REPORT TITLE:
General Excise Tax; Leasing


DESCRIPTION:
Modifies the calculation for allocation of partial lease payments
for computation of the deduction for leasing under the general
excise tax law.  Repeals phase-in provisions.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           1201
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  Section 237-16.5, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "[[]237-16.5[]]  Tax on written real property leases;
 
 4 deduction allowed.(a)  This section relates to the leasing of
 
 5 real property by a lessor to a lessee.  There is hereby levied,
 
 6 and shall be assessed and collected annually, a privilege tax
 
 7 against persons engaging or continuing within the State in the
 
 8 business of leasing real property to another, equal to four per
 
 9 cent of the gross proceeds or gross income received or derived
 
10 from the leasing; provided that where real property is subleased
 
11 by a lessee to a sublessee, the lessee, as provided in this
 
12 section, shall be allowed a deduction from the amount of gross
 
13 proceeds or gross income received from its sublease of the real
 
14 property.  The deduction shall be [in the amount allowed under
 
15 this section.] limited to the lower of:
 
16      (1)  The amount of monetary gross proceeds or gross income
 
17           paid for the real property or space by the lessee to
 
18           the lessor; or
 
19      (2)  The amount of monetary gross proceeds received from the
 

 
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 1           sublessee on the same real property or space.
 
 2      All deductions under this section and the name and general
 
 3 excise tax number of the lessee's lessor shall be reported on the
 
 4 general excise tax return.  Any deduction allowed under this
 
 5 section shall only be allowed with respect to leases and
 
 6 subleases in writing and relating to the same real property.
 
 7      (b)  The lessee shall obtain from its lessor a certificate,
 
 8 in the form as the department shall prescribe, certifying that
 
 9 the lessor is subject to tax under this chapter on the gross
 
10 proceeds or gross income received from the lessee.  The absence
 
11 of the certificate in itself shall give rise to the presumption
 
12 that the lessee is not allowed the deduction under this section.
 
13      [(c)  If various real property or space leased to the lessee
 
14 have different rental values, then the total monetary gross
 
15 proceeds or gross income paid to a lessor for all real property
 
16 or space shall first be allocated to the fair rental value for
 
17 each real property or space.  If the lessee leases less than one
 
18 hundred per cent of real property or space that was leased from
 
19 the lessor to a sublessee, then the total monetary gross proceeds
 
20 or gross income paid by the lessee for that real property or
 
21 space to its lessor shall be allocated.  The percentage of real
 
22 property or space subleased shall be multiplied by the monetary
 
23 gross proceeds or gross income paid for the real property or
 

 
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                                     S.B. NO.           1201
                                                        
                                                        

 
 1 space by the lessee to its lessor.  The product of the preceding
 
 2 multiplication shall be deducted from the monetary gross proceeds
 
 3 or gross income received for real property or space by the
 
 4 lessee.
 
 5      Once the allocations are made, the appropriate deduction
 
 6 under subsection (g) shall be made.
 
 7      (d)  The lessor shall make allocations under this section at
 
 8 the time the sublease is entered into and the allocations shall
 
 9 not be changed during the term of the sublease.  There shall be a
 
10 reasonable basis for the allocations, taking into consideration
 
11 the size, quality, and location of the real property or space
 
12 subleased.  In no event shall the total amount allocated to all
 
13 subleases exceed the total monetary gross proceeds paid by the
 
14 lessee to its lessor.  The director may redetermine the amount of
 
15 the deduction under this section if the director finds that the
 
16 basis for allocation is not reasonable or that redetermination is
 
17 necessary to prevent the avoidance of taxes.
 
18      (e)] (c)  As used in this section:
 
19      "Lease" means the rental of real property under an
 
20 instrument in writing by which one conveys real property for a
 
21 specified term and for a specified consideration, and includes
 
22 the written extension or renegotiation of a lease, and any
 
23 holdover tenancy.
 

 
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 1      "Lessee" means one who holds real property under lease, and
 
 2 includes a sublessee.
 
 3      "Lessor" means one who conveys real property by lease, and
 
 4 includes a sublessor.
 
 5      "Real property or space" means the area actually rented and
 
 6 used by the lessee, and includes common elements as defined in
 
 7 section 514A-3.
 
 8      "Sublease" includes the rental of real property which is
 
 9 held under a lease and is made in a written document by which one
 
10 conveys real property for a specified term and for a specified
 
11 consideration.  Sublease includes the written extension or
 
12 renegotiation of a sublease and any holdover tenancy under the
 
13 written sublease.
 
14      "Sublessee" means one who holds real property under a
 
15 sublease.
 
16      "Sublessor" means one who conveys real property by sublease.
 
17      [(f)] (d)  This section shall not cause the tax upon a
 
18 lessor, with respect to any item of the lessor's gross proceeds
 
19 or gross income, to exceed four per cent.
 
20      [(g)  After allocation under subsection (c), if necessary,
 
21 the deduction under this section shall be allowed from the gross
 
22 proceeds or gross income of the lessee received from its sublease
 
23 in an amount calculated by multiplying the gross proceeds or
 

 
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 1 gross income paid by the lessee to its lessor for the lease of
 
 2 the real property by the following amount:
 
 3      (1)  In calendar year 1998, .125;
 
 4      (2)  In calendar year 1999, .25;
 
 5      (3)  In calendar year 2000, .375;
 
 6      (4)  In calendar year 2001, .50;
 
 7      (5)  In calendar year 2002, .625;
 
 8      (6)  In calendar year 2003, .75; and
 
 9      (7)  In calendar year 2004, and thereafter, .875.
 
10      The amount calculated under paragraphs (1) to (7) shall be
 
11 deducted by the lessee from the lessee's total reported gross
 
12 proceeds or gross income.  The deduction allowed by this
 
13 subsection may be taken by the fiscal and calendar year
 
14 lessees.]"
 
15      SECTION 2.  Statutory material to be repealed is bracketed.
 
16 New statutory material is underscored.
 
17      SECTION 3.  This Act shall take effect upon its approval.
 
18 
 
19                              INTRODUCED BY:______________________