§103-53  Contracts with the State orcounties; tax clearances, assignments.  (a)  All state and county officersand agents making contracts on behalf of the State or any county shall require,as a prerequisite to entering into these contracts, tax clearances from thedirector of taxation and the Internal Revenue Service to the effect that alltax returns due have been filed, and all taxes, interest, and penalties leviedagainst the contractor or accrued under title 14 that are administered by thedepartment of taxation and under the Internal Revenue Code have been paid.  Thedirector of taxation may waive the Internal Revenue Service tax clearancerequirement if the director determines that it is in the best interest of theState.

(b)  Notwithstanding the provisions undersections 40-57 and 40-58, if a contractor fails to timely file all tax returnsand pay all taxes, interest, and penalties due to the State or Internal RevenueService during the term of a contract, the state or county contracting officeror agent shall immediately assign any progress payment due to the contractor,if any (provided such payment is not subject to any restriction orencumbrance), to the State payable to the department of taxation or to theInternal Revenue Service to the credit of the contractor, whichever the casemay be; provided that the department of taxation may first offset its tax debtagainst the sum owed to the contractor.  The state or county contractingofficer or agent shall assign as many progress payments as necessary to coverthe amount of the tax delinquency.

(c)  All state and county contracting officersor agents shall withhold final payment of a contract until the receipt of taxclearances from the director of taxation and the Internal Revenue Service. Notwithstanding sections 40-57 and 40-58, if a contractor fails to provide therequisite tax clearances within six months of the completion date of thecontract, the state or county contracting officer or agent shall first notifythe department of taxation which in turn will notify the Internal RevenueService, of amounts payable to the contractor on completed contracts.  Thedepartment of taxation and the Internal Revenue Service shall, within thirtydays, request the contracting officer or agent to offset the amount of taxesdue against any payment due to the contractor until the tax debt is paid infull to the State or the Internal Revenue Service or both.  No final bill orinvoice from the contractor shall be required as a condition to the offset. Any remaining contract balance shall revert to the appropriation under which itwas encumbered.

(d)  Any assignment of a contract shall requirethe assignee, as a condition precedent to the assignment, to first obtain abulk sales certificate if required under section 237-43, and present thecertificate, or tax clearance as provided under subsection (a) if a bulk salescertificate is not required, to the state or county contracting officer oragent.

(e)  This section shall not apply to:

(1)  Any procurement of less than $25,000 or that isconsidered a small purchase under section 103D-305 and any state or countydepartment contract of less than $25,000;

(2)  Emergency purchases for the procurement of goods,services, or construction under section 103D-307, disaster relief under chapter127, or a civil defense emergency under chapter 128;

(3)  Grants and subsidies disbursed by a state agencypursuant to chapter 42F or in accordance with standards provided by law asrequired by article VII, section 4, of the State Constitution, or made by thecounties pursuant to their respective charters or ordinances;

(4)  Contracts or agreements between governmentagencies;

(5)  Contracts or agreements to disburse funds:

(A)  To make payments to or on behalf of publicofficers and employees for salaries, fringe benefits, professional fees, andreimbursements;

(B)  To satisfy obligations required to be paidby law, including fees, judgments, settlements, and other payments forresolving claims;

(C)  To make refunds or return funds held bythe State or county as trustee, custodian, or bailee;

(D)  For entitlement programs, including publicassistance, unemployment, and workers' compensation programs, established bystate or federal law;

(E)  For deposit, investment, or safekeeping, includingsums to pay expenses related to their deposit investment, or safekeeping;

(F)  For loans under government-administeredloan programs; or

(G)  To make periodic, recurring payments forutility services;

(6)  Rent for the use or occupation of the premisesand facilities at Aloha Stadium, the convention center, or any other state orcounty large spectator events facility; and

(7)  Contracts or agreements of the Hawaii healthsystems corporation and its regional system boards.

(f)  This section shall not apply to acontractor if the department of taxation certifies that the contractor is ingood standing under a plan in which delinquent taxes, interest, and penaltiesare being paid to the department of taxation (and the Internal Revenue Service,if applicable) in installments.

(g)  Any officer or employee of anygovernmental agency who intentionally or knowingly violates any provision underthis section shall be fined not more than $1,000 or imprisoned not more thanone year, or both.

(h)  The provisions of subsections (a), (b),(c) and (d) shall not apply to the extent and during the period that thevalidity of the taxes, penalties, or interest is being contested in anadministrative or judicial appeal with the department of taxation or Internal RevenueService. [L 1939, c 213, §2; RL 1945, §354; RL 1955, §9-46; am L Sp 1959 2d, c1, §16; HRS §103-53; gen ch 1985; am L 1996, c 314, §1; am L 1997, c 352, §3;am L 2004, c 216, §16; am L 2007, c 290, §15]

 

Note

 

  Expedited procedures for programs using American Recovery andReinvestment Act of 2009 funds; oversight commission (repealed June 30, 2011).  L2009, c 150.

 

Attorney General Opinions

 

  Tax clearance required even in cases of personal servicecontracts not admitting of competition.  Att. Gen. Op. 62-14.

  "Political subdivision" does not includeredevelopment agencies created under chapter 53.  Att. Gen. Op. 62-14.

 

Case Notes

 

  Claims owing to assignee are recognized.  39 H. 308.