REPORT TITLE:
GET; Federal Contracts


DESCRIPTION:
Exempts from the general excise tax amounts received by
contractors from federal contracts.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           524
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO GENERAL EXCISE TAX. 


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

 1      SECTION 1.  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
 

 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1                continuing within this State in the business of a
 
 2                producer, the tax shall be equal to one-half of
 
 3                one per cent of the gross proceeds of sales of the
 
 4                business, or the value of the products, for sale,
 
 5                if sold for delivery outside the State or shipped
 
 6                or transported out of the State, and the value of
 
 7                the products shall be determined in the same
 
 8                manner as the value of manufactured products
 
 9                covered in the cases under paragraph (1)(C).
 
10           (B)  Gross proceeds of sales of tangible property in
 
11                interstate and foreign commerce shall constitute a
 
12                part of the measure of the tax imposed on persons
 
13                in the business of selling tangible personal
 
14                property, to the extent, under the conditions, and
 
15                in accordance with the provisions of the
 
16                Constitution of the United States and the Acts of
 
17                the Congress of the United States which may be now
 
18                in force or may be hereafter adopted, and whenever
 
19                there occurs in the State an activity to which,
 
20                under the Constitution and Acts of Congress, there
 
21                may be attributed gross proceeds of sales, the
 
22                gross proceeds shall be so attributed.
 

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1           (C)  No manufacturer or producer, engaged in such
 
 2                business in the State and selling the
 
 3                manufacturer's or producer's products for delivery
 
 4                outside of the State (for example, consigned to a
 
 5                mainland purchaser via common carrier f.o.b.
 
 6                Honolulu), shall be required to pay the tax
 
 7                imposed in this chapter for the privilege of so
 
 8                selling the products, and the value or gross
 
 9                proceeds of sales of the products shall be
 
10                included only in determining the measure of the
 
11                tax imposed upon the manufacturer or producer.
 
12           (D)  When a manufacturer or producer, engaged in such
 
13                business in the State, also is engaged in selling
 
14                the manufacturer's or producer's products in the
 
15                State at wholesale, retail, or in any other
 
16                manner, the tax for the privilege of engaging in
 
17                the business of selling the products in the State
 
18                shall apply to the manufacturer or producer as
 
19                well as the tax for the privilege of manufacturing
 
20                or producing in the State, and the manufacturer or
 
21                producer shall make the returns of the gross
 
22                proceeds of the wholesale, retail, or other sales
 

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1                required for the privilege of selling in the
 
 2                State, as well as making the returns of the value
 
 3                or gross proceeds of sales of the products
 
 4                required for the privilege of manufacturing or
 
 5                producing in the State.  The manufacturer or
 
 6                producer shall pay the tax imposed in this chapter
 
 7                for the privilege of selling its products in the
 
 8                State, and the value or gross proceeds of sales of
 
 9                the products, thus subjected to tax, may be
 
10                deducted insofar as duplicated as to the same
 
11                products by the measure of the tax upon the
 
12                manufacturer or producer for the privilege of
 
13                manufacturing or producing in the State; except
 
14                that no producer of agricultural products who
 
15                sells the products to a purchaser who will process
 
16                the products outside the State shall be required
 
17                to pay the tax imposed in this chapter for the
 
18                privilege of producing or selling those products.
 
19           (E)  A taxpayer selling to a [federal cost-plus]
 
20                contractor [may make the election provided for by
 
21                paragraph (3)(C), and in that case the tax shall
 
22                be computed pursuant to the election,
 

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1                notwithstanding this paragraph or paragraph (1) to
 
 2                the contrary.] under contract with the federal
 
 3                government shall not be required to pay the tax
 
 4                imposed in this chapter for the privilege of
 
 5                producing or selling those products.
 
 6           (F)  The department, by rule, may provide that a seller
 
 7                may take from the purchaser of tangible personal
 
 8                property a certificate, in a form as the
 
 9                department shall prescribe, certifying that the
 
10                sale is a sale at wholesale[.], or to a contractor
 
11                under a federal contract.  If the certificate is
 
12                so provided for by rule of the department:
 
13                (i)  Any purchaser who furnishes a certificate
 
14                     shall be obligated to pay to the seller, upon
 
15                     demand, if the sale in fact is not at
 
16                     wholesale, or to a contractor under a federal
 
17                     contract, the amount of the additional tax
 
18                     which by reason thereof is imposed upon the
 
19                     seller; and
 
20               (ii)  The absence of a certificate, unless the
 
21                     sales of the business are exclusively at
 
22                     wholesale, or exclusively federal contracts
 

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1                     in itself shall give rise to the presumption
 
 2                     that the sale is not at wholesale[.], or made
 
 3                     to a contractor under a federal contract.
 
 4      (3)  Tax upon contractors.
 
 5           (A)  Upon every person engaging or continuing within
 
 6                the State in the business of contracting, the tax
 
 7                shall be equal to four per cent of the gross
 
 8                income of the business; provided that insofar as
 
 9                the business of contracting is taxed by section
 
10                237-16, which relates to certain retailing, the
 
11                tax shall be that levied by section 237-16.
 
12           (B)  In computing the tax levied under this paragraph
 
13                or section 237-16, there shall be deducted from
 
14                the gross income of the taxpayer so much thereof
 
15                as has been included in the measure of the tax
 
16                levied under subparagraph (A) or section 237-16,
 
17                on:
 
18                (i)  Another taxpayer who is a contractor, as
 
19                     defined in section 237-6;
 
20               (ii)  A specialty contractor, duly licensed by the
 
21                     department of commerce and consumer affairs
 
22                     pursuant to section 444-9, in respect of the
 

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1                proceeds that constitute or are in the nature of
 
 2                rent; all such gross income shall be taxable under
 
 3                paragraph (10); provided that insofar as the
 
 4                business of renting or leasing real property under
 
 5                a lease is taxed under section 237-16.5, the tax
 
 6                shall be levied by section 237-16.5.
 
 7      (4)  Tax upon theaters, amusements, radio broadcasting
 
 8           stations, etc.  Upon every person engaging or
 
 9           continuing within the State in the business of
 
10           operating a theater, opera house, moving picture show,
 
11           vaudeville, amusement park, dance hall, skating rink,
 
12           radio broadcasting station, or any other place at which
 
13           amusements are offered to the public, the tax shall be
 
14           equal to four per cent of the gross income of the
 
15           business.
 
16      (5)  Tax upon sales representatives, etc.  Upon every person
 
17           classified as a representative or purchasing agent
 
18           under section 237-1, engaging or continuing within the
 
19           State in the business of performing services for
 
20           another, other than as an employee, there is likewise
 
21           hereby levied and shall be assessed and collected a tax
 
22           equal to four per cent of the commissions and other
 

 
 
 
Page 15                                                    
                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
Page 16                                                    
                                     S.B. NO.           524
                                                        
                                                        

 
 1           foreign common carrier telecommunication services
 
 2           within and without the State, the tax shall be imposed
 
 3           on that portion of gross income received by a person
 
 4           from service which is originated or terminated in this
 
 5           State and is charged to a telephone number, customer,
 
 6           or account in this State notwithstanding any other
 
 7           state law (except for the exemption under section
 
 8           237-23(a)(1)) to the contrary.  If, under the
 
 9           Constitution and laws of the United States, the entire
 
10           gross income as determined under this paragraph of a
 
11           business selling interstate or foreign common carrier
 
12           telecommunication services cannot be included in the
 
13           measure of the tax, the gross income shall be
 
14           apportioned as provided in section 237-21; provided
 
15           that the apportionment factor and formula shall be the
 
16           same for all persons providing those services in the
 
17           State.
 
18      (7)  Tax on insurance solicitors and agents.  Upon every
 
19           person engaged as a licensed solicitor, general agent,
 
20           or subagent pursuant to chapter 431, there is hereby
 
21           levied and shall be assessed and collected a tax equal
 
22           to .15 per cent of the commissions due to that
 

 
 
 
Page 17                                                    
                                     S.B. NO.           524
                                                        
                                                        

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

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1           hereunder in the sum of the amount so disbursed.  The
 
 2           amounts taxed under this paragraph shall not be taxable
 
 3           under any other paragraph, subsection, or section of
 
 4           this chapter.
 
 5     (10)  Tax on other business.  Upon every person engaging or
 
 6           continuing within the State in any business, trade,
 
 7           activity, occupation, or calling not included in the
 
 8           preceding paragraphs or any other provisions of this
 
 9           chapter, there is likewise hereby levied and shall be
 
10           assessed and collected, a tax equal to four per cent of
 
11           the gross income thereof.  In addition, the rate
 
12           prescribed by this paragraph shall apply to a business
 
13           taxable under one or more of the preceding paragraphs
 
14           or other provisions of this chapter, as to any gross
 
15           income thereof not taxed thereunder as gross income or
 
16           gross proceeds of sales or by taxing an equivalent
 
17           value of products, unless specifically exempted." 
 
18      SECTION 2.  Section 237-25, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "237-25  Exemptions of sales and gross proceeds of sales to
 
21 federal government, and credit unions.(a)  Any provision of law
 
22 to the contrary notwithstanding, there shall be exempted from,
 

 
 
 
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                                     S.B. NO.           524
                                                        
                                                        

 
 1 and excluded from the measures of, the tax imposed by chapter 237
 
 2 all sales, and the gross proceeds of all sales, of:
 
 3      (1)  Intoxicating liquor, as defined in chapter 281,
 
 4           hereafter sold by any person licensed under chapter 281
 
 5           to the United States (including any agency or
 
 6           instrumentality of the United States that is wholly
 
 7           owned or otherwise so constituted as to be immune from
 
 8           the levy of a tax under chapter 238 or 244D but not
 
 9           including national banks), or to any organization to
 
10           which that sale is permitted by the proviso of "Class
 
11           3" of section 281-31, located on any Army, Navy, or Air
 
12           Force reservation, but the person making the sale shall
 
13           nevertheless, within the meaning of chapters 237, 244D,
 
14           and 281 be deemed to be a licensed seller;
 
15      (2)  Tobacco products and cigarettes, as defined in chapter
 
16           245, sold by any person licensed under the chapter to
 
17           the United States (including any agency or
 
18           instrumentality thereof that is wholly owned or
 
19           otherwise so constituted as to be immune from the levy
 
20           of a tax under chapter 238 or 245 but not including
 
21           national banks), but the person making the sale shall
 
22           nevertheless, within the meaning of chapters 237 and
 

 
 
 
Page 20                                                    
                                     S.B. NO.           524
                                                        
                                                        

 
 1           245, be deemed to be a licensed seller;
 
 2      (3)  Other tangible personal property sold by any person
 
 3           licensed under this chapter to the United States
 
 4           (including any agency, instrumentality, or federal
 
 5           credit union thereof but not including national banks),
 
 6           and to any state-chartered credit union, but the person
 
 7           making such sale shall nevertheless, within the meaning
 
 8           of this chapter, be deemed a licensed seller; [and]
 
 9      (4)  When the amount of property sold by a licensee turns
 
10           upon the amount of the property sold through a vending
 
11           machine or similar device to the customer using the
 
12           device, there shall not be deemed to have occurred any
 
13           sale covered by an exemption under paragraph (1), (2),
 
14           or (3)[.]; and
 
15      (5)  A contractor's gross proceeds from any federal
 
16           contracts.
 
17      [(b)  Nothing in this section shall be deemed to exempt any
 
18 sales to or by a federal cost-plus contractor, as defined in
 
19 chapter 237, or the gross proceeds thereof; with respect to all
 
20 such activities and transactions, taxes shall be levied,
 
21 returned, computed, and assessed the same as if this section had
 
22 not been enacted, and in the case of an election made under
 

 
 
 
Page 21                                                    
                                     S.B. NO.           524
                                                        
                                                        

 
 1 sections 237-13(2)(F) and 237-13(3)(C)(ii), the tax shall be
 
 2 computed the same as upon a sale to the state government.
 
 3      (c)] (b)  Nothing in this section shall be deemed to exempt
 
 4 any person engaging or continuing in a service business or
 
 5 calling from any part of the tax imposed upon the person for such
 
 6 activity, and the person shall not be entitled to deduct any
 
 7 amount for tangible personal property furnished in conjunction
 
 8 therewith even though the person separately bills or otherwise
 
 9 shows the amount of the gross income of the business derived from
 
10 the furnishing of the property.
 
11      [(d)] (c)  The exemption granted by this section shall apply
 
12 to the seller of products sold in the State as provided in
 
13 subsection (a) in respect of the privilege of manufacturing or
 
14 producing, as well as the privilege of selling, and the value or
 
15 gross proceeds of sales of the products so sold shall be excluded
 
16 from the measure of the tax imposed by chapter 237 upon the
 
17 seller as a manufacturer or producer." 
 
18      SECTION 3.  Statutory material to be repealed is bracketed.
 
19 New statutory material is underscored.
 
20      SECTION 4.  This Act shall take effect on July 1, 1999.
 
21 
 
22                           INTRODUCED BY:  _______________________