REPORT TITLE:
Taxation


DESCRIPTION:
Expands the definitions of "wholesaler" to include wholesale
services to alleviate the pyramiding of general excise and use
taxes; Exempts exported services from GET; imposes use tax on
imported services. (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        232
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 1999                                S.D. 1
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.  In the past, Hawaii's agricultural goods-
 
 2 dominated economy was not severely burdened because of the
 
 3 reduced general excise tax rate on intermediary sale of goods.
 
 4 However, Hawaii has moved from an agricultural goods to a
 
 5 service-dominated economy.  Because the general excise tax does
 
 6 not allow for the intermediary sale of services, the pyramiding
 
 7 effect of the general excise tax has become a large burden on
 
 8 business and the public.
 
 9      The pyramiding effect of the general excise tax and the use
 
10 tax significantly increases the cost of goods and services to the
 
11 consumers.  The current law allows a reduced rate of one-half of
 
12 one per cent on the sale of tangible personal property for resale
 
13 and for limited intermediary sales but this is not enough.  The
 
14 Hawaii courts have narrowly construed the types of sales that
 
15 qualify for intermediary sales of services, so to promote
 
16 fairness and equality with wholesale goods, the legislature finds
 
17 that the taxation of wholesale sales of services should be
 
18 treated similarly to the taxation of wholesale sales of goods.
 
19      The legislature also finds that Hawaii's economy can be
 

 
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 1 encouraged by placing the exporters of services on a level
 
 2 playing field with their counterparts in other states and with
 
 3 the exporters of products in Hawaii.  By exempting the exported
 
 4 services from the general excise tax, the legislature finds that
 
 5 the prices of exported services will be lower and more
 
 6 competitive.  In addition, to further level the playing field,
 
 7 the legislature finds that imposing the use tax on imported
 
 8 services will make Hawaii service providers better able to
 
 9 compete with services coming from out of State.
 
10      The purpose of this Act is to expand the treatment of
 
11 intermediary sales of services by treating the sale of services
 
12 which are resold as wholesale sales, to exempt exported services
 
13 from the general excise tax, and to levy the use tax on imported
 
14 services.
 
15      SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended
 
16 by adding a new section to be appropriately designated and to
 
17 read as follows:
 
18      "237-A  Application of sections 237-4(a)(8)(B) and (10) and
 
19 237-13(2)(A) and (6)(A).  (a)  Sections 237-4(a)(8)(B) and (10)
 
20 and 237-13(2)(A) and (6)(A) to the contrary notwithstanding,
 
21 instead of the tax levied under sections 237-13(2)(A) and
 
22 237-13(6)(A) at one-half of one per cent, during the period
 
23 January 1, 2000, to December 31, 2005, the tax shall be as
 

 
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 1 follows:
 
 2      (1)  In calendar year 2000, 3.5 per cent;
 
 3      (2)  In calendar year 2001, 3.0 per cent;
 
 4      (3)  In calendar year 2002, 2.5 per cent;
 
 5      (4)  In calendar year 2003, 2.0 per cent;
 
 6      (5)  In calendar year 2004, 1.5 per cent;
 
 7      (6)  In calendar year 2005, 1.0 per cent;
 
 8      (7)  In calendar year 2006 and thereafter, 0.5 per cent.
 
 9      (b)  The department shall have the authority to implement
 
10 the tax rate changes in subsection (a) by prescribing tax forms
 
11 and instructions that require tax reporting and payment by
 
12 deduction, allocation, or any other method to determine tax
 
13 liability with due regard to the tax rate changes."
 
14      SECTION 3.  Chapter 237, Hawaii Revised Statutes, is amended
 
15 by adding a new section to be appropriately designated and to
 
16 read as follows:
 
17      "237-B  Exemption for contracting or services exported out
 
18 of State.  (a)  There shall be exempted from, and excluded from
 
19 the measure of, taxes imposed by this chapter, all of the value
 
20 or gross income derived from contracting (as defined under
 
21 section 237-6) or services performed by a person engaged in a
 
22 service business or calling in the State for a customer located
 
23 outside the State where:
 

 
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 1      (1)  The contracting or services are for resale,
 
 2           consumption, or use outside the State; and
 
 3      (2)  The value or gross income derived from the contracting
 
 4           or services performed would otherwise be subject to the
 
 5           tax imposed under this chapter on contracting or
 
 6           services at the highest rate.
 
 7      For the purposes of this subsection, the seller or person
 
 8 rendering the contracting or services exported and resold,
 
 9 consumed, or used outside the State shall take from the customer,
 
10 a certificate or an equivalent, in a form the department
 
11 prescribes, certifying that the contracting or service purchased
 
12 is to be otherwise resold, consumed, or used outside the State.
 
13 Any customer who furnishes this certificate or an equivalent
 
14 shall be obligated to pay the seller or person rendering the
 
15 contracting or services, upon demand, if the contracting or
 
16 service purchased is not resold or otherwise consumed or used
 
17 outside the State, the amount of the additional tax which by
 
18 reason thereof is imposed upon the seller or person rendering the
 
19 contracting or service.
 
20      (b)  There shall be exempted from, and excluded from the
 
21 measure of, taxes imposed by this chapter, all of the value or
 
22 gross income derived from contracting (as defined in section
 
23 237-6) or services performed by a person engaged in a service
 

 
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 1 business or calling in the State for a purchaser who resells all
 
 2 of the contracting or services for resale, consumption, or use
 
 3 outside the State pursuant to subsection (a).
 
 4      For the purposes of this subsection, the seller or person
 
 5 rendering the contracting or services for a purchaser who resells
 
 6 the contracting or services for resale, consumption, or use
 
 7 outside the State shall take from the purchaser, a certificate or
 
 8 an equivalent, in a form that the department prescribes,
 
 9 certifying that the contracting or service purchased is to be
 
10 resold to a customer of the purchaser who has complied with
 
11 subsection (a).  Any purchaser who furnishes this certificate or
 
12 an equivalent shall be obligated to pay the seller or person
 
13 rendering the contracting or services, upon demand, if the
 
14 contracting or service purchased is not resold in its entirety to
 
15 a customer of the purchaser who has complied with subsection (a),
 
16 the amount of the additional tax which by reason thereof is
 
17 imposed upon the seller or the person rendering the contracting
 
18 or service.
 
19      (c)  For the purposes of this section, "service business or
 
20 calling" includes all activities engaged in for other persons for
 
21 a consideration that involve the rendering of a service,
 
22 including professional services, as distinguished from the sale
 
23 of tangible personal property or the production and sale of
 

 
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 1 tangible personal property.  "Service business or calling" does
 
 2 not include services rendered by an employee to the employee's
 
 3 employer."
 
 4      SECTION 4.  Chapter 238, Hawaii Revised Statutes, is amended
 
 5 by adding a new section to be appropriately designated and to
 
 6 read as follows:
 
 7      "238-A  Imposition of tax on imported services; exemptions.
 
 8 (a)  There is hereby levied an excise tax on the value of
 
 9 services that are performed by an unlicensed seller at a point
 
10 outside the State and imported or purchased for use in this
 
11 State.  The rates of the tax hereby imposed are as follows:
 
12      (1)  If the importer or purchaser is licensed under chapter
 
13           237 and is:
 
14           (A)  Engaged in a service business or calling in which
 
15                the imported or purchased services become an
 
16                identifiable element, excluding overhead, of the
 
17                services rendered, and the total gross income of
 
18                the importer or purchaser is subject to the tax
 
19                imposed under chapter 237 on the services at the
 
20                rate of one-half per cent; or
 
21           (B)  A manufacturer importing or purchasing services
 
22                that become an identifiable element, excluding
 
23                overhead, of a finished or saleable product
 

 
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 1                (including the container or package in which the
 
 2                product is contained) and the finished or saleable
 
 3                product is to be sold in a manner that results in
 
 4                a further tax on the activity of the manufacturer
 
 5                as a wholesaler, and not as a retailer;
 
 6           there shall be no tax imposed on the value of the
 
 7           imported or purchased services; provided that if the
 
 8           manufacturer also is engaged in a business as a
 
 9           retailer as classified under chapter 237, paragraph (2)
 
10           shall apply to the manufacturer, but the director of
 
11           taxation shall refund to the manufacturer, in the
 
12           manner provided under section 231-23(c), that amount of
 
13           tax that the manufacturer, to the satisfaction of the
 
14           director, shall establish to have been paid by the
 
15           manufacturer to the director with respect to services
 
16           that have been used by the manufacturer for the
 
17           purposes stated in this paragraph.
 
18      (2)  If the importer or purchaser is licensed under chapter
 
19           237 and is:
 
20           (A)  Engaged in a service business or calling in which
 
21                the imported or purchased services become an
 
22                identifiable element, excluding overhead, of the
 
23                services rendered, and the gross income from those
 

 
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 1                services when sold by the importer or purchaser is
 
 2                subject to the tax imposed under chapter 237 at
 
 3                the highest rate;
 
 4           (B)  A manufacturer importing or purchasing services
 
 5                that become an identifiable element, excluding
 
 6                overhead, of the finished or saleable manufactured
 
 7                product (including the container or package in
 
 8                which the product is contained) and the finished
 
 9                or saleable product is to be sold in a manner that
 
10                results in a further tax under chapter 237 on the
 
11                activity of the manufacturer as a retailer; or
 
12           (C)  A contractor importing or purchasing services that
 
13                become an identifiable element, excluding
 
14                overhead, of the finished work or project required
 
15                under the contract, and where the gross proceeds
 
16                derived by the contractor are subject to tax under
 
17                section 237-13(3) or 237-16 as a contractor;
 
18           the tax shall be one-half of one per cent of the value
 
19           of the imported or purchased services.
 
20      (3)  In all other cases, the importer or purchaser is
 
21           subject to the tax at the rate of four per cent on the
 
22           value of the imported or purchased services."
 
23      SECTION 5.  Section 237-1, Hawaii Revised Statutes, is
 

 
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                                     H.B. NO.           H.D. 2
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 1 amended by adding a new definition to be appropriately inserted
 
 2 and to read as follows:
 
 3      ""Overhead" means continuous or general costs occurring in
 
 4 the normal course of a business, including but not limited to
 
 5 costs for labor, rent, taxes, royalties, interest, discounts
 
 6 paid, insurance, lighting, heating, cooling, accounting, legal
 
 7 fees, equipment and facilities, telephone systems, depreciation,
 
 8 and amortization."
 
 9      SECTION 6.  Section 238-1, Hawaii Revised Statutes, is
 
10 amended as follows:
 
11      1.  By adding three new definitions to be appropriately
 
12 inserted and to read as follows:
 
13      ""Foreign customer" means a nonresident person who:
 
14      (1)  Is not subject to chapter 237;
 
15      (2)  If an individual, has not been physically present in
 
16           the State for more than thirty days in the six months
 
17           prior to entering into a written exported contracting
 
18           or services agreement with a person licensed under
 
19           chapter 237 engaged in contracting (as defined in
 
20           section 237-6) or a service business or calling; and
 
21      (3)  Is the sole recipient of the exported contracting or
 
22           services provided through a person in Hawaii engaged in
 
23           contracting or a service business or calling and
 

 
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 1           licensed under chapter 237.
 
 2      "Overhead" means continuous or general costs occurring in
 
 3 the normal course of a business, including but not limited to
 
 4 costs for labor, rent, taxes, royalties, interest, discounts
 
 5 paid, insurance, lighting, heating, cooling, accounting, legal
 
 6 fees, equipment and facilities, telephone systems, depreciation,
 
 7 and amortization.
 
 8      "Service business or calling" includes all activities
 
 9 engaged in for other persons for a consideration, that involve
 
10 the rendering of a service, including professional services, as
 
11 distinguished from the sale of tangible personal property or the
 
12 production and sale of tangible property.  "Service business or
 
13 calling" does not include services rendered by an employee to the
 
14 employee's employer."
 
15      SECTION 7.  Section 237-4, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "237-4 "Wholesaler", "jobber", defined.  (a)  "Wholesaler"
 
18 or "jobber" applies only to a person making sales at wholesale.
 
19 Only the following are sales at wholesale:
 
20      (1)  Sales to a licensed retail merchant, jobber, or other
 
21           licensed seller for purposes of resale;
 
22      (2)  Sales to a licensed manufacturer of material or
 
23           commodities which are to be incorporated by the
 

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

 
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 1           work or project in such form as to be perceptible to
 
 2           the senses;
 
 3      (5)  Sales to a licensed producer, or to a cooperative
 
 4           association described in section 237-23(a)(7) for sale
 
 5           to such producer, or to a licensed person operating a
 
 6           feed lot, of poultry or animal feed, hatching eggs,
 
 7           semen, replacement stock, breeding services for the
 
 8           purpose of raising or producing animal or poultry
 
 9           products for disposition as described in section 237-5
 
10           or to be incorporated in a manufactured product as
 
11           described in paragraph (2) or for the purpose of
 
12           breeding, hatching, milking, or egg laying other than
 
13           for the customer's own consumption of the meat,
 
14           poultry, eggs, or milk so produced; provided that in
 
15           the case of a feed lot operator, only the segregated
 
16           cost of the feed furnished by the feed lot operator as
 
17           part of the feed lot operator's service to a licensed
 
18           producer of poultry or animals to be butchered or to a
 
19           cooperative association described in section
 
20           237-23(a)(7) of such licensed producers shall be deemed
 
21           to be a sale at wholesale; and provided further that
 
22           any amount derived from the furnishing of feed lot
 
23           services, other than the segregated cost of feed, shall
 

 
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 1           be deemed taxable at the service business rate.  This
 
 2           paragraph shall not apply to the sale of feed for
 
 3           poultry or animals to be used for hauling,
 
 4           transportation, or sports purposes;
 
 5      (6)  Sales to a licensed producer, or to a cooperative
 
 6           association described in section 237-23(a)(7) for sale
 
 7           to the producer, of seed for producing agricultural
 
 8           products, or bait for catching fish (including the
 
 9           catching of bait for catching fish), which agricultural
 
10           products or fish are to be disposed of as described in
 
11           section 237-5 or to be incorporated in a manufactured
 
12           product as described in paragraph (2);
 
13      (7)  Sales to a licensed producer, or to a cooperative
 
14           association described in section 237-23(a)(7) for sale
 
15           to such producer; of polypropylene shade cloth; of
 
16           polyfilm; of polyethylene film; of cartons and such
 
17           other containers, wrappers, and sacks, and binders to
 
18           be used for packaging eggs, vegetables, fruits, and
 
19           other agricultural products; of seedlings and cuttings
 
20           for producing nursery plants; or of chick containers;
 
21           which cartons and such other containers, wrappers, and
 
22           sacks, binders, seedlings, cuttings, and containers are
 
23           to be used as described in section 237-5, or to be
 

 
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 1           incorporated in a manufactured product as described in
 
 2           paragraph (2);
 
 3      (8)  Sales of tangible personal property:
 
 4           (A)  [to] To a licensed [person] seller engaged in
 
 5                [the] a service business[;] or calling; provided
 
 6                that:
 
 7                (i)  [(A) the] The property is not consumed or
 
 8                     incidental to the performance of the
 
 9                     services;
 
10               (ii)  [(B) there] There is a resale of the article
 
11                     at the retail rate of four per cent; and
 
12              (iii)  [(C) the] The resale of the article is
 
13                     separately charged or billed by the person
 
14                     rendering the services[;].
 
15           (B)  Where:
 
16                (i)  The tangible personal property is sold upon
 
17                     the order or request of the licensed seller
 
18                     for the purpose of rendering a service in the
 
19                     course of the person's service business or
 
20                     calling; or upon the order or request of a
 
21                     person subject to tax under section 237D-2,
 
22                     for the purpose of furnishing transient
 
23                     accommodations;
 

 
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 1               (ii)  The tangible personal property becomes or is
 
 2                     used as an identifiable element of the
 
 3                     service rendered; and
 
 4              (iii)  The cost of the tangible personal property
 
 5                     does not constitute overhead to the licensed
 
 6                     seller;
 
 7                the sale shall be subject to section 237-A.
 
 8           (C)  Where the taxpayer is subject to both
 
 9                subparagraphs (A) and (B), then the taxpayer shall
 
10                be taxed under subparagraph (A).  Subparagraph (A)
 
11                is repealed on January 1, 2006;
 
12      (9)  Sales to a licensed leasing company of capital goods
 
13           which have a depreciable life, are purchased by the
 
14           leasing company for lease to its customers, and are
 
15           thereafter leased as a service to others[.  Capital
 
16           goods means goods which have a depreciable life and
 
17           which are purchased by the leasing company for lease to
 
18           its customers.]; and
 
19     (10)  Sales of services to a licensed seller engaging in a
 
20           business or calling whenever:
 
21           (A)  Either:
 
22                (i)  In the context of a service-to-service
 
23                     transaction, a service is rendered upon the
 

 
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 1                     order or request of a licensed seller for the
 
 2                     purpose of rendering another service in the
 
 3                     course of the seller's service business or
 
 4                     calling;
 
 5               (ii)  In the context of a service-to-goods
 
 6                     transaction, a service is rendered upon the
 
 7                     order or request of a licensed seller for the
 
 8                     purpose of manufacturing, producing,
 
 9                     preparing, or acquiring tangible personal
 
10                     property to be sold;
 
11              (iii)  In the context of a services-to-contracting
 
12                     transaction, a service is rendered upon the
 
13                     order or request of a licensed contractor as
 
14                     defined in section 237-6 for the purpose of
 
15                     assisting that licensed contractor in
 
16                     executing a contract; or
 
17               (iv)  In the context of a services-to-transient
 
18                     accommodations rental transaction, a service
 
19                     is rendered upon the order or request of a
 
20                     person subject to tax under section 237D-2
 
21                     for the purpose of furnishing transient
 
22                     accommodations; and
 
23           (B)  The benefit of the service passes to the customer
 

 
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 1                of the licensed seller, licensed contractor, or
 
 2                person furnishing transient accommodations as an
 
 3                identifiable element of the other service or
 
 4                property to be sold, the contracting, or the
 
 5                furnishing of transient accommodations; and
 
 6           (C)  The cost of the service does not constitute
 
 7                overhead to the licensed seller, licensed
 
 8                contractor, or person furnishing transient
 
 9                accommodations.
 
10           Sales subject to this paragraph shall be subject to
 
11           section 237-A.
 
12      (b)  If the use tax law is finally held by a court of
 
13 competent jurisdiction to be unconstitutional or invalid insofar
 
14 as it purports to tax the use or consumption of tangible personal
 
15 property imported into the State in interstate or foreign
 
16 commerce or both, wholesalers and jobbers shall be taxed
 
17 thereafter under this chapter in accordance with the following
 
18 definition (which shall supersede the preceding paragraph
 
19 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
20 "jobber" means a person, or a definitely organized division
 
21 thereof, definitely organized to render and rendering a general
 
22 distribution service which buys and maintains at the person's
 
23 place of business a stock or lines of merchandise which the
 

 
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 1 person distributes; and which, through salespersons, advertising,
 
 2 or sales promotion devices, sells to licensed retailers, to
 
 3 institutional or licensed commercial or industrial users, in
 
 4 wholesale quantities and at wholesale rates.  A corporation
 
 5 deemed not to be carrying on a trade or business in this State
 
 6 under section 235-6 shall nevertheless be deemed to be a
 
 7 wholesaler and shall be subject to the tax imposed by this
 
 8 chapter."
 
 9      SECTION 8.  Section 237-7, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "237-7 "Service business or calling", defined."Service
 
12 business or calling" includes all activities engaged in for other
 
13 persons for a consideration which involve the rendering of a
 
14 service, including professional services, as distinguished from
 
15 the sale of tangible property or the production and sale of
 
16 tangible property.  "Service business or calling" does not
 
17 include the services rendered by an employee to the employee's
 
18 employer."
 
19      SECTION 9.  Section 237-13, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "237-13  Imposition of tax.  There is hereby levied and
 
22 shall be assessed and collected annually privilege taxes against
 
23 persons on account of their business and other activities in the
 

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

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

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

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

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

 
Page 24                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 25                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 26                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 27                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1                     wholesale,] the amount of the additional tax
 
 2                     [which by reason thereof] that is imposed
 
 3                     upon the seller[;] whenever the sale in fact
 
 4                     is not at wholesale; and
 
 5               (ii)  The absence of a certificate[, unless the
 
 6                     sales of the business are exclusively at
 
 7                     wholesale,] in itself shall give rise to the
 
 8                     presumption that the sale is not at
 
 9                     wholesale[.] unless the sales of the business
 
10                     are exclusively at wholesale.
 
11      (3)  Tax upon contractors.
 
12           (A)  Upon every person engaging or continuing within
 
13                the State in the business of contracting, the tax
 
14                shall be equal to four per cent of the gross
 
15                income of the business; provided that insofar as
 
16                the business of contracting is taxed by section
 
17                237-16, which relates to certain retailing, the
 
18                tax shall be that levied by section 237-16.
 
19           (B)  In computing the tax levied under this paragraph
 
20                or section 237-16, there shall be deducted from
 
21                the gross income of the taxpayer so much thereof
 
22                as has been included in the measure of the tax
 
23                levied under subparagraph (A) or section 237-16,
 

 
Page 28                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 29                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1                (i)  The gross income exempted shall constitute
 
 2                     reimbursement of costs incurred for
 
 3                     materials, plant, or equipment purchased from
 
 4                     a taxpayer licensed under this chapter, not
 
 5                     exceeding the gross proceeds of sale of the
 
 6                     taxpayer on account of the transaction; and
 
 7               (ii)  The taxpayer making the sale shall have
 
 8                     certified to the department that the taxpayer
 
 9                     is taxable with respect to the gross proceeds
 
10                     of the sale, and that the taxpayer elects to
 
11                     have the tax on gross income computed the
 
12                     same as upon a sale to the state government.
 
13           (D)  A person who, as a business or as a part of a
 
14                business in which the person is engaged, erects,
 
15                constructs, or improves any building or structure,
 
16                of any kind or description, or makes, constructs,
 
17                or improves any road, street, sidewalk, sewer, or
 
18                water system, or other improvements on land held
 
19                by the person (whether held as a leasehold, fee
 
20                simple, or otherwise), upon the sale or other
 
21                disposition of the land or improvements, even if
 
22                the work was not done pursuant to a contract,
 
23                shall be liable to the same tax as if engaged in
 

 
Page 30                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1                the business of contracting, unless the person
 
 2                shows that at the time the person was engaged in
 
 3                making the improvements it was, and for the period
 
 4                of at least one year after completion of the
 
 5                building, structure, or other improvements, it
 
 6                continued to be the person's purpose to hold and
 
 7                not sell or otherwise dispose of the land or
 
 8                improvements.  The tax in respect of the
 
 9                improvements shall be measured by the amount of
 
10                the proceeds of the sale or other disposition that
 
11                is attributable to the erection, construction, or
 
12                improvement of such building or structure, or the
 
13                making, constructing, or improving of the road,
 
14                street, sidewalk, sewer, or water system, or other
 
15                improvements.  The measure of tax in respect of
 
16                the improvements shall not exceed the amount which
 
17                would have been taxable had the work been
 
18                performed by another, subject as in other cases to
 
19                the deductions allowed by subparagraph (B).  Upon
 
20                the election of the taxpayer, this paragraph may
 
21                be applied notwithstanding the improvements were
 
22                not made by the taxpayer, or were not made as a
 
23                business or as a part of a business, or were made
 

 
Page 31                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1                with the intention of holding the same.  However,
 
 2                this paragraph shall not apply in respect of any
 
 3                proceeds that constitute or are in the nature of
 
 4                rent; all such gross income shall be taxable under
 
 5                paragraph [(10);] (9); provided that insofar as
 
 6                the business of renting or leasing real property
 
 7                under a lease is taxed under section 237-16.5, the
 
 8                tax shall be levied by section 237-16.5.
 
 9      (4)  Tax upon theaters, amusements, radio broadcasting
 
10           stations, etc.  Upon every person engaging or
 
11           continuing within the State in the business of
 
12           operating a theater, opera house, moving picture show,
 
13           vaudeville, amusement park, dance hall, skating rink,
 
14           radio broadcasting station, or any other place at which
 
15           amusements are offered to the public, the tax shall be
 
16           equal to four per cent of the gross income of the
 
17           business.
 
18      (5)  Tax upon sales representatives, etc.  Upon every person
 
19           classified as a representative or purchasing agent
 
20           under section 237-1, engaging or continuing within the
 
21           State in the business of performing services for
 
22           another, other than as an employee, there is likewise
 
23           hereby levied and shall be assessed and collected a tax
 

 
Page 32                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1           equal to four per cent of the commissions and other
 
 2           compensation attributable to the services so rendered
 
 3           by the person.
 
 4      (6)  Tax on service business.
 
 5           (A)  Upon every person engaging or continuing within
 
 6                the State in any service business or calling
 
 7                including professional services not otherwise
 
 8                specifically taxed under this chapter, there is
 
 9                likewise hereby levied and shall be assessed and
 
10                collected a tax equal to four per cent of the
 
11                gross income of the business[; provided that
 
12                where], and in the case of a wholesaler under
 
13                section 237-4(a)(10), the tax shall be equal to
 
14                one-half of one per cent of the gross income of
 
15                the business.  Sales subject to this subparagraph
 
16                shall be subject to section 237-A.
 
17           (B)  The department, by rule, may require that the
 
18                person rendering a service at wholesale take from
 
19                the licensed seller a certificate, in a form
 
20                prescribed by the department, certifying that the
 
21                sale is a sale at wholesale; provided that:
 
22                (i)  Any licensed seller who furnishes a
 
23                     certificate shall be obligated to pay to the
 

 
Page 33                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 34                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1                provided that where] Where the taxpayer is subject
 
 2                to both this subparagraph and to the lowest tax
 
 3                rate under subparagraph (A), the taxpayer shall be
 
 4                taxed under this subparagraph.  This subparagraph
 
 5                is repealed on January 1, 2006.
 
 6           (D)  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
 

 
Page 35                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 36                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1           form of a benefit payment shall be paid by the person
 
 2           or persons to whom the amount is actually disbursed,
 
 3           and the producer actually making a benefit payment to
 
 4           another shall be entitled to claim on the producer's
 
 5           return a deduction from the gross amount taxable
 
 6           hereunder in the sum of the amount so disbursed.  The
 
 7           amounts taxed under this paragraph shall not be taxable
 
 8           under any other paragraph, subsection, or section of
 
 9           this chapter.
 
10    [(10)] (9)  Tax on other business.  Upon every person engaging
 
11           or continuing within the State in any business, trade,
 
12           activity, occupation, or calling not included in the
 
13           preceding paragraphs or any other provisions of this
 
14           chapter, there is likewise hereby levied and shall be
 
15           assessed and collected, a tax equal to four per cent of
 
16           the gross income thereof.  In addition, the rate
 
17           prescribed by this paragraph shall apply to a business
 
18           taxable under one or more of the preceding paragraphs
 
19           or other provisions of this chapter, as to any gross
 
20           income thereof not taxed thereunder as gross income or
 
21           gross proceeds of sales or by taxing an equivalent
 
22           value of products, unless specifically exempted."
 
23      SECTION 10.  Section 237-16, Hawaii Revised Statutes, is
 

 
Page 37                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 38                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

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

 
Page 39                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 consumer.  Any person violating this subsection shall be fined
 
 2 not more than $50 for each offense.
 
 3      (d)  This section shall not cause the tax upon a taxpayer,
 
 4 with respect to any item of the taxpayer's gross income, to
 
 5 exceed four per cent.
 
 6      (e)  This section shall not apply to:
 
 7      (1)  Sales of tangible personal property treated as a
 
 8           wholesale sale under section 237-4(a)(8)(B) to a
 
 9           licensed seller engaged in a service business or
 
10           calling or a person furnishing transient
 
11           accommodations; or
 
12      (2)  Sales of services treated as a wholesale sale under
 
13           section 237-4(a)(10) to a licensed seller engaged in a
 
14           business or calling, a contractor (as defined in
 
15           section 237-6), or a person furnishing transient
 
16           accommodations."
 
17      SECTION 11.  Section 238-1, Hawaii Revised Statutes, is
 
18 amended by amending the definitions of "price", "purchase" and
 
19 "sale", "purchaser", "representation", "seller", and "use" to
 
20 read as follows:
 
21      ""Price" means the total amount for which tangible personal
 
22 property [is] or services are purchased, valued in money, whether
 
23 paid in money or otherwise, and wheresoever paid, provided that
 

 
Page 40                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 cash discounts allowed and taken on sales shall not be included.
 
 2      "Purchase" and "sale" [mean] means and [refer] refers to any
 
 3 transfer, exchange, or barter, conditional or otherwise, in any
 
 4 manner or by any means, wheresoever consummated, of tangible
 
 5 personal property or services for a consideration.
 
 6      "Purchaser" means any person purchasing property or services
 
 7 and "importer" means any person importing property[;] or
 
 8 services; provided that the terms "purchaser" and "importer"
 
 9 shall not include the State, its political subdivisions, or
 
10 wholly owned agencies or instrumentalities of the State or a
 
11 political subdivision; or the United States, its wholly owned
 
12 agencies or instrumentalities, or any person immune from the tax
 
13 imposed by this chapter under the Constitution and laws of the
 
14 United States but the terms shall include national banks.
 
15      "Representation" refers to any or all of the following:
 
16      (1)  A seller being present in the State;
 
17      (2)  A seller having in the State a salesperson, commission
 
18           agent, manufacturer's representative, broker, or other
 
19           person who is authorized or employed by the seller to
 
20           assist the seller in selling property or services for
 
21           use or consumption in the State, by procuring orders
 
22           for the sales, making collections or deliveries, or
 
23           otherwise; and
 

 
Page 41                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1      (3)  A seller having in the State a person upon whom process
 
 2           directed to the seller from the courts of the State may
 
 3           be served, including the director of commerce and
 
 4           consumer affairs and the deputy director in the cases
 
 5           provided in section 415-14.
 
 6      "Seller" means any person engaged in the business of selling
 
 7 tangible personal property[,] or services, wheresoever engaged,
 
 8 but does not include the United States or its wholly owned
 
 9 agencies or instrumentalities other than national banks, the
 
10 State or a political subdivision thereof, or wholly owned
 
11 agencies or instrumentalities of the State or a political
 
12 subdivision.
 
13      "Use" (and any nounal, verbal, adjective, adverbial, and
 
14 other equivalent form of the term) herein used interchangeably
 
15 means any use, whether the use is of such nature as to cause the
 
16 property or services to be appreciably consumed or not, or the
 
17 keeping of the property or services for such use or for sale, and
 
18 shall include the exercise of any right or power over tangible or
 
19 intangible personal property incident to the ownership of that
 
20 property, but the term "use" shall not include:
 
21      (1)  Temporary use of property, not of a perishable or
 
22           quickly consumable nature, where the property is
 
23           imported into the State for temporary use (not sale)
 

 
Page 42                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1           therein by the person importing the same and is not
 
 2           intended to be, and is not, kept permanently in the
 
 3           State (as for example without limiting the generality
 
 4           of the foregoing language:
 
 5           (A)  [in] In the case of a contractor importing
 
 6                permanent equipment for the performance of a
 
 7                construction contract, with intent to remove, and
 
 8                who does remove, the equipment out of the State
 
 9                upon completing the contract;
 
10           (B)  [in] In the case of moving picture films imported
 
11                for use in theaters in the State with intent or
 
12                under contract to transport the same out of the
 
13                State after completion of such use;
 
14           (C)  [in] In the case of a transient visitor importing
 
15                an automobile or other belongings into the State
 
16                to be used by the transient visitor while therein
 
17                but which are to be used and are removed upon the
 
18                transient visitor's departure from the State);
 
19      (2)  Use by the taxpayer of property acquired by the
 
20           taxpayer solely by way of gift;
 
21      (3)  Use which is limited to the receipt of articles and the
 
22           return thereof, to the person from whom acquired,
 
23           immediately or within a reasonable time either after
 

 
Page 43                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1           temporary trial or without trial;
 
 2      (4)  Use of goods imported into the State by the owner of a
 
 3           vessel or vessels engaged in interstate or foreign
 
 4           commerce and held for and used only as ship stores for
 
 5           the vessels;
 
 6      (5)  The use or keeping for use of household goods, personal
 
 7           effects, and private automobiles imported into the
 
 8           State for nonbusiness use by a person who:
 
 9           (A)  [acquired] Acquired them in another state,
 
10                territory, district, or country[,];
 
11           (B)  [at] At the time of the acquisition was a bona
 
12                fide resident of another state, territory,
 
13                district, or country[,];
 
14           (C)  [acquired] Acquired the property for use outside
 
15                the State[,]; and
 
16           (D)  [made] Made actual and substantial use thereof
 
17                outside this State;
 
18           provided that as to an article acquired less than three
 
19           months prior to the time of its importation into the
 
20           State it shall be presumed, until and unless clearly
 
21           proved to the contrary, that it was acquired for use in
 
22           the State and that its use outside the State was not
 
23           actual and substantial;
 

 
Page 44                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1      (6)  The leasing or renting of any aircraft or the keeping
 
 2           of any aircraft solely for leasing or renting to
 
 3           lessees or renters using the aircraft for commercial
 
 4           transportation of passengers and goods;
 
 5      (7)  The use of oceangoing vehicles for passenger or
 
 6           passenger and goods transportation from one point to
 
 7           another within the State as a public utility as defined
 
 8           in chapter 269; [and]
 
 9      (8)  The use of material, parts, or tools imported or
 
10           purchased by a person licensed under chapter 237 which
 
11           are used for aircraft service and maintenance, or the
 
12           construction of an aircraft service and maintenance
 
13           facility as those terms are defined in section
 
14           237-24.9[.]; and
 
15      (9)  The use of services imported for resale to a foreign
 
16           customer located outside the State to the extent the
 
17           services are resold, consumed, or used by that foreign
 
18           customer outside the State pursuant to section
 
19           237-B(a).
 
20      With regard to purchases made and distributed under the
 
21 authority of chapter 421, a cooperative association shall be
 
22 deemed the user thereof."
 
23      SECTION 12.  Section 238-2, Hawaii Revised Statutes, is
 

 
Page 45                                                    232
                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 amended to read as follows:
 
 2      "238-2 Imposition of tax; exemptions.  There is hereby
 
 3 levied an excise tax on the use in this State of tangible
 
 4 personal property which is imported, or purchased from an
 
 5 unlicensed seller, for use in this State.  The tax imposed by
 
 6 this chapter shall accrue when the property is acquired by the
 
 7 importer or purchaser and becomes subject to the taxing
 
 8 jurisdiction of the State.  The rates of the tax hereby imposed
 
 9 and the exemptions thereof are as follows:
 
10      (1)  If the importer or purchaser is licensed under chapter
 
11           237 and is (A) a wholesaler or jobber importing or
 
12           purchasing for purposes of resale, or (B) a
 
13           manufacturer importing or purchasing material or
 
14           commodities which are to be incorporated by the
 
15           manufacturer into a finished or saleable product
 
16           (including the container or package in which the
 
17           product is contained) wherein it will remain in such
 
18           form as to be perceptible to the senses, and which
 
19           finished or saleable product is to be sold in such
 
20           manner as to result in a further tax on the activity of
 
21           the manufacturer as the manufacturer or as a
 
22           wholesaler, and not as a retailer, there shall be no
 
23           tax, provided that if the wholesaler, jobber, or
 

 
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 1           manufacturer is also engaged in business as a retailer
 
 2           (so classed under chapter 237), paragraph (2) shall
 
 3           apply to the wholesaler, jobber, or manufacturer, but
 
 4           the director of taxation shall refund to the
 
 5           wholesaler, jobber, or manufacturer, in the manner
 
 6           provided under section 231-23(c) such amount of tax as
 
 7           the wholesaler, jobber, or manufacturer shall, to the
 
 8           satisfaction of the director, establish to have been
 
 9           paid by the wholesaler, jobber, or manufacturer to the
 
10           director with respect to property which has been used
 
11           by the wholesaler, jobber, or manufacturer for the
 
12           purposes stated in this paragraph.
 
13      (2)  If the importer or purchaser is licensed under chapter
 
14           237 and is:
 
15           (A)  [a] A retailer or other person importing or
 
16                purchasing for purposes of resale, not exempted by
 
17                paragraph (1)[, or];
 
18           (B)  [a] A manufacturer importing or purchasing
 
19                material or commodities which are to be
 
20                incorporated by the manufacturer into a finished
 
21                or saleable product (including the container or
 
22                package in which the product is contained) wherein
 
23                it will remain in such form as to be perceptible
 

 
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 1                to the senses, and which finished or saleable
 
 2                product is to be sold at retail in this State, in
 
 3                such manner as to result in a further tax on the
 
 4                activity of the manufacturer in selling such
 
 5                products at retail[, or];
 
 6           (C)  [a] A contractor importing or purchasing material
 
 7                or commodities which are to be incorporated by the
 
 8                contractor into the finished work or project
 
 9                required by the contract and which will remain in
 
10                such finished work or project in such form as to
 
11                be perceptible to the senses[,]; or
 
12           (D)  A person engaged in a service business or calling
 
13                as defined in section 237-7, or a person
 
14                furnishing transient accommodations subject to the
 
15                tax imposed by section 237D-2, in which the import
 
16                or purchase of tangible personal property would
 
17                have qualified as a sale at wholesale as defined
 
18                in section 237-4(a)(8)(B) had the seller of the
 
19                property been subject to the tax in chapter 237,
 
20           the tax shall be one-half of one per cent of the
 
21           purchase price of the property, if the purchase and
 
22           sale are consummated in Hawaii; or, if there is no
 
23           purchase price applicable thereto, or if the purchase
 

 
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 1           or sale is consummated outside of Hawaii, then one-half
 
 2           of one per cent of the value of such property.
 
 3      (3)  In all other cases, four per cent of the value of the
 
 4           property."
 
 5      SECTION 13.  Section 238-3, Hawaii Revised Statutes, is
 
 6 amended as follows:
 
 7      1.  By amending subsections (a), (b), (c), and (d) to read
 
 8 as follows:
 
 9      "(a)  The tax imposed by this chapter shall not apply to any
 
10 property[,] or services, or to any use of the property[,] or
 
11 services, which cannot legally be so taxed under the Constitution
 
12 or laws of the United States, but only so long as, and only to
 
13 the extent to which the State is without power to impose the tax.
 
14      Any provision of law to the contrary notwithstanding,
 
15 exemptions or exclusions from tax under this chapter allowed on
 
16 or before April 1, 1978, under the provisions of the Constitution
 
17 of the United States or an act of the Congress of the United
 
18 States to persons or common carriers engaged in interstate or
 
19 foreign commerce, or both, whether ocean-going or air, shall
 
20 continue undiminished and be available thereafter.
 
21      (b)  The tax imposed by this chapter shall not apply to any
 
22 use of property or services the transfer of which property or
 
23 services to, or the acquisition of which by, the person so using
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 the same, has actually been or actually is taxed under chapter
 
 2 237.
 
 3      (c)  The tax imposed by this chapter shall be paid only once
 
 4 upon or in respect of the same property[;] or services; provided
 
 5 that nothing in this chapter contained shall be construed to
 
 6 exempt any property or services or the use thereof from taxation
 
 7 under any other law of the State.
 
 8      (d)  The tax imposed by this chapter shall be in addition to
 
 9 any other taxes imposed by any other laws of the State, except as
 
10 otherwise specifically provided herein; provided that if it be
 
11 finally held by any court of competent jurisdiction, that the tax
 
12 imposed by this chapter may not legally be imposed in addition to
 
13 any other tax or taxes imposed by any other law or laws with
 
14 respect to the same property or services or the use thereof, then
 
15 this chapter shall be deemed not to apply to the property or
 
16 services and the use thereof under such specific circumstances,
 
17 but such other laws shall be given full effect with respect to
 
18 the property or services and use."
 
19      2.  By amending subsections (i) and (j) to read as follows:
 
20      "(i)  Each taxpayer liable for the tax imposed by this
 
21 chapter on tangible personal property or services shall be
 
22 entitled to full credit for the combined amount or amounts of
 
23 legally imposed sales or use taxes paid by the taxpayer with
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 respect to the same transaction and property or services to
 
 2 another state and any subdivision thereof, but such credit shall
 
 3 not exceed the amount of the use tax imposed under this chapter
 
 4 on account of the transaction and property[.] or services.  The
 
 5 director of taxation may require the taxpayer to produce the
 
 6 necessary receipts or vouchers indicating the payment of the
 
 7 sales or use tax to another state or subdivision as a condition
 
 8 for the allowance of the credit.
 
 9      (j)  The tax imposed by this chapter shall not apply to any
 
10 use of property or services exempted by section 237-26 or
 
11 [section] 237-29."
 
12      SECTION 14.  Section 238-5, Hawaii Revised Statutes, is
 
13 amended by amending subsection (a) to read as follows:
 
14      "(a)  On or before the last day of each calendar month, any
 
15 person who has become liable for the payment of a tax under this
 
16 chapter during the preceding calendar month in respect of any
 
17 property or services or the use thereof, shall file a return with
 
18 the assessor of the taxation district in which the property was
 
19 held or the services were received when the tax first became
 
20 payable, or with the director of taxation at Honolulu, setting
 
21 forth a description of the property or services and the character
 
22 and quantity thereof in sufficient detail to identify the same or
 
23 otherwise in such reasonable detail as the director by rule shall
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 require, and the purchase price or value thereof as the case may
 
 2 be.  The return shall be accompanied by a remittance in full of
 
 3 the tax, computed at the rate specified in section 238-2 or 238-A
 
 4 upon the price or value so returned.  Any tax remaining unpaid
 
 5 after the last day following the end of the calendar month during
 
 6 which the tax first became payable shall become delinquent;
 
 7 provided that a receipt from a seller required or authorized to
 
 8 collect the tax, given to a taxpayer in accordance with section
 
 9 238-6, shall be sufficient to relieve the taxpayer from further
 
10 liability for the tax to which the receipt may refer, or for the
 
11 return thereof."
 
12      SECTION 15.  Section 238-6, Hawaii Revised Statutes, is
 
13 amended by amending subsection (a) to read as follows:
 
14      "(a)  For purposes of the taxes due under sections 238-2(3)
 
15 [and], 238-2.5, and 238-A, every seller having in the State,
 
16 regularly or intermittently, any property, tangible or
 
17 intangible, any place of business, or any representation as
 
18 hereinabove defined, (and irrespective of the seller's having or
 
19 not having qualified to do business in the State) shall, if the
 
20 seller makes sales of property or services for use in the State
 
21 (whether or not the sales are made in the State) collect from the
 
22 purchaser the taxes imposed by sections 238-2(3) [and], 238-2.5,
 
23 and 238-A, on the use of the property or services so sold by the
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 seller.  The collection shall be made within twenty days after
 
 2 the accrual of the tax or within such other period as shall be
 
 3 fixed by the director of taxation upon the application of the
 
 4 seller, and the seller shall give to the purchaser a receipt
 
 5 therefor in the manner and form prescribed by the director;
 
 6 provided that this subsection shall not apply to vehicles
 
 7 registered under section 286-50."
 
 8      SECTION 16.  Section 238-9, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "238-9  Records.  Every person who is engaged in any
 
11 business in the State and who is required under this chapter to
 
12 make returns, shall keep in the English language in the State and
 
13 preserve for a period of three years, books of account or other
 
14 records in sufficient detail to enable the director of taxation,
 
15 as far as reasonably practicable, to determine whether or not any
 
16 taxes imposed by this chapter are payable in respect of the
 
17 property or services concerned, and if so payable, the amount
 
18 thereof."
 
19      SECTION 17.  Section 237-29.6, Hawaii Revised Statutes, is
 
20 repealed.
 
21      ["[237-29.6]  Exemption of certain computer services.(a)
 
22 There shall be exempted from, and excluded from the measure of,
 
23 the taxes imposed by this chapter all of the gross proceeds
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 arising from technical services necessary for the production and
 
 2 sale of computer software where that software is shipped or
 
 3 transmitted by the provider of technical services to a customer
 
 4 at a point outside the State for use outside the State.
 
 5      As used in this section: 
 
 6      "Computer software" means a set of computer programs,
 
 7 procedures, or associated documentation concerned with the
 
 8 operation and function of a computer system, and includes both
 
 9 systems and application programs and subdivisions, such as
 
10 assemblers, compilers, routines, generators, and utility
 
11 programs. 
 
12      "Technical services" include the development, design,
 
13 modification, and programming of computer software. 
 
14      (b)  For the purposes of this section, the provider of
 
15 technical services shall take from the purchaser a certificate,
 
16 in such form as the department shall prescribe, certifying that
 
17 the software purchased is to be used outside the State.  Any
 
18 purchaser who shall furnish such a certificate shall be obligated
 
19 to pay to the provider of technical services, upon demand, if the
 
20 software purchased is used or sold by the purchaser in the State,
 
21 the amount of the additional tax which by reason of such use or
 
22 sale is imposed upon the provider of technical services."]
 
23      SECTION 18.  The department of taxation shall submit a
 

 
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                                     H.B. NO.           H.D. 2
                                                        S.D. 1
                                                        

 
 1 report to the legislature twenty days before the regular sessions
 
 2 of 2000, 2001, 2002, 2003, 2004, 2005, and 2006 concerning the
 
 3 implementation of sections 2, 5, 7 to 10, and 12 of this Act and
 
 4 the revenue loss for each fiscal year ending before the regular
 
 5 session of the legislature to which the report is submitted.
 
 6      SECTION 19.  In codifying the new sections added by sections
 
 7 2, 3, and 4 and referenced in this Act, the revisor of statutes
 
 8 shall substitute appropriate section numbers for the letters used
 
 9 in designating the new sections in sections 2, 3, and 4 of this
 
10 Act.
 
11      SECTION 20.  Statutory material to be repealed is bracketed.
 
12 New statutory material is underscored.
 
13      SECTION 21.  This Act shall take effect upon its approval
 
14 and shall apply to gross income or gross proceeds received after
 
15 December 31, 1999; provided that sections 4, 6, and 11 to 17 of
 
16 this Act shall apply to taxes accruing after December 31, 1999.