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



(b)  Notwithstanding the provisions under
sections 40-57 and 40-58, if a contractor fails to timely file all tax returns
and pay all taxes, interest, and penalties due to the State or Internal Revenue
Service during the term of a contract, the state or county contracting officer
or agent shall immediately assign any progress payment due to the contractor,
if any (provided such payment is not subject to any restriction or
encumbrance), to the State payable to the department of taxation or to the
Internal Revenue Service to the credit of the contractor, whichever the case
may be; provided that the department of taxation may first offset its tax debt
against the sum owed to the contractor.  The state or county contracting
officer or agent shall assign as many progress payments as necessary to cover
the amount of the tax delinquency.



(c)  All state and county contracting officers
or agents shall withhold final payment of a contract until the receipt of tax
clearances from the director of taxation and the Internal Revenue Service. 
Notwithstanding sections 40-57 and 40-58, if a contractor fails to provide the
requisite tax clearances within six months of the completion date of the
contract, the state or county contracting officer or agent shall first notify
the department of taxation which in turn will notify the Internal Revenue
Service, of amounts payable to the contractor on completed contracts.  The
department of taxation and the Internal Revenue Service shall, within thirty
days, request the contracting officer or agent to offset the amount of taxes
due against any payment due to the contractor until the tax debt is paid in
full to the State or the Internal Revenue Service or both.  No final bill or
invoice from the contractor shall be required as a condition to the offset. 
Any remaining contract balance shall revert to the appropriation under which it
was encumbered.



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



(e)  This section shall not apply to:



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



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



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



(4)  Contracts or agreements between government
agencies;



(5)  Contracts or agreements to disburse funds:



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



(B)  To satisfy obligations required to be paid
by law, including fees, judgments, settlements, and other payments for
resolving claims;



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



(D)  For entitlement programs, including public
assistance, unemployment, and workers' compensation programs, established by
state or federal law;



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



(F)  For loans under government-administered
loan programs; or



(G)  To make periodic, recurring payments for
utility services;



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



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



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



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



(h)  The provisions of subsections (a), (b),
(c) and (d) shall not apply to the extent and during the period that the
validity of the taxes, penalties, or interest is being contested in an
administrative or judicial appeal with the department of taxation or Internal Revenue
Service. [L 1939, c 213, §2; RL 1945, §354; RL 1955, §9-46; am L Sp 1959 2d, c
1, §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 and
Reinvestment Act of 2009 funds; oversight commission (repealed June 30, 2011).  L
2009, c 150.



 



Attorney General Opinions



 



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



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



 



Case Notes



 



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