RE: Act 198, Session Laws of Hawaii 2000 (Act 198), Relating to the
General Excise and Use Taxes
and the Public Service Company Tax
Act 198: (1) makes technical amendments to Act 70, Session Laws of Hawaii (SLH) 1999 (Act 70) and Act 71, SLH 1999 (Act 71); (2) extends general excise tax (GET) pyramiding relief to the sale of amusements; (3) imposes the use tax on imported contracting; (4) authorizes the director of taxation to exempt, exclude, or apportion the use tax; and (5) provides public service company (PSC) tax relief for the sale of telecommunications services and transportation services.
In administering Acts 71 and 198, the Department will apply the provisions thereunder to afford pyramiding relief to multi-level transactions. Example 1 qualifies for pyramiding relief as a service-to-service transaction. Example 2 also qualifies for pyramiding relief as a multi-level service-to-service-to-service transaction.
Example 1: Lab A is requested by a physician to perform four lab tests that are used for a patient diagnosis. Lab A qualifies for pyramiding relief and the physician is subject to the GET at the 4 percent rate.GET Pyramiding Relief for Amusements
Example 2: Assume the same facts as Example 1, except that Lab A subcontracts one of the tests to Lab T. Lab T sends the test result to Lab A, which sends the results of the four tests to the physician. Both Labs A and T qualify for pyramiding relief. The physician is subject to the GET at the 4 percent rate.
Beginning January 1, 2000, Act 198 extends GET pyramiding relief to amusement-to-service, amusement-to tangible personal property, and amusement-to-amusement transactions.
Example 3: Hula Halau providing entertainment (that cannot be viewed free by the non-paying public) as a part of a commercial luau qualifies for the lower GET tax rate.Use Tax on Imported Contracting
Example 4: Independent contractor DJ or VJ in night club with cover charge qualifies for the lower GET tax rate.
Example 5: Band hired by bride and groom for their wedding reception at a hotel ballroom does not qualify. (2 party retail transaction)
Beginning January 1, 2000, Act 198 imposes the use tax on contracting, as defined in HRS § 237-6, which is imported into Hawaii for resale or use. Act 70 imposed the use tax on imported services, but not imported contracting; there is a distinction between the two activities for the GET. The imposition of the use tax on imported contracting will complement the GET exemption for exported contracting. An exclusion of the use tax on imported contracting is provided for licensed construction industry contractors because the same contracting performed by local contractors would have qualified for a GET subcontractor deduction. The use tax exclusion avoids discrimination against imported contracting.
Example 6: A Hawaii contractor engages a mainland engineer to perform an analysis for a project in Hawaii. The engineer does not perform any work in Hawaii. The Hawaii contractor has imported contracting but is exempt from the use tax because a local engineer performing the analysis would qualify for a GET subcontract deduction.Director's Authority to Exempt, Exclude, or Apportion the Use Tax
Example 7: A Hawaii home owner engages a mainland architect to draw plans for a new home; the architect does not perform any work in Hawaii and pays no GET on the gross income received for drawing the plans. The home owner is subject to the use tax at the rate of 4 percent on the value of the imported plans because the mainland architect's work would not qualify for the GET subcontract deduction.
Beginning January 1, 2000, Act 198 authorizes the director of taxation
to conform the imposition of the use tax on imported services or contracting
with the Constitution or laws of the United States by:
Example 8: Hawaii contractor buys a used backhoe from a mainland contractor for use in Hawaii. The Hawaii contractor is exempt from the use tax because the purchase of a backhoe from a Hawaii contractor would qualify as a casual sale that is exempt from the GET. The director of taxation is authorized to exclude the imposition of the use tax to avoid discrimination against imports.
Example 9: Administrative services, including bookkeeping and personnel services performed by the mainland headquarters of a financial institution for their Hawaii branch are not subject to the use tax. (If the administrative services instead were performed by the Hawaii branch, the GET would not be imposed on these services. The director of taxation is authorized to exclude the imposition of the use tax to avoid discrimination against imports.)
The gross income received by a public utility from the sale of its products or services to another public utility for resale is subject to the PSC tax at the rate of 0.5 percent. The sale of telecommunications services by a public utility to an interstate or foreign common carrier telecommunications services provider currently does not qualify for the 0.5 percent PSC rate because an interstate or foreign telecommunications services provider is not classified as a public utility for the PSC tax. The interstate or foreign telecommunications services provider is subject to the GET instead of the PSC tax. Beginning with January 1, 2001 filings, the sale of telecommunications services by a public utility to an interstate or foreign telecommunications services provider that is subject to the GET and that resells the services to retail customers, is subject to a 5.5 percent PSC tax rate, reduced by 0.5 percent each January 1st until a 0.5 percent rate is fully phased-in on January 1, 2007.
Example 10: ABC, a local telephone company, sells telecommunication access services to XYZ, a long-distance telecommunications provider, which resells the access services to customers making long-distance telephone calls. The gross income received by ABC from the sale of access services qualifies for the lower PSC tax rate. XYZ is subject to the GET at the rate of 4 percent as provided under HRS § 237-13(6).PSC Tax Relief for Motor Carriers
Before Act 198, the gross income received by a motor carrier for transportation services provided to a construction industry contractor was subject to the PSC tax at the rate of 4 percent. Beginning with January 1, 2001 filings, a motor carrier qualifies for a reduced PSC tax rate of 3.5 percent, reduced by 0.5 percent each January 1st until a 0.5 percent rate is fully phased-in on January 1, 2006. The 0.5 percent PSC tax rate will not apply to carriers eligible for a division of gross income under HRS § 239-2.
Example 11: A trucking company hauling building materials to a building contractor's project site qualifies for the lower PSC tax rate.Forms and other tax information are available at the Department's website at: www.state.hi.us/tax. Revised Acts 70 and 71 outlines and a revised Act 71 chart of examples may be found at the website.
Example 12: A refuse company hauling trash from a project site qualifies for GET pyramiding relief instead of PSC tax relief. (The refuse company is a GET taxpayer.)
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 Sections Explained: HRS Sections 237-4, 237-6, 237-13, 237-13.3,
237-21, 237-29.53, 238-1, 238.2.3, 238-3, 239-2, 239-5, and 239-6.