REPORT TITLE:
Taxation


DESCRIPTION:
Imposes the use tax on contracting imported for resale or use in
Hawaii.  Provides pyramiding relief from the general excise tax
for the sale of amusements.  Provides a lower public service
company tax rate on telecommunications services and
transportation services that are resold.  Clarifies Acts 70 and
71, Session Laws of Hawaii 1999.  (SB2945 HD3)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2945
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 3
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.  Section 237-4, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  "Wholesaler" or "jobber" applies only to a person
 
 4 making sales at wholesale.  Only the following are sales at
 
 5 wholesale:
 
 6      (1)  Sales to a licensed retail merchant, jobber, or other
 
 7           licensed seller for purposes of resale;
 
 8      (2)  Sales to a licensed manufacturer of materials or
 
 9           commodities that are to be incorporated by the
 
10           manufacturer into a finished or saleable product
 
11           (including the container or package in which the
 
12           product is contained) during the course of its
 
13           preservation, manufacture, or processing, including
 
14           preparation for market, and that will remain in such
 
15           finished or saleable product in such form as to be
 
16           perceptible to the senses, which finished or saleable
 
17           product is to be sold and not otherwise used by the
 
18           manufacturer;
 
19      (3)  Sales to a licensed producer or cooperative association
 
20           of materials or commodities that are to be incorporated
 

 
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 1           by the producer or by the cooperative association into
 
 2           a finished or saleable product that is to be sold and
 
 3           not otherwise used by the producer or cooperative
 
 4           association, including specifically materials or
 
 5           commodities expended as essential to the planting,
 
 6           growth, nurturing, and production of commodities that
 
 7           are sold by the producer or by the cooperative
 
 8           association;
 
 9      (4)  Sales to a licensed contractor, of materials or
 
10           commodities that are to be incorporated by the
 
11           contractor into the finished work or project required
 
12           by the contract and that will remain in such finished
 
13           work or project in such form as to be perceptible to
 
14           the senses;
 
15      (5)  Sales to a licensed producer, or to a cooperative
 
16           association described in section 237-23(a)(7) for sale
 
17           to a licensed producer, or to a licensed person
 
18           operating a feed lot, of poultry or animal feed,
 
19           hatching eggs, semen, replacement stock, breeding
 
20           services for the purpose of raising or producing animal
 
21           or poultry products for disposition as described in
 
22           section 237-5 or for incorporation into a manufactured
 
23           product as described in paragraph (2) or for the
 

 
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 1           purpose of breeding, hatching, milking, or egg laying
 
 2           other than for the customer's own consumption of the
 
 3           meat, poultry, eggs, or milk so produced; provided that
 
 4           in the case of a feed lot operator, only the segregated
 
 5           cost of the feed furnished by the feed lot operator as
 
 6           part of the feed lot operator's service to a licensed
 
 7           producer of poultry or animals to be butchered or to a
 
 8           cooperative association described in section 237-
 
 9           23(a)(7) of such licensed producers shall be deemed to
 
10           be a sale at wholesale; and provided further that any
 
11           amount derived from the furnishing of feed lot
 
12           services, other than the segregated cost of feed, shall
 
13           be deemed taxable at the service business rate.  This
 
14           paragraph shall not apply to the sale of feed for
 
15           poultry or animals to be used for hauling,
 
16           transportation, or sports purposes;
 
17      (6)  Sales to a licensed producer, or to a cooperative
 
18           association described in section 237-23(a)(7) for sale
 
19           to the producer, of seed for producing agricultural
 
20           products, or bait for catching fish (including the
 
21           catching of bait for catching fish), which agricultural
 
22           products or fish are to be disposed of as described in
 

 
 
 
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 1           section 237-5 or to be incorporated in a manufactured
 
 2           product as described in paragraph (2);
 
 3      (7)  Sales to a licensed producer, or to a cooperative
 
 4           association described in section 237-23(a)(7) for sale
 
 5           to such producer; of polypropylene shade cloth; of
 
 6           polyfilm; of polyethylene film; of cartons and such
 
 7           other containers, wrappers, and sacks, and binders to
 
 8           be used for packaging eggs, vegetables, fruits, and
 
 9           other agricultural products; of seedlings and cuttings
 
10           for producing nursery plants; or of chick containers;
 
11           which cartons and such other containers, wrappers, and
 
12           sacks, binders, seedlings, cuttings, and containers are
 
13           to be used as described in section 237-5, or to be
 
14           incorporated in a manufactured product as described in
 
15           paragraph (2);
 
16      (8)  Sales of tangible personal property:
 
17           (A)  To a licensed seller engaged in a service business
 
18                or calling; provided that:
 
19                (i)  The property is not consumed or incidental to
 
20                     the performance of the services;
 
21               (ii)  There is a resale of the article at the
 
22                     retail rate of four per cent; and
 

 
 
 
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 1              (iii)  The resale of the article is separately
 
 2                     charged or billed by the person rendering the
 
 3                     services; [and]
 
 4           (B)  Where:
 
 5                (i)  Tangible personal property is sold upon the
 
 6                     order or request of a licensed seller for the
 
 7                     purpose of rendering a service in the course
 
 8                     of the person's service business or calling,
 
 9                     or upon the order or request of a person[,]
 
10                     subject to tax under section 237D-2[,] for
 
11                     the purpose of furnishing transient
 
12                     accommodations;
 
13               (ii)  The tangible personal property becomes or is
 
14                     used as an identifiable element of the
 
15                     service rendered; and
 
16              (iii)  The cost of the tangible personal property
 
17                     does not constitute overhead to the licensed
 
18                     seller;
 
19                the sale shall be subject to section 237-13.3[.];
 
20                or
 
21           (C)  Where the taxpayer is subject to both
 
22                subparagraphs (A) and (B), then the taxpayer shall
 
23                be taxed under subparagraph (A).  [Subparagraph]
 

 
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 1                Subparagraphs (A) and (C) shall be repealed on
 
 2                January 1, 2006[.];
 
 3      (9)  Sales to a licensed leasing company of capital goods
 
 4           that have a depreciable life, are purchased by the
 
 5           leasing company for lease to its customers, and are
 
 6           thereafter leased as a service to others;
 
 7     (10)  Sales of services to a licensed seller engaging in a
 
 8           business or calling whenever:
 
 9           (A)  Either:
 
10                (i)  In the context of a service-to-service
 
11                     transaction, a service is rendered upon the
 
12                     order or request of a licensed seller for the
 
13                     purpose of rendering another service in the
 
14                     course of the seller's service business or
 
15                     calling;
 
16               (ii)  In the context of a [service-to-goods]
 
17                     service-to-tangible personal property
 
18                     transaction, a service is rendered upon the
 
19                     order or request of a licensed seller for the
 
20                     purpose of manufacturing, producing, or
 
21                     preparing[, or acquiring] tangible personal
 
22                     property to be sold;
 

 
 
 
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 1              (iii)  In the context of a services-to-contracting
 
 2                     transaction, a service is rendered upon the
 
 3                     order or request of a licensed contractor as
 
 4                     defined in section 237-6 for the purpose of
 
 5                     assisting that licensed contractor [in
 
 6                     executing a contract]; or
 
 7               (iv)  In the context of a services-to-transient
 
 8                     accommodations rental transaction, a service
 
 9                     is rendered upon the order or request of a
 
10                     person subject to tax under section 237D-2
 
11                     for the purpose of furnishing transient
 
12                     accommodations;
 
13           (B)  The benefit of the service passes to the customer
 
14                of the licensed seller, licensed contractor, or
 
15                person furnishing transient accommodations as an
 
16                identifiable element of the other service or
 
17                property to be sold, the contracting, or the
 
18                furnishing of transient accommodations; [and]
 
19           (C)  The cost of the service does not constitute
 
20                overhead to the licensed seller, licensed
 
21                contractor, or person furnishing transient
 
22                accommodations[.];
 

 
 
 
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 1           (D)  The gross income of the licensed seller is not
 
 2                divided between the licensed seller and another
 
 3                licensed seller, contractor, or person furnishing
 
 4                transient accommodations for imposition of the tax
 
 5                under this chapter;
 
 6           (E)  The gross income of the licensed seller is not
 
 7                subject to a deduction under this chapter or
 
 8                chapter 237D; and
 
 9           (F)  The resale of the service, tangible personal
 
10                property, contracting, or transient accommodations
 
11                is subject to the tax imposed under this chapter
 
12                at the highest tax rate.
 
13           Sales subject to this paragraph shall be subject to
 
14           section 237-13.3;
 
15     (11)  Sales to a licensed retail merchant, jobber, or other
 
16           licensed seller of bulk condiments or prepackaged
 
17           single-serving packets of condiments that are provided
 
18           to customers by the licensed retail merchant, jobber,
 
19           or other licensed seller; [and]
 
20     (12)  Sales to a licensed retail merchant, jobber, or other
 
21           licensed seller of tangible personal property that will
 
22           be incorporated or processed by the licensed retail
 
23           merchant, jobber, or other licensed seller into a
 

 
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 1           finished or saleable product during the course of its
 
 2           preparation for market (including disposable,
 
 3           nonreturnable containers, packages, or wrappers, in
 
 4           which the product is contained and that are generally
 
 5           known and most commonly used to contain food or
 
 6           beverage for transfer or delivery), and which finished
 
 7           or saleable product is to be sold and not otherwise
 
 8           used by the licensed retail merchant, jobber, or other
 
 9           licensed seller[.]; and
 
10     (13)  Sales of amusements subject to taxation under section
 
11           237-13(4) to a licensed seller engaging in a business
 
12           or calling whenever:
 
13           (A)  Either:
 
14                (i)  In the context of an amusement-to-service
 
15                     transaction, an amusement is rendered upon
 
16                     the order or request of a licensed seller for
 
17                     the purpose of rendering another service in
 
18                     the course of the seller's service business
 
19                     or calling;
 
20               (ii)  In the context of an amusement-to-tangible
 
21                     personal property transaction, an amusement
 
22                     is rendered upon the order or request of a
 

 
 
 
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 1                     licensed seller for the purpose of selling
 
 2                     tangible personal property; or
 
 3              (iii)  In the context of an amusement-to-amusement
 
 4                     transaction, an amusement is rendered upon
 
 5                     the order or request of a licensed seller for
 
 6                     the purpose of rendering another amusement in
 
 7                     the course of the person's amusement
 
 8                     business;
 
 9           (B)  The benefit of the amusement passes to the
 
10                customer of the licensed seller as an identifiable
 
11                element of the other service, tangible personal
 
12                property to be sold, or amusement;
 
13           (C)  The cost of the amusement does not constitute
 
14                overhead to the licensed seller;
 
15           (D)  The gross income of the licensed seller is not
 
16                divided between the licensed seller and another
 
17                licensed seller, person furnishing transient
 
18                accommodations, or person rendering an amusement
 
19                for imposition of the tax under chapter 237;
 
20           (E)  The gross income of the licensed seller is not
 
21                subject to a deduction under this chapter; and
 

 
 
 
 
 
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 1           (F)  The resale of the service, tangible personal
 
 2                property, or amusement is subject to the tax
 
 3                imposed under this chapter at the highest rate.
 
 4           As used in this paragraph, "amusement" means
 
 5           entertainment provided as part of a show for which
 
 6           there is an admission charge.  Sales subject to this
 
 7           paragraph shall be subject to section 237-13.3."
 
 8      SECTION 2.  Section 237-6, Hawaii Revised Statutes, is
 
 9 amended to read as follows:
 
10      "237-6 "Contractor", "contracting", "federal cost-plus
 
11 contractor", defined.  "Contracting" means the business
 
12 activities of a contractor.
 
13      "Contractor" includes, for purposes of this chapter: 
 
14      (1)  Every person engaging in the business of contracting to
 
15           erect, construct, repair, or improve buildings or
 
16           structures, of any kind or description, including any
 
17           portion thereof, or to make any installation therein,
 
18           or to make, construct, repair, or improve any highway,
 
19           road, street, sidewalk, ditch, excavation, fill,
 
20           bridge, shaft, well, culvert, sewer, water system,
 
21           drainage system, dredging or harbor improvement
 
22           project, electric or steam rail, lighting or power
 

 
 
 
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 1           system, transmission line, tower, dock, wharf, or other
 
 2           improvements; 
 
 3      (2)  Every person engaging in the practice of architecture,
 
 4           professional engineering, land surveying, and landscape
 
 5           architecture, as defined in section 464-1; and 
 
 6      (3)  Every person engaged in the practice of pest control or
 
 7           fumigation as a pest control operator as defined in
 
 8           section 460J-1. 
 
 9      "Federal cost-plus contractor" means a contractor having a
 
10 contract with the United States or an instrumentality thereof,
 
11 excluding national banks, where, by the terms of the contract,
 
12 the United States or such instrumentality, excluding national
 
13 banks, agrees to reimburse the contractor for the cost of
 
14 material, plant, or equipment used in the performance of the
 
15 contract and for taxes which the contractor may be required to
 
16 pay with respect to such material, plant, or equipment, whether
 
17 the contractor's profit is computed in the form of a fixed fee or
 
18 on a percentage basis; and also means a subcontractor under such
 
19 a contract, who also operates on a cost-plus basis."
 
20      SECTION 3.  Section 237-13, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "237-13  Imposition of tax.  There is hereby levied and
 
23 shall be assessed and collected annually privilege taxes against
 

 
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 1 persons on account of their business and other activities in the
 
 2 State measured by the application of rates against values of
 
 3 products, gross proceeds of sales, or gross income, whichever is
 
 4 specified, as follows:
 
 5      (1)  Tax on manufacturers.
 
 6           (A)  Upon every person engaging or continuing within
 
 7                the State in the business of manufacturing,
 
 8                including compounding, canning, preserving,
 
 9                packing, printing, publishing, milling,
 
10                processing, refining, or preparing for sale,
 
11                profit, or commercial use, either directly or
 
12                through the activity of others, in whole or in
 
13                part, any article or articles, substance or
 
14                substances, commodity or commodities, the amount
 
15                of the tax to be equal to the value of the
 
16                articles, substances, or commodities,
 
17                manufactured, compounded, canned, preserved,
 
18                packed, printed, milled, processed, refined, or
 
19                prepared for sale, as shown by the gross proceeds
 
20                derived from the sale thereof by the manufacturer
 
21                or person compounding, preparing, or printing
 
22                them, multiplied by one-half of one per cent.
 

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

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

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

 
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 1           (A)  Upon every person engaging or continuing in the
 
 2                business of selling any tangible personal property
 
 3                whatsoever (not including, however, bonds or other
 
 4                evidence of indebtedness, or stocks), there is
 
 5                likewise hereby levied, and shall be assessed and
 
 6                collected, a tax equivalent to four per cent of
 
 7                the gross proceeds of sales of the business;
 
 8                provided that insofar as certain retailing is
 
 9                taxed by section 237-16, the tax shall be that
 
10                levied by section 237-16, and in the case of a
 
11                wholesaler, the tax shall be equal to one-half of
 
12                one per cent of the gross proceeds of sales of the
 
13                business [and]; provided that insofar as the
 
14                [sales] sale of tangible personal property is a
 
15                wholesale sale under section 237-4(a)(8)(B), the
 
16                sale shall be subject to section 237-13.3.  Upon
 
17                every person engaging or continuing within this
 
18                State in the business of a producer, the tax shall
 
19                be equal to one-half of one per cent of the gross
 
20                proceeds of sales of the business, or the value of
 
21                the products, for sale, if sold for delivery
 
22                outside the State or shipped or transported out of
 
23                the State, and the value of the products shall be
 

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

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

 
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 1                the products, thus subjected to tax, may be
 
 2                deducted insofar as duplicated as to the same
 
 3                products by the measure of the tax upon the
 
 4                manufacturer or producer for the privilege of
 
 5                manufacturing or producing in the State; [except]
 
 6                provided that no producer of agricultural products
 
 7                who sells the products to a purchaser who will
 
 8                process the products outside the State shall be
 
 9                required to pay the tax imposed in this chapter
 
10                for the privilege of producing or selling those
 
11                products.
 
12           (E)  A taxpayer selling to a federal cost-plus
 
13                contractor may make the election provided for by
 
14                paragraph (3)(C), and in that case the tax shall
 
15                be computed pursuant to the election,
 
16                notwithstanding this paragraph or paragraph (1) to
 
17                the contrary.
 
18           (F)  The department, by rule, may require that a seller
 
19                take from the purchaser of tangible personal
 
20                property a certificate, in a form prescribed by
 
21                the department, certifying that the sale is a sale
 
22                at wholesale; provided that:
 

 
 
 
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 1                (i)  Any purchaser who furnishes a certificate
 
 2                     shall be obligated to pay to the seller, upon
 
 3                     demand, the amount of the additional tax that
 
 4                     is imposed upon the seller whenever the sale
 
 5                     in fact is not at wholesale; and
 
 6               (ii)  The absence of a certificate in itself shall
 
 7                     give rise to the presumption that the sale is
 
 8                     not at wholesale unless the sales of the
 
 9                     business are exclusively at wholesale.
 
10      (3)  Tax upon contractors.
 
11           (A)  Upon every person engaging or continuing within
 
12                the State in the business of contracting, the tax
 
13                shall be equal to four per cent of the gross
 
14                income of the business; provided that insofar as
 
15                the business of contracting is taxed by section
 
16                237-16, which relates to certain retailing, the
 
17                tax shall be that levied by section 237-16.
 
18           (B)  In computing the tax levied under this paragraph
 
19                or section 237-16, there shall be deducted from
 
20                the gross income of the taxpayer so much thereof
 
21                as has been included in the measure of the tax
 
22                levied under subparagraph (A) or section 237-16,
 
23                on:
 

 
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 1                (i)  Another taxpayer who is a contractor, as
 
 2                     defined in section 237-6;
 
 3               (ii)  A specialty contractor, duly licensed by the
 
 4                     department of commerce and consumer affairs
 
 5                     pursuant to section 444-9, in respect of the
 
 6                     specialty contractor's business; or
 
 7              (iii)  A specialty contractor who is not licensed by
 
 8                     the department of commerce and consumer
 
 9                     affairs pursuant to section 444-9, but who
 
10                     performs contracting activities on federal
 
11                     military installations and nowhere else in
 
12                     this State;
 
13                [but] provided that any person claiming a
 
14                deduction under this paragraph shall be required
 
15                to show in the person's return the name and
 
16                general excise number of the person paying the tax
 
17                on the amount deducted by the person.
 
18           (C)  In computing the tax levied under this paragraph
 
19                against any federal cost-plus contractor, there
 
20                shall be excluded from the gross income of the
 
21                contractor so much thereof as fulfills the
 
22                following requirements:
 

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

 
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                                     S.B. NO.           S.D. 1
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 1                the business of contracting, unless the person
 
 2                shows that at the time the person was engaged in
 
 3                making the improvements the person intended, and
 
 4                for the period of at least one year after
 
 5                completion of the building, structure, or other
 
 6                improvements the person continued to intend to
 
 7                hold and not sell or otherwise dispose of the land
 
 8                or improvements.  The tax in respect of the
 
 9                improvements shall be measured by the amount of
 
10                the proceeds of the sale or other disposition that
 
11                is attributable to the erection, construction, or
 
12                improvement of such building or structure, or the
 
13                making, constructing, or improving of the road,
 
14                street, sidewalk, sewer, or water system, or other
 
15                improvements.  The measure of tax in respect of
 
16                the improvements shall not exceed the amount which
 
17                would have been taxable had the work been
 
18                performed by another, subject as in other cases to
 
19                the deductions allowed by subparagraph (B).  Upon
 
20                the election of the taxpayer, this paragraph may
 
21                be applied notwithstanding that the improvements
 
22                were not made by the taxpayer, or were not made as
 
23                a business or as a part of a business, or were
 

 
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 1                made with the intention of holding the same.
 
 2                However, this paragraph shall not apply in respect
 
 3                of any proceeds that constitute or are in the
 
 4                nature of rent; all such gross income shall be
 
 5                taxable under paragraph (9); provided that insofar
 
 6                as the business of renting or leasing real
 
 7                property under a lease is taxed under section 237-
 
 8                16.5, the tax shall be levied by section 237-16.5.
 
 9      (4)  Tax upon theaters, amusements, radio broadcasting
 
10           stations, etc.
 
11           (A)  Upon every person engaging or continuing within
 
12                the State in the business of operating a theater,
 
13                opera house, moving picture show, vaudeville,
 
14                amusement park, dance hall, skating rink, radio
 
15                broadcasting station, or any other place at which
 
16                amusements are offered to the public, the tax
 
17                shall be equal to four per cent of the gross
 
18                income of the business[.], and in the case of a
 
19                sale of an amusement at wholesale under section
 
20                237-4(a)(13), the tax shall be subject to section
 
21                237-13.3.
 
22           (B)  The department may require that the person
 
23                rendering an amusement at wholesale take from the
 

 
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                                                        H.D. 3
                                                        


 1                licensed seller a certificate, in a form
 
 2                prescribed by the department, certifying that the
 
 3                sale is a sale at wholesale; provided that:
 
 4                (i)  Any licensed seller who furnishes a
 
 5                     certificate shall be obligated to pay to the
 
 6                     person rendering the amusement, upon demand,
 
 7                     the amount of additional tax that is imposed
 
 8                     upon the seller whenever the sale is not at
 
 9                     wholesale; and
 
10               (ii)  The absence of a certificate in itself shall
 
11                     give rise to the presumption that the sale is
 
12                     not at wholesale unless the person rendering
 
13                     the sale is exclusively rendering the
 
14                     amusement at wholesale.
 
15      (5)  Tax upon sales representatives, etc. Upon every person
 
16           classified as a representative or purchasing agent
 
17           under section 237-1, engaging or continuing within the
 
18           State in the business of performing services for
 
19           another, other than as an employee, there is likewise
 
20           hereby levied and shall be assessed and collected a tax
 
21           equal to four per cent of the commissions and other
 
22           compensation attributable to the services so rendered
 
23           by the person.
 

 
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 1      (6)  Tax on service business.
 
 2           (A)  Upon every person engaging or continuing within
 
 3                the State in any service business or calling
 
 4                including professional services not otherwise
 
 5                specifically taxed under this chapter, there is
 
 6                likewise hereby levied and shall be assessed and
 
 7                collected a tax equal to four per cent of the
 
 8                gross income of the business, and in the case of a
 
 9                wholesaler under section 237-4(a)(10), the tax
 
10                shall be equal to one-half of one per cent of the
 
11                gross income of the business.  [Sales subject to
 
12                this subparagraph] Notwithstanding the foregoing,
 
13                a wholesaler under section 237-4(a)(10) shall be
 
14                subject to section 237-13.3.
 
15           (B)  The department[, by rule,] may require that the
 
16                person rendering a service at wholesale take from
 
17                the licensed seller a certificate, in a form
 
18                prescribed by the department, certifying that the
 
19                sale is a sale at wholesale; provided that:
 
20                (i)  Any licensed seller who furnishes a
 
21                     certificate shall be obligated to pay to the
 
22                     person rendering the service, upon demand,
 
23                     the amount of additional tax that is imposed
 

 
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 1                     upon the seller whenever the sale is not at
 
 2                     wholesale; and
 
 3               (ii)  The absence of a certificate in itself shall
 
 4                     give rise to the presumption that the sale is
 
 5                     not at wholesale unless the person rendering
 
 6                     the sale is exclusively rendering services at
 
 7                     wholesale.
 
 8           (C)  Where any person engaging or continuing within the
 
 9                State in any service business or calling renders
 
10                those services upon the order of or at the request
 
11                of another taxpayer who is engaged in the service
 
12                business and who, in fact, acts as or acts in the
 
13                nature of an intermediary between the person
 
14                rendering those services and the ultimate
 
15                recipient of the benefits of those services, so
 
16                much of the gross income as is received by the
 
17                person rendering the services shall be subjected
 
18                to the tax at the rate of one-half of one per cent
 
19                and all of the gross income received by the
 
20                intermediary from the principal shall be subjected
 
21                to a tax at the rate of four per cent.  Where the
 
22                taxpayer is subject to both this subparagraph and
 
23                to the lowest tax rate under subparagraph (A), the
 

 
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 1                taxpayer shall be taxed under this subparagraph.
 
 2                This subparagraph shall be repealed on January 1,
 
 3                2006.
 
 4           (D)  Where any person is engaged in the business of
 
 5                selling interstate or foreign common carrier
 
 6                telecommunication services within and without the
 
 7                State, the tax shall be imposed on that portion of
 
 8                gross income received by a person from service
 
 9                which is originated or terminated in this State
 
10                and is charged to a telephone number, customer, or
 
11                account in this State notwithstanding any other
 
12                state law (except for the exemption under section
 
13                237-23(a)(1)) to the contrary.  If, under the
 
14                Constitution and laws of the United States, the
 
15                entire gross income as determined under this
 
16                paragraph of a business selling interstate or
 
17                foreign common carrier telecommunication services
 
18                cannot be included in the measure of the tax, the
 
19                gross income shall be apportioned as provided in
 
20                section 237-21; provided that the apportionment
 
21                factor and formula shall be the same for all
 
22                persons providing those services in the State.
 

 
 
 
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 1      (7)  Tax on insurance solicitors and agents.  Upon every
 
 2           person engaged as a licensed solicitor, general agent,
 
 3           or subagent pursuant to chapter 431, there is hereby
 
 4           levied and shall be assessed and collected a tax equal
 
 5           to .15 per cent of the commissions due to that
 
 6           activity.
 
 7      (8)  Tax on receipts of sugar benefit payments.  Upon the
 
 8           amounts received from the United States government by
 
 9           any producer of sugar (or the producer's legal
 
10           representative or heirs), as defined under and by
 
11           virtue of the Sugar Act of 1948, as amended, or other
 
12           Acts of the Congress of the United States relating
 
13           thereto, there is hereby levied a tax of one-half of
 
14           one per cent of the gross amount received; provided
 
15           that the tax levied hereunder on any amount so received
 
16           and actually disbursed to another by a producer in the
 
17           form of a benefit payment shall be paid by the person
 
18           or persons to whom the amount is actually disbursed,
 
19           and the producer actually making a benefit payment to
 
20           another shall be entitled to claim on the producer's
 
21           return a deduction from the gross amount taxable
 
22           hereunder in the sum of the amount so disbursed.  The
 
23           amounts taxed under this paragraph shall not be taxable
 

 
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                                                        H.D. 3
                                                        


 1           under any other paragraph, subsection, or section of
 
 2           this chapter.
 
 3      (9)  Tax on other business.  Upon every person engaging or
 
 4           continuing within the State in any business, trade,
 
 5           activity, occupation, or calling not included in the
 
 6           preceding paragraphs or any other provisions of this
 
 7           chapter, there is likewise hereby levied and shall be
 
 8           assessed and collected, a tax equal to four per cent of
 
 9           the gross income thereof.  In addition, the rate
 
10           prescribed by this paragraph shall apply to a business
 
11           taxable under one or more of the preceding paragraphs
 
12           or other provisions of this chapter, as to any gross
 
13           income thereof not taxed thereunder as gross income or
 
14           gross proceeds of sales or by taxing an equivalent
 
15           value of products, unless specifically exempted."
 
16      SECTION 4.  Section 237-13.3, Hawaii Revised Statutes, is
 
17 amended by amending its title and subsection (a) to read as
 
18 follows:
 
19      "[[]237-13.3[]]  Application of sections 237-4(a)(8), 237-
 
20 4(a)(10), 237-4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-
 
21 13(6)(A).(a)  Sections 237-4(a)(8), 237-4(a)(10), 237-
 
22 4(a)(13), 237-13(2)(A), 237-13(4)(A), and 237-13(6)(A) to the
 
23 contrary notwithstanding, instead of the tax levied under
 

 
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                                                        H.D. 3
                                                        


 1 [sections 237-4 and] section 237-13(2)(A) on wholesale sales
 
 2 subject to section 237-4(a)(8)(B), under section 237-13(4)(A) on
 
 3 a wholesaler subject to section 237-4(a)(13), and under section
 
 4 237-13(6)(A) on a wholesaler subject to section 237-4(a)(10) at
 
 5 one-half of one per cent, during the period January 1, 2000, to
 
 6 December 31, 2005, the tax shall be as follows:
 
 7      (1)  In calendar year 2000, 3.5 per cent;
 
 8      (2)  In calendar year 2001, 3.0 per cent;
 
 9      (3)  In calendar year 2002, 2.5 per cent;
 
10      (4)  In calendar year 2003, 2.0 per cent;
 
11      (5)  In calendar year 2004, 1.5 per cent;
 
12      (6)  In calendar year 2005, 1.0 per cent; and
 
13      (7)  In calendar year 2006 and thereafter, the tax shall be
 
14           0.5 per cent."
 
15      SECTION 5.  Section 237-16, Hawaii Revised Statutes, is
 
16 amended by amending subsection (e) to read as follows:
 
17      "(e)  This section shall not apply to:
 
18      (1)  Sales of tangible personal property treated as a
 
19           wholesale sale under section 237-4(a)(8)(B) to a
 
20           licensed seller engaged in a service business or
 
21           calling or a licensed person furnishing transient
 
22           accommodations; or
 

 
 
 
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                                                        H.D. 3
                                                        


 1      (2)  Sales of services treated as a wholesale sale under
 
 2           section 237-4(a)(10) to a licensed seller engaged in a
 
 3           service business or calling, a licensed contractor as
 
 4           defined in section 237-6, or a licensed person
 
 5           furnishing transient accommodations."
 
 6      SECTION 6.  Section 237-29.53, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "237-29.53  Exemption for contracting or services exported
 
 9 out of State.(a)  There shall be exempted from, and excluded
 
10 from the measure of, taxes imposed by this chapter, all of the
 
11 value or gross income derived from contracting (as defined under
 
12 section 237-6) or services performed by a person engaged in a
 
13 service business or calling in the State for [a customer located]
 
14 use outside the State where:
 
15      (1)  The contracting or services are for resale,
 
16           consumption, or use outside the State; and
 
17      (2)  The value or gross income derived from the contracting
 
18           or services performed would otherwise be subject to the
 
19           tax imposed under this chapter on contracting or
 
20           services at the highest rate.
 
21 For the purposes of this subsection, the seller or person
 
22 rendering the contracting or services exported and resold,
 
23 consumed, or used outside the State shall take from the customer,
 

 
Page 34                                                    2945
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                                                        H.D. 3
                                                        


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

 
Page 35                                                    2945
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                                                        H.D. 3
                                                        


 1 customer of the purchaser who has complied with] for resale,
 
 2 consumption, or use outside the State pursuant to subsection (a).
 
 3 Any purchaser 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 services purchased is not resold in its entirety to a customer of
 
 7 the purchaser who has complied with subsection (a), the amount of
 
 8 the additional tax which by reason thereof is imposed upon the
 
 9 seller or the person rendering the contracting or service.
 
10      [(c)  For purposes of this section, "service business or
 
11 calling" includes all activities engaged in for other persons for
 
12 a consideration that involve the rendering of a service as
 
13 distinguished from the sale of tangible personal property or the
 
14 production and sale of tangible personal property.  "Service
 
15 business or calling" includes professional services, but does not
 
16 include service rendered by an employee to the employee's
 
17 employer.]"
 
18      SECTION 7.  Section 238-1, Hawaii Revised Statutes, is
 
19 amended as follows:
 
20      1.  By amending the definitions of "price", "purchase" and
 
21 "sale", "purchaser", "representation", "seller", and "use" to
 
22 read:
 

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

 
Page 37                                                    2945
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                                                        H.D. 3
                                                        


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

 
Page 38                                                    2945
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                                                        H.D. 3
                                                        


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

 
 
 
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                                                        H.D. 3
                                                        


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

 
 
 
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                                                        H.D. 3
                                                        


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

 
 
 
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 1      (9)  The use of services or contracting imported for resale
 
 2           [to a foreign customer located outside the State to the
 
 3           extent the services are resold, consumed, or used by
 
 4           that foreign customer] where the contracting or
 
 5           services are for resale, consumption, or use outside
 
 6           the State pursuant to section 237-29.53(a)[.]; and
 
 7     (10)  The use of contracting imported or purchased by a
 
 8           contractor as defined in section 237-6 who is:
 
 9           (A)  Licensed under chapter 237;
 
10           (B)  Engaged in business as a contractor; and
 
11           (C)  Subject to the tax imposed under section 238-2.3.
 
12      With regard to purchases made and distributed under the
 
13 authority of chapter 421, a cooperative association shall be
 
14 deemed the user thereof."
 
15      2.  By repealing the definition of "foreign customer".
 
16      [""Foreign customer" means a nonresident person who:
 
17      (1)  Is not subject to chapter 237;
 
18      (2)  Has not been physically present in the State for more
 
19           than thirty days in the six months prior to entering
 
20           into a written exported contracting or services
 
21           agreement with a person licensed under chapter 237
 
22           engaged in contracting (as defined in section 237-6) or
 
23           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      SECTION 8.  Section 238-2, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "238-2  Imposition of tax; exemptions.  There is hereby
 
 8 levied an excise tax on the use in this State of tangible
 
 9 personal property which is imported, or purchased from an
 
10 unlicensed seller, for use in this State.  The tax imposed by
 
11 this chapter shall accrue when the property is acquired by the
 
12 importer or purchaser and becomes subject to the taxing
 
13 jurisdiction of the State.  The rates of the tax hereby imposed
 
14 and the exemptions thereof are as follows:
 
15      (1)  If the importer or purchaser is licensed under chapter
 
16           237 and is:
 
17           (A)  A wholesaler or jobber importing or purchasing for
 
18                purposes of resale; or
 
19           (B)  A manufacturer importing or purchasing material or
 
20                commodities which are to be incorporated by the
 
21                manufacturer into a finished or saleable product
 
22                (including the container or package in which the
 
23                product is contained) wherein it will remain in
 

 
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 1                such form as to be perceptible to the senses, and
 
 2                which finished or saleable product is to be sold
 
 3                in such manner as to result in a further tax on
 
 4                the activity of the manufacturer as the
 
 5                manufacturer or as a wholesaler, and not as a
 
 6                retailer,
 
 7           there shall be no tax; provided that if the wholesaler,
 
 8           jobber, or manufacturer is also engaged in business as
 
 9           a retailer (so classed under chapter 237), paragraph
 
10           (2) shall apply to the wholesaler, jobber, or
 
11           manufacturer, but the director of taxation shall refund
 
12           to the wholesaler, jobber, or manufacturer, in the
 
13           manner provided under section 231-23(c) such amount of
 
14           tax as the wholesaler, jobber, or manufacturer shall,
 
15           to the satisfaction of the director, establish to have
 
16           been paid by the wholesaler, jobber, or manufacturer to
 
17           the director with respect to property which has been
 
18           used by the wholesaler, jobber, or manufacturer for the
 
19           purposes stated in this paragraph;
 
20      (2)  If the importer or purchaser is licensed under chapter
 
21           237 and is:
 

 
 
 
 
 
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                                                        H.D. 3
                                                        


 1           (A)  A retailer or other person importing or purchasing
 
 2                for purposes of resale, not exempted by paragraph
 
 3                (1);
 
 4           (B)  A manufacturer importing or purchasing material or
 
 5                commodities which are to be incorporated by the
 
 6                manufacturer into a finished or saleable product
 
 7                (including the container or package in which the
 
 8                product is contained) wherein it will remain in
 
 9                such form as to be perceptible to the senses, and
 
10                which finished or saleable product is to be sold
 
11                at retail in this State, in such manner as to
 
12                result in a further tax on the activity of the
 
13                manufacturer in selling such products at retail;
 
14           (C)  A contractor importing or purchasing material or
 
15                commodities which are to be incorporated by the
 
16                contractor into the finished work or project
 
17                required by the contract and which will remain in
 
18                such finished work or project in such form as to
 
19                be perceptible to the senses; or
 
20           (D)  A person engaged in a service business or calling
 
21                as defined in section 237-7, or a person
 
22                furnishing transient accommodations subject to the
 
23                tax imposed by section 237D-2, in which the import
 

 
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                                                        H.D. 3
                                                        


 1                or purchase of tangible personal property would
 
 2                have qualified as a sale at wholesale as defined
 
 3                in section 237-4(a)(8) had the seller of the
 
 4                property been subject to the tax in chapter 237,
 
 5                the tax shall be one-half of one per cent of the
 
 6                purchase price of the property, if the purchase
 
 7                and sale are consummated in Hawaii; or, if there
 
 8                is no purchase price applicable thereto, or if the
 
 9                purchase [or a person furnishing transient
 
10                accommodations subject to the tax imposed by
 
11                section 237D-2,] or sale is consummated outside of
 
12                Hawaii, then one-half of one per cent of the value
 
13                of such property;
 
14           and
 
15      (3)  In all other cases, four per cent of the value of the
 
16           property."
 
17      SECTION 9.  Section 238-2.3, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      "238-2.3  Imposition of tax on imported services;
 
20 exemptions.  There is hereby levied an excise tax on the value of
 
21 services or contracting as defined in section 237-6 that are
 
22 performed by an unlicensed seller at a point outside the State
 
23 and imported or purchased for use in this State.  The tax imposed
 

 
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                                     S.B. NO.           S.D. 1
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 1 by this chapter shall accrue when the service or contracting as
 
 2 defined in section 237-6 is received by the importer or purchaser
 
 3 and becomes subject to the taxing jurisdiction of the State.  The
 
 4 rates of the tax hereby imposed and the exemptions from the tax
 
 5 are as follows:
 
 6      (1)  If the importer or purchaser is licensed under chapter
 
 7           237 and is:
 
 8           (A)  Engaged in a service business or calling in which
 
 9                the imported or purchased services or contracting
 
10                become identifiable elements, excluding overhead,
 
11                of the services rendered[,] by the importer or
 
12                purchaser, and the gross income of the importer or
 
13                purchaser is subject to the tax imposed under
 
14                chapter 237 on services at the rate of one-half of
 
15                one per cent[;] or the rate of tax imposed under
 
16                section 237-13.3; or
 
17           (B)  A manufacturer importing or purchasing services or
 
18                contracting that become identifiable elements,
 
19                excluding overhead, of a finished or saleable
 
20                product (including the container or package in
 
21                which the product is contained) and the finished
 
22                or saleable product is to be sold in a manner that
 

 
 
 
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 1                results in a further tax on the activity of the
 
 2                manufacturer as a wholesaler, and not a retailer;
 
 3           there shall be no tax imposed on the value of the
 
 4           imported or purchased services[;] or contracting;
 
 5           provided that if the manufacturer is also engaged in
 
 6           business as a retailer as classified under chapter 237,
 
 7           paragraph (2) shall apply to the manufacturer, but the
 
 8           director of taxation shall refund to the manufacturer,
 
 9           in the manner provided under section 231-23(c), that
 
10           amount of tax that the manufacturer, to the
 
11           satisfaction of the director, shall establish to have
 
12           been paid by the manufacturer to the director with
 
13           respect to services that have been used by the
 
14           manufacturer for the purposes stated in this paragraph.
 
15      (2)  If the importer or purchaser is a person licensed under
 
16           chapter 237 and is:
 
17           (A)  Engaged in a service business or calling in which
 
18                the imported or purchased services or contracting
 
19                become identifiable elements, excluding overhead,
 
20                of the services rendered[,] by the importer or
 
21                purchaser, and the gross income from those
 
22                services when sold by the importer or purchaser is
 

 
 
 
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 1                subject to the tax imposed under chapter 237 at
 
 2                the highest rate; [or]
 
 3           (B)  A manufacturer importing or purchasing services or
 
 4                contracting that become identifiable elements,
 
 5                excluding overhead, of the finished or saleable
 
 6                manufactured product (including the container or
 
 7                package in which the product is contained) and the
 
 8                finished or saleable product is to be sold in a
 
 9                manner that results in a further tax under chapter
 
10                237 on the activity of the manufacturer as a
 
11                retailer; or
 
12           (C)  A contractor importing or purchasing services or
 
13                contracting that become identifiable elements,
 
14                excluding overhead, of the finished work or
 
15                project required, under the contract, and where
 
16                the gross proceeds derived by the contractor are
 
17                subject to the tax under section 237-13(3) or 237-
 
18                16 as a contractor[;],
 
19           the tax shall be one-half of one per cent of the value
 
20           of the imported or purchased services[.] or
 
21           contracting; and
 
22      (3)  In all other cases, the importer or purchaser is
 
23           subject to the tax at the rate of four per cent on the
 

 
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 1           value of the imported or purchased services[.] or
 
 2           contracting."
 
 3      SECTION 10.  Section 238-3, Hawaii Revised Statutes, is
 
 4 amended as follows:
 
 5      1.  By amending subsections (a), (b), (c), and (d) to read:
 
 6      "(a)  The tax imposed by this chapter shall not apply to any
 
 7 property [or], services, or contracting or to any use of the
 
 8 property [or], services, or contracting [which] that cannot
 
 9 legally be so taxed under the Constitution or laws of the United
 
10 States, but only so long as, and only to the extent to which the
 
11 State is without power to impose the tax.
 
12      To the extent that any exemption, exclusion, or
 
13 apportionment is necessary to comply with the preceding sentence,
 
14 the director of taxation shall:
 
15      (1)  Exempt or exclude from the tax under this chapter,
 
16           property, services, or contracting or the use of
 
17           property, services, or contracting exempted under
 
18           chapter 237; or
 
19      (2)  Apportion the gross value of services or contracting
 
20           sold to customers within the State by persons engaged
 
21           in business both within and without the State to
 
22           determine the value of that portion of the services or
 

 
 
 
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 1           contracting that is subject to taxation under chapter
 
 2           237 for the purposes of section 237-21.
 
 3      Any provision of law to the contrary notwithstanding,
 
 4 exemptions or exclusions from tax under this chapter allowed on
 
 5 or before April 1, 1978, under the provisions of the Constitution
 
 6 of the United States or an act of the Congress of the United
 
 7 States to persons or common carriers engaged in interstate or
 
 8 foreign commerce, or both, whether ocean-going or air, shall
 
 9 continue undiminished and be available thereafter.
 
10      (b)  The tax imposed by this chapter shall not apply to any
 
11 use of property [or], services, or contracting the transfer of
 
12 which property [or], services, or contracting to, or the
 
13 acquisition of which by, the person so using the same, has
 
14 actually been or actually is taxed under chapter 237.
 
15      (c)  The tax imposed by this chapter shall be paid only once
 
16 upon or in respect of the same property [or], services[;], or
 
17 contracting; provided that nothing in this chapter contained
 
18 shall be construed to exempt any property [or], services, or
 
19 contracting, or the use thereof from taxation under any other law
 
20 of the State.
 
21      (d)  The tax imposed by this chapter shall be in addition to
 
22 any other taxes imposed by any other laws of the State, except as
 
23 otherwise specifically provided herein; provided that if it be
 

 
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 1 finally held by any court of competent jurisdiction, that the tax
 
 2 imposed by this chapter may not legally be imposed in addition to
 
 3 any other tax or taxes imposed by any other law or laws with
 
 4 respect to the same property [or], services, or contracting, or
 
 5 the use thereof, then this chapter shall be deemed not to apply
 
 6 to the property [or], services, or contracting, [and] or the use
 
 7 thereof under such specific circumstances, but such other laws
 
 8 shall be given full effect with respect to the property [or],
 
 9 services, or contracting, [and] or use."
 
10      2.  By amending subsections (i) and (j) to read:
 
11      "(i)  Each taxpayer liable for the tax imposed by this
 
12 chapter on tangible personal property [or], services, or
 
13 contracting shall be entitled to full credit for the combined
 
14 amount or amounts of legally imposed sales or use taxes paid by
 
15 the taxpayer with respect to the same transaction and property
 
16 [or], services, or contracting to another state and any
 
17 subdivision thereof, but such credit shall not exceed the amount
 
18 of the use tax imposed under this chapter on account of the
 
19 transaction and property [or], services[.], or contracting.  The
 
20 director of taxation may require the taxpayer to produce the
 
21 necessary receipts or vouchers indicating the payment of the
 
22 sales or use tax to another state or subdivision as a condition
 
23 for the allowance of the credit.
 

 
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 1      (j)  The tax imposed by this chapter shall not apply to any
 
 2 use of property [or], services, or contracting exempted by
 
 3 section 237-26 or section 237-29."
 
 4      SECTION 11.  Section 238-5, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (a) to read as follows:
 
 6      "(a)  On or before the last day of each calendar month, any
 
 7 person who has become liable for the payment of a tax under this
 
 8 chapter during the preceding calendar month in respect of any
 
 9 property [or], services, or contracting, or the use thereof,
 
10 shall file a return with the assessor of the taxation district in
 
11 which the property was held or the services or contracting were
 
12 received when the tax first became payable, or with the director
 
13 of taxation at Honolulu, setting forth a description of the
 
14 property [or], services, or contracting and the character and
 
15 quantity thereof in sufficient detail to identify the same or
 
16 otherwise in such reasonable detail as the director by rule shall
 
17 require, and the purchase price or value thereof as the case may
 
18 be.  The return shall be accompanied by a remittance in full of
 
19 the tax, computed at the rate specified in section 238-2 or 238-
 
20 2.3 upon the price or value so returned.  Any tax remaining
 
21 unpaid after the last day following the end of the calendar month
 
22 during which the tax first became payable shall become
 
23 delinquent; provided that a receipt from a seller required or
 

 
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 1 authorized to collect the tax, given to a taxpayer in accordance
 
 2 with section 238-6, shall be sufficient to relieve the taxpayer
 
 3 from further liability for the tax to which the receipt may
 
 4 refer, or for the return thereof."
 
 5      SECTION 12.  Section 238-6, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (a) to read as follows:
 
 7      "(a)  For purposes of the taxes due under sections 238-2(3),
 
 8 238-2.5, and 238-2.3, every seller having in the State, regularly
 
 9 or intermittently, any property, tangible or intangible, any
 
10 place of business, or any representation as hereinabove defined,
 
11 (and irrespective of the seller's having or not having qualified
 
12 to do business in the State) shall, if the seller makes sales of
 
13 property [or], services, or contracting for use in the State
 
14 (whether or not the sales are made in the State), collect from
 
15 the purchaser the taxes imposed by sections 238-2(3), 238-2.5,
 
16 and 238-2.3, on the use of the property [or], services, or
 
17 contracting so sold by the seller.  The collection shall be made
 
18 within twenty days after the accrual of the tax or within such
 
19 other period as shall be fixed by the director of taxation upon
 
20 the application of the seller, and the seller shall give to the
 
21 purchaser a receipt therefor in the manner and form prescribed by
 
22 the director; provided that this subsection shall not apply to
 
23 vehicles registered under section 286-50."
 

 
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 1      SECTION 13.  Section 238-9, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "238-9  Records.  Every person who is engaged in any
 
 4 business in the State and who is required under this chapter to
 
 5 make returns, shall keep in the English language in the State and
 
 6 preserve for a period of three years, books of account or other
 
 7 records in sufficient detail to enable the director of taxation,
 
 8 as far as reasonably practicable, to determine whether or not any
 
 9 taxes imposed by this chapter are payable in respect of the
 
10 property [or], services, or contracting concerned, and if so
 
11 payable, the amount thereof."
 
12      SECTION 14.  Section 239-5, Hawaii Revised Statutes, is
 
13 amended by amending subsection (c) to read as follows:
 
14      "(c)  Notwithstanding subsection (a), the rate of tax upon
 
15 the portion of the gross income of [a]:
 
16      (1)  A public utility [which] that consists of the receipts
 
17           from the sale of its products or services to another
 
18           public utility [which] that resells such products or
 
19           services shall be one-half of one per cent[,]; or
 
20      (2)  A public utility engaged in the business of selling
 
21           telecommunication services to a person defined in
 
22           section 237-13(6)(D) who resells such products or
 
23           services, shall be as follows:
 

 
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 1           (A)  In calendar year 2000, 5.5 per cent;
 
 2           (B)  In calendar year 2001, 5.0 per cent;
 
 3           (C)  In calendar year 2002, 4.5 per cent;
 
 4           (D)  In calendar year 2003, 4.0 per cent;
 
 5           (E)  In calendar year 2004, 3.5 per cent;
 
 6           (F)  In calendar year 2005, 3.0 per cent;
 
 7           (G)  In calendar year 2006, 2.5 per cent; and
 
 8           (H)  In calendar year 2007, and thereafter, 0.5 per
 
 9                cent;
 
10 provided that the resale of the products, services, or
 
11 telecommunication services is subject to taxation under this
 
12 section[,] or subject to taxation at the highest rate under
 
13 section 237-13(6); and provided further that the public utility's
 
14 exemption from real property taxes imposed by chapter 246 shall
 
15 be reduced by the proportion that its public utility gross income
 
16 described herein bears to its total public utility gross income.
 
17 Whenever the public utility has other public utility gross
 
18 income, the gross income from the sale of its products or
 
19 services to another public utility or a person subject to section
 
20 237-13(6)(D) shall be included in applying subsection (a) in
 
21 determining the rate of tax upon the other public utility gross
 
22 income.  The department shall have the authority to implement the
 
23 tax rate changes in paragraph (2) by prescribing tax forms and
 

 
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 1 instructions that require tax reporting and payment by deduction,
 
 2 allocation, or any other method to determine tax liability with
 
 3 due regard to the tax rate changes."
 
 4      SECTION 15.  Section 239-6, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "239-6  Airlines, certain carriers.  (a)  There shall be
 
 7 levied and assessed upon each airline a tax of four per cent of
 
 8 its gross income each year from the airline business; provided
 
 9 that if an airline adopts a rate schedule for students in grade
 
10 twelve or below traveling in school groups providing such
 
11 students at reasonable hours a rate less than one-half of the
 
12 regular adult fare, the tax shall be three per cent of its gross
 
13 income each year from the airline business.
 
14      (b)  There shall be levied and assessed upon each motor
 
15 carrier, each common carrier by water, and upon each contract
 
16 carrier other than a motor carrier, a tax of four per cent of its
 
17 gross income each year from the motor carrier or contract carrier
 
18 business.
 
19      (c)  The tax imposed by this section is a means of taxing
 
20 the personal property of the airline or other carrier, tangible
 
21 and intangible, including going concern value, and is in lieu of
 
22 the tax imposed by chapter 237 but is not in lieu of any other
 
23 tax.
 

 
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 1      (d)  Notwithstanding subsections (a), (b), and (c), the rate
 
 2 of tax upon the portion of the gross income of a motor carrier
 
 3 which consists of the receipts from the sale of its products or
 
 4 services to a contractor shall be as follows:
 
 5      (1)  In calendar year 2000, 3.5 per cent;
 
 6      (2)  In calendar year 2001, 3.0 per cent;
 
 7      (3)  In calendar year 2002, 2.5 per cent;
 
 8      (4)  In calendar year 2003, 2.0 per cent;
 
 9      (5)  In calendar year 2004, 1.5 per cent;
 
10      (6)  In calendar year 2005, 1.0 per cent; and
 
11      (7)  In calendar year 2006, and thereafter, 0.5 per cent;
 
12 provided that there is a resale of the products or services and
 
13 the resale by the contractor is subject to taxation at the
 
14 highest rate under section 237-13 or 237-16; the gross income of
 
15 the motor carrier is not divided as provided in the definition of
 
16 "gross income" in section 239-2 for the tax imposed under this
 
17 chapter or chapter 237; and the gross income of the motor carrier
 
18 from the sale of its products or services to the contractor is
 
19 not subject to a deduction under chapter 237 by the contractor;
 
20 and in the case of services provided by the motor carrier, the
 
21 benefit of the service passes to the customer of the contractor
 
22 as an identifiable element of the contracting or service provided
 

 
 
 
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 1 by the contractor and does not constitute overhead as defined in
 
 2 section 237-1.
 
 3      The department shall have the authority to implement the tax
 
 4 rate changes in paragraphs (1) through (7) by prescribing tax
 
 5 forms and instructions that require tax reporting and payment by
 
 6 deduction, allocation, or any other method to determine tax
 
 7 liability with due regard to the tax rate changes.
 
 8      For purposes of this subsection, "contractor" has the same
 
 9 meaning as defined in section 237-6."
 
10      SECTION 16.  Statutory material to be repealed is bracketed.
 
11 New statutory material is underscored.
 
12      SECTION 17.  This Act, upon its approval, shall apply to
 
13 gross income or gross proceeds received after December 31, 1999;
 
14 provided that:
 
15      (1)  Sections 7 through 13 shall apply to taxes accruing
 
16           after December 31, 1999; and
 
17      (2)  Sections 14 and 15 shall take effect on January 1,
 
18           2001, so that the amendments made by sections 14 and 15
 
19           shall apply to the entire gross income received by a
 
20           public service company for the calendar year preceding
 
21           January 1, 2001, and for the calendar years thereafter.
 
22           In the case of a public service company operating on a
 
23           fiscal year basis, the amendments made by sections 14
 

 
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 1           and 15 shall apply to the entire gross income received
 
 2           for the fiscal year in which January 1, 2001, occurs
 
 3           and for fiscal years thereafter.