Bill Text: HI SB3095 | 2016 | Regular Session | Introduced
Bill Title: General Excise Tax; Federal Sales of Services and Products
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2016-02-29 - The committee on WAM deferred the measure. [SB3095 Detail]
Download: Hawaii-2016-SB3095-Introduced.html
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TH3095E SENATE |
S.B. NO. |
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TWENTY-EIGHTH LEGISLATURE, 2016 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
Relating to Taxation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The sale and provision of services by businesses based and domiciled in Hawaii to the federal government are a vital part of our state and local economy that provides jobs, economic development, and opportunities for local residents to establish well-paying careers in Hawaii to sustain themselves and their families.
Although federal contracting is a highly lucrative field which can greatly benefit our local businesses and economy, it has become increasingly apparent that small businesses domiciled and based in Hawaii are finding themselves at a huge competitive disadvantage in bidding for and being awarded federal contracts because of the Hawaii general excise tax. Of the approximately $2,000,000,000 of federal contracts that are available for bid annually in Hawaii, approximately $900,000,000 of that is set aside on a competitive basis for small businesses. Most of these small business contracts are being awarded to businesses that are not domiciled or based in Hawaii.
The effective Hawaii general excise tax rate for sales and services taking place in the City and County of Honolulu is 4.712 per cent and applies to the sale of goods and services to the federal government by and through Hawaii businesses, even though the sale of goods alone to the federal government is not subject to the general excise tax. Hawaii is one of only three states in the nation -- the others being Washington and Vermont -- that apply the general excise tax to the provision and sale of goods and services by businesses based in their states to the federal government.
Businesses domiciled and based in Hawaii must always include the general excise tax on their federal bids as a matter of their compliance with state law while out-of-state contractors do not because they are not domiciled or based in Hawaii. This unequal treatment of in-state verses out-of-state businesses is further exacerbated by the manner in which federal agencies oversee the federal bidding process and has opined that since the sale of goods to the federal government in Hawaii is not subject to the general excise tax, it will not require insertion or enforcement of this tax on bids for goods and services submitted to it. When coupled with the "lowest price technically accepted" rubric used by the federal government to select contract bidders who bid the lowest amount, Hawaii domiciled businesses routinely find themselves at a 4.712 per cent disadvantage.
The impact of this competitive disadvantage to Hawaii-based businesses reduces the amount of economic activity in the State and transfers business opportunities and jobs off-shore to out-of-state competitors. It decreases the amount of tax revenues the State is able to collect for personal and business income taxes from employees and businesses located in Hawaii. It also has the cascading effect of creating an incentive for Hawaii based businesses who are engaged in federal contracting to move out of Hawaii to maintain their competitiveness and to be successful in obtaining federal contracts.
The purpose of this Act is to remove the competitive disadvantage that businesses domiciled and located in Hawaii face when dealing with the federal government by providing these businesses with an exemption from the Hawaii general excise tax for the sale of goods and services to the federal government.
SECTION 2. Section 237-25, Hawaii Revised Statutes, is amended to read as follows:
"§237-25 Exemptions of sales and gross proceeds of sales to federal government, and credit unions. (a) Any provision of law to the contrary notwithstanding, there shall be exempted from, and excluded from the measures of, the tax imposed by chapter 237 all sales, and the gross proceeds of all sales, of:
(1) Intoxicating liquor, as defined in chapter 281, hereafter sold by any person licensed under chapter 281 to the United States (including any agency or instrumentality of the United States that is wholly owned or otherwise so constituted as to be immune from the levy of a tax under chapter 238 or 244D but not including national banks), or to any organization to which that sale is permitted by the proviso of "Class 3" of section 281-31, located on any Army, Navy, or Air Force reservation, but the person making the sale shall nevertheless, within the meaning of chapters 237, 244D, and 281 be deemed to be a licensed seller;
(2) Tobacco products and cigarettes, as defined in chapter 245, sold by any person licensed under the chapter to the United States (including any agency or instrumentality thereof that is wholly owned or otherwise so constituted as to be immune from the levy of a tax under chapter 238 or 245 but not including national banks), but the person making the sale shall nevertheless, within the meaning of chapters 237 and 245, be deemed to be a licensed seller;
(3) [Other] Services or tangible
personal property sold by any person licensed under this chapter to the United
States (including any agency, instrumentality, or federal credit union thereof
but not including national banks), [and to any state-chartered credit union,]
but the person making such sale shall nevertheless, within the meaning of this
chapter, be deemed a licensed seller; [and]
(4) Other tangible personal property sold by any person licensed under this chapter to any state-chartered credit union, but the person making such sale shall nevertheless, within the meaning of this chapter, be deemed a licensed seller; and
[(4)] (5) When the amount of property
sold by a licensee turns upon the amount of the property sold through a vending
machine or similar device to the customer using the device, there shall not be
deemed to have occurred any sale covered by an exemption under paragraph (1),
(2), or (3).
(b) Nothing in this section shall be deemed to exempt any sales to or by a federal cost-plus contractor, as defined in chapter 237, or the gross proceeds thereof; with respect to all such activities and transactions, taxes shall be levied, returned, computed, and assessed the same as if this section had not been enacted, and in the case of an election made under sections 237-13(2)(F) and 237-13(3)(C)(ii), the tax shall be computed the same as upon a sale to the state government.
[(c) Nothing in this section shall be
deemed to exempt any person engaging or continuing in a service business or
calling from any part of the tax imposed upon the person for such activity, and
the person shall not be entitled to deduct any amount for tangible personal
property furnished in conjunction therewith even though the person separately
bills or otherwise shows the amount of the gross income of the business derived
from the furnishing of the property.
(d)] (c) The exemption granted
by this section shall apply to the seller of products sold in the State as
provided in subsection (a) in respect of the privilege of manufacturing or
producing, as well as the privilege of selling, and the value or gross proceeds
of sales of the products so sold shall be excluded from the measure of the tax
imposed by chapter 237 upon the seller as a manufacturer or producer."
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2015.
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INTRODUCED BY: |
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Report Title:
General Excise Tax; Federal Sales of Services and Products
Description:
Exempts sales of services or tangible personal property to the federal government from the general excise tax.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
