Act 38 exempts from the general excise tax (GET) and transient accommodations tax (TAT) amounts received from foreign diplomats and consular officials and exempts from the use tax the use of property, services, or contracting imported by foreign diplomats and consular officials. Act 38 is effective beginning July 1, 2000.
The United States Department of State (State Department) issues cards to missions and diplomats granting them an exemption from state sales taxes to the extent that the missions and diplomats' home countries offer a similar exemption to U.S. diplomats. This exemption, however, was not applicable prior to Act 38 because the GET and TAT are not sales taxes and both taxes are levied on the business receiving income rather than the customer. Similarly, the use tax was applicable to the use of property, services, or contracting imported by a foreign diplomat or consular official.
Starting July 1, 2000, Act 38 exempts from the GET and TAT amounts received from foreign diplomats and consular officials who are holding cards issued by the State Department granting them an exemption from state taxes. This law also exempts from the use tax property, services, or contracting imported by foreign diplomats and consular officials. The tax exemption, however, is not applicable to taxes imposed on telecommunication services, other utilities, or gasoline purchases.
The State Department issues two types of cards. The first, a mission tax exemption card, is issued to individuals making official purchases on behalf of a mission (country). The bill or invoice must be made out to the mission and all purchases must be paid with a mission credit card or check (State Department rules do not allow cash payments or personal checks). Another card may be issued to individuals associated with the mission for personal purchases. Both the mission card and the individual card are not transferable; only the person whose photograph appears on the front side of the card may use it.
Both of these types of cards are color-coded and specify the extent of the tax exemptions. There are different levels of exemptions established by the State Department. Thus, some cards provide an exemption for tax on hotels while other cards specifically exclude hotels from exemption. Some cards are not valid for purchases below a dollar threshold.
The business claiming an exemption under Act 38 must have documents to support the exemption. The business may photocopy the card (both sides if the exemption information is on the back of the card) and retain it with its records. Alternatively, the business may record the buyer's name, mission (country), card number, expiration date, and level of exemption.
Example 1: A consular official purchases office supplies and books twenty hotel rooms for a visiting official delegation. The consular official presents a mission tax exemption card (which exempts all state sales taxes and hotel taxes) and pays for the supplies and hotel rooms with a mission credit card. The seller of the supplies and the hotel operator photocopies both sides of the mission tax exemption card. The gross income received from the sale of supplies is exempt from the GET. The gross income received by the hotel operator for these twenty rooms is exempt from the GET and TAT.Forms and other tax information are available at the Department's website at: www.state.hi.us/tax.
Example 2: A foreign diplomat purchases a meal at a restaurant. The diplomat presents a tax exemption card for personal purchases (which exempts all state sales taxes). A restaurant employee records the diplomat's name, mission (country), card number, expiration date, and level of exemption. The gross income received from this meal is exempt from the GET.
On Oahu, forms may be ordered by calling the Department's Forms Request Line at 808-587-7572. Persons who are not calling from Oahu, may call: 1-800-222-7572 (toll-free) to receive forms by mail or 808-678-0522 from a fax machine to receive forms by fax.
RAY K. KAMIKAWA
Director of Taxation
HRS Section Explained: HRS Section 237-24.3, 237D-3; 238-1