Eliminates personal income tax beginning 1/1/2000.  Expands the
definition of "wholesaler" to include wholesale services to
alleviate the pyramiding of general excise taxes.  Exempts food
and health care services from general excise tax.  Increases
general excise tax rate from 4% to 8%.
HOUSE OF REPRESENTATIVES                H.B. NO.
RELATING TO TAXATION.
1      SECTION 1.  The purpose of this Act is to repeal the
2 personal income tax for taxable years beginning after December
3 31, 1999, eliminate the pyramiding of the general excise tax by
4 including business to business transactions as sales at
5 wholesale, increase the retail rate of general excise tax from
6 four per cent to eight per cent, and exempt food and health care
7 services from the general excise tax.
8      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
9 by adding a new section to be appropriately designated and to
10 read as follows:
11      "�5-     Individuals exempt from this chapter.  Beginning
12 January 1, 2000, individuals with gross income shall be exempt
13 from the taxes levied and assessed under this chapter."
14      SECTION 3.  Section 237-4, Hawaii Revised Statutes, is
15 amended to read as follows:
16      "�7-4 "Wholesaler", "jobber", defined.  (a)  "Wholesaler"
17 or "jobber" applies only to a person making sales at wholesale.
18 Only the following are sales at wholesale:
19      (1)  Sales to a licensed retail merchant, jobber, or other
Page 2                                         1368
H.B. NO.
1           licensed seller for purposes of resale;
2      (2)  Sales to a licensed manufacturer of material or
3           commodities which are to be incorporated by the
4           manufacturer into a finished or saleable product
5           (including the container or package in which the
6           product is contained) during the course of its
7           preservation, manufacture, or processing, including
8           preparation for market, and which will remain in such
9           finished or saleable product in such form as to be
10           perceptible to the senses, which finished or saleable
11           product is to be sold and not otherwise used by the
12           manufacturer;
13      (3)  Sales to a licensed producer or cooperative association
14           of materials or commodities which are to be
15           incorporated by the producer or by the cooperative
16           association into a finished or saleable product which
17           is to be sold and not otherwise used by the producer or
18           cooperative association, including specifically
19           materials or commodities expended as essential to the
20           planting, growth, nurturing, and production of
21           commodities which are sold by the producer or by the
22           cooperative association;
23      (4)  Sales to a licensed contractor, of material or
2           contractor into the finished work or project required
3           by the contract and which will remain in such finished
4           work or project in such form as to be perceptible to
5           the senses;
6      (5)  Sales to a licensed producer, or to a cooperative
7           association described in section 237-23(a)(7) for sale
8           to such producer, or to a licensed person operating a
9           feed lot, of poultry or animal feed, hatching eggs,
10           semen, replacement stock, breeding services for the
11           purpose of raising or producing animal or poultry
12           products for disposition as described in section 237-5
13           or to be incorporated in a manufactured product as
14           described in paragraph (2) or for the purpose of
15           breeding, hatching, milking, or egg laying other than
16           for the customer's own consumption of the meat,
17           poultry, eggs, or milk so produced; provided that in
18           the case of a feed lot operator, only the segregated
19           cost of the feed furnished by the feed lot operator as
20           part of the feed lot operator's service to a licensed
21           producer of poultry or animals to be butchered or to a
22           cooperative association described in section
23           237-23(a)(7) of such licensed producers shall be deemed
1           to be a sale at wholesale; and provided further that
2           any amount derived from the furnishing of feed lot
3           services, other than the segregated cost of feed, shall
4           be deemed taxable at the service business rate.  This
5           paragraph shall not apply to the sale of feed for
6           poultry or animals to be used for hauling,
7           transportation, or sports purposes;
10           to the producer, of seed for producing agricultural
11           products, or bait for catching fish (including the
12           catching of bait for catching fish), which agricultural
13           products or fish are to be disposed of as described in
14           section 237-5 or to be incorporated in a manufactured
15           product as described in paragraph (2);
16      (7)  Sales to a licensed producer, or to a cooperative
17           association described in section 237-23(a)(7) for sale
18           to such producer; of polypropylene shade cloth; of
19           polyfilm; of polyethylene film; of cartons and such
20           other containers, wrappers, and sacks, and binders to
21           be used for packaging eggs, vegetables, fruits, and
22           other agricultural products; of seedlings and cuttings
23           for producing nursery plants; or of chick containers;
1           which cartons and such other containers, wrappers, and
2           sacks, binders, seedlings, cuttings, and containers are
3           to be used as described in section 237-5, or to be
4           incorporated in a manufactured product as described in
5           paragraph (2);
6      (8)  Sales of tangible personal property to a licensed
7           person engaged in the service business; provided that
8           [(A) the property is not consumed or incidental to the
9           performance of the services; (B) there is a resale of
10           the article at the retail rate of four per cent; and
11           (C) the resale of the article is separately charged or
12           billed by the person rendering the services;]:
13           (A)  The property is sold upon the order or request of
14                the licensed person for the purpose of rendering a
15                service in the course of the person's service
16                business or calling; and
17           (B)  The property becomes or is used as an integral
18                part of the service rendered;
19      (9)  Sales to a licensed leasing company of capital goods
20           which have a depreciable life, are purchased by the
21           leasing company for lease to its customers, and are
22           thereafter leased as a service to others[.  Capital
23           goods means goods which have a depreciable life and
1           which are purchased by the leasing company for lease to
2           its customers.]; and
3     (10)  Sales of services to a licensed person engaging in a
4           business or calling whenever:
5           (A)  Either:
6                (i)  In the context of a service-to-service
7                     transaction, a service is rendered upon the
8                     order or request of a licensed person for the
9                     purpose of rendering another service in the
10                     course of the seller's service business or
11                     calling; or
12               (ii)  In the context of a service-to-goods
13                     transaction, a service is rendered upon the
14                     order or request of a licensed person for the
15                     purpose of manufacturing, producing,
16                     preparing, or acquiring tangible personal
17                     property to be sold; and
18           (B)  The benefit of the service passes to the customer
19                of the licensed person as an integral part of the
20                other service or property to be sold.
21      (b)  If the use tax law is finally held by a court of
22 competent jurisdiction to be unconstitutional or invalid insofar
23 as it purports to tax the use or consumption of tangible personal
1 property imported into the State in interstate or foreign
2 commerce or both, wholesalers and jobbers shall be taxed
3 thereafter under this chapter in accordance with the following
4 definition (which shall supersede the preceding paragraph
5 otherwise defining "wholesaler" or "jobber"):  "Wholesaler" or
6 "jobber" means a person, or a definitely organized division
7 thereof, definitely organized to render and rendering a general
8 distribution service which buys and maintains at the person's
9 place of business a stock or lines of merchandise which the
10 person distributes; and which, through salespersons, advertising,
11 or sales promotion devices, sells to licensed retailers, to
12 institutional or licensed commercial or industrial users, in
13 wholesale quantities and at wholesale rates.  A corporation
14 deemed not to be carrying on a trade or business in this State
15 under section 235-6 shall nevertheless be deemed to be a
16 wholesaler and shall be subject to the tax imposed by this
17 chapter."
20      "�7-7 "Service business or calling", defined."Service
21 business or calling" includes all activities engaged in for other
22 persons for a consideration which involve the rendering of a
23 service, including professional services, as distinguished from
1 the sale of tangible property or the production and sale of
2 tangible property.  "Service business or calling" does not
3 include the services rendered by an employee to the employee's
4 employer."
5      SECTION 5.  Section 237-13, Hawaii Revised Statutes, is
6 amended to read as follows:
7      "�7-13  Imposition of tax.  There is hereby levied and
8 shall be assessed and collected annually privilege taxes against
9 persons on account of their business and other activities in the
10 State measured by the application of rates against values of
11 products, gross proceeds of sales, or gross income, whichever is
12 specified, as follows:
13      (1)  Tax on manufacturers.
14           (A)  Upon every person engaging or continuing within
15                the State in the business of manufacturing,
16                including compounding, canning, preserving,
17                packing, printing, publishing, milling,
18                processing, refining, or preparing for sale,
19                profit, or commercial use, either directly or
20                through the activity of others, in whole or in
21                part, any article or articles, substance or
22                substances, commodity or commodities, the amount
23                of the tax to be equal to the value of the
1                articles, substances, or commodities,
2                manufactured, compounded, canned, preserved,
3                packed, printed, milled, processed, refined, or
4                prepared, for sale, as shown by the gross proceeds
5                derived from the sale thereof by the manufacturer
6                or person compounding, preparing, or printing
7                them, multiplied by one-half of one per cent.
8           (B)  The measure of the tax on manufacturers is the
9                value of the entire product for sale, regardless
10                of the place of sale or the fact that deliveries
11                may be made to points outside the State.
12           (C)  If any person liable for the tax on manufacturers
13                ships or transports the person's product, or any
14                part thereof, out of the State, whether in a
15                finished or unfinished condition, or sells the
16                same for delivery outside of the State (for
17                example, consigned to a mainland purchaser via
18                common carrier f.o.b. Honolulu), the value of the
19                products in the condition or form in which they
20                exist immediately before entering interstate or
21                foreign commerce, determined as hereinafter
22                provided, shall be the basis for the assessment of
23                the tax imposed by this paragraph.  This tax shall
Page 10                                        1368
1                be due and payable as of the date of entry of the
2                products into interstate or foreign commerce,
3                whether the products are then sold or not.  The
4                department of taxation shall determine the basis
5                for assessment, as provided by this paragraph, as
6                follows:
7                (i)  If the products at the time of their entry
8                     into interstate or foreign commerce already
9                     have been sold, the gross proceeds of sale,
10                     less the transportation expenses, if any,
11                     incurred in realizing the gross proceeds for
12                     transportation from the time of entry of the
13                     products into interstate or foreign commerce,
14                     including insurance and storage in transit,
15                     shall be the measure of the value of the
16                     products.
17               (ii)  If the products have not been sold at the
18                     time of their entry into interstate or
19                     foreign commerce, and in cases governed by
20                     clause (i) in which the products are sold
21                     under circumstances such that the gross
22                     proceeds of sale are not indicative of the
23                     true value of the products, the value of the
1                     products constituting the basis for
2                     assessment shall correspond as nearly as
3                     possible to the gross proceeds of sales for
4                     delivery outside the State, adjusted as
5                     provided in clause (i), or if sufficient data
6                     are not available, sales in the State, of
7                     similar products of like quality and
8                     character and in similar quantities, made by
9                     the taxpayer (unless not indicative of the
10                     true value) or by others.  Sales outside the
11                     State, adjusted as provided in clause (i),
12                     may be considered when they constitute the
13                     best available data.  The department shall
14                     prescribe uniform and equitable rules for
15                     ascertaining the values.
16              (iii)  At the election of the taxpayer and with the
17                     approval of the department, the taxpayer may
18                     make the taxpayer's returns under clause (i)
19                     even though the products have not been sold
20                     at the time of their entry into interstate or
21                     foreign commerce.
22               (iv)  In all cases in which products leave the
23                     State in an unfinished condition, the basis
1                     for assessment shall be adjusted so as to
2                     deduct the portion of the value as is
3                     attributable to the finishing of the goods
4                     outside the State.
5      (2)  Tax on business of selling tangible personal property;
6           producing.
7           (A)  Upon every person engaging or continuing in the
8                business of selling any tangible personal property
9                whatsoever (not including, however, bonds or other
10                evidence of indebtedness, or stocks), there is
11                likewise hereby levied, and shall be assessed and
12                collected, a tax equivalent to [four] eight per
13                cent of the gross proceeds of sales of the
14                business; provided that insofar as certain
15                retailing is taxed by section 237-16, the tax
16                shall be that levied by section 237-16, and in the
17                case of a wholesaler, the tax shall be equal to
18                one-half of one per cent of the gross proceeds of
19                sales of the business.  Upon every person engaging
20                or continuing within this State in the business of
21                a producer, the tax shall be equal to one-half of
22                one per cent of the gross proceeds of sales of the
23                business, or the value of the products, for sale,
1                if sold for delivery outside the State or shipped
2                or transported out of the State, and the value of
3                the products shall be determined in the same
4                manner as the value of manufactured products
5                covered in the cases under paragraph (1)(C).
6           (B)  Gross proceeds of sales of tangible property in
7                interstate and foreign commerce shall constitute a
8                part of the measure of the tax imposed on persons
9                in the business of selling tangible personal
10                property, to the extent, under the conditions, and
11                in accordance with the provisions of the
12                Constitution of the United States and the Acts of
13                the Congress of the United States which may be now
14                in force or may be hereafter adopted, and whenever
15                there occurs in the State an activity to which,
16                under the Constitution and Acts of Congress, there
17                may be attributed gross proceeds of sales, the
18                gross proceeds shall be so attributed.
19           (C)  No manufacturer or producer, engaged in such
20                business in the State and selling the
21                manufacturer's or producer's products for delivery
22                outside of the State (for example, consigned to a
23                mainland purchaser via common carrier f.o.b.
1                Honolulu), shall be required to pay the tax
2                imposed in this chapter for the privilege of so
3                selling the products, and the value or gross
4                proceeds of sales of the products shall be
5                included only in determining the measure of the
6                tax imposed upon the manufacturer or producer.
7           (D)  When a manufacturer or producer, engaged in such
8                business in the State, also is engaged in selling
9                the manufacturer's or producer's products in the
10                State at wholesale, retail, or in any other
11                manner, the tax for the privilege of engaging in
12                the business of selling the products in the State
13                shall apply to the manufacturer or producer as
14                well as the tax for the privilege of manufacturing
15                or producing in the State, and the manufacturer or
16                producer shall make the returns of the gross
17                proceeds of the wholesale, retail, or other sales
18                required for the privilege of selling in the
19                State, as well as making the returns of the value
20                or gross proceeds of sales of the products
21                required for the privilege of manufacturing or
22                producing in the State.  The manufacturer or
23                producer shall pay the tax imposed in this chapter
1                for the privilege of selling its products in the
2                State, and the value or gross proceeds of sales of
3                the products, thus subjected to tax, may be
4                deducted insofar as duplicated as to the same
5                products by the measure of the tax upon the
6                manufacturer or producer for the privilege of
7                manufacturing or producing in the State; except
8                that no producer of agricultural products who
9                sells the products to a purchaser who will process
10                the products outside the State shall be required
11                to pay the tax imposed in this chapter for the
12                privilege of producing or selling those products.
13           (E)  A taxpayer selling to a federal cost-plus
14                contractor may make the election provided for by
15                paragraph (3)(C), and in that case the tax shall
16                be computed pursuant to the election,
17                notwithstanding this paragraph or paragraph (1) to
18                the contrary.
19           (F)  The department, by rule, may provide that a seller
20                may take from the purchaser of tangible personal
21                property a certificate, in a form [as the]
22                prescribed by the department [shall prescribe],
23                certifying that the sale is a sale at wholesale[.
1                If the certificate is so provided for by rule of
2                the department:]; provided that:
3                (i)  Any purchaser who furnishes a certificate
4                     shall be obligated to pay to the seller, upon
5                     demand, [if the sale in fact is not at
6                     wholesale,] the amount of the additional tax
7                     [which by reason thereof] that is imposed
8                     upon the seller[;] whenever the sale in fact
9                     is not at wholesale; and
10               (ii)  The absence of a certificate[, unless the
11                     sales of the business are exclusively at
12                     wholesale,] in itself shall give rise to the
13                     presumption that the sale is not at
14                     wholesale[.] unless the sales of the business
15                     are exclusively at wholesale.
16      (3)  Tax upon contractors.
18                the State in the business of contracting, the tax
19                shall be equal to [four] eight per cent of the
20                gross income of the business; provided that
21                insofar as the business of contracting is taxed by
22                section 237-16, which relates to certain
23                retailing, the tax shall be that levied by section
1                237-16.
2           (B)  In computing the tax levied under this paragraph
3                or section 237-16, there shall be deducted from
4                the gross income of the taxpayer so much thereof
5                as has been included in the measure of the tax
6                levied under subparagraph (A) or section 237-16,
7                on:
8                (i)  Another taxpayer who is a contractor, as
9                     defined in section 237-6;
10               (ii)  A specialty contractor, duly licensed by the
11                     department of commerce and consumer affairs
12                     pursuant to section 444-9, in respect of the
13                     specialty contractor's business; or
14              (iii)  A specialty contractor who is not licensed by
15                     the department of commerce and consumer
16                     affairs pursuant to section 444-9, but who
17                     performs contracting activities on federal
18                     military installations and nowhere else in
19                     this State;
20                but any person claiming a deduction under this
21                paragraph shall be required to show in the
22                person's return the name and general excise number
23                of the person paying the tax on the amount
1                deducted by the person.
2           (C)  In computing the tax levied under this paragraph
3                against any federal cost-plus contractor, there
4                shall be excluded from the gross income of the
5                contractor so much thereof as fulfills the
6                following requirements:
7                (i)  The gross income exempted shall constitute
8                     reimbursement of costs incurred for
9                     materials, plant, or equipment purchased from
10                     a taxpayer licensed under this chapter, not
11                     exceeding the gross proceeds of sale of the
12                     taxpayer on account of the transaction; and
13               (ii)  The taxpayer making the sale shall have
14                     certified to the department that the taxpayer
15                     is taxable with respect to the gross proceeds
16                     of the sale, and that the taxpayer elects to
17                     have the tax on gross income computed the
18                     same as upon a sale to the state government.
19           (D)  A person who, as a business or as a part of a
20                business in which the person is engaged, erects,
21                constructs, or improves any building or structure,
22                of any kind or description, or makes, constructs,
23                or improves any road, street, sidewalk, sewer, or
1                water system, or other improvements on land held
2                by the person (whether held as a leasehold, fee
3                simple, or otherwise), upon the sale or other
4                disposition of the land or improvements, even if
5                the work was not done pursuant to a contract,
6                shall be liable to the same tax as if engaged in
7                the business of contracting, unless the person
8                shows that at the time the person was engaged in
9                making the improvements it was, and for the period
10                of at least one year after completion of the
11                building, structure, or other improvements, it
12                continued to be the person's purpose to hold and
13                not sell or otherwise dispose of the land or
14                improvements.  The tax in respect of the
15                improvements shall be measured by the amount of
16                the proceeds of the sale or other disposition that
17                is attributable to the erection, construction, or
18                improvement of such building or structure, or the
19                making, constructing, or improving of the road,
20                street, sidewalk, sewer, or water system, or other
21                improvements.  The measure of tax in respect of
22                the improvements shall not exceed the amount which
23                would have been taxable had the work been
1                performed by another, subject as in other cases to
2                the deductions allowed by subparagraph (B).  Upon
3                the election of the taxpayer, this paragraph may
4                be applied notwithstanding the improvements were
5                not made by the taxpayer, or were not made as a
6                business or as a part of a business, or were made
7                with the intention of holding the same.  However,
8                this paragraph shall not apply in respect of any
9                proceeds that constitute or are in the nature of
10                rent; all such gross income shall be taxable under
11                paragraph [(10);] (9); provided that insofar as
12                the business of renting or leasing real property
13                under a lease is taxed under section 237-16.5, the
14                tax shall be levied by section 237-16.5.
15      (4)  Tax upon theaters, amusements, radio broadcasting
16           stations, etc.  Upon every person engaging or
17           continuing within the State in the business of
18           operating a theater, opera house, moving picture show,
19           vaudeville, amusement park, dance hall, skating rink,
20           radio broadcasting station, or any other place at which
21           amusements are offered to the public, the tax shall be
22           equal to [four] eight per cent of the gross income of
23           the business.
1      (5)  Tax upon sales representatives, etc.  Upon every person
2           classified as a representative or purchasing agent
3           under section 237-1, engaging or continuing within the
4           State in the business of performing services for
5           another, other than as an employee, there is likewise
6           hereby levied and shall be assessed and collected a tax
7           equal to [four] eight per cent of the commissions and
8           other compensation attributable to the services so
9           rendered by the person.
10      (6)  Tax on service business.
12                the State in any service business or calling [not
13                otherwise specifically taxed under this chapter,]
14                there is likewise hereby levied and shall be
15                assessed and collected a tax equal to [four] eight
16                per cent of the gross income of the business[;
17                provided that where any person engaging or
18                continuing within the State in any service
19                business or calling renders those services upon
20                the order of or at the request of another taxpayer
21                who is engaged in the service business and who, in
22                fact, acts as or acts in the nature of an
23                intermediary between the person rendering those
1                services and the ultimate recipient of the
2                benefits of those services, so much of the gross
3                income as is received by the person rendering the
4                services shall be subjected to the tax at the rate
5                of one-half of one per cent and all of the gross
6                income received by the intermediary from the
7                principal shall be subjected to a tax at the rate
8                of four per cent; and provided that where], and in
9                the case of a wholesaler, the tax shall be equal
10                to one-half of one per cent of the gross income of
11                the business.
12           (B)  The department, by rule, may require that the
13                person rendering the service take from the
14                licensed person a certificate, in the form as
15                prescribed by the department, certifying that the
16                sale is a sale at wholesale; provided that:
17                (i)  Any licensed person who furnishes a
18                     certificate shall be obligated to pay to the
19                     person rendering the service whenever the
20                     sale in fact is not a sale at wholesale; and
21               (ii)  The absence of a certificate in itself shall
22                     give rise to the presumption that the sale is
23                     not a sale at wholesale unless the person
1                     rendering the sale is exclusively rendering
2                     service at wholesale.
3           (C)  Where any person is engaged in the business of
4                selling interstate or foreign common carrier
5                telecommunication services within and without the
6                State, the tax shall be imposed on that portion of
7                gross income received by a person from service
8                which is originated or terminated in this State
9                and is charged to a telephone number, customer, or
10                account in this State notwithstanding any other
11                state law (except for the exemption under section
12                237-23(a)(1)) to the contrary.  If, under the
13                Constitution and laws of the United States, the
14                entire gross income as determined under this
15                paragraph of a business selling interstate or
16                foreign common carrier telecommunication services
17                cannot be included in the measure of the tax, the
18                gross income shall be apportioned as provided in
19                section 237-21; provided that the apportionment
20                factor and formula shall be the same for all
21                persons providing those services in the State.
22      (7)  Tax on insurance solicitors and agents.  Upon every
23           person engaged as a licensed solicitor, general agent,
1           or subagent pursuant to chapter 431, there is hereby
2           levied and shall be assessed and collected a tax equal
3           to .15 per cent of the commissions due to that
4           activity.
5     [(8)  Professions.  Upon every person engaging or continuing
6           within the State in the practice of a profession,
7           including those expounding the religious doctrines of
8           any church, there is likewise hereby levied and shall
9           be assessed and collected a tax equal to four per cent
10           of the gross income on the practice or exposition.
11      (9)] (8)  Tax on receipts of sugar benefit payments.  Upon
12           the amounts received from the United States government
13           by any producer of sugar (or the producer's legal
14           representative or heirs), as defined under and by
15           virtue of the Sugar Act of 1948, as amended, or other
16           Acts of the Congress of the United States relating
17           thereto, there is hereby levied a tax of one-half of
18           one per cent of the gross amount received, provided
19           that the tax levied hereunder on any amount so received
20           and actually disbursed to another by a producer in the
21           form of a benefit payment shall be paid by the person
22           or persons to whom the amount is actually disbursed,
23           and the producer actually making a benefit payment to
1           another shall be entitled to claim on the producer's
2           return a deduction from the gross amount taxable
3           hereunder in the sum of the amount so disbursed.  The
4           amounts taxed under this paragraph shall not be taxable
5           under any other paragraph, subsection, or section of
6           this chapter.
7    [(10)] (9)  Tax on other business.  Upon every person engaging
8           or continuing within the State in any business, trade,
9           activity, occupation, or calling not included in the
10           preceding paragraphs or any other provisions of this
11           chapter, there is likewise hereby levied and shall be
12           assessed and collected, a tax equal to [four] eight per
13           cent of the gross income thereof.  In addition, the
14           rate prescribed by this paragraph shall apply to a
15           business taxable under one or more of the preceding
16           paragraphs or other provisions of this chapter, as to
17           any gross income thereof not taxed thereunder as gross
18           income or gross proceeds of sales or by taxing an
19           equivalent value of products, unless specifically
20           exempted."
21      SECTION 6.  Section 237-16, Hawaii Revised Statutes, is
23      "�7-16  Tax on certain retailing.(a)  This section
1 relates to certain retailing in the State as follows:
2      (1)  This section relates to the sale of tangible personal
3           property, for consumption or use by the purchaser and
4           not for resale, the renting of tangible personal
5           property, and the rendering of services by one engaged
6           in a service business or calling, as defined, to a
7           person who is not purchasing the services for resale,
8           but does not relate to the sale or rental of tangible
9           personal property or the rendering of services to the
10           State, its political subdivisions, or agencies or
11           instrumentalities of the State or a political
12           subdivision, or to the United States or its agencies or
13           instrumentalities (other than national banks), or to a
14           corporation, organization, or other person designated
15           in section 237-23 who is not subject to the tax imposed
16           by this chapter, or to a person licensed under this
17           chapter in connection with the person's business.
18      (2)  This section relates to the business of a contractor,
19           as defined, but does not relate to contracting with, or
20           any gross income or proceeds of a subcontractor if the
21           principal contract is with the State, its political
22           subdivisions, or agencies or instrumentalities of the
23           State or a political subdivision, or with the United
1           States or its agencies or instrumentalities (other than
2           national banks), or with a person designated in section
3           237-23 who is not subject to the tax imposed by this
4           chapter, or with a person licensed under this chapter
5           in connection with the person's business.
6      (3)  This section relates to furnishing of transient
7           accommodations in a hotel, apartment hotel, or other
8           place in which lodgings are regularly furnished to
9           transients for a consideration which includes the
10           rendering of services.
11      (b)  There is hereby levied, and shall be assessed and
12 collected annually, a privilege tax against persons engaging or
13 continuing within the State in the retailing to which this
14 section relates, on account of such retailing activities, as set
15 forth in subsection (a), equal to [four] eight per cent of the
16 gross proceeds of sale or gross income received or derived from
17 such retailing.  Persons on whom a tax is imposed by this section
18 hereinafter are called "retailers".
19      (c)  No retailer shall advertise or hold out to the public
20 in any manner, directly or indirectly, that the tax imposed by
21 this section is not considered as an element in the price to the
22 consumer.  Any person violating this subsection shall be fined
23 not more than $50 for each offense.
1      (d)  This section shall not cause the tax upon a taxpayer,
2 with respect to any item of the taxpayer's gross income, to
3 exceed [four] eight per cent.
4      (e)  This section shall not apply to:
6           person engaged in a service business or calling as
7           defined in section 237-4(a)(8); and
8      (2)  Sales of services to a licensed person engaged in a
9           business or calling as defined in section
10           237-4(a)(10)."
11      SECTION 7.  Section 237-16.5, Hawaii Revised Statutes, is
12 amended as follows:
13      1. By amending subsection (a) to read:
14      "(a)  This section relates to the leasing of real property
15 by a lessor to a lessee.  There is hereby levied, and shall be
16 assessed and collected annually, a privilege tax against persons
17 engaging or continuing within the State in the business of
18 leasing real property to another, equal to [four] eight per cent
19 of the gross proceeds or gross income received or derived from
20 the leasing; provided that where real property is subleased by a
21 lessee to a sublessee, the lessee, as provided in this section,
22 shall be allowed a deduction from the amount of gross proceeds or
23 gross income received from its sublease of the real property.
1 The deduction shall be in the amount allowed under this section.
2      All deductions under this section and the name and general
3 excise tax number of the lessee's lessor shall be reported on the
4 general excise tax return.  Any deduction allowed under this
5 section shall only be allowed with respect to leases and
6 subleases in writing and relating to the same real property."
7      2. By amending subsection (f) to read:
8      "(f)  This section shall not cause the tax upon a lessor,
9 with respect to any item of the lessor's gross proceeds or gross
10 income, to exceed [four] eight per cent."
12 amended by amending subsection (f) to read as follows:
13      "(f)  Where tourism related services are furnished through
14 arrangements made by a travel agency or tour packager and the
15 gross income is divided between the provider of the services and
16 the travel agency or tour packager, the tax imposed by this
17 chapter shall apply to each such person with respect to such
18 person's respective portion of the proceeds, and no more.
19      As used in this subsection "tourism related services" means
20 catamaran cruises, canoe rides, dinner cruises, lei greetings,
21 transportation included in a tour package, sightseeing tours not
22 subject to chapter 239, admissions to luaus, dinner shows,
23 extravaganzas, cultural and educational facilities, and other
1 services rendered directly to the customer or tourist, but only
2 if the providers of the services other than air transportation
3 are subject to a [four] eight per cent tax under this chapter or
4 chapter 239."
5      SECTION 9.  Section 237-24.3, Hawaii Revised Statutes, is
7      "�7-24.3  Additional amounts not taxable.  In addition to
8 the amounts not taxable under section 237-24, this chapter shall
9 not apply to:
10      (1)  Amounts received from the loading, transportation, and
11           unloading of agricultural commodities shipped for a
12           producer or produce dealer on one island of this State
13           to a person, firm, or organization on another island of
14           this State.  The terms "agricultural commodity",
15           "producer", and "produce dealer" shall be defined in
16           the same manner as they are defined in section 147-1;
17           provided that agricultural commodities need not have
18           been produced in the State;
19      (2)  Amounts received from sales of:
20           (A)  Intoxicating liquor as the term "liquor" is
21                defined in chapter 244D;
22           (B)  Cigarettes and tobacco products as defined in
23                chapter 245; and
1           (C)  Agricultural, meat, or fish products grown,
2                raised, or caught in Hawaii, to any person or
3                common carrier in interstate or foreign commerce,
4                or both, whether ocean-going or air, for
5                consumption out-of-state on the shipper's vessels
6                or airplanes;
7      (3)  Amounts received by the manager or board of directors
8           of:
9           (A)  An association of apartment owners of a
10                condominium property regime established in
11                accordance with chapter 514A; or
12           (B)  A nonprofit homeowners or community association
13                incorporated in accordance with chapter 415B or
14                any predecessor thereto and existing pursuant to
15                covenants running with the land,
16           in reimbursement of sums paid for common expenses;
17      (4)  Amounts received or accrued from:
18           (A)  The loading or unloading of cargo from ships,
19                barges, vessels, or aircraft, whether or not the
20                ships, barges, vessels, or aircraft travel between
21                the State and other states or countries or between
22                the islands of the State;
23           (B)  Tugboat services including pilotage fees performed
1                within the State, and the towage of ships, barges,
2                or vessels in and out of state harbors, or from
3                one pier to another; and
4           (C)  The transportation of pilots or governmental
5                officials to ships, barges, or vessels offshore;
6                rigging gear; checking freight and similar
7                services; standby charges; and use of moorings and
8                running mooring lines;
9      (5)  Amounts received by an employee benefit plan by way of
10           contributions, dividends, interest, and other income;
11           and amounts received by a nonprofit organization or
12           office, as payments for costs and expenses incurred for
13           the administration of an employee benefit plan;
14           provided that this exemption shall not apply to any
15           gross rental income or gross rental proceeds received
16           after June 30, 1994, as income from investments in real
17           property in this State; and provided further that gross
18           rental income or gross rental proceeds from investments
19           in real property received by an employee benefit plan
20           after June 30, 1994, under written contracts executed
21           prior to July 1, 1994, shall not be taxed until the
22           contracts are renegotiated, renewed, or extended, or
23           until after December 31, 1998, whichever is earlier.
1           For the purposes of this paragraph, "employee benefit
2           plan" means any plan as defined in section 1002(3) of
3           title 29 of the United States Code, as amended;
4      (6)  Amounts received for purchases [made with United States
5           Department of Agriculture food coupons under the
6           federal food stamp program, and amounts received for
7           purchases made with United States Department of
8           Agriculture food vouchers under the Special
9           Supplemental Foods Program for Women, Infants and
10           Children;] of food.
11           "Food" means the same as defined in 7 United States
12           Code Section 2012(g), as amended, and includes:
13           (A)  Any food or food product for home consumption
14                except alcoholic beverages, tobacco, and hot foods
15                or hot food products ready for immediate
16                consumption other than those authorized;
17           (B)  Seeds and plants for use in gardens to produce
18                food for the personal household consumption;
19           (C)  In the case of those persons who are sixty years
20                of age or over or who receive supplemental
21                security income benefits or disability or
22                blindness payments under title I, II, X, XIV, or
23                XVI, of the Social Security Act (42 U.S.C.A. �1
1                et seq., 401 et seq., 1201 et seq., 1351 et seq.,
2                or 1381 et seq.), and their spouses, meals
3                prepared by and served in senior citizens'
4                centers, apartment buildings occupied primarily by
5                such persons, public or private nonprofit
6                establishments (eating or otherwise) that feed
7                such persons, private establishments that contract
8                with the appropriate agency of the State to offer
9                meals for such persons at concessional prices, and
10                meals prepared for and served to residents of
11                federally subsidized housing for the elderly;
12           (D)  In the case of persons sixty years of age or over
13                and persons who are physically or mentally
14                handicapped or otherwise so disabled that they are
15                unable adequately to prepare all of their meals,
16                meals prepared for and delivered to them (and
17                their spouses) at their home by a public or
18                private nonprofit organization or by a private
19                establishment that contracts with the appropriate
20                state agency to perform such services at
21                concessional prices;
22           (E)  In the case of narcotics addicts or alcoholics,
23                and their children, served by drug addiction or
1                alcoholic treatment and rehabilitation programs,
2                meals prepared and served under such programs;
3           (F)  In the case of disabled or blind recipients of
4                benefits under title I, II, X, XIV, or XVI of the
5                Social Security Act (42 U.S.C.A. �1 et seq., 401
6                et seq., 1201 et seq., 1351 et seq., or 1381 et
7                seq.), or residents in a public or private
8                nonprofit group living arrangement that serves no
9                more than sixteen residents and is certified by
10                the appropriate state agency meals prepared and
11                served under such arrangement;
12           (G)  In the case of women and children temporarily
13                residing in public or private nonprofit shelters
14                for battered women and children, meals prepared
15                and served, by such shelters; and
16           (H)  In the case of households that do not reside in
17                permanent dwellings and households that have no
18                fixed mailing addresses, meals prepared for and
19                served by a public or private nonprofit
20                establishment (approved by an appropriate state
21                agency) that feeds such individuals and by private
22                establishments that contract with the appropriate
23                agency of the State to offer meals for such
1                individuals at concessional prices.
2      (7)  Amounts received by a hospital, infirmary, medical
3           clinic, health care facility, pharmacy, or a licensed
4           practitioner [licensed to administer the drug to an
5           individual for selling prescription drugs or prosthetic
6           devices to an individual; provided that this paragraph
7           shall not apply to any] for health care services
8           rendered including amounts received for services
9           provided in selling prescription drugs or prosthetic
10           devices.  As used in this paragraph:
11           (A)  "Prescription drugs" are those drugs defined under
12                section [[]328-1[]] and dispensed by filling or
13                refilling a written or oral prescription by a
14                practitioner licensed under law to administer the
15                drug and sold by a licensed pharmacist under
16                section 328-16 or practitioners licensed to
17                administer drugs; and
18           (B)  "Prosthetic device" means any artificial device or
19                appliance, instrument, apparatus, or contrivance,
20                including their components, parts, accessories,
21                and replacements thereof, used to replace a
22                missing or surgically removed part of the human
23                body, which is prescribed by a licensed
1                practitioner of medicine, osteopathy, or podiatry
2                and which is sold by the practitioner or which is
3                dispensed and sold by a dealer of prosthetic
4                devices; provided that "prosthetic device" shall
5                not mean any auditory, ophthalmic, dental, or
6                ocular device or appliance, instrument, apparatus,
7                or contrivance;
8      (8)  Taxes on transient accommodations imposed by chapter
9           237D and passed on and collected by operators holding
10           certificates of registration under that chapter;
11      (9)  Amounts received as dues by an unincorporated merchants
12           association from its membership for advertising media,
13           promotional, and advertising costs for the promotion of
14           the association for the benefit of its members as a
15           whole and not for the benefit of an individual member
16           or group of members less than the entire membership;
17           and
18      (10) Amounts received by a labor organization for real
19           property leased to:
20           (A)  A labor organization; or
21           (B)  A trust fund established by a labor organization
22                for the benefit of its members, families, and
23                dependents for medical or hospital care, pensions
1                on retirement or death of employees,
2                apprenticeship and training, and other membership
3                service programs.
4           As used in this paragraph, "labor organization" means a
5           labor organization exempt from federal income tax under
6           section 501(c)(5) of the Internal Revenue Code, as
7           amended."
8      SECTION 10.  Section 238-2, Hawaii Revised Statutes, is
10      "�8-2 Imposition of tax; exemptions.  There is hereby
11 levied an excise tax on the use in this State of tangible
12 personal property which is imported, or purchased from an
13 unlicensed seller, for use in this State.  The tax imposed by
14 this chapter shall accrue when the property is acquired by the
15 importer or purchaser and becomes subject to the taxing
16 jurisdiction of the State.  The rates of the tax hereby imposed
17 and the exemptions thereof are as follows:
18      (1)  If the importer or purchaser is licensed under chapter
19           237 and is (A) a wholesaler or jobber importing or
20           purchasing for purposes of resale, or (B) a
21           manufacturer importing or purchasing material or
22           commodities which are to be incorporated by the
23           manufacturer into a finished or saleable product
2           product is contained) wherein it will remain in such
3           form as to be perceptible to the senses, and which
4           finished or saleable product is to be sold in such
5           manner as to result in a further tax on the activity of
6           the manufacturer as the manufacturer or as a
7           wholesaler, and not as a retailer, there shall be no
8           tax, provided that if the wholesaler, jobber, or
9           manufacturer is also engaged in business as a retailer
10           (so classed under chapter 237), paragraph (2) shall
11           apply to the wholesaler, jobber, or manufacturer, but
12           the director of taxation shall refund to the
13           wholesaler, jobber, or manufacturer, in the manner
14           provided under section 231-23(c) such amount of tax as
15           the wholesaler, jobber, or manufacturer shall, to the
16           satisfaction of the director, establish to have been
17           paid by the wholesaler, jobber, or manufacturer to the
18           director with respect to property which has been used
19           by the wholesaler, jobber, or manufacturer for the
20           purposes stated in this paragraph.
22           237 and is:
23           (A)  [a] A retailer or other person importing or
1                purchasing for purposes of resale, not exempted by
2                paragraph (1)[, or];
3           (B)  [a] A manufacturer importing or purchasing
4                material or commodities which are to be
5                incorporated by the manufacturer into a finished
6                or saleable product (including the container or
7                package in which the product is contained) wherein
8                it will remain in such form as to be perceptible
9                to the senses, and which finished or saleable
10                product is to be sold at retail in this State, in
11                such manner as to result in a further tax on the
12                activity of the manufacturer in selling such
13                products at retail[, or];
14           (C)  [a] A contractor importing or purchasing material
15                or 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, in which the import
22                or purchase of tangible personal property would
23                have qualified as a sale at wholesale as defined
1                in section 237-4(a)(8) had the person been subject
2                to the tax in chapter 237,
3           the tax shall be one-half of one per cent of the
4           purchase price of the property, if the purchase and
5           sale are consummated in Hawaii; or, if there is no
6           purchase price applicable thereto, or if the purchase
7           or sale is consummated outside of Hawaii, then one-half
8           of one per cent of the value of such property.
9      (3)  In all other cases, [four] eight per cent of the value
10           of the property."
11      SECTION 11.  Section 238-3, Hawaii Revised Statutes, is
13      "�8-3 Application of tax, etc.(a)  The tax imposed by
14 this chapter shall not apply to any property, or to any use of
15 the property, which cannot legally be so taxed under the
16 Constitution or laws of the United States, but only so long as,
17 and only to the extent to which the State is without power to
18 impose the tax.
19      Any provision of law to the contrary notwithstanding,
20 exemptions or exclusions from tax under this chapter allowed on
21 or before April 1, 1978 under the provisions of the Constitution
22 of the United States or an act of the Congress of the United
23 States to persons or common carriers engaged in interstate or
1 foreign commerce, or both, whether ocean-going or air, shall
2 continue undiminished and be available thereafter.
3      (b)  The tax imposed by this chapter shall not apply to any
4 use of property the transfer of which property to, or the
5 acquisition of which by, the person so using the same, has
6 actually been or actually is taxed under chapter 237.
7      (c)  The tax imposed by this chapter shall be paid only once
8 upon or in respect of the same property; provided that nothing in
9 this chapter contained shall be construed to exempt any property
10 or the use thereof from taxation under any other law of the
11 State.
12      (d)  The tax imposed by this chapter shall be in addition to
13 any other taxes imposed by any other laws of the State, except as
14 otherwise specifically provided herein; provided that if it be
15 finally held by any court of competent jurisdiction, that the tax
16 imposed by this chapter may not legally be imposed in addition to
17 any other tax or taxes imposed by any other law or laws with
18 respect to the same property or the use thereof, then this
19 chapter shall be deemed not to apply to the property and the use
20 thereof under such specific circumstances, but such other laws
21 shall be given full effect with respect to the property and use.
22      (e)  The tax imposed by this chapter shall not apply to any
23 use of property exempted by section 238-4.
1      (f)  The tax imposed by this chapter shall not apply to any
2 use or consumption of aircraft and vessels, the transfer of which
3 aircraft or vessel to, or the acquisition of which by, the person
4 so using or consuming the same, or the rental for the use of the
5 aircraft or vessel, has actually been or actually is taxed under
6 chapter 237.
7      (g)  The tax imposed by this chapter shall not apply to any
8 intoxicating liquor as defined in chapter 244D and cigarettes and
9 tobacco products as defined in chapter 245, imported into the
10 State and sold to any person or common carrier in interstate
11 commerce, whether ocean-going or air, for consumption out-of-
12 state by the person, crew, or passengers on the shipper's vessels
13 or airplanes.
14      (h)  The tax imposed by this chapter shall not apply to any
15 use of vessels constructed under section 189-25 prior to July 1,
16 1969.
17      (i)  Each taxpayer liable for the tax imposed by this
18 chapter on tangible personal property shall be entitled to full
19 credit for the combined amount or amounts of legally imposed
20 sales or use taxes paid by the taxpayer with respect to the same
21 transaction and property to another state and any subdivision
22 thereof, but such credit shall not exceed the amount of the use
23 tax imposed under this chapter on account of the transaction and
1 property.  The director of taxation may require the taxpayer to
2 produce the necessary receipts or vouchers indicating the payment
3 of the sales or use tax to another state or subdivision as a
4 condition for the allowance of the credit.
5      (j)  The tax imposed by this chapter shall not apply to any
6 use of property exempted by section 237-26 or section 237-29.
7      (k)  The tax imposed by this chapter shall not apply to any
8 use of air pollution control facility exempted by section
9 237-27.5.
10      (l)  The tax imposed by this chapter shall not apply to food
11 exempt from general excise tax under paragraph 237-24.3(6)."
14      "�9-6 Airlines, certain carriers.  There shall be levied
15 and assessed upon each airline a tax of [four] eight per cent of
16 its gross income each year from the airline business; provided
17 that if an airline adopts a rate schedule for students in grade
18 twelve or below travelling in school groups providing such
19 students at reasonable hours a rate less than one-half of the
20 regular adult fare, the tax shall be three per cent of its gross
21 income each year from the airline business.  There shall be
22 levied and assessed upon each motor carrier, each common carrier
23 by water, and upon each contract carrier other than a motor
1 carrier, a tax of [four] eight per cent of its gross income each
2 year from the motor carrier or contract carrier business.  The
3 tax imposed by this section is a means of taxing the personal
4 property of the airline or other carrier, tangible and
5 intangible, including going concern value, and is in lieu of the
6 tax imposed by chapter 237 but is not in lieu of any other tax."
7      SECTION 13.  The department of taxation shall make
8 recommendations for statutory amendments necessary to carry out
9 section 2 of this Act.  The director of taxation shall report to
10 the legislature, no later than twenty days before the convening
11 of the regular session of 2000.
12      SECTION 14.  Statutory material to be repealed is bracketed.
13 New statutory material is underscored.
14      SECTION 15.  This Act shall take effect on July 1, 1999.
16                           INTRODUCED BY:  _______________________