§237-13  Imposition of tax.  There ishereby levied and shall be assessed and collected annually privilege taxesagainst persons on account of their business and other activities in the Statemeasured by the application of rates against values of products, gross proceedsof sales, or gross income, whichever is specified, as follows:

(1)  Tax on manufacturers.

(A)  Upon every person engaging or continuingwithin the State in the business of manufacturing, including compounding,canning, preserving, packing, printing, publishing, milling, processing,refining, or preparing for sale, profit, or commercial use, either directly orthrough the activity of others, in whole or in part, any article or articles,substance or substances, commodity or commodities, the amount of the tax to beequal to the value of the articles, substances, or commodities, manufactured,compounded, canned, preserved, packed, printed, milled, processed, refined, orprepared for sale, as shown by the gross proceeds derived from the sale thereofby the manufacturer or person compounding, preparing, or printing them,multiplied by one-half of one per cent.

(B)  The measure of the tax on manufacturers isthe value of the entire product for sale, regardless of the place of sale orthe fact that deliveries may be made to points outside the State.

(C)  If any person liable for the tax onmanufacturers ships or transports the person's product, or any part thereof,out of the State, whether in a finished or unfinished condition, or sells thesame for delivery to points outside the State (for example, consigned to amainland purchaser via common carrier f.o.b. Honolulu), the value of theproducts in the condition or form in which they exist immediately beforeentering interstate or foreign commerce, determined as hereinafter provided,shall be the basis for the assessment of the tax imposed by this paragraph. This tax shall be due and payable as of the date of entry of the products intointerstate or foreign commerce, whether the products are then sold or not.  Thedepartment shall determine the basis for assessment, as provided by thisparagraph, as follows:

(i)  If the products at the time of their entryinto interstate or foreign commerce already have been sold, the gross proceedsof sale, less the transportation expenses, if any, incurred in realizing thegross proceeds for transportation from the time of entry of the products intointerstate or foreign commerce, including insurance and storage in transit,shall be the measure of the value of the products;

(ii)  If the products have not been sold at thetime of their entry into interstate or foreign commerce, and in cases governedby clause (i) in which the products are sold under circumstances such that thegross proceeds of sale are not indicative of the true value of the products,the value of the products constituting the basis for assessment shallcorrespond as nearly as possible to the gross proceeds of sales for deliveryoutside the State, adjusted as provided in clause (i), or if sufficient dataare not available, sales in the State, of similar products of like quality andcharacter and in similar quantities, made by the taxpayer (unless notindicative of the true value) or by others.  Sales outside the State, adjustedas provided in clause (i), may be considered when they constitute the bestavailable data.  The department shall prescribe uniform and equitable rules forascertaining the values;

(iii)  At the election of the taxpayer and withthe approval of the department, the taxpayer may make the taxpayer's returnsunder clause (i) even though the products have not been sold at the time oftheir entry into interstate or foreign commerce; and

(iv)  In all cases in which products leave theState in an unfinished condition, the basis for assessment shall be adjusted soas to deduct the portion of the value as is attributable to the finishing ofthe goods outside the State.

(2)  Tax on business of selling tangible personalproperty; producing.

(A)  Upon every person engaging or continuingin the business of selling any tangible personal property whatsoever (notincluding, however, bonds or other evidence of indebtedness, or stocks), thereis likewise hereby levied, and shall be assessed and collected, a taxequivalent to four per cent of the gross proceeds of sales of the business;provided that insofar as the sale of tangible personal property is a wholesalesale under section [237-4(a)(8)], the sale shall be subject to section237-13.3.  Upon every person engaging or continuing within this State in thebusiness of a producer, the tax shall be equal to one-half of one per cent ofthe gross proceeds of sales of the business, or the value of the products, forsale, if sold for delivery outside the State or shipped or transported out ofthe State, and the value of the products shall be determined in the same manneras the value of manufactured products covered in the cases under paragraph(1)(C).

(B)  Gross proceeds of sales of tangibleproperty in interstate and foreign commerce shall constitute a part of themeasure of the tax imposed on persons in the business of selling tangiblepersonal property, to the extent, under the conditions, and in accordance withthe provisions of the Constitution of the United States and the Acts of theCongress of the United States which may be now in force or may be hereafteradopted, and whenever there occurs in the State an activity to which, under theConstitution and Acts of Congress, there may be attributed gross proceeds ofsales, the gross proceeds shall be so attributed.

(C)  No manufacturer or producer, engaged insuch business in the State and selling the manufacturer's or producer'sproducts for delivery outside of the State (for example, consigned to amainland purchaser via common carrier f.o.b. Honolulu), shall be required topay the tax imposed in this chapter for the privilege of so selling theproducts, and the value or gross proceeds of sales of the products shall beincluded only in determining the measure of the tax imposed upon the manufactureror producer.

(D)  When a manufacturer or producer, engagedin such business in the State, also is engaged in selling the manufacturer's orproducer's products in the State at wholesale, retail, or in any other manner,the tax for the privilege of engaging in the business of selling the productsin the State shall apply to the manufacturer or producer as well as the tax forthe privilege of manufacturing or producing in the State, and the manufactureror producer shall make the returns of the gross proceeds of the wholesale,retail, or other sales required for the privilege of selling in the State, aswell as making the returns of the value or gross proceeds of sales of theproducts required for the privilege of manufacturing or producing in the State. The manufacturer or producer shall pay the tax imposed in this chapter for theprivilege of selling its products in the State, and the value or gross proceedsof sales of the products, thus subjected to tax, may be deducted insofar asduplicated as to the same products by the measure of the tax upon themanufacturer or producer for the privilege of manufacturing or producing in theState; provided that no producer of agricultural products who sells theproducts to a purchaser who will process the products outside the State shallbe required to pay the tax imposed in this chapter for the privilege ofproducing or selling those products.

(E)  A taxpayer selling to a federal cost-pluscontractor may make the election provided for by paragraph (3)(C), and in thatcase the tax shall be computed pursuant to the election, notwithstanding thisparagraph or paragraph (1) to the contrary.

(F)  The department, by rule, may require thata seller take from the purchaser of tangible personal property a certificate,in a form prescribed by the department, certifying that the sale is a sale atwholesale; provided that:

(i)  Any purchaser who furnishes a certificateshall be obligated to pay to the seller, upon demand, the amount of theadditional tax that is imposed upon the seller whenever the sale in fact is notat wholesale; and

(ii)  The absence of a certificate in itselfshall give rise to the presumption that the sale is not at wholesale unless thesales of the business are exclusively at wholesale.

(3)  Tax upon contractors.

(A)  Upon every person engaging or continuingwithin the State in the business of contracting, the tax shall be equal to fourper cent of the gross income of the business.

(B)  In computing the tax levied under thisparagraph, there shall be deducted from the gross income of the taxpayer somuch thereof as has been included in the measure of the tax levied undersubparagraph (A), on:

(i)  Another taxpayer who is a contractor, asdefined in section 237-6;

(ii)  A specialty contractor, duly licensed bythe department of commerce and consumer affairs pursuant to section 444-9, inrespect of the specialty contractor's business; or

(iii)  A specialty contractor who is not licensedby the department of commerce and consumer affairs pursuant to section 444-9,but who performs contracting activities on federal military installations andnowhere else in this State;

provided that any person claiming adeduction under this paragraph shall be required to show in the person's returnthe name and general excise number of the person paying the tax on the amountdeducted by the person.

(C)  In computing the tax levied under thisparagraph against any federal cost-plus contractor, there shall be excludedfrom the gross income of the contractor so much thereof as fulfills thefollowing requirements:

(i)  The gross income exempted shall constitutereimbursement of costs incurred for materials, plant, or equipment purchasedfrom a taxpayer licensed under this chapter, not exceeding the gross proceedsof sale of the taxpayer on account of the transaction; and

(ii)  The taxpayer making the sale shall havecertified to the department that the taxpayer is taxable with respect to thegross proceeds of the sale, and that the taxpayer elects to have the tax on grossincome computed the same as upon a sale to the state government.

(D)  A person who, as a business or as a partof a business in which the person is engaged, erects, constructs, or improvesany building or structure, of any kind or description, or makes, constructs, orimproves any road, street, sidewalk, sewer, or water system, or otherimprovements on land held by the person (whether held as a leasehold, feesimple, or otherwise), upon the sale or other disposition of the land orimprovements, even if the work was not done pursuant to a contract, shall beliable to the same tax as if engaged in the business of contracting, unless theperson shows that at the time the person was engaged in making the improvementsthe person intended, and for the period of at least one year after completionof the building, structure, or other improvements the person continued tointend to hold and not sell or otherwise dispose of the land or improvements. The tax in respect of the improvements shall be measured by the amount of theproceeds of the sale or other disposition that is attributable to the erection,construction, or improvement of such building or structure, or the making,constructing, or improving of the road, street, sidewalk, sewer, or watersystem, or other improvements.  The measure of tax in respect of theimprovements shall not exceed the amount which would have been taxable had thework been performed by another, subject as in other cases to the deductionsallowed by subparagraph (B).  Upon the election of the taxpayer, this paragraphmay be applied notwithstanding that the improvements were not made by thetaxpayer, or were not made as a business or as a part of a business, or weremade with the intention of holding the same.  However, this paragraph shall notapply in respect of any proceeds that constitute or are in the nature of rent;all such gross income shall be taxable under paragraph (9); provided thatinsofar as the business of renting or leasing real property under a lease istaxed under section 237-16.5, the tax shall be levied by section 237-16.5.

(4)  Tax upon theaters, amusements, radio broadcastingstations, etc.

(A)  Upon every person engaging or continuingwithin the State in the business of operating a theater, opera house, moving pictureshow, vaudeville, amusement park, dance hall, skating rink, radio broadcastingstation, or any other place at which amusements are offered to the public, thetax shall be equal to four per cent of the gross income of the business, and inthe case of a sale of an amusement at wholesale under section 237-4(a)(13), thetax shall be subject to section 237-13.3.

(B)  The department may require that the personrendering an amusement at wholesale take from the licensed seller acertificate, in a form prescribed by the department, certifying that the saleis a sale at wholesale; provided that:

(i)  Any licensed seller who furnishes acertificate shall be obligated to pay to the person rendering the amusement,upon demand, the amount of additional tax that is imposed upon the sellerwhenever the sale is not at wholesale; and

(ii)  The absence of a certificate in itselfshall give rise to the presumption that the sale is not at wholesale unless theperson rendering the sale is exclusively rendering the amusement at wholesale.

(5)  Tax upon sales representatives, etc.  Upon everyperson classified as a representative or purchasing agent under section 237-1,engaging or continuing within the State in the business of performing servicesfor another, other than as an employee, there is likewise hereby levied andshall be assessed and collected a tax equal to four per cent of the commissionsand other compensation attributable to the services so rendered by the person.

(6)  Tax on service business.

(A)  Upon every person engaging or continuingwithin the State in any service business or calling including professionalservices not otherwise specifically taxed under this chapter, there is likewisehereby levied and shall be assessed and collected a tax equal to four per centof the gross income of the business, and in the case of a wholesaler undersection 237-4(a)(10), the tax shall be equal to one-half of one per cent of thegross income of the business.  Notwithstanding the foregoing, a wholesalerunder section 237-4(a)(10) shall be subject to section 237-13.3.

(B)  The department may require that the personrendering a service at wholesale take from the licensed seller a certificate,in a form prescribed by the department, certifying that the sale is a sale atwholesale; provided that:

(i)  Any licensed seller who furnishes acertificate shall be obligated to pay to the person rendering the service, upondemand, the amount of additional tax that is imposed upon the seller wheneverthe sale is not at wholesale; and

(ii)  The absence of a certificate in itselfshall give rise to the presumption that the sale is not at wholesale unless theperson rendering the sale is exclusively rendering services at wholesale.

(C)  Where any person is engaged in thebusiness of selling interstate or foreign common carrier telecommunicationservices within and without the State, other than as a home service provider,the tax shall be imposed on that portion of gross income received by a personfrom service which is originated or terminated in this State and is charged toa telephone number, customer, or account in this State notwithstanding anyother state law (except for the exemption under section 237-23(a)(1)) to thecontrary.  If, under the Constitution and laws of the United States, the entiregross income as determined under this paragraph of a business sellinginterstate or foreign common carrier telecommunication services cannot beincluded in the measure of the tax, the gross income shall be apportioned asprovided in section 237-21; provided that the apportionment factor and formulashall be the same for all persons providing those services in the State.

(D)  Where any person is engaged in thebusiness of a home service provider, the tax shall be imposed on the grossincome received or derived from providing interstate or foreign mobiletelecommunications services to a customer with a place of primary use in thisState when such services originate in one state and terminate in another state,territory, or foreign country; provided that all charges for mobiletelecommunications services which are billed by or for the home serviceprovider are deemed to be provided by the home service provider at thecustomer's place of primary use, regardless of where the mobile telecommunicationsoriginate, terminate, or pass through; provided further that the income fromcharges specifically derived from interstate or foreign mobiletelecommunications services, as determined by books and records that are keptin the regular course of business by the home service provider in accordancewith section 239-24, shall be apportioned under any apportionment factor orformula adopted under subparagraph (C).  Gross income shall not include:

(i)  Gross receipts from mobiletelecommunications services provided to a customer with a place of primary useoutside this State;

(ii)  Gross receipts from mobiletelecommunications services that are subject to the tax imposed by chapter 239;

(iii)  Gross receipts from mobiletelecommunications services taxed under section 237-13.8; and

(iv)  Gross receipts of a home service provideracting as a serving carrier providing mobile telecommunications services toanother home service provider's customer.

For the purposes of this paragraph,"charges for mobile telecommunications services","customer", "home service provider", "mobiletelecommunications services", "place of primary use", and"serving carrier" have the same meaning as in section 239-22.

(7)  Tax on insurance producers.  Upon every personengaged as a licensed producer pursuant to chapter 431, there is hereby leviedand shall be assessed and collected a tax equal to 0.15 per cent of thecommissions due to that activity.

(8)  Tax on receipts of sugar benefit payments.  Uponthe amounts received from the United States government by any producer of sugar(or the producer's legal representative or heirs), as defined under and byvirtue of the Sugar Act of 1948, as amended, or other Acts of the Congress ofthe United States relating thereto, there is hereby levied a tax of one-half ofone per cent of the gross amount received; provided that the tax leviedhereunder on any amount so received and actually disbursed to another by aproducer in the form of a benefit payment shall be paid by the person or personsto whom the amount is actually disbursed, and the producer actually making abenefit payment to another shall be entitled to claim on the producer's returna deduction from the gross amount taxable hereunder in the sum of the amount sodisbursed.  The amounts taxed under this paragraph shall not be taxable underany other paragraph, subsection, or section of this chapter.

(9)  Tax on other business.  Upon every personengaging or continuing within the State in any business, trade, activity,occupation, or calling not included in the preceding paragraphs or any otherprovisions of this chapter, there is likewise hereby levied and shall beassessed and collected, a tax equal to four per cent of the gross incomethereof.  In addition, the rate prescribed by this paragraph shall apply to abusiness taxable under one or more of the preceding paragraphs or otherprovisions of this chapter, as to any gross income thereof not taxed thereunderas gross income or gross proceeds of sales or by taxing an equivalent value ofproducts, unless specifically exempted. [L 1935, c 141, §2 I; am L 1939, c 252,§§1, 2; am L 1943, c 81, pt of §1; RL 1945, §5455; am L 1945, c 100, §3 and c253, §2; am L 1947, c 111, §9 and c 113, §7; am L 1953, c 183, §3; RL 1955,§117-14; am L 1957, c 34, §§5, 11(d) to (g); am L Sp 1957, c 1, §3(e) to (s);am L Sp 1959 2d, c 1, §16; am L 1960, c 4, §§2, 3, 4 and c 24, §1; am L 1962, c27, §1; am L 1965, c 155, §14(a) to (h); am L 1966, c 28, §3; HRS §237-13; am L1969, c 137, §1; am L 1970, c 180, §10; am L 1971, c 204, §§5, 6; am L 1977, c160, §1; am L 1978, c 144, §2; am L 1982, c 204, §8; am L 1986, c 324, §1; am L1991, c 21, §1; am L 1992, c 106, §6; am L 1993, c 188, §1; am L 1994, c 141,§1; am L 1997, c 353, §3; am L 1998, c 169, §§1, 3; am L 1999, c 71, §6 and c173, §2; am L 2000, c 198, §3; am L 2002, c 209, §3; am L 2003, c 135, §3 and c212, §3; am L 2008, c 16, §6]

 

Note

 

  L 2002, c 209, §6 provides:

  "SECTION 6.  Notwithstanding any provisions of this Actto the contrary, nothing in this Act shall affect or shall be construed toaffect the taxation of prepaid telephone calling service under section237-13.8, Hawaii Revised Statutes."

 

Attorney General Opinions

 

  General excise and use taxes may be applied to importedgoods, no longer in transit, regardless of whether imported goods are in theiroriginal packages.  Att. Gen Op. 94-2.

 

Law Journals and Reviews

 

  Rule of Strict Construction in Tax Cases, a Question ofClassification or Exemption, Arthur B. Reinwald, 11 HBJ 98.

 

Case Notes

 

  Professions defined.  34 H. 245.

  Tax on persons selling to post exchanges and ship's storesallowed.  Not unconstitutional.  37 H. 314, aff'd 174 F.2d 21.

  Radio stations.  40 H. 121, aff'd 216 F.2d 700.

  Applicability of tax on selling to sales by manufacturer.  41H. 615.  A business printing and publishing a daily newspaper, etc., is not a"manufacturer".  43 H. 154.  See 279 F.2d 636, aff'g 43 H. 154.  Taxon foreign manufacturer's representative, no violation of commerce clause.  46H. 269, 379 P.2d 336.  The tax on trucking business' gross receipts forservices rendered wholly within the State involving through bills of ladingdoes not violate the commerce clause.  48 H. 486, 405 P.2d 382.

  Doubt in tax statute is to be resolved in favor of taxpayer. 45 H. 167, 363 P.2d 990.  "Canning" under prior law construed;packing frozen pineapples in hermetically sealed cans is not"canning".  45 H. 167, 363 P.2d 990.

  Arrangement between milk producers and distributor createdagency, rather than sales relationship, and producers were not subject to taxat producing rate.  46 H. 292, 380 P.2d 156.

  Applicable rules of construction in tax cases.  50 H. 603,446 P.2d 171.

  Rates applicable to advertising revenues of a printing andpublishing firm.  50 H. 603, 446 P.2d 171.

  Individual earning livelihood as trustee in bankruptcy iscovered by either paragraph (6) or (10) or both.  52 H. 56, 469 P.2d 814.

  Failure to collect tax from some who fall within statutecannot excuse others from paying what they owe.  53 H. 419, 495 P.2d 1172.

  Commissions received by travel agencies are subject to tax;application of tax does not contravene the commerce or the import-exportclauses.  53 H. 419, 495 P.2d 1172.

  Fees received as trustee, executor, and corporate directorwere held subject to tax.  53 H. 435, 496 P.2d 1.

  Catchall paragraph (10) broad enough to cover paragraphs (6)and (8).  53 H. 435, 496 P.2d 1.

  "Intermediary" within meaning of paragraph (6)defined as one who merely acts as a conduit for the services rendered betweenthe taxpayer rendering the service and the customer receiving the services.  53H. 518, 497 P.2d 908.

  Exemptions from taxation construed strictly againsttaxpayer.  55 H. 572, 524 P.2d 890.

  Statutes imposing taxes are strictly construed in favor oftaxpayer.  56 H. 321, 536 P.2d 91.

  Gross income earned by out-of-state lessor of film prints andtelecast rights to be used in Hawaii is taxable under this section.  57 H. 175,554 P.2d 242.

  Interest income earned by nondomiciliary corporation frominstallment sales of Hawaiian land is subject to tax.  57 H. 436, 559 P.2d 264.

  "Service business or calling" in paragraph (6) v."wholesaler" construed.  63 H. 579, 633 P.2d 535.

  Tax on value of services rendered on behalf of or furnishedto wholly owned subsidiary corporations and interest on funds borrowed anddisbursed on their account upheld.  65 H. 240, 649 P.2d 1155.

  Slaughterhouse operator, hog raisers, and pork merchants arenot "manufacturers".  69 H. 125, 735 P.2d 935.

  Taxpayer's photoprocessing activities constituted"manufacturing," which was taxable at rate of 0.5%, rather than a"service," which would be taxable at rate of 4%.  79 H. 503, 904 P.2d517.

  Federal Aviation Act preempts the State's ability to assessgeneral excise taxes on revenues derived from the sale of "airtransportation"; however, the State may assess general excise taxes under§237-21 and paragraph (6) on that portion of the gross receipts that a freightforwarder receives for ground transportation and other non-air services itprovides.  89 H. 51, 968 P.2d 653.

  Delaware corporation came within the purview of paragraph (2)where it sold books to the state library for economic gain, its activities tookplace in the State, and through its business activity in Hawaii, obtainedopportunities, protections, and benefits afforded by the State.  103 H. 359, 82P.3d 804.

  Where taxpayer gained or economically benefited fromsubleasing transactions, the director's assessment and imposition of the generalexcise tax for taxpayer's subleasing activities was proper.  110 H. 25, 129P.3d 528.

  Where management company for foreign insurer authorized to dobusiness in Hawaii did not hold a general agent, subagent, or solicitor licenseunder chapter 431, article 9 (1993), it could not have been legally appointedas either a general agent, subagent, or solicitor of insurer; thus it did notqualify as a  "general agent", "subagent", or"solicitor" as defined by chapter 431 (1993), did not fall within theparameters of the category described by paragraph (7) and was thus subject to ageneral excise tax rate of four per cent pursuant to paragraph (6).  115 H.180, 166 P.3d 353.

  Cited:  39 H. 157, 158; 40 H. 722, 728; 43 H. 131, 144; 44 H.584, 587, 358 P.2d 539.