REPORT TITLE:
Taxation


DESCRIPTION:
Exempts exported services from GTE; imposes use tax on imported
services.  (SB44 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TAXATION.



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

 1      SECTION 1.  Chapter 237, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be appropriately designated and to
 
 3 read as follows:
 
 4      "237-    Exemption for contracting or services exported out
 
 5 of State.  (a)  There shall be exempted from, and excluded from
 
 6 the measure of, taxes imposed by this chapter, all of the value
 
 7 or gross income derived from contracting (as defined under
 
 8 section 237-6) or services performed in the State for a customer
 
 9 located outside the State where:
 
10      (1)  The contracting or services are for resale,
 
11           consumption, or use outside the State; and
 
12      (2)  The value or gross income derived from the contracting
 
13           or services performed would otherwise be subject to the
 
14           tax imposed under this chapter on contracting or
 
15           services at the highest rate.
 
16 For the purposes of this subsection, the seller or person
 
17 rendering the contracting or services exported and resold,
 
18 consumed, or used outside the State shall take from the customer,
 
19 a certificate or an equivalent, in a form the department
 

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

 
 
 
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 1 subsection (a).  Any purchaser who furnishes this certificate or
 
 2 an equivalent shall be obligated to pay the seller or person
 
 3 rendering the contracting or services, upon demand, if the
 
 4 contracting or services purchased is not resold in its entirety
 
 5 to a customer of the purchaser who has complied with subsection
 
 6 (a), the amount of the additional tax which by reason thereof is
 
 7 imposed upon the seller or the person rendering the contracting
 
 8 or service.
 
 9      (c)  For purposes of this section, "service business or
 
10 calling" includes all activities engaged in for other persons for
 
11 a consideration that involve the rendering of a service as
 
12 distinguished from the sale of tangible personal property or the
 
13 production and sale of tangible personal property, including
 
14 professional services.  "Service business or calling" does not
 
15 include service rendered by an employee to the employee's
 
16 employer."
 
17      SECTION 2.  Chapter 238, Hawaii Revised Statutes, is amended
 
18 by adding a new section to be appropriately designated and to
 
19 read as follows:
 
20      "238-    Imposition of tax on imported services;
 
21 exemptions.  (a)  There is hereby levied an excise tax on the
 
22 value of services that are performed by an unlicensed seller at a
 

 
 
 
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 1 point outside the State and imported or purchased for use in this
 
 2 State.  The rates of the tax hereby imposed and the exemptions
 
 3 from the tax are as follows:
 
 4      (1)  If the importer or purchaser is licensed under chapter
 
 5           237 and is:
 
 6           (A)  Engaged in a service business in which the
 
 7                imported or purchased services become identifiable
 
 8                elements, excluding overhead, of the services
 
 9                rendered, and the gross income of the importer or
 
10                purchaser is subject to the tax imposed under
 
11                chapter 237 on services at the rate of one-half of
 
12                one per cent; or
 
13           (B)  A manufacturer in which the imported or purchased
 
14                services become identifiable elements, excluding
 
15                overhead, of a finished or saleable product
 
16                (including the container or package in which the
 
17                product is contained) and which the finished or
 
18                saleable product is to be sold in a manner that
 
19                results in a further tax on the activity of the
 
20                manufacturer as a wholesaler, and not a retailer;
 
21           there shall be no tax imposed on the value of the
 
22           imported or purchased services; provided that if the
 

 
 
 
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 1           manufacturer is also engaged in business as a retailer
 
 2           as classified under chapter 237, paragraph
 
 3           (2) shall apply.
 
 4      (2)  If the importer or purchaser is a person licensed under
 
 5           chapter 237 and is:
 
 6           (A)  Engaged in a service business in which the
 
 7                imported or purchased services become identifiable
 
 8                elements, excluding overhead, of the services
 
 9                rendered, and the gross income from those services
 
10                when sold by the importer or purchaser is subject
 
11                to the tax imposed under chapter 237 at the
 
12                highest rate; or
 
13           (B)  A manufacturer importing or purchasing services
 
14                that become identifiable elements, excluding
 
15                overhead, of the finished or saleable manufactured
 
16                product (including the container or package in
 
17                which the product is contained) and the finished
 
18                or saleable product is to be sold in a manner that
 
19                results in a further tax under chapter 237 on the
 
20                activity of the manufacturer as a retailer; or
 
21           (C)  A contractor importing or purchasing services that
 
22                become identifiable elements, excluding overhead,
 

 
 
 
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 1                of the finished work or project required, under
 
 2                the contract, and where the gross proceeds derived
 
 3                by the contractor are subject to the tax under
 
 4                section 237-13(3) or or 237-16 as a contractor;
 
 5           the tax shall be one-half of one per cent of the value
 
 6           of the imported or purchased services.
 
 7      (3)  In all other cases, the importer or purchaser is
 
 8           subject to the tax at the rate of four per cent on the
 
 9           value of the imported or purchased services."
 
10      SECTION 3.  Section 238-1, Hawaii Revised Statutes, is
 
11 amended as follows:
 
12      1.  By adding three new definitions to be appropriately
 
13 inserted and to read as follows:
 
14      ""Foreign customer" means a nonresident person who:
 
15      (1)  Is not subject to chapter 237;
 
16      (2)  Has not been physically present in the State for more
 
17           than thirty days in the six months prior to entering
 
18           into a written exported contracting or services
 
19           agreement with a person licensed under chapter 237
 
20           engaged in contracting (as defined in section 237-6) or
 
21           a service business or calling; and
 

 
 
 
 
 
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 1      (3)  Is the sole recipient of the exported contracting or
 
 2           services provided through a person in Hawaii engaged in
 
 3           contracting or a service business or calling and
 
 4           licensed under chapter 237.
 
 5      "Overhead" means continuous or general costs occurring in
 
 6 the normal course of a business, including but not limited to
 
 7 costs for labor, rent, taxes, royalties, interest, discounts
 
 8 paid, insurance, lighting, heating, cooling, accounting, legal
 
 9 fees, equipment and facilities, telephone systems, depreciation,
 
10 and amortization.
 
11      "Service business or calling" includes all activities
 
12 engaged in for other persons for a consideration that involve the
 
13 rendering of a service as distinguished from the sale of tangible
 
14 personal property or the production and sale of tangible
 
15 property, including professional services.  "Service business or
 
16 calling" does not include services rendered by an employee to the
 
17 employee's employer."
 
18      2.  By amending the definitions of "price", "purchase" and
 
19 "sale", "purchaser", "representation", "seller", and "use" to
 
20 read:
 
21      ""Price" means the total amount for which tangible personal
 
22 property [is] or services are purchased, valued in money, whether
 

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

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

 
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 1      (1)  Temporary use of property, not of a perishable or
 
 2           quickly consumable nature, where the property is
 
 3           imported into the State for temporary use (not sale)
 
 4           therein by the person importing the same and is not
 
 5           intended to be, and is not, kept permanently in the
 
 6           State (as for example without limiting the generality
 
 7           of the foregoing language: [in]
 
 8           (A)  In the case of a contractor importing permanent
 
 9                equipment for the performance of a construction
 
10                contract, with intent to remove, and who does
 
11                remove, the equipment out of the State upon
 
12                completing the contract; [in]
 
13           (B)  In the case of moving picture films imported for
 
14                use in theaters in the State with intent or under
 
15                contract to transport the same out of the State
 
16                after completion of such use; [in] and
 
17           (C)  In the case of a transient visitor importing an
 
18                automobile or other belongings into the State to
 
19                be used by the transient visitor while therein but
 
20                which are to be used and are removed upon the
 
21                transient visitor's departure from the State);
 

 
 
 
 
 
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 1      (2)  Use by the taxpayer of property acquired by the
 
 2           taxpayer solely by way of gift;
 
 3      (3)  Use which is limited to the receipt of articles and the
 
 4           return thereof, to the person from whom acquired,
 
 5           immediately or within a reasonable time either after
 
 6           temporary trial or without trial;
 
 7      (4)  Use of goods imported into the State by the owner of a
 
 8           vessel or vessels engaged in interstate or foreign
 
 9           commerce and held for and used only as ship stores for
 
10           the vessels;
 
11      (5)  The use or keeping for use of household goods, personal
 
12           effects, and private automobiles imported into the
 
13           State for nonbusiness use by a person who [acquired]:
 
14           (A)  Acquired them in another state, territory,
 
15                district, or country[, at];
 
16           (B)  At the time of the acquisition was a bona fide
 
17                resident of another state, territory, district, or
 
18                country[, acquire];
 
19           (C)  Acquired the property for use outside the
 
20                State[,]; and [made]
 
21           (D)  Made actual and substantial use thereof outside
 
22                this State;
 

 
 
 
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 1           provided that as to an article acquired less than three
 
 2           months prior to the time of its importation into the
 
 3           State it shall be presumed, until and unless clearly
 
 4           proved to the contrary, that it was acquired for use in
 
 5           the State and that its use outside the State was not
 
 6           actual and substantial;
 
 7      (6)  The leasing or renting of any aircraft or the keeping
 
 8           of any aircraft solely for leasing or renting to
 
 9           lessees or renters using the aircraft for commercial
 
10           transportation of passengers and goods;
 
11      (7)  The use of oceangoing vehicles for passenger or
 
12           passenger and goods transportation from one point to
 
13           another within the State as a public utility as defined
 
14           in chapter 269;
 
15      (8)  The use of material, parts, or tools imported or
 
16           purchased by a person licensed under chapter 237 which
 
17           are used for aircraft service and maintenance, or the
 
18           construction of an aircraft service and maintenance
 
19           facility as those terms are defined in section
 
20           237-24.9[.]; and
 
21      (9)  The use of services imported for resale to a foreign
 
22           customer located outside the State to the extent the
 

 
 
 
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 1           services are resold, consumed, or used by that foreign
 
 2           customer outside the State pursuant to section
 
 3           237-    (a).
 
 4      With regard to purchases made and distributed under the
 
 5 authority of chapter 421, a cooperative association shall be
 
 6 deemed the user thereof."
 
 7      SECTION 4.  Section 238-3, Hawaii Revised Statutes, is
 
 8 amended as follows:
 
 9      1.  By amending subsections (a), (b), (c), and (d) to read
 
10 as follows:
 
11      "(a)  The tax imposed by this chapter shall not apply to any
 
12 property[,] or services, or to any use of the property[,] or
 
13 services, which cannot legally be so taxed under the Constitution
 
14 or laws of the United States, but only so long as, and only to
 
15 the extent to which the State is without power to impose the tax.
 
16      Any provision of law to the contrary notwithstanding,
 
17 exemptions or exclusions from tax under this chapter allowed on
 
18 or before April 1, 1978, under the provisions of the Constitution
 
19 of the United States or an act of the Congress of the United
 
20 States to persons or common carriers engaged in interstate or
 
21 foreign commerce, or both, whether ocean-going or air, shall
 
22 continue undiminished and be available thereafter.
 

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

 
 
 
 
 
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 1      2.  By amending subsections (i) and (j) to read as follows:
 
 2      "(i)  Each taxpayer liable for the tax imposed by this
 
 3 chapter on tangible personal property or services shall be
 
 4 entitled to full credit for the combined amount or amounts of
 
 5 legally imposed sales or use taxes paid by the taxpayer with
 
 6 respect to the same transaction and property or services to
 
 7 another state and any subdivision thereof, but such credit shall
 
 8 not exceed the amount of the use tax imposed under this chapter
 
 9 on account of the transaction and property[.] or services.  The
 
10 director of taxation may require the taxpayer to produce the
 
11 necessary receipts or vouchers indicating the payment of the
 
12 sales or use tax to another state or subdivision as a condition
 
13 for the allowance of the credit.
 
14      (j)  The tax imposed by this chapter shall not apply to any
 
15 use of property or services exempted by section 237-26 or section
 
16 237-29."
 
17      SECTION 5.  Section 238-5, Hawaii Revised Statutes, is
 
18 amended by amending subsection (a) to read as follows:
 
19      "(a)  On or before the last day of each calendar month, any
 
20 person who has become liable for the payment of a tax under this
 
21 chapter during the preceding calendar month in respect of any
 
22 property or services or the use thereof, shall file a return with
 

 
 
 
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 1 the assessor of the taxation district in which the property was
 
 2 held or the services were received when the tax first became
 
 3 payable, or with the director of taxation at Honolulu, setting
 
 4 forth a description of the property or services and the character
 
 5 and quantity thereof in sufficient detail to identify the same or
 
 6 otherwise in such reasonable detail as the director by rule shall
 
 7 require, and the purchase price or value thereof as the case may
 
 8 be.  The return shall be accompanied by a remittance in full of
 
 9 the tax, computed at the rate specified in section 238-2 or 238-
 
10     upon the price or value so returned.  Any tax remaining
 
11 unpaid after the last day following the end of the calendar month
 
12 during which the tax first became payable shall become
 
13 delinquent; provided that a receipt from a seller required or
 
14 authorized to collect the tax, given to a taxpayer in accordance
 
15 with section 238-6, shall be sufficient to relieve the taxpayer
 
16 from further liability for the tax to which the receipt may
 
17 refer, or for the return thereof."
 
18      SECTION 6.  Section 238-6, Hawaii Revised Statutes, is
 
19 amended by amending subsection (a) to read as follows:
 
20      "(a)  For purposes of the taxes due under sections 238-2(3)
 
21 [and], 238-2.5, and 238-   , every seller having in the State,
 
22 regularly or intermittently, any property, tangible or
 

 
 
 
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 1 intangible, any place of business, or any representation as
 
 2 hereinabove defined, (and irrespective of the seller's having or
 
 3 not having qualified to do business in the State) shall, if the
 
 4 seller makes sales of property or services for use in the State
 
 5 (whether or not the sales are made in the State), collect from
 
 6 the purchaser the taxes imposed by sections 238-2(3) [and],
 
 7 238-2.5, and 238-   , on the use of the property or services so
 
 8 sold by the seller.  The collection shall be made within twenty
 
 9 days after the accrual of the tax or within such other period as
 
10 shall be fixed by the director of taxation upon the application
 
11 of the seller, and the seller shall give to the purchaser a
 
12 receipt therefor in the manner and form prescribed by the
 
13 director; provided that this subsection shall not apply to
 
14 vehicles registered under section 286-50."
 
15      SECTION 7.  Section 238-9, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "238-9  Records.  Every person who is engaged in any
 
18 business in the State and who is required under this chapter to
 
19 make returns, shall keep in the English language in the State and
 
20 preserve for a period of three years, books of account or other
 
21 records in sufficient detail to enable the director of taxation,
 
22 as far as reasonably practicable, to determine whether or not any
 

 
 
 
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 1 taxes imposed by this chapter are payable in respect of the
 
 2 property or services concerned, and if so payable, the amount
 
 3 thereof."
 
 4      SECTION 8.  Section 237-29.6, Hawaii Revised Statutes, is
 
 5 repealed.
 
 6      ["[237-29.6]  Exemption of certain computer services.(a)
 
 7 There shall be exempted from, and excluded from the measure of,
 
 8 the taxes imposed by this chapter all of the gross proceeds
 
 9 arising from technical services necessary for the production and
 
10 sale of computer software where that software is shipped or
 
11 transmitted by the provider of technical services to a customer
 
12 at a point outside the State for use outside the State.
 
13      As used in this section: 
 
14      "Computer software" means a set of computer programs,
 
15 procedures, or associated documentation concerned with the
 
16 operation and function of a computer system, and includes both
 
17 systems and application programs and subdivisions, such as
 
18 assemblers, compilers, routines, generators, and utility
 
19 programs. 
 
20      "Technical services" include the development, design,
 
21 modification, and programming of computer software. 
 

 
 
 
 
 
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 1      (b)  For the purposes of this section, the provider of
 
 2 technical services shall take from the purchaser a certificate,
 
 3 in such form as the department shall prescribe, certifying that
 
 4 the software purchased is to be used outside the State.  Any
 
 5 purchaser who shall furnish such a certificate shall be obligated
 
 6 to pay to the provider of technical services, upon demand, if the
 
 7 software purchased is used or sold by the purchaser in the State,
 
 8 the amount of the additional tax which by reason of such use or
 
 9 sale is imposed upon the provider of technical services."]
 
10      SECTION 9.  Statutory material to be repealed is bracketed.
 
11 New statutory material is underscored.
 
12      SECTION 10.  This Act shall take effect on January 1, 2000;
 
13 provided that sections 1 and 8 of this Act shall apply to gross
 
14 income and gross proceeds received after December 31, 1999, and
 
15 sections 2 to 7 of this Act shall apply to all taxes accruing
 
16 after December 31, 1999.