Hawaii ~ Sales and Use Tax: Two-Year Suspension of Numerous Exemptions Enacted

Hawaii Gov. Neil Abercrombie has signed legislation that suspends numerous general excise and use tax exemptions for two years and subjects the previously exempt amounts to a 4% general excise and use tax from July 1, 2011, to June 30, 2013. The exemptions will continue to apply, however, with respect to the county surcharge, which is currently imposed on the island of Oahu.

The existing exemption for nonprofits generally is not suspended, except for certain amounts discussed below. Also, the temporary suspension does not apply to:

— gross income or gross proceeds from binding written contracts entered into before July 1, 2011, that do not permit the passing on of increased taxes;

— gross income or gross proceeds from stevedoring and related services furnished to a company by its wholly owned subsidiary; and

— gross income or gross proceeds of sale that cannot be legally taxed under the U.S. Constitution or laws of the United States, but only so long as and to the extent to which Hawaii is without power to impose the tax.

In order to comply with the third item above, the Director of Taxation must exempt or exclude the gross income or gross proceeds of sale from the tax imposed under the legislation or apportion the gross income or gross proceeds of sale derived within Hawaii by persons engaged in business both within and outside Hawaii to determine the gross income or gross proceeds of sale subject to general excise tax for the purposes of Haw Rev Stat §237-21 (the provision authorizing apportionment).

Reporting and Payment

The legislation requires information reporting on most general excise and use tax exclusions and exemptions, beginning July 1, 2011. Amounts received that are exempt under Haw Rev Stat §237-24(1) –(7) (relating to certain insurance payments; property acquired by gift, bequest, devise, descent, or inheritance; tort damages; salaries and wages; and alimony and similar payments) are excluded from the information-reporting requirements. In addition, certain amounts, persons, and transactions are eligible for exclusion from the reporting requirement if the director determines that such exclusion is in the best interest of tax administration and made by official pronouncement.

Taxpayers against whom the taxes are levied are responsible for payment of the tax to the director. The Department of Taxation is authorized to postpone the payment of tax imposed under the legislation until the deadline to file the general excise or use tax annual return and reconciliation form, as applicable, without regard to any extension.

Temporarily Suspended General Excise Tax Exemptions

The following general excise tax exemptions are temporarily suspended:

— certain income of contractors and specialty contractors that has already been subjected to tax, as described in Haw Rev Stat §237-13(3)(B);

— reimbursements received by federal cost-plus contractors for the costs of purchased materials, plant, and equipment;

— gross receipts of home service providers acting as service carriers providing mobile telecommunications services to other home service providers;

— amounts deducted from the gross income of real property lessees because of receipt from sublessees;

— the value or gross income received by nonprofit organizations from certain conventions, conferences, trade show exhibits, or display spaces;

— amounts received by sugarcane producers from the manufacturer to whom the producer sells the sugarcane;

— amounts received from the loading, transportation, and unloading of agricultural commodities shipped interisland for a producer or produce dealer;

— amounts received from the sale of intoxicating liquor, cigarettes, and tobacco products, and agricultural, meat, or fish products, to persons or common carriers engaged in interstate or foreign commerce for consumption out-of-state on the shipper’s vessels or airplanes;

— amounts received or accrued from the loading or unloading of cargo from ships, barges, vessels, or aircraft;

— amounts received or accrued from tugboat and towage services, including pilotage fees for services performed within Hawaii, and the towage of ships, barges, or vessels in and out of state harbors or from one pier to another;

— amounts received or accrued from the transportation of pilots or government officials to ships, barges, or vessels offshore; rigging gear; checking freight and similar services; standby charges; and use of moorings and running mooring lines;

— amounts received by labor organizations from real property leases to labor organizations or certain trust funds established by a labor organization;

— amounts received as rent for aircraft or aircraft engines used for interstate air transportation;

— amounts received by exchanges and exchange members, as described in Haw Rev Stat §237-24.5;

— amounts received as high technology research and development grants;

— amounts received from servicing and maintenance of commercial aircraft or construction of certain aircraft service and maintenance facilities;

— gross proceeds from the sale of: (1) intoxicating liquor to the United States, including any of its agencies or instrumentalities that are immune from the levy of use tax or liquor tax, but not including national banks, or any organization to which the sale is permitted and that is located on any Army, Navy, or Air Force reservation, as described under Haw Rev Stat §237-25(a)(1); (2) tobacco products and cigarettes to the United States, including any of its agencies or instrumentalities that are immune from the levy of use tax or cigarette and tobacco tax, but not including national banks; and (3) other tangible property to the United States, including any of its agencies, instrumentalities, or federal credit unions, but not including national banks and any state-chartered credit union;

— amounts received by petroleum product refiners from other refiners for further refining of petroleum products;

— gross proceeds received from the construction, reconstruction, erection, operation, use, maintenance, or furnishing of air pollution control facilities that do not have valid exemption certificates on July 1, 2011;

— gross proceeds from shipbuilding and ship repairs rendered to surface vessels federally owned or engaged in interstate or international trade;

— amounts received by telecommunications common carriers from call center operators for interstate or foreign telecommunications services, including toll-free telecommunications, telecommunications capabilities for electronic mail, voice, and data telecommunications, computerized telephone support, facsimile, wide-area telecommunications services, and computer-to-computer communication;

— gross proceeds received by qualified businesses in enterprise zones that do not have valid certificates of qualification from the Department of Business, Economic Development, and Tourism on July 1, 2011; and

— gross proceeds received by licensed contractors for construction within enterprise zones for qualified businesses within the enterprise zones or businesses approved by the Department of Business, Economic Development, and Tourism to enroll into the enterprise zone program.

Temporarily Suspended Use Tax Exemptions

The following use tax exemptions are temporarily suspended:

— the leasing or renting of aircraft or keeping of aircraft solely for leasing or renting for commercial transportation of passengers and goods or the acquisition or importation of aircraft or aircraft engines by a lessee or renter engaged in interstate air transportation;

— the use of oceangoing vehicles for passenger or passenger and goods transportation from one point to another within Hawaii as a public utility;

— the use of materials, parts, or tools imported or purchased by a person licensed under the general excise tax laws that are used for aircraft service and maintenance or the construction of certain aircraft service and maintenance facilities;

— the use or sale of intoxicating liquor and cigarette and tobacco products imported into Hawaii and sold to any person or common carrier in interstate commerce, whether oceangoing or air, for consumption out-of-state by the person, crew, or passengers on the shipper’s vessels or airplanes;

— the use of any commercial fishing vessel constructed under Haw Rev Stat §189-25 before July 1, 1969; and

— the use of an air pollution control facility that is exempt from general excise tax.

Act 105 (S.B. 754), Laws 2011, effective July 1, 2011, and repealed on June 30, 2013

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