HOUSE OF REPRESENTATIVES
TWENTY-EIGHTH LEGISLATURE, 2016
STATE OF HAWAII
A BILL FOR AN ACT
relating to general excise tax exemptions.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that Hawaii residents continue to face a high cost-of-living. Various reports have highlighted the financial challenges of living in Hawaii. In a 2014 report, Hawaii had a cost-of-living rank of forty-nine, making it the second most expensive state in America. In another 2014 report, Hawaii was ranked as the most expensive state in the nation. Furthermore, in 2014, Honolulu's cost-of-living was ranked as the second most expensive in the country: utilities, groceries, transportation, and gasoline costs are all higher than the national average, at 71.5 per cent, 55.2 per cent, 26.9 per cent, and 21.7 per cent, respectively. Statewide, Hawaii's cost-of-living is 69.1 per cent higher than the national average. Moreover, Hawaii's general excise tax has been deemed the most burdensome in the country when equated to a sales tax.
One way to address this high cost-of-living is to create an exemption from the general excise tax on essential items and services, namely food, housing, and medical services. These are basic necessities for all residents in our state. While our general excise tax is not identical to a sales tax, excluding food and medical services from sales tax is a common practice: thirty-three states exempt food from state sales tax, while an additional six states tax food at a lower rate. Additionally, states, such as California and West Virginia, exempt sales tax on certain qualifying rental properties. Furthermore, certain states, such as California and New York, exempt medical and health care services from state sales tax.
The purpose of this Act is to help reduce the impact of the general excise tax and thereby reduce the cost-of-living for Hawaii residents by exempting amounts received for food, low-income housing, and medical services. The exemption for food shall not include alcoholic beverages, soft drinks, tobacco, or prepared foods, except for prepared foods served to the elderly and disabled, and prepared foods for certain human services programs.
SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§237-A Amounts not taxable for food. (a) The excise tax assessed under this chapter shall not apply to amounts received for food or food ingredients.
(b) The excise tax assessed under this chapter shall apply to food or food ingredients that are furnished, prepared, or served as meals, except:
(1) In the case of persons sixty years of age or over or who receive supplemental security income benefits or disability or blindness payments under title I, II, X, XIV, or XVI of the Social Security Act (42 U.S.C. 301 et seq., 401 et seq., 1201 et seq., 1351 et seq., 1381 et seq.) and their spouses, meals prepared by and served in senior citizens' centers, apartment buildings occupied primarily by such persons, public or private nonprofit establishments, eating or otherwise, that feed such persons, private establishments that contract with the appropriate agency of the State to offer meals for such persons at concessional prices, and meals prepared for and served to residents of federally subsidized housing for the elderly;
(2) In the case of persons sixty years of age or over and persons who are physically or mentally handicapped or otherwise so disabled that they are unable to adequately prepare all of their meals, meals prepared for and delivered to them and their spouses at their home by a public or private nonprofit organization or by a private establishment that contracts with the appropriate state agency to perform such services at concessional prices;
(3) In the case of disabled or blind recipients of benefits under title I, II, X, XIV, or XVI of the Social Security Act (42 U.S.C. 301 et seq., 401 et seq., 1201 et seq., 1351 et seq., 1381 et seq.), who are residents in a public or private nonprofit group living arrangement that serves no more than sixteen residents and is certified by the appropriate state agency or agencies, meals prepared and served under such arrangement;
(4) In the case of women and children temporarily residing in public or private nonprofit shelters for battered women and children, meals prepared and served by such shelters; and
(5) In the case of households that do not reside in permanent dwellings and households that have no fixed mailing addresses, meals prepared for and served by a public or private nonprofit establishment approved by an appropriate state or local agency that feeds such individuals and by private establishments that contract with the appropriate agency of the State to offer meals for such individuals at concessional prices.
(c) As used in this section:
"Alcoholic beverages" means beverages that are suitable for human consumption and contain one-half of one per cent or more of alcohol by volume.
"Dietary supplement" means any product, other than tobacco, intended to supplement the diet that:
(1) Contains one or more of the following dietary ingredients:
(A) A vitamin;
(B) A mineral;
(C) An herb or other botanical element;
(D) An amino acid; or
(E) A dietary substance for use by humans to supplement a person's diet by increasing the total dietary intake; or a concentrate, metabolite, constituent, extract, or combination of any ingredient described in this definition;
(2) Is intended for ingestion in tablet, capsule, powder, softgel, gelcap, or liquid form, or if not intended for ingestion in such form, is not represented as conventional food and is not represented for use as a sole item of a meal or of a diet; and
(3) Is required to be labeled as a dietary supplement, identifiable by the "supplement facts" box found on the label as required pursuant to title 21 Code of Federal Regulations section 101.36, as amended or renumbered.
"Food" or "food ingredients" mean substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value. Food or food ingredients does not include alcoholic beverages, tobacco, prepared food, soft drinks, dietary supplements, or food or food ingredients sold from a vending machine, whether cold or hot; provided that food or food ingredients sold from a vending machine that is subsequently heated shall be subject to this chapter.
"Prepared food" means:
(1) Food sold in a heated state or heated by the seller;
(2) Food sold with eating utensils provided by the seller, including plates, knives, forks, spoons, glasses, cups, napkins, or straws. A plate does not include a container or packaging used to transport the food; or
(3) Two or more food ingredients mixed or combined by the seller for sale as a single item, except:
(A) Food that is only cut, repackaged, or pasteurized by the seller; or
(B) Raw eggs, fish, meat, poultry, or foods containing these raw animal foods requiring cooking by the consumer as recommended by the federal Food and Drug Administration in chapter 3, part 401.11 of the Food Code, published by the Food and Drug Administration, as amended or renumbered, to prevent foodborne illness.
Prepared food does not include the following food or food ingredients:
(1) Food sold in an unheated state by weight or volume as a single item; or
(2) Bakery items, such as bread, rolls, buns, biscuits, bagels, croissants, pastries, donuts, Danish, cakes, tortes, pies, tarts, muffins, bars, cookies, or tortillas.
"Soft drinks" means nonalcoholic beverages that contain natural or artificial sweeteners. Soft drinks do not include beverages that contain:
(1) Milk or milk products;
(2) Soy, rice, or similar milk substitutes; or
(3) Greater than fifty per cent vegetable or fruit juice by volume.
"Tobacco" means cigarettes, cigars, chewing or pipe tobacco, or any other item that contains tobacco."
SECTION 3. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§237-B Exemption for medical services. (a) There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds arising from the sale of medical services.
(b) As used in this section, "medical services" means: Professional services provided by hospitals and medical clinics and facilities that are licensed by the appropriate state agencies and services rendered under chapters 436E, 442, 447, 448, 448B, 451A, 451J, 452, 453, 455, 457, 457A, 457G, 458, 459, 460, 461, 461J, 463E, 465, 466J, and 468E."
SECTION 4. Section 237-23, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"§237-23 Exemptions, persons exempt, applications for exemption. (a) This chapter shall not apply to the following persons:
(1) Public service companies as that term is defined in section 239-2, with respect to the gross income, either actual gross income or gross income estimated and adjusted, that is included in the measure of the tax imposed by chapter 239;
(2) Public utilities owned and operated by the State or any county, or other political subdivision thereof;
(3) Fraternal benefit societies, orders, or associations, operating under the lodge system, or for the exclusive benefit of the members of the fraternity itself, operating under the lodge system, and providing for the payment of death, sick, accident, a legal service plan, or other benefits to the members of the societies, orders, or associations, and to their dependents;
(4) Corporations, associations, trusts, or societies organized and operated exclusively for religious, charitable, scientific, or educational purposes, as well as that of operating senior citizens housing facilities qualifying for a loan under the laws of the United States as authorized by section 202 of the Housing Act of 1959, as amended, as well as that of operating a legal service plan, as well as that of operating or managing a homeless facility, or any other program for the homeless authorized under part XVII of chapter 346;
(5) Business leagues, chambers of commerce, boards of trade, civic leagues, agricultural and horticultural organizations, and organizations operated exclusively for the benefit of the community and for the promotion of social welfare that shall include the operation of a legal service plan, and from which no profit inures to the benefit of any private stockholder or individual;
(6) Hospitals, infirmaries, and sanitaria;
(7) Companies that provide potable water to residential communities that lack any access to public utility water services and are tax exempt under section 501(c)(12) of the Internal Revenue Code of 1986, as amended;
(8) Cooperative associations incorporated under chapter 421 or Code section 521 cooperatives which fully meet the requirements of section 421-23, except Code section 521 cooperatives need not be organized in Hawaii; provided that:
(A) The exemption shall apply only to the gross income derived from activities that are pursuant to purposes and powers authorized by chapter 421, except those provisions pertaining to or requiring corporate organization in Hawaii do not apply to Code section 521 cooperatives;
(B) The exemption shall not relieve any person who receives any proceeds of sale from the association of the duty of returning and paying the tax on the total gross proceeds of the sales on account of which the payment was made, in the same amount and at the same rate as would apply thereto had the sales been made directly by the person, and all those persons shall be so taxable; and
(C) As used in this paragraph, "Code section 521 cooperatives" mean associations that qualify as a cooperative under section 521 (with respect to exemption of farmers' cooperatives from tax) of the Internal Revenue Code of 1986, as amended;
(9) Persons affected with Hansen's disease and kokuas, with respect to business within the county of Kalawao;
(10) Corporations, companies, associations, or trusts organized for the establishment and conduct of cemeteries no part of the net earnings of which inures to the financial benefit of any private stockholder or individual; provided that the exemption shall apply only to the activities of those persons in the conduct of cemeteries and shall not apply to any activity the primary purpose of which is to produce income, even though the income is to be used for or in the furtherance of the exempt activities of those persons; and
(11) Nonprofit shippers associations operating under part 296 of the Civil Aeronautics Board Economic Regulations.
(12) Individuals who rent to Section 8, Housing First, and other related low income housing recipients shall be exempt from paying the excise tax on such rentals."
SECTION 5. Section 237-24.3, Hawaii Revised Statutes, is amended to read as follows:
"§237-24.3 Additional amounts not taxable. In addition to the amounts not taxable under section 237-24, this chapter shall not apply to:
(1) Amounts received from the loading, transportation, and unloading of agricultural commodities shipped for a producer or produce dealer on one island of this State to a person, firm, or organization on another island of this State. The terms "agricultural commodity", "producer", and "produce dealer" shall be defined in the same manner as they are defined in section 147-1; provided that agricultural commodities need not have been produced in the State;
(2) Amounts received by the manager, submanager, or board of directors of:
(A) An association of owners of a condominium property regime established in accordance with chapter 514A or 514B; or
(B) A nonprofit homeowners or community association incorporated in accordance with chapter 414D or any predecessor thereto and existing pursuant to covenants running with the land,
in reimbursement of sums paid for common expenses;
(3) Amounts received or accrued from:
(A) The loading or unloading of cargo from ships, barges, vessels, or aircraft, whether or not the ships, barges, vessels, or aircraft travel between the State and other states or countries or between the islands of the State;
(B) Tugboat services including pilotage fees performed within the State, and the towage of ships, barges, or vessels in and out of state harbors, or from one pier to another; and
(C) The transportation of pilots or governmental officials to ships, barges, or vessels offshore; rigging gear; checking freight and similar services; standby charges; and use of moorings and running mooring lines;
(4) Amounts received by an employee benefit plan by way of contributions, dividends, interest, and other income; and amounts received by a nonprofit organization or office, as payments for costs and expenses incurred for the administration of an employee benefit plan; provided that this exemption shall not apply to any gross rental income or gross rental proceeds received after June 30, 1994, as income from investments in real property in this State; and provided further that gross rental income or gross rental proceeds from investments in real property received by an employee benefit plan after June 30, 1994, under written contracts executed prior to July 1, 1994, shall not be taxed until the contracts are renegotiated, renewed, or extended, or until after December 31, 1998, whichever is earlier. For the purposes of this paragraph, "employee benefit plan" means any plan as defined in section 1002(3) of title 29 of the United States Code, as amended;
received for purchases made with United States Department of Agriculture food
coupons under the federal food stamp program, and amounts received for
purchases made with United States Department of Agriculture food vouchers under
the Special Supplemental Foods Program for Women, Infants and Children; (6)] (5) Amounts received by a hospital, infirmary, medical
clinic, health care facility, pharmacy, or a practitioner licensed to administer
the drug to an individual for selling prescription drugs or prosthetic devices
to an individual; provided that this paragraph shall not apply to any amounts
received for services provided in selling prescription drugs or prosthetic
devices. As used in this paragraph:
"Prescription drugs" are those drugs defined under section 328-1 and dispensed by filling or refilling a written or oral prescription by a practitioner licensed under law to administer the drug and sold by a licensed pharmacist under section 328-16 or practitioners licensed to administer drugs; and
"Prosthetic device" means any artificial device or appliance, instrument, apparatus, or contrivance, including their components, parts, accessories, and replacements thereof, used to replace a missing or surgically removed part of the human body, which is prescribed by a licensed practitioner of medicine, osteopathy, or podiatry and which is sold by the practitioner or which is dispensed and sold by a dealer of prosthetic devices; provided that "prosthetic device" shall not mean any auditory, ophthalmic, dental, or ocular device or appliance, instrument, apparatus, or contrivance;
(7)] (6) Taxes on transient accommodations imposed by chapter
237D and passed on and collected by operators holding certificates of
registration under that chapter;
(8)] (7) Amounts received as dues by an unincorporated
merchants association from its membership for advertising media, promotional,
and advertising costs for the promotion of the association for the benefit of
its members as a whole and not for the benefit of an individual member or group
of members less than the entire membership;
(9)] (8) Amounts received by a labor organization for real
property leased to:
(A) A labor organization; or
(B) A trust fund established by a labor organization for the benefit of its members, families, and dependents for medical or hospital care, pensions on retirement or death of employees, apprenticeship and training, and other membership service programs.
As used in this paragraph, "labor organization" means a labor organization exempt from federal income tax under section 501(c)(5) of the Internal Revenue Code, as amended;
(10)] (9) Amounts received from foreign diplomats and consular
officials who are holding cards issued or authorized by the United States
Department of State granting them an exemption from state taxes; and
(11)] (10) Amounts received as rent for the rental or leasing of
aircraft or aircraft engines used by the lessees or renters for interstate air
transportation of passengers and goods. For purposes of this paragraph,
payments made pursuant to a lease shall be considered rent regardless of
whether the lease is an operating lease or a financing lease. The definition
of "interstate air transportation" is the same as in 49 U.S.C. section
SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 7. In codifying the new sections added by sections 2 and 3 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 8. This Act shall take effect upon its approval, provided that section 2 shall apply to taxable years beginning after December 31, 2020, section 3 shall apply to taxable years beginning after December 31, 2018, and section 4 shall apply to taxable years beginning after December 31, 2018.
General Excise Tax; Food and Medical Services; Housing.
Provides a general excise tax exemption for food after December 31, 2020, for medical services after December 31, 2018, and rental subsidy payments for Section 8, Housing First, and other related low-income housing programs after December 31, 2018.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.