REPORT TITLE:
Taxation


DESCRIPTION:
Exempts exported services from GTE; imposes use tax on imported
services.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
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.  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
 
  23  subsection (a).  Any purchaser who furnishes this certificate or
 

 
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   1  an equivalent shall be obligated to pay the seller or person
 
   2  rendering the contracting or services, upon demand, if the
 
   3  contracting or services purchased is not resold in its entirety
 
   4  to a customer of the purchaser who has complied with subsection
 
   5  (a), the amount of the additional tax which by reason thereof is
 
   6  imposed upon the seller or the person rendering the contracting
 
   7  or service."
 
   8       SECTION 2.  Chapter 238, Hawaii Revised Statutes, is amended
 
   9  by adding a new section to be appropriately designated and to
 
  10  read as follows:
 
  11       "238-    Imposition of tax on imported services;
 
  12  exemptions.  (a)  There is hereby levied an excise tax on the
 
  13  value of services that are performed by an unlicensed seller at a
 
  14  point outside the State and imported or purchased for use in this
 
  15  State.  The rates of the tax hereby imposed are as follows:
 
  16       (1)  If the importer or purchaser is licensed under chapter
 
  17            237 and is:
 
  18            (A)  Engaged in a service business in which the
 
  19                 imported services become an identifiable element
 
  20                 of the services rendered, and the gross income
 
  21                 from those services when sold by the importer or
 
  22                 purchaser is subject to the tax imposed under
 
  23                 section 237-13(6) at the highest rate; or
 

 
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   1            (B)  A manufacturer importing or purchasing services
 
   2                 which become an identifiable element of the
 
   3                 finished or saleable manufactured product
 
   4                 (including the container or package in which the
 
   5                 product is contained) and the finished or saleable
 
   6                 product is to be sold in a manner that results in
 
   7                 a further tax on the activity of the manufacturer
 
   8                 as a manufacturer or as a retailer,
 
   9            the tax shall be one-half of one per cent of the value
 
  10            of the imported or purchased services.
 
  11       (2)  In all other cases, the importer or purchaser is
 
  12            subject to the tax at the rate of four per cent on the
 
  13            value of the imported or purchased services."
 
  14       SECTION 3.  Section 238-1, Hawaii Revised Statutes, is
 
  15  amended as follows:
 
  16       1.  By adding three new definitions to be appropriately
 
  17  inserted and to read as follows:
 
  18       ""Foreign customer" means a nonresident person who:
 
  19       (1)  Is not subject to chapter 237;
 
  20       (2)  If an individual has not been physically present in the
 
  21            State for more than thirty days in the six months prior
 
  22            to entering into a written exported contracting or
 
  23            services agreement with a person licensed under chapter
 

 
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   1            237 engaged in contracting (as defined in section
 
   2            237-6) or a service business or calling; and
 
   3       (3)  Is the sole recipient of the exported contracting or
 
   4            services provided through a person in Hawaii engaged in
 
   5            contracting or a service business or calling and
 
   6            licensed under chapter 237.
 
   7       "Identifiable element" means:
 
   8       (1)  In the context of a service-to-service transaction, a
 
   9            service that is embedded in the service that is resold;
 
  10            or
 
  11       (2)  In the context of a service-to-finished or saleable
 
  12            product transaction, a service that is embedded in that
 
  13            tangible personal property.
 
  14       "Services" includes all activities engaged in by a service
 
  15  business or calling, or other business for other persons for a
 
  16  consideration, that involve the rendering of a service, as
 
  17  distinguished from the sale of tangible personal property or the
 
  18  production and sale of tangible property.  "Services" do not
 
  19  include services rendered by an employee to the employee's
 
  20  employer."
 
  21       2.  By amending the definitions of "person" and "price" to
 
  22  read as follows:
 
  23       ""Person", "business", "engaging in business", "service
 

 
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   1  business or calling", "retailer", "wholesaler", "jobber", and
 
   2  "contractor" have the same meanings defined in chapter 237.
 
   3       "Price" means the total amount for which tangible personal
 
   4  property [is] or services are purchased, valued in money, whether
 
   5  paid in money or otherwise, and wheresoever paid, provided that
 
   6  cash discounts allowed and taken on sales shall not be included."
 
   7       3.  By amending the definitions of "purchase" and "sale",
 
   8  "purchaser", "representation", and "seller" to read as follows:
 
   9       ""Purchase" and "sale" mean and refer to any transfer,
 
  10  exchange, or barter, conditional or otherwise, in any manner or
 
  11  by any means, wheresoever consummated, of tangible personal
 
  12  property or services for a consideration.
 
  13       "Purchaser" means any person purchasing property or services
 
  14  and "importer" means any person importing property[;] or
 
  15  services; provided that the term "purchaser" and "importer" shall
 
  16  not include the State, its political subdivisions, or wholly
 
  17  owned agencies or instrumentalities of the State or a political
 
  18  subdivision; or the United States, its wholly owned agencies or
 
  19  instrumentalities, or any person immune from the tax imposed by
 
  20  this chapter under the Constitution and laws of the United States
 
  21  but the terms shall include national banks.
 
  22       "Representation" refers to any or all of the following:
 
  23       (1)  A seller being present in the State;
 

 
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   1       (2)  A seller having in the State a salesperson, commission
 
   2            agent, manufacturer's representative, broker, or other
 
   3            person who is authorized or employed by the seller to
 
   4            assist the seller in selling property or services for
 
   5            use or consumption in the State, by procuring orders
 
   6            for the sales, making collections or deliveries, or
 
   7            otherwise; and
 
   8       (3)  A seller having in the State a person upon whom process
 
   9            directed to the seller from the courts of the State may
 
  10            be served, including the director of commerce and
 
  11            consumer affairs and the deputy director in the cases
 
  12            provided in section 415-14.
 
  13       "Seller" means any person engaged in the business of selling
 
  14  tangible personal property[,] or services, wheresoever engaged,
 
  15  but does not include the United States or its wholly owned
 
  16  agencies or instrumentalities other than national banks, the
 
  17  State or a political subdivision thereof, or wholly owned
 
  18  agencies or instrumentalities of the State or a political
 
  19  subdivision."
 
  20       4.  By amending the definition of "use" to read as follows:
 
  21       ""Use" (and any nounal, verbal, adjective, adverbial, and
 
  22  other equivalent form of the term) herein used interchangeably
 
  23  means any use, whether the use is of such nature as to cause the
 

 
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   1  property or services to be appreciably consumed or not, or the
 
   2  keeping of the property or services for such use or for sale, and
 
   3  shall include the exercise of any right or power over tangible or
 
   4  intangible personal property incident to the ownership of that
 
   5  property, but the term "use" shall not include:
 
   6       (1)  Temporary use of property, not of a perishable or
 
   7            quickly consumable nature, where the property is
 
   8            imported into the State for temporary use (not sale)
 
   9            therein by the person importing the same and is not
 
  10            intended to be, and is not, kept permanently in the
 
  11            State (as for example without limiting the generality
 
  12            of the foregoing language: (A) in the case of a
 
  13            contractor importing permanent equipment for the
 
  14            performance of a construction contract, with intent to
 
  15            remove, and who does remove, the equipment out of the
 
  16            State upon completing the contract; (B) in the case of
 
  17            moving picture films imported for use in theaters in
 
  18            the State with intent or under contract to transport
 
  19            the same out of the State after completion of such use;
 
  20            (C) in the case of a transient visitor importing an
 
  21            automobile or other belongings into the State to be
 
  22            used by the transient visitor while therein but which
 
  23            are to be used and are removed upon the transient
 

 
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   1            visitor's departure from the State);
 
   2       (2)  Use by the taxpayer of property acquired by the
 
   3            taxpayer solely by way of gift;
 
   4       (3)  Use which is limited to the receipt of articles and the
 
   5            return thereof, to the person from whom acquired,
 
   6            immediately or within a reasonable time either after
 
   7            temporary trial or without trial;
 
   8       (4)  Use of goods imported into the State by the owner of a
 
   9            vessel or vessels engaged in interstate or foreign
 
  10            commerce and held for and used only as ship stores for
 
  11            the vessels;
 
  12       (5)  The use or keeping for use of household goods, personal
 
  13            effects, and private automobiles imported into the
 
  14            State for nonbusiness use by a person who (A) acquired
 
  15            them in another state, territory, district, or country,
 
  16            (B) at the time of the acquisition was a bona fide
 
  17            resident of another state, territory, district, or
 
  18            country, (C) acquired the property for use outside the
 
  19            State, and (D) made actual and substantial use thereof
 
  20            outside this State; provided that as to an article
 
  21            acquired less than three months prior to the time of
 
  22            its importation into the State it shall be presumed,
 
  23            until and unless clearly proved to the contrary, that
 

 
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   1            it was acquired for use in the State and that its use
 
   2            outside the State was not actual and substantial;
 
   3       (6)  The leasing or renting of any aircraft or the keeping
 
   4            of any aircraft solely for leasing or renting to
 
   5            lessees or renters using the aircraft for commercial
 
   6            transportation of passengers and goods;
 
   7       (7)  The use of oceangoing vehicles for passenger or
 
   8            passenger and goods transportation from one point to
 
   9            another within the State as a public utility as defined
 
  10            in chapter 269; [and]
 
  11       (8)  The use of material, parts, or tools imported or
 
  12            purchased by a person licensed under chapter 237 which
 
  13            are used for aircraft service and maintenance, or the
 
  14            construction of an aircraft service and maintenance
 
  15            facility as those terms are defined in section
 
  16            237-24.9[.];
 
  17       (9)  The use of services imported for resale to a foreign
 
  18            customer located outside the State to the extent the
 
  19            services are resold, consumed, or used by that foreign
 
  20            customer outside the State pursuant to section
 
  21            237-    (a).
 
  22       With regard to purchases made and distributed under the
 
  23  authority of chapter 421, a cooperative association shall be
 

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

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

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

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

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

 
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   1       As used in this section: 
 
   2       "Computer software" means a set of computer programs,
 
   3  procedures, or associated documentation concerned with the
 
   4  operation and function of a computer system, and includes both
 
   5  systems and application programs and subdivisions, such as
 
   6  assemblers, compilers, routines, generators, and utility
 
   7  programs. 
 
   8       "Technical services" include the development, design,
 
   9  modification, and programming of computer software. 
 
  10       (b)  For the purposes of this section, the provider of
 
  11  technical services shall take from the purchaser a certificate,
 
  12  in such form as the department shall prescribe, certifying that
 
  13  the software purchased is to be used outside the State.  Any
 
  14  purchaser who shall furnish such a certificate shall be obligated
 
  15  to pay to the provider of technical services, upon demand, if the
 
  16  software purchased is used or sold by the purchaser in the State,
 
  17  the amount of the additional tax which by reason of such use or
 
  18  sale is imposed upon the provider of technical services."]
 
  19       SECTION 9.  Statutory material to be repealed is bracketed.
 
  20  New statutory material is underscored.
 
  21       SECTION 10.  This Act shall take effect on January 1, 2000,
 
  22  provided that sections 1 and 8 of this Act shall apply to gross
 
  23  income and gross proceeds received after December 31, 1999, and
 

 
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   1  sections 2 to 7 of this Act shall apply to all taxes accruing
 
   2  after December 31, 1999.