REPORT TITLE: 
Taxation


DESCRIPTION:
This measure:
1. Exempts food and drugs from the general excise and use
  taxes;
2. Removes the pyramiding of the general excise tax on
  services;
3. Exempts export services from the general excist tax;
4. Hastens the removal of pramiding on subleased real property;
  and
5. Raises the general excise tax rate from 4.0 to 5.0 per cent.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.741        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  The purpose of this Act is to restructure
 
 2 various taxes to promote fairness to business and individual
 
 3 taxpayers.  Specifically, this Act will:
 
 4      (1)  Exempt food and drugs from the general excise tax;
 
 5      (2)  Remove the pyramiding of the general excise tax on
 
 6           services;
 
 7      (3)  Exempt export services from the general excise tax; and
 
 8      (4)  Hasten the removal of pyramiding on subleased real
 
 9           property.
 
10 The loss in tax revenues resulting from these measures will be
 
11 offset by raising the general excise tax from four per cent to
 
12 five per cent.
 
13      The result of these changes will be to:
 
14      (1)  Make the costs of doing business in Hawaii fairer to
 
15           all;
 
16      (2)  Lower the actual tax rates for those individuals who
 
17           need help the most; and
 
18      (3)  Provide easier tax administration.
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                              PART I.
 
 2      SECTION 2.  Taxes on food and drugs are proportionately
 
 3 higher for those with lower incomes.  Many states have recognized
 
 4 this and have exempted these items from taxation.  It is the
 
 5 purpose of part I to exempt food and drugs, as defined in the
 
 6 U.S. Code for the Federal Food Stamp Program, from the general
 
 7 excise tax.
 
 8      SECTION 3.  Section 237-24.3, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "237-24.3  Additional amounts not taxable.  In addition to
 
11 the amounts not taxable under section 237-24, this chapter shall
 
12 not apply to:
 
13      (1)  Amounts received from the loading, transportation, and
 
14           unloading of agricultural commodities shipped for a
 
15           producer or produce dealer on one island of this State
 
16           to a person, firm, or organization on another island of
 
17           this State.  The terms "agricultural commodity",
 
18           "producer", and "produce dealer" shall be defined in
 
19           the same manner as they are defined in section 147-1;
 
20           provided that agricultural commodities need not have
 
21           been produced in the State;
 
22      (2)  Amounts received from sales of:
 
23           (A)  Intoxicating liquor as the term "liquor" is
 
24                defined in chapter 244D;
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           (B)  Cigarettes and tobacco products as defined in
 
 2                chapter 245; and
 
 3           (C)  Agricultural, meat, or fish products grown,
 
 4                raised, or caught in Hawaii, to any person or
 
 5                common carrier in interstate or foreign commerce,
 
 6                or both, whether ocean-going or air, for
 
 7                consumption out-of-state on the shipper's vessels
 
 8                or airplanes;
 
 9      (3)  Amounts received by the manager or board of directors
 
10           of:
 
11           (A)  An association of apartment owners of a
 
12                condominium property regime established in
 
13                accordance with chapter 514A; or
 
14           (B)  A nonprofit homeowners or community association
 
15                incorporated in accordance with chapter 415B or
 
16                any predecessor thereto and existing pursuant to
 
17                covenants running with the land,
 
18           in reimbursement of sums paid for common expenses;
 
19      (4)  Amounts received or accrued from:
 
20           (A)  The loading or unloading of cargo from ships,
 
21                barges, vessels, or aircraft, whether or not the
 
22                ships, barges, vessels, or aircraft travel between
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                the State and other states or countries or between
 
 2                the islands of the State;
 
 3           (B)  Tugboat services including pilotage fees performed
 
 4                within the State, and the towage of ships, barges,
 
 5                or vessels in and out of state harbors, or from
 
 6                one pier to another; and
 
 7           (C)  The transportation of pilots or governmental
 
 8                officials to ships, barges, or vessels offshore;
 
 9                rigging gear; checking freight and similar
 
10                services; standby charges; and use of moorings and
 
11                running mooring lines;
 
12      (5)  Amounts received by an employee benefit plan by way of
 
13           contributions, dividends, interest, and other income;
 
14           and amounts received by a nonprofit organization or
 
15           office, as payments for costs and expenses incurred for
 
16           the administration of an employee benefit plan;
 
17           provided that this exemption shall not apply to any
 
18           gross rental income or gross rental proceeds received
 
19           after June 30, 1994, as income from investments in real
 
20           property in this State; and provided further that gross
 
21           rental income or gross rental proceeds from investments
 
22           in real property received by an employee benefit plan
 
23           after June 30, 1994, under written contracts executed
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           prior to July 1, 1994, shall not be taxed until the
 
 2           contracts are renegotiated, renewed, or extended, or
 
 3           until after December 31, 1998, whichever is earlier.
 
 4           For the purposes of this paragraph, "employee benefit
 
 5           plan" means any plan as defined in section 1002(3) of
 
 6           title 29 of the United States Code, as amended;
 
 7      (6)  Amounts received for purchases [made with United States
 
 8           Department of Agriculture food coupons under the
 
 9           federal food stamp program, and amounts received for
 
10           purchases made with United States Department of
 
11           Agriculture food vouchers under the Special
 
12           Supplemental Foods Program for Women, Infants and
 
13           Children;] of food.
 
14           "Food" means the same as defined in 7 United States
 
15           Code Section 2012(g), as amended, and includes:
 
16           (A)  Any food or food product for home consumption
 
17                except alcoholic beverages, tobacco, and hot foods
 
18                or hot food products ready for immediate
 
19                consumption other than those authorized;
 
20           (B)  Seeds and plants for use in gardens to produce
 
21                food for personal household consumption;
 
22           (C)  In the case of those persons who are sixty years
 
23                of age or over or who receive supplemental
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                security income benefits or disability or
 
 2                blindness payments under title I, II, X, XIV, or
 
 3                XVI, of the Social Security Act (42 U.S.C.A. 301
 
 4                et seq., 401 et seq., 1201 et seq., 1351 et seq.,
 
 5                or 1381 et seq.), and their spouses, meals
 
 6                prepared by and served in senior citizens'
 
 7                centers, apartment buildings occupied primarily by
 
 8                such persons, public or private nonprofit
 
 9                establishments (eating or otherwise) that feed
 
10                such persons, private establishments that contract
 
11                with the appropriate agency of the State to offer
 
12                meals for such persons at concessional prices, and
 
13                meals prepared for and served to residents of
 
14                federally subsidized housing for the elderly;
 
15           (D)  In the case of persons sixty years of age or over
 
16                and persons who are physically or mentally
 
17                handicapped or otherwise so disabled that they are
 
18                unable adequately to prepare all of their meals,
 
19                meals prepared for and delivered to them (and
 
20                their spouses) at their home by a public or
 
21                private nonprofit organization or by a private
 
22                establishment that contracts with the appropriate
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                state agency to perform such services at
 
 2                concessional prices;
 
 3           (E)  In the case of narcotics addicts or alcoholics,
 
 4                and their children, served by drug addiction or
 
 5                alcoholic treatment and rehabilitation programs,
 
 6                meals prepared and served under such programs;
 
 7           (F)  In the case of disabled or blind recipients of
 
 8                benefits under title I, II, X, XIV, or XVI of the
 
 9                Social Security Act (42 U.S.C.A. 301 et seq., 401
 
10                et seq., 1201 et seq., 1351 et seq., or 1381 et
 
11                seq.), or residents in a public or private
 
12                nonprofit group living arrangement that serves no
 
13                more than sixteen residents and is certified by
 
14                the appropriate state agency, meals prepared and
 
15                served under such arrangement;
 
16           (G)  In the case of women and children temporarily
 
17                residing in public or private nonprofit shelters
 
18                for battered women and children, meals prepared
 
19                and served by such shelters; and
 
20           (H)  In the case of households that do not reside in
 
21                permanent dwellings and households that have no
 
22                fixed mailing addresses, meals prepared for and
 
23                served by a public or private nonprofit
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                establishment (approved by an appropriate state
 
 2                agency) that feeds such individuals and by private
 
 3                establishments that contract with the appropriate
 
 4                agency of the State to offer meals for such
 
 5                individuals at concessional prices.
 
 6      (7)  Amounts received by a hospital, infirmary, medical
 
 7           clinic, health care facility, pharmacy, or a
 
 8           practitioner licensed to administer the drug to an
 
 9           individual for selling prescription drugs or prosthetic
 
10           devices to an individual; provided that this paragraph
 
11           shall not apply to any amounts received for services
 
12           provided in selling prescription drugs or prosthetic
 
13           devices.  As used in this paragraph:
 
14           (A)  "Prescription drugs" are those drugs defined under
 
15                section and dispensed by filling or refilling a
 
16                written or oral prescription by a practitioner
 
17                licensed under law to administer the drug and sold
 
18                by a licensed pharmacist under section 328-16 or
 
19                practitioners licensed to administer drugs; and
 
20           (B)  "Prosthetic device" means any artificial device or
 
21                appliance, instrument, apparatus, or contrivance,
 
22                including their components, parts, accessories,
 
23                and replacements thereof, used to replace a
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                missing or surgically removed part of the human
 
 2                body, [which] that is prescribed by a licensed
 
 3                practitioner of medicine, osteopathy, or podiatry
 
 4                and [which] that is sold by the practitioner or
 
 5                [which] that is dispensed and sold by a dealer of
 
 6                prosthetic devices; provided that "prosthetic
 
 7                device" shall not mean any auditory, ophthalmic,
 
 8                dental, or ocular device or appliance, instrument,
 
 9                apparatus, or contrivance;
 
10      (8)  Amounts received for the purchases of drugs.  For the
 
11           purposes of this section, "drugs" means the same as
 
12           defined by title 21 United States Code in section
 
13           321(g), as amended, and includes:
 
14           (A)  Articles recognized in the official United States
 
15                Pharmacopoeia, official Homeopathic Pharmacopoeia
 
16                of the United States, or official National
 
17                Formulary, or any supplement to any of them;
 
18           (B)  Articles intended for use in the diagnosis, cure,
 
19                mitigation, treatment, or prevention of disease in
 
20                humans or other animals;
 
21           (C)  Articles (other than food) intended to affect the
 
22                structure or any function of the body of humans or
 
23                other animals;
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           (D)  Articles intended for use as a component of any
 
 2                article specified in subparagraph (A), (B), or
 
 3                (C).
 
 4           A food or dietary supplement is not a drug solely
 
 5           because the label or the labeling contains such a
 
 6           claim.  A food, dietary ingredient, or dietary
 
 7           supplement for which a truthful and not misleading
 
 8           statement is made is not a drug under subparagraph (C)
 
 9           solely because the label or the labeling contains such
 
10           a statement;
 
11     [(8)] (9)  Taxes on transient accommodations imposed by
 
12           chapter 237D and passed on and collected by operators
 
13           holding certificates of registration under that
 
14           chapter;
 
15     [(9)] (10)  Amounts received as dues by an unincorporated
 
16           merchants association from its membership for
 
17           advertising media, promotional, and advertising costs
 
18           for the promotion of the association for the benefit of
 
19           its members as a whole and not for the benefit of an
 
20           individual member or group of members less than the
 
21           entire membership; and
 
22    [(10)] (11)  Amounts received by a labor organization for real
 
23           property leased to:
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           (A)  A labor organization; or
 
 2           (B)  A trust fund established by a labor organization
 
 3                for the benefit of its members, families, and
 
 4                dependents for medical or hospital care, pensions
 
 5                on retirement or death of employees,
 
 6                apprenticeship and training, and other membership
 
 7                service programs.
 
 8           As used in this paragraph, "labor organization" means a
 
 9           labor organization exempt from federal income tax under
 
10           section 501(c)(5) of the Internal Revenue Code, as
 
11           amended."
 
12      SECTION 4.  Section 238-3, Hawaii Revised Statutes, is
 
13 amended to read as follows:
 
14      "238-3 Application of tax, etc.(a)  The tax imposed by
 
15 this chapter shall not apply to any property, or to any use of
 
16 the property, which cannot legally be so taxed under the
 
17 Constitution or laws of the United States, but only so long as,
 
18 and only to the extent to which the State is without power to
 
19 impose the tax.
 
20      Any provision of law to the contrary notwithstanding,
 
21 exemptions or exclusions from tax under this chapter allowed on
 
22 or before April 1, 1978, under the provisions of the Constitution
 
23 of the United States or an [act] Act of the Congress of the
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 United States to persons or common carriers engaged in interstate
 
 2 or foreign commerce, or both, whether ocean-going or air, shall
 
 3 continue undiminished and be available thereafter.
 
 4      (b)  The tax imposed by this chapter shall not apply to any
 
 5 use of property the transfer of which property to, or the
 
 6 acquisition of which by, the person so using the same, has
 
 7 actually been or actually is taxed under chapter 237.
 
 8      (c)  The tax imposed by this chapter shall be paid only once
 
 9 upon or in respect of the same property; provided that nothing in
 
10 this chapter contained shall be construed to exempt any property
 
11 or the use thereof from taxation under any other law of the
 
12 State.
 
13      (d)  The tax imposed by this chapter shall be in addition to
 
14 any other taxes imposed by any other laws of the State, except as
 
15 otherwise specifically provided herein; provided that if it be
 
16 finally held by any court of competent jurisdiction, that the tax
 
17 imposed by this chapter may not legally be imposed in addition to
 
18 any other tax or taxes imposed by any other law or laws with
 
19 respect to the same property or the use thereof, then this
 
20 chapter shall be deemed not to apply to the property and the use
 
21 thereof under such specific circumstances, but such other laws
 
22 shall be given full effect with respect to the property and use.
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1      (e)  The tax imposed by this chapter shall not apply to any
 
 2 use of property exempted by section 238-4.
 
 3      (f)  The tax imposed by this chapter shall not apply to any
 
 4 use or consumption of aircraft and vessels, the transfer of which
 
 5 aircraft or vessel to, or the acquisition of which by, the person
 
 6 so using or consuming the same, or the rental for the use of the
 
 7 aircraft or vessel, has actually been or actually is taxed under
 
 8 chapter 237.
 
 9      (g)  The tax imposed by this chapter shall not apply to any
 
10 intoxicating liquor as defined in chapter 244D and cigarettes and
 
11 tobacco products as defined in chapter 245, imported into the
 
12 State and sold to any person or common carrier in interstate
 
13 commerce, whether ocean-going or air, for consumption out-of-
 
14 state by the person, crew, or passengers on the shipper's vessels
 
15 or airplanes.
 
16      (h)  The tax imposed by this chapter shall not apply to any
 
17 use of vessels constructed under section 189-25 prior to July 1,
 
18 1969.
 
19      (i)  Each taxpayer liable for the tax imposed by this
 
20 chapter on tangible personal property shall be entitled to full
 
21 credit for the combined amount or amounts of legally imposed
 
22 sales or use taxes paid by the taxpayer with respect to the same
 
23 transaction and property to another state and any subdivision
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 thereof, but such credit shall not exceed the amount of the use
 
 2 tax imposed under this chapter on account of the transaction and
 
 3 property.  The director of taxation may require the taxpayer to
 
 4 produce the necessary receipts or vouchers indicating the payment
 
 5 of the sales or use tax to another state or subdivision as a
 
 6 condition for the allowance of the credit.
 
 7      (j)  The tax imposed by this chapter shall not apply to any
 
 8 use of property exempted by section 237-26 or section 237-29.
 
 9      (k)  The tax imposed by this chapter shall not apply to any
 
10 use of air pollution control facility exempted by section
 
11 237-27.5.
 
12      (l)  The tax imposed by this chapter shall not apply to food
 
13 or drugs exempt from the general excise tax under paragraphs 237-
 
14 24.3(6) and (8)."
 
15                             PART II.
 
16      SECTION 5.  Pyramiding of the general excise tax has been
 
17 addressed in the sale of goods by providing a .5 per cent tax for
 
18 the wholesale sale of goods and a four per cent tax on the final
 
19 retail sale only.
 
20      The purpose of this part is to bring the taxation of
 
21 services in line with that of goods by establishing a similar
 
22 system for the taxation of wholesale services.  Because part V
 
23 raises the general excise tax to five per cent, references to a
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 four per cent tax in this part have been changed to five per cent
 
 2 and new provisions refer to five per cent.
 
 3      SECTION 6.  Chapter 237, Hawaii Revised Statutes, is amended
 
 4 by adding a new section to be appropriately designated and to
 
 5 read as follows:
 
 6      "237-    Treatment of wholesale services.  (a)  This
 
 7 section relates to the wholesale of services and applies to all
 
 8 service businesses under section 237-7.
 
 9      (b)  A wholesale sale of services by a taxpayer occurs
 
10 where:
 
11      (1)  The services are acquired by the taxpayer from a
 
12           licensed person on behalf of the ultimate recipient or
 
13           in connection with the rendering of services by the
 
14           taxpayer to the ultimate recipient.  The services may
 
15           or may not be furnished pursuant to an existing
 
16           contract between the licensed person and the taxpayer;
 
17      (2)  The taxpayer has not consumed the services; provided
 
18           that the taxpayer must bill the ultimate recipient
 
19           separately for those services; and
 
20      (3)  The licensed person furnishing the taxpayer with
 
21           services is subject to the five per cent tax rate under
 
22           this chapter upon the gross income or gross proceeds
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           received by the licensed person for the services
 
 2           furnished to the taxpayer.
 
 3      (c)  A deduction shall be allowed from the gross proceeds or
 
 4 gross income of the taxpayer subject to subsection (b) in an
 
 5 amount calculated by multiplying the gross amount paid by the
 
 6 taxpayer for the services acquired from the licensed person by
 
 7 0.9.
 
 8      The amount calculated shall be deducted from the taxpayer's
 
 9 total reported gross proceeds or gross income.  The deduction
 
10 allowed by this subsection may be taken by fiscal and calendar
 
11 year taxpayers.  All deductions claimed under this section shall
 
12 be accompanied by the name and general excise tax number of the
 
13 licensed person furnishing the services to the taxpayer.
 
14      (d)  The taxpayer shall obtain from the licensed person a
 
15 certificate in a form that the department may prescribe
 
16 certifying that the licensed person is subject to tax at the rate
 
17 of five per cent under this chapter on the gross proceeds or
 
18 gross income received from the taxpayer.  The absence of the
 
19 certificate, if required, is itself a presumption that the
 
20 taxpayer is not allowed a deduction under this section.
 
21      (e)  A wholesale of services does not occur when the
 
22 business activity involves the production or sale of tangible
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 personal property, contracting, or retailing.  Any services
 
 2 involved in those business activities shall not be severable and
 
 3 shall not qualify for a deduction under this section.
 
 4      (f)  As used in this section:
 
 5      "Licensed person" means a person licensed under this chapter
 
 6 to engage in a service business or calling under section 237-7.
 
 7      "Taxpayer" means any person subject to taxation under
 
 8 section 237-13(6).
 
 9      "Ultimate recipient" means a person who receives the
 
10 services or the benefits of the services and who uses or consumes
 
11 the services."
 
12      SECTION 7.  Section 237-3, Hawaii Revised Statutes, is
 
13 amended by amending subsection (b) to read as follows:
 
14      "(b)  The words "gross income" and "gross proceeds of sales"
 
15 shall not be construed to include:  the amounts of taxes imposed
 
16 by this chapter on licensees and passed on, collected, and
 
17 received from a person as part of the gross income or gross
 
18 proceeds received by a licensee for activities subject to the
 
19 five per cent tax rate in this chapter, gross receipts from the
 
20 sale of securities as defined in 15 United States Code section
 
21 78c or similar laws of jurisdictions outside the United States,
 
22 contracts for the sale of a commodity for future delivery and
 
23 other agreements, options, and rights as defined in 7 United
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 States Code section 2 that are permitted to be traded on a board
 
 2 of trade designated by the Commodities Futures Trading Commission
 
 3 under the Commodity Exchange Act, or evidence of indebtedness or,
 
 4 except as otherwise provided, from the sale of land in fee
 
 5 simple, improved or unimproved, dividends as defined by chapter
 
 6 235; cash discounts allowed and taken on sales; the proceeds of
 
 7 sale of goods, wares, or merchandise returned by customers when
 
 8 the sale price is refunded either in cash or by credit; or the
 
 9 sale price of any article accepted as part payment on any new
 
10 article sold, if the full sale price of the new article is
 
11 included in the "gross income" or "gross proceeds of sales";
 
12 gross receipts from the sale or transfer of materials or
 
13 supplies, interest on loans, or the provision of engineering,
 
14 construction, maintenance, or managerial services by one "member"
 
15 of an "affiliated public service company group" to another
 
16 "member" of the same group as such terms are defined in
 
17 section 239-2.  Accounts found to be worthless and actually
 
18 charged off for income tax purposes may, at corresponding
 
19 periods, be deducted from gross proceeds of sale, or gross
 
20 income, within this chapter, so far as they reflect taxable sales
 
21 made, or gross income earned, after July 1, 1935, but shall be
 
22 added to gross proceeds of sale or gross income when and if
 
23 afterwards collected."
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1      SECTION 8.  Section 237-13, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "237-13  Imposition of tax.  There is hereby levied and
 
 4 shall be assessed and collected annually privilege taxes against
 
 5 persons on account of their business and other activities in the
 
 6 State measured by the application of rates against values of
 
 7 products, gross proceeds of sales, or gross income, whichever is
 
 8 specified, as follows:
 
 9      (1)  Tax on manufacturers.
 
10           (A)  Upon every person engaging or continuing within
 
11                the State in the business of manufacturing,
 
12                including compounding, canning, preserving,
 
13                packing, printing, publishing, milling,
 
14                processing, refining, or preparing for sale,
 
15                profit, or commercial use, either directly or
 
16                through the activity of others, in whole or in
 
17                part, any article or articles, substance or
 
18                substances, commodity or commodities, the amount
 
19                of the tax to be equal to the value of the
 
20                articles, substances, or commodities,
 
21                manufactured, compounded, canned, preserved,
 
22                packed, printed, milled, processed, refined, or
 
23                prepared, for sale, as shown by the gross proceeds
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1                derived from the sale thereof by the manufacturer
 
 2                or person compounding, preparing, or printing
 
 3                them, multiplied by one-half of one per cent.
 
 4           (B)  The measure of the tax on manufacturers is the
 
 5                value of the entire product for sale, regardless
 
 6                of the place of sale or the fact that deliveries
 
 7                may be made to points outside the State.
 
 8           (C)  If any person liable for the tax on manufacturers
 
 9                ships or transports the person's product, or any
 
10                part thereof, out of the State, whether in a
 
11                finished or unfinished condition, or sells the
 
12                same for delivery outside of the State (for
 
13                example, consigned to a mainland purchaser via
 
14                common carrier f.o.b. Honolulu), the value of the
 
15                products in the condition or form in which they
 
16                exist immediately before entering interstate or
 
17                foreign commerce, determined as hereinafter
 
18                provided, shall be the basis for the assessment of
 
19                the tax imposed by this paragraph.  This tax shall
 
20                be due and payable as of the date of entry of the
 
21                products into interstate or foreign commerce,
 
22                whether the products are then sold or not.  The
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

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

 
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                                     H.B. NO.741        
                                                        
                                                        

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

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

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

 
Page 24                                                    
                                     H.B. NO.741        
                                                        
                                                        

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

 
Page 25                                                    
                                     H.B. NO.741        
                                                        
                                                        

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

 
 
 
Page 26                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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 that a seller
 
20                may take from the purchaser of tangible personal
 
21                property a certificate, in a form as the
 
22                department shall prescribe, certifying that the
 

 
 
 
Page 27                                                    
                                     H.B. NO.741        
                                                        
                                                        

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

 
 
 
Page 28                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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 person's
 
21              return the name and the general excise number of the
 
22              person paying the tax on the amount deducted by the
 
23              person.
 

 
Page 29                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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 30                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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
 
22                [which] that would have been taxable had the work
 
23                been performed by another, subject as in other
 

 
Page 31                                                    
                                     H.B. NO.741        
                                                        
                                                        

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

 
Page 32                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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] five per cent of the commissions and
 
 8           other compensation attributable to the services so
 
 9           rendered by the person.
 
10      (6)  Tax on service business.  Upon every person engaging or
 
11           continuing within the State in any service business or
 
12           calling not otherwise specifically taxed under this
 
13           chapter, there is likewise hereby levied and shall be
 
14           assessed and collected a tax equal to [four] five per
 
15           cent of the gross income of the business; provided that
 
16           where any person engaging or continuing within the
 
17           State in any service business or calling renders those
 
18           services upon the order of or at the request of another
 
19           taxpayer who is engaged in the service business and
 
20           who, in fact, acts as or acts in the nature of an
 
21           intermediary between the person rendering those
 
22           services and the ultimate recipient of the benefits of
 
23           those services, so much of the gross income as is
 

 
Page 33                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1           received by the person rendering the services shall be
 
 2           subjected to the tax at the rate of one-half of one per
 
 3           cent and all of the gross income received by the
 
 4           intermediary from the principal shall be subjected to a
 
 5           tax at the rate of [four] five per cent; and provided
 
 6           that 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 [which]
 
11           that is originated or terminated in this State and is
 
12           charged to a telephone number, customer, or account in
 
13           this State notwithstanding any other state law (except
 
14           for the exemption under section 237-23(a)(1)) to the
 
15           contrary.  If, under the Constitution and laws of the
 
16           United States, the entire gross income as determined
 
17           under this paragraph of a business selling interstate
 
18           or foreign common carrier telecommunication services
 
19           cannot be included in the measure of the tax, the gross
 
20           income shall be apportioned as provided in section
 
21           237-21; provided that the apportionment factor and
 
22           formula shall be the same for all persons providing
 
23           those services in the State.
 

 
Page 34                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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] five
 
12           per cent of the gross income on the practice or
 
13           exposition.
 
14      (9)  Tax on receipts of sugar benefit payments.  Upon the
 
15           amounts received from the United States government by
 
16           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 35                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 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)  Tax on other business.  Upon every person engaging or
 
11           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] five per
 
16           cent of the gross income thereof.  In addition, the
 
17           rate prescribed by this paragraph shall apply to a
 
18           business taxable under one or more of the preceding
 
19           paragraphs or other provisions of this chapter, as to
 
20           any gross income thereof not taxed thereunder as gross
 
21           income or gross proceeds of sales or by taxing an
 
22           equivalent value of products, unless specifically
 
23           exempted."
 

 
Page 36                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1                             PART III.
 
 2      SECTION 9.  As a means of encouraging businesses to relocate
 
 3 to Hawaii, part III exempts from the general excise tax all
 
 4 services exported out of the State.
 
 5      SECTION 10.  Chapter 237, Hawaii Revised Statutes, is
 
 6 amended by adding a new section to be appropriately designated
 
 7 and to read as follows:
 
 8      "237-      Exemption for services exported out of state.
 
 9 There shall be exempted from, and excluded from the measure of,
 
10 taxes imposed by this chapter all of the value or gross proceeds
 
11 derived from services performed in the State by a Hawaii service
 
12 provider for an out-of-state customer where:
 
13      (1)  The services performed in the State are exported and
 
14           resold, consumed, or used wholly outside the State; and
 
15      (2)  The gross income derived from the services performed
 
16           would otherwise be subject to taxation at the highest
 
17           rate under section 237-13(6) and (8), or equivalent
 
18           sections imposing the tax at the highest rate upon the
 
19           gross income derived from the rendering of services
 
20           under this chapter.
 
21 For the purposes of this section, the seller or person rendering
 
22 the services exported and resold, consumed or used outside the
 
23 State shall take from the purchaser, a certificate (or an
 

 
Page 37                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 equivalent), in the form as the department shall prescribe,
 
 2 certifying that the service purchased is to be resold or
 
 3 otherwise consumed or used outside the State.  Any purchaser who
 
 4 furnishes this certificate (or an equivalent specified by the
 
 5 department) shall be obligated to pay the seller or person
 
 6 rendering the services, upon demand, if the service purchased is
 
 7 not resold or otherwise consumed or used outside the State, the
 
 8 amount of the additional tax which by reason thereof is imposed
 
 9 upon the seller or person rendering the service."
 
10      SECTION 11.  Section 237-29.6, Hawaii Revised Statutes, is
 
11 repealed.
 
12      ["[237-29.6]  Exemption of certain computer services.(a)
 
13 There shall be exempted from, and excluded from the measure of,
 
14 the taxes imposed by this chapter all of the gross proceeds
 
15 arising from technical services necessary for the production and
 
16 sale of computer software where that software is shipped or
 
17 transmitted by the provider of technical services to a customer
 
18 at a point outside the State for use outside the State. 
 
19      As used in this section: 
 
20      "Computer software" means a set of computer programs,
 
21 procedures, or associated documentation concerned with the
 
22 operation and function of a computer system, and includes both
 

 
 
 
Page 38                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 systems and application programs and subdivisions, such as
 
 2 assemblers, compilers, routines, generators, and utility
 
 3 programs.
 
 4      "Technical services" include the development, design,
 
 5 modification, and programming of computer software.
 
 6      (b)  For the purposes of this section, the provider of
 
 7 technical services shall take from the purchaser a certificate,
 
 8 in such form as the department shall prescribe, certifying that
 
 9 the software purchased is to be used outside the State.  Any
 
10 purchaser who shall furnish such a certificate shall be obligated
 
11 to pay to the provider of technical services, upon demand, if the
 
12 software purchased is used or sold by the purchaser in the State,
 
13 the amount of the additional tax which by reason of such use or
 
14 sale is imposed upon the provider of technical services."]
 
15                             PART IV.
 
16      SECTION 12.  In 1997, the legislature passed a measure that
 
17 would allow for a graduated alleviation of the effects of the
 
18 pyramiding of the general excise tax on lease and sublease
 
19 transactions.  This part removes the graduation scale and applies
 
20 the final step immediately, applying a five per cent tax to
 
21 coincide with part V by using the multiplier 0.9 instead of
 
22 0.875.
 

 
 
 
Page 39                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      SECTION 13.  Section 237-16.5, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (g) to read as follows:
 
 3      "(g)  After allocation under subsection (c), if necessary,
 
 4 the deduction under this section shall be allowed from the gross
 
 5 proceeds or gross income of the lessee received from its sublease
 
 6 in an amount calculated by multiplying the gross proceeds or
 
 7 gross income paid by the lessee to its lessor for the lease of
 
 8 the real property by [the following amount:
 
 9      (1)  In calendar year 1998, .125;
 
10      (2)  In calendar year 1999, .25;
 
11      (3)  In calendar year 2000, .375;
 
12      (4)  In calendar year 2001, .50;
 
13      (5)  In calendar year 2002, .625;
 
14      (6)  In calendar year 2003, .75; and
 
15      (7)  In calendar year 2004, and thereafter, .875.] 0.9.
 
16      The amount calculated [under paragraphs (1) to (7)] shall be
 
17 deducted by the lessee from the lessee's total reported gross
 
18 proceeds or gross income.  The deduction allowed by this
 
19 subsection may be taken by the fiscal and calendar year lessees."
 
20                              PART V.
 
21      SECTION 14.  This part, together with the sections in other
 
22 parts, raises the general excise tax by one per cent to five per
 
23 cent.  To ensure consistency in taxation, the same change is made
 

 
Page 40                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 to the use tax and the public service company tax.
 
 2      SECTION 15.  Section 235-17, Hawaii Revised Statutes, is
 
 3 amended by amending subsection (a) to read as follows:
 
 4      "(a)  There shall be allowed to each taxpayer subject to the
 
 5 taxes imposed by this chapter, an income tax credit [which] that
 
 6 shall be deductible from the taxpayer's net income tax liability,
 
 7 if any, imposed by this chapter for the taxable year in which the
 
 8 credit is properly claimed.  The amount of the credit shall be up
 
 9 to [four] five per cent of the costs incurred in the State in the
 
10 production of motion picture or television films.  The director
 
11 of taxation shall specify by rule a schedule of allowable tax
 
12 credits based on the principle that greater tax credits shall be
 
13 allowed for greater benefits to the state economy.
 
14      In the case of a partnership, S corporation, estate, or
 
15 trust, the tax credit allowable is for production costs incurred
 
16 by the entity for the taxable year.  The cost upon which the tax
 
17 credit is computed shall be determined at the entity level.
 
18 Distribution and share of credit shall be determined by rule.
 
19      If a deduction is taken under section 179 (with respect to
 
20 election to expense depreciable business assets) of the Internal
 
21 Revenue Code of 1986, as amended, no tax credit shall be allowed
 
22 for those costs for which the deduction is taken.
 

 
 
 
Page 41                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      The basis for eligible property for depreciation of
 
 2 accelerated cost recovery system purposes for state income taxes
 
 3 shall be reduced by the amount of credit allowable and claimed."
 
 4      SECTION 16.  Section 235-110.7, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "235-110.7  Capital goods excise tax credit.(a)  There
 
 7 shall be allowed to each taxpayer subject to the tax imposed by
 
 8 this chapter a capital goods excise tax credit [which] that shall
 
 9 be deductible from the taxpayer's net income tax liability, if
 
10 any, imposed by this chapter for the taxable year in which the
 
11 credit is properly claimed.
 
12      The amount of the tax credit shall be determined by the
 
13 application of the following rates against the cost of the
 
14 eligible depreciable tangible personal property used by the
 
15 taxpayer in a trade or business and placed in service within
 
16 Hawaii after December 31, [1987.] 1999.  For calendar years
 
17 beginning after[:  December 31, 1987, the applicable rate shall
 
18 be three per cent;] December 31, [1988,] 1999, and thereafter,
 
19 the applicable rate shall be [four] five per cent[, except that
 
20 for the period January 1, 1993, through December 31, 2002, and
 
21 for eligible depreciable tangible personal property used in a
 
22 trade or business that is purchased in a county in which the
 
23 county general excise and use tax surcharge is in effect and
 

 
Page 42                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 placed in service in any county the applicable rate shall be four
 
 2 and one-half per cent].  For taxpayers with fiscal taxable years,
 
 3 the applicable rate shall be the rate for the calendar year in
 
 4 which the eligible depreciable tangible personal property used in
 
 5 the trade or business is placed in service within Hawaii.
 
 6      In the case of a partnership, S corporation, estate, or
 
 7 trust, the tax credit allowable is for eligible depreciable
 
 8 tangible personal property [which] that is placed in service by
 
 9 the entity.  The cost upon which the tax credit is computed shall
 
10 be determined at the entity level.  Distribution and share of
 
11 credit shall be determined by rules.
 
12      In the case of eligible depreciable tangible personal
 
13 property for which a credit for sales or use taxes paid to
 
14 another state is allowable under section 238-3(i), the amount of
 
15 the tax credit allowed under this section shall not exceed the
 
16 amount of use tax[, and for the period January 1, 1993, through
 
17 December 31, 2002, the amount of the county general excise and
 
18 use tax surcharge,] actually paid under chapter 238 relating to
 
19 such tangible personal property.
 
20      If a deduction is taken under section 179 (with respect to
 
21 election to expense certain depreciable business assets) of the
 
22 Internal Revenue Code of 1954, as amended, no tax credit shall be
 

 
 
 
Page 43                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 allowed for that portion of the cost of property for which the
 
 2 deduction was taken.
 
 3      (b)  [If the tax credit is claimed by a taxpayer at the rate
 
 4 of four and one-half per cent, and the tangible personal property
 
 5 is purchased in a county in which the county general excise and
 
 6 use tax surcharge is not in effect, there shall be added to and
 
 7 become part of the tax liability of the taxpayer:
 
 8      (1)  The amount of the tax credit claimed under this section
 
 9           multiplied by three; or
 
10      (2)  Ten per cent of the income tax liability for the
 
11           taxable year for which the income tax return is being
 
12           filed,
 
13 whichever is greater.]
 
14      If the capital goods excise tax credit allowed under
 
15 subsection (a) exceeds the taxpayer's net income tax liability,
 
16 the excess of credit over liability shall be refunded to the
 
17 taxpayer; provided that no refunds or payment on account of the
 
18 tax credit allowed by this section shall be made for amounts less
 
19 than $1.
 
20      All claims for tax credits under this section, including any
 
21 amended claims, [must] shall be filed on or before the end of the
 
22 twelfth month following the close of the taxable year for which
 

 
 
 
Page 44                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 the credits may be claimed.  Failure to comply with the foregoing
 
 2 provision shall constitute a waiver of the right to claim the
 
 3 credit.
 
 4      (c)  Application for the capital goods excise tax credit
 
 5 shall be upon forms provided by the department of taxation.
 
 6      (d)  Sections 47 (with respect to dispositions of section 38
 
 7 property and the recapture percentages) of the Internal Revenue
 
 8 Code of 1954, as amended, as of December 31, 1984, and 280F as
 
 9 operative for this chapter (with respect to limitation on
 
10 investment tax credit and depreciation for luxury automobiles;
 
11 limitation where certain property used for personal purposes) of
 
12 the Internal Revenue Code of 1954, as amended, shall be operative
 
13 for purposes of this section.
 
14      (e)  As used in this section, the definition of section 38
 
15 property (with respect to investment in depreciable tangible
 
16 personal property) as defined by section 48(a)(1)(A), (a)(1)(B),
 
17 (a)(3), (a)(4), (a)(7), (a)(8), (a)(10)(A), (b), (c), (f), (l),
 
18 (m), and (s) of the Internal Revenue Code of 1954, as amended as
 
19 of December 31, 1984, is operative for the purposes of this
 
20 section only.
 
21      As used in this section:
 
22      "Cost" means: 
 

 
 
 
Page 45                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      (1)  [the] The actual invoice price of the tangible personal
 
 2           property[,]; or 
 
 3      (2)  [the]  The basis from which depreciation is taken under
 
 4           section 167 (with respect to depreciation) or from
 
 5           which a deduction may be taken under section 168 (with
 
 6           respect to accelerated cost recovery system) of the
 
 7           Internal Revenue Code of 1954, as amended, whichever is
 
 8           less.
 
 9      "Eligible depreciable tangible personal property" is section
 
10 38 property as defined by the operative provisions of section 48
 
11 and having a depreciable life under section 167 or for which a
 
12 deduction may be taken under section 168 of the federal Internal
 
13 Revenue Code of 1954, as amended.
 
14      "Placed in service" means the earliest of the following
 
15 taxable years:
 
16      (1)  The taxable year in which, under [the]:
 
17           (A)  [Taxpayer's] The taxpayer's depreciation practice,
 
18                the period for depreciation; or
 
19           (B)  [Accelerated] The accelerated cost recovery
 
20                system, a claim for recovery allowances;
 
21                with respect to such property begins;
 
22           or
 

 
 
 
Page 46                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      (2)  The taxable year in which the property is placed in a
 
 2           condition or state of readiness and availability for a
 
 3           specifically assigned function.
 
 4      "Purchase" means an acquisition of property.
 
 5      "Tangible personal property" means tangible personal
 
 6 property [which] that is placed in service within Hawaii after
 
 7 December 31, [1987,] 1999, and the purchase or importation of
 
 8 which resulted in a transaction [which] that was subject to the
 
 9 imposition and payment of tax at the rate of [four] five per
 
10 cent[, except that for the period January 1, 1993, through
 
11 December 31, 2002, and if the county general excise and use tax
 
12 surcharge is in effect the tax rate shall be four and one-half
 
13 per cent,] under chapter 237 or that was subject to the
 
14 imposition and payment of tax at the rate of five per cent under
 
15 chapter 238.  "Tangible personal property" does not include
 
16 tangible personal property [which] that is an integral part of a
 
17 building or structure or tangible personal property used in a
 
18 foreign trade zone, as defined under chapter 212."
 
19      SECTION 17.  Section 237-4, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "237-4 "Wholesaler", "jobber", defined."Wholesaler" or
 
22 "jobber" applies only to a person making sales at wholesale.
 
23 Only the following are sales at wholesale:
 

 
Page 47                                                    
                                     H.B. NO.741        
                                                        
                                                        

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

 
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                                     H.B. NO.741        
                                                        
                                                        

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

 
Page 49                                                    
                                     H.B. NO.741        
                                                        
                                                        

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

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           for producing nursery plants; or of chick containers;
 
 2           which cartons and such other containers, wrappers, and
 
 3           sacks, binders, seedlings, cuttings, and containers are
 
 4           to be used as described in section 237-5, or to be
 
 5           incorporated in a manufactured product as described in
 
 6           paragraph (2);
 
 7      (8)  Sales of tangible personal property to a licensed
 
 8           person engaged in the service business; provided that:
 
 9           (A)  [the] The property is not consumed or incidental
 
10                to the performance of the services;
 
11           (B)  [there] There is a resale of the article at the
 
12                retail rate of [four] five per cent; and
 
13           (C)  [the] The resale of the article is separately
 
14                charged or billed by the person rendering the
 
15                services;
 
16      (9)  Sales to a licensed leasing company of capital goods
 
17           [which] that are thereafter leased as a service to
 
18           others.  [Capital goods] "Capital goods" means goods
 
19           [which] that have a depreciable life and [which] that
 
20           are purchased by the leasing company for lease to its
 
21           customers.
 
22      If the use tax law is finally held by a court of competent
 
23 jurisdiction to be unconstitutional or invalid insofar as it
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 purports to tax the use or consumption of tangible personal
 
 2 property imported into the State in interstate or foreign
 
 3 commerce or both, wholesalers and jobbers shall be taxed
 
 4 thereafter under this chapter in accordance with the following
 
 5 definition (which shall supersede the preceding paragraph
 
 6 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
 
 7 "jobber" means a person, or a definitely organized division
 
 8 thereof, definitely organized to render and rendering a general
 
 9 distribution service [which] that buys and maintains at the
 
10 person's place of business a stock or lines of merchandise
 
11 [which] that the person distributes; and which, through
 
12 salespersons, advertising, or sales promotion devices, sells to
 
13 licensed retailers, to institutional or licensed commercial or
 
14 industrial users, in wholesale quantities and at wholesale rates.
 
15 A corporation deemed not to be carrying on a trade or business in
 
16 this State under section 235-6 shall nevertheless be deemed to be
 
17 a wholesaler and shall be subject to the tax imposed by this
 
18 chapter."
 
19      SECTION 18.  Section 237-15, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "237-15  Technicians.  When technicians supply dentists or
 
22 physicians with dentures, orthodontic devices, braces, and
 
23 similar items [which] that have been prepared by the technician
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1 in accordance with specifications furnished by the dentist or
 
 2 physician, and such items are to be used by the dentist or
 
 3 physician in the dentist's or physician's professional practice
 
 4 for a particular patient who is to pay the dentist or physician
 
 5 for the same as a part of the dentist's or physician's
 
 6 professional services, the technician shall be taxed as though
 
 7 the technician were a manufacturer selling a product to a
 
 8 licensed retailer, rather than at the rate of [four] five per
 
 9 cent [which] that is generally applied to professions and
 
10 services."
 
11      SECTION 19.  Section 237-16, Hawaii Revised Statutes, is
 
12 amended as follows:
 
13      1.  By amending subsection (b) to read:
 
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] five per cent of the
 
19 gross proceeds of sale or gross income received or derived from
 
20 such retailing.  Persons on whom a tax is imposed by this section
 
21 hereinafter are called "retailers"."
 
22      2.  By amending subsection (d) to read:
 

 
 
 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1      "(d)  This section shall not cause the tax upon a taxpayer,
 
 2 with respect to any item of the taxpayer's gross income, to
 
 3 exceed [four] five per cent."
 
 4      SECTION 20.  Section 237-16.5, Hawaii Revised Statutes, is
 
 5 amended as follows:
 
 6      1.   By amending subsection (a) to read:
 
 7      "(a)  This section relates to the leasing of real property
 
 8 by a lessor to a lessee.  There is hereby levied, and shall be
 
 9 assessed and collected annually, a privilege tax against persons
 
10 engaging or continuing within the State in the business of
 
11 leasing real property to another, equal to [four] five per cent
 
12 of the gross proceeds or gross income received or derived from
 
13 the leasing; provided that where real property is subleased by a
 
14 lessee to a sublessee, the lessee, as provided in this section,
 
15 shall be allowed a deduction from the amount of gross proceeds or
 
16 gross income received from its sublease of the real property.
 
17 The deduction shall be in the amount allowed under this section.
 
18      All deductions under this section and the name and general
 
19 excise tax number of the lessee's lessor shall be reported on the
 
20 general excise tax return.  Any deduction allowed under this
 
21 section shall only be allowed with respect to leases and
 
22 subleases in writing and relating to the same real property."
 
23      2.   By amending subsection (f) to read:
 

 
Page 54                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      "(f)  This section shall not cause the tax upon a lessor,
 
 2 with respect to any item of the lessor's gross proceeds or gross
 
 3 income, to exceed [four] five per cent."
 
 4      SECTION 21.  Section 237-18, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (f) to read as follows:
 
 6      "(f) Where [tourism related] tourism-related services are
 
 7 furnished through arrangements made by a travel agency or tour
 
 8 packager and the gross income is divided between the provider of
 
 9 the services and the travel agency or tour packager, the tax
 
10 imposed by this chapter shall apply to each [such] person with
 
11 respect to [such] the person's respective portion of the
 
12 proceeds, and no more. 
 
13      As used in this subsection ["tourism related services"]
 
14 "tourism-related services" means catamaran cruises, canoe rides,
 
15 dinner cruises, lei greetings, transportation included in a tour
 
16 package, sightseeing tours not subject to chapter 239, admissions
 
17 to luaus, dinner shows, extravaganzas, cultural and educational
 
18 facilities, and other services rendered directly to the customer
 
19 or tourist, but only if the providers of the services other than
 
20 air transportation are subject to a [four] five per cent tax
 
21 under this chapter or chapter 239."
 
22      SECTION 22.  Section 239-6, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
Page 55                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      "239-6 Airlines, certain carriers.  There shall be levied
 
 2 and assessed upon each airline a tax of [four] five per cent of
 
 3 its gross income each year from the airline business; provided
 
 4 that if an airline adopts a rate schedule for students in grade
 
 5 twelve or below travelling in school groups providing such
 
 6 students at reasonable hours a rate less than one-half of the
 
 7 regular adult fare, the tax shall be three per cent of its gross
 
 8 income each year from the airline business.  There shall be
 
 9 levied and assessed upon each motor carrier, each common carrier
 
10 by water, and upon each contract carrier other than a motor
 
11 carrier, a tax of [four] five per cent of its gross income each
 
12 year from the motor carrier or contract carrier business.  The
 
13 tax imposed by this section is a means of taxing the personal
 
14 property of the airline or other carrier, tangible and
 
15 intangible, including going concern value, and is in lieu of the
 
16 tax imposed by chapter 237 but is not in lieu of any other tax."
 
17      SECTION 23.  Section 46-16.7, Hawaii Revised Statutes, is
 
18 repealed.
 
19      ["46-16.7  County general excise and use tax surcharge.
 
20 (a)  Each county, except the county of Kalawao, may establish a
 
21 general excise and use tax surcharge of one-half per cent.  Each
 
22 county shall establish the general excise and use tax surcharge
 
23 by ordinance adopted before October 1, 1992, which shall take
 

 
Page 56                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 effect on January 1, 1993, and remain in effect for ten years
 
 2 through December 31, 2002, unless earlier repealed, pursuant to
 
 3 subsection (c).  No ordinance shall be adopted until the county
 
 4 has conducted a public hearing on the proposed ordinance.  Notice
 
 5 of the public hearing shall be published in a newspaper of
 
 6 general circulation within the county at least twice within a
 
 7 period of thirty days immediately preceding the date of the
 
 8 hearing.  If a county fails to adopt a county general excise and
 
 9 use tax surcharge ordinance by October 1, 1992, the county shall
 
10 not be covered by this section.
 
11      (b)  Each county shall notify the director of taxation
 
12 within ten days after the county has adopted a general excise and
 
13 use tax surcharge ordinance, and the director of taxation shall
 
14 levy, assess, collect, and otherwise administer the general
 
15 excise and use tax surcharge for the taxable year beginning
 
16 January 1, 1993, and for taxable years thereafter through
 
17 December 31, 2002, as provided by chapters 237 and 238.
 
18      (c)  The general excise and use tax surcharges received from
 
19 the State by each county shall be used as follows:
 
20      (1)  The city and county of Honolulu shall use the
 
21           surcharges to develop a fixed rail rapid transit
 
22           system.  All private source revenues generated or
 
23           pledged to develop a fixed rail rapid transit system
 

 
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                                     H.B. NO.741        
                                                        
                                                        

 
 1           that are received prior to the operation of the system
 
 2           shall be used as county matching funds for moneys
 
 3           requested from the transit capital development fund,
 
 4           pursuant to chapter 51D, before surcharges may be used.
 
 5           The director of finance shall determine whether or not
 
 6           private sources are adequate to meet county matching
 
 7           requirements.  The director of finance shall submit a
 
 8           report of the findings to the legislature.  Upon
 
 9           legislative acceptance of the findings, within sixty
 
10           days of the first regular legislative session convened
 
11           following the submittal of the findings, no additional
 
12           moneys may be expended from the transit fund; provided
 
13           that:
 
14           (A)  Such limitation on the expenditure of moneys from
 
15                the transit fund shall not occur prior to
 
16                December 31, 1992; and
 
17           (B)  Private source revenues received prior to the
 
18                operation of the system or received in each year
 
19                that the surcharge is in effect shall be committed
 
20                to the funding of the capital costs of the fixed
 
21                rail rapid transit system prior to any
 
22                determination regarding the duration of the
 
23                surcharge.
 

 
Page 58                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      (2)  All surcharges collected by the State for the city and
 
 2           county of Honolulu but not used for the purpose of
 
 3           developing a fixed rail rapid transit system shall be
 
 4           deposited into the state treasury to be returned to the
 
 5           taxpayers who resided in the city and county of
 
 6           Honolulu for more than two hundred days of the taxable
 
 7           year in the aggregate during the time that the
 
 8           surcharges were collected, in the form of an income tax
 
 9           credit, the amount of the credit to be determined by
 
10           law.
 
11      (3)  The general excise and use tax surcharge shall be
 
12           repealed upon the determination by the director of
 
13           finance that all authorized capital costs of the fixed
 
14           rail rapid transit system or county projects under
 
15           paragraph (4) have been collected and distributed
 
16           pursuant to chapter 248.
 
17      (4)  The counties of Hawaii, Kauai, and Maui shall use the
 
18           surcharges for public transportation systems, including
 
19           mass transportation, sewage, or water development, and
 
20           parks, including park operation, maintenance,
 
21           infrastructure, or purchase.
 
22      (d)  As used in this section:
 

 
 
 
Page 59                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      "Capital costs" means nonrecurring costs required to
 
 2 construct a transit facility or system, including debt service,
 
 3 costs of land acquisition and development, acquiring of rights-
 
 4 of-way, planning, design, and construction, including equipping
 
 5 and furnishing the facility or system.
 
 6      "Private source revenue" means all funds, concessions,
 
 7 development rights, or those assets of value contractually agreed
 
 8 upon with the county from sources other than state, county, or
 
 9 federal governments as a result of, or for the purposes of,
 
10 developing mass transportation."]
 
11      SECTION 24.  Section 237-8.5, Hawaii Revised Statutes, is
 
12 repealed.
 
13      ["237-8.5  County general excise and use tax surcharge;
 
14 administration.  (a)  The county general excise and use tax
 
15 surcharge, upon the adoption of county ordinances under section
 
16 46-16.7, shall be levied, assessed, and collected as provided in
 
17 this section on all gross proceeds and gross income taxable under
 
18 this chapter at the four per cent tax rate in such manner that
 
19 the combined state general excise tax and the county general
 
20 excise and use tax surcharge tax shall be four and one-half per
 
21 cent in those counties adopting the surcharge.  All provisions of
 
22 this chapter shall apply to the county general excise and use tax
 
23 surcharge; and with respect to the surcharge, the director shall
 

 
Page 60                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 have all the rights and powers provided under this chapter.  In
 
 2 addition, the director of taxation shall have the exclusive
 
 3 rights and power to determine the county or counties in which a
 
 4 person is engaged in business and, in the case of a person
 
 5 engaged in business in more than one county, the director shall
 
 6 determine through apportionment or other means, that portion of
 
 7 the general excise and use tax surcharge attributable to business
 
 8 conducted in each county.
 
 9      (b)  Each county general excise and use tax surcharge
 
10 adopted pursuant to section 46-16.7(a) shall be levied as of
 
11 January 1, 1993, and shall continue for a period of ten years
 
12 through December 31, 2002, or until earlier repealed.
 
13      (c)  The county general excise and use tax surcharge shall
 
14 be imposed on the gross proceeds or gross income of all written
 
15 contracts that require the passing on of the taxes imposed under
 
16 this chapter; provided that if the gross proceeds or gross income
 
17 are received as payments after December 31, 1992, on contracts
 
18 entered into before June 19, 1990, and the written contracts do
 
19 not provide for the passing on of increased rates of taxes, the
 
20 county general excise and use tax surcharge shall not be imposed
 
21 on the gross proceeds or gross income covered under the written
 
22 contracts.  The county general excise and use tax surcharge shall
 
23 be imposed on the gross proceeds or gross income from all
 

 
Page 61                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1 contracts entered into on or after June 19, 1990, whether or not
 
 2 the contract allows for the passing on of any tax or any tax
 
 3 increases.
 
 4      (d)  No county general excise and use tax surcharge shall be
 
 5 established on any:
 
 6      (1)  Gross income or gross proceeds taxable under this
 
 7           chapter at the one-half per cent tax rate;
 
 8      (2)  Gross income or gross proceeds taxable under this
 
 9           chapter at the 0.15 per cent tax rate; or
 
10      (3)  Transactions, amounts, persons, gross income, or gross
 
11           proceeds exempt from tax under this chapter.
 
12      (e)  The director of taxation shall revise the general
 
13 excise tax forms to provide for the clear and separate
 
14 designation of the imposition and payment of the county general
 
15 excise and use tax surcharge.
 
16      The taxpayer shall designate the taxation district to which
 
17 the county general excise and use tax surcharge is assigned in
 
18 accordance with rules adopted by the director of taxation under
 
19 chapter 91.  The taxpayer shall file a schedule with the
 
20 taxpayer's periodic and annual general excise and use tax returns
 
21 summarizing the amount of taxes assigned to each taxation
 
22 district.
 

 
 
 
Page 62                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      The penalties provided by section 231-39 for failure to file
 
 2 a tax return shall be imposed on the amount of surcharge due on
 
 3 the return being filed for the failure to file the schedule
 
 4 required to accompany the return.  In addition, there shall be
 
 5 added to the tax an amount equal to ten per cent of the amount of
 
 6 the surcharge and tax due on the return being filed for the
 
 7 failure to file the schedule or the failure to correctly report
 
 8 the assignment of the general excise tax by taxation district on
 
 9 the schedule required under this subsection.
 
10      (f)  All taxpayers who file on a fiscal year basis whose
 
11 fiscal year ends after December 31, 1992, or after December 31,
 
12 2002, shall file a short period annual return for the period
 
13 preceding January 1, 1993, or preceding January 1, 2003.  Each
 
14 fiscal year taxpayer shall also file a short period annual return
 
15 for the period starting after December 31, 1992, and ending
 
16 before January 1, 1994, and for the period starting after
 
17 December 31, 2002, and ending before January 1, 2004.
 
18      All monthly, annual, and amended returns due under this
 
19 chapter for any period preceding January 1, 2003, which are
 
20 submitted to the department after December 31, 2002, shall
 
21 include in payments submitted with the return any county general
 
22 excise and use tax surcharge that may be due for the period
 
23 preceding January 1, 2003."]
 

 
Page 63                                                    
                                     H.B. NO.741        
                                                        
                                                        

 
 1      SECTION 25.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 26.  This Act shall take effect on July 1, 1999, and
 
 4 shall apply to gross receipts received after December 31, 1999,
 
 5 and at all times thereafter, unless the amounts are received
 
 6 pursuant to a binding written contract entered into before July
 
 7 1, 1999, that does not provide for the passing on of tax
 
 8 increases until the contract is renegotiated, renewed, extended,
 
 9 or otherwise amended.
 
10 
 
11                           INTRODUCED BY:  _______________________