apply to:
 
 8      (1)  Sales of tangible personal property to a licensed
 
 9           seller engaged in a service business or calling as
 
10           defined in section 237-4(a)(8); or
 
11      (2)  Sales of services to a licensed seller engaged in a
 
12           business or calling as defined in section 237-
 
13           4(a)(10)."
 
14      SECTION 6.  Section 238-2, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "238-2 Imposition of tax; exemptions.  There is hereby
 
17 levied an excise tax on the use in this State of tangible
 
18 personal property which is imported, or purchased from an
 
19 unlicensed seller, for use in this State.  The tax imposed by
 
20 this chapter shall accrue when the property is acquired by the
 
21 importer or purchaser and becomes subject to the taxing
 
22 jurisdiction of the State.  The rates of the tax hereby imposed
 
23 and the exemptions thereof are as follows:
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      (1)  If the importer or purchaser is licensed under chapter
 
 2           237 and is [(A) a]:
 
 3           (A)  A wholesaler or jobber importing or purchasing for
 
 4                purposes of resale[,] or; [(B) a]
 
 5           (B)  A manufacturer importing or purchasing material or
 
 6                commodities which are to be incorporated by the
 
 7                manufacturer into a finished or saleable product
 
 8                (including the container or package in which the
 
 9                product is contained) wherein it will remain in
 
10                such form as to be perceptible to the senses, and
 
11                which finished or saleable product is to be sold
 
12                in such manner as to result in a further tax on
 
13                the activity of the manufacturer as the
 
14                manufacturer or as a wholesaler, and not as a
 
15                retailer, there shall be no tax[,]; provided that
 
16                if the wholesaler, jobber, or manufacturer is also
 
17                engaged in business as a retailer (so classed
 
18                under chapter 237), paragraph (2) shall apply to
 
19                the wholesaler, jobber, or manufacturer, but the
 
20                director of taxation shall refund to the
 
21                wholesaler, jobber, or manufacturer, in the manner
 
22                provided under section 231-23(c) such amount of
 
23                tax as the wholesaler, jobber, or manufacturer
 
24                shall, to the satisfaction of the director,
 
25                establish to have been paid by the wholesaler,
 

 
Page 30                                        232         
                                     H.B. NO.           
                                                        
                                                        

 
 1                jobber, or manufacturer to the director with
 
 2                respect to property which has been used by the
 
 3                wholesaler, jobber, or manufacturer for the
 
 4                purposes stated in this paragraph[.];
 
 5      (2)  If the importer or purchaser is licensed under chapter
 
 6           237 and is [(A) a]:
 
 7           (A)  A retailer or other person importing or purchasing
 
 8                for purposes of resale, not exempted by paragraph
 
 9                (1)[, or (B) a];
 
10           (B)  A manufacturer importing or purchasing material or
 
11                commodities which are to be incorporated by the
 
12                manufacturer into a finished or saleable product
 
13                (including the container or package in which the
 
14                product is contained) wherein it will remain in
 
15                such form as to be perceptible to the senses, and
 
16                which finished or saleable product is to be sold
 
17                at retail in this State, in such manner as to
 
18                result in a further tax on the activity of the
 
19                manufacturer in selling such products at retail[,
 
20                or (C) a];
 
21           (C)  A contractor importing or purchasing material or
 
22                commodities which are to be incorporated by the
 
23                contractor into the finished work or project
 

 
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                                     H.B. NO.           
                                                        
                                                        

 
 1                required by the contract and which will remain in
 
 2                such finished work or project in such form as to
 
 3                be perceptible to the senses[,]; or
 
 4           (D)  A person engaged in a service business or calling
 
 5                as defined in section 237-7, in which the import
 
 6                or purchase of tangible personal property would
 
 7                have qualified as a sale at wholesale as defined
 
 8                in section 237-4(a)(8) had the seller of the
 
 9                property been subject to tax under chapter 237,
 
10           the tax shall be one-half of one per cent of the
 
11           purchase rice of the property, if the purchase and sale
 
12           are consummated in Hawaii; or, if there is no purchase
 
13           price applicable thereto, or if the purchase or sale is
 
14           consummated outside of Hawaii, then one-half of one per
 
15           cent of the value of such property[.]; and
 
16      (3)  In all other cases, four per cent of the value of the
 
17           property."
 
18      SECTION 7.  Statutory material to be repealed is bracketed.
 
19 New statutory material is underscored.
 

 
 
 
 
 
 
 
 
 
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                                     H.B. NO.           
                                                        
                                                        

 
 1      SECTION 8.  This Act shall take effect upon its approval and
 
 2 shall apply to gross receipts received on or after January 1,
 
 3 2000.
 
 4 
 
 5                           INTRODUCED BY:  _______________________