HAWAII REVISED STATUTES

CHAPTER 237

GENERAL EXCISE TAX LAW
(Updated September 15, 1997)

 

HRS Section 237-15 Technicians.

When technicians supply dentists or physicians with dentures, orthodontic devices, braces, and similar items which have been prepared by the technician in accordance with specifications furnished by the dentist or physician, and such items are to be used by the dentist or physician in the dentist's or physician's professional practice for a particular patient who is to pay the dentist or physician for the same as a part of the dentist's or physician's professional services, the technician shall be taxed as though the technician were a manufacturer selling a product to a licensed retailer, rather than at the rate of four per cent which is generally applied to professions and services.

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HRS Section 237-16 Tax on certain retailing.

(a) This section relates to certain retailing in the State as follows:

(1) This section relates to the sale of tangible personal property, for consumption or use by the purchaser and not for resale, the renting of tangible personal property, and the rendering of services by one engaged in a service business or calling, as defined, to a person who is not purchasing the services for resale, but does not relate to the sale or rental of tangible personal property or the rendering of services to the State, its political subdivisions, or agencies or instrumentalities of the State or a political subdivision, or to the United States or its agencies or instrumentalities (other than national banks), or to a corporation, organization, or other person designated in section 237-23 who is not subject to the tax imposed by this chapter, or to a person licensed under this chapter in connection with the person's business.

(2) This section relates to the business of a contractor, as defined, but does not relate to contracting with, or any gross income or proceeds of a subcontractor if the principal contract is with the State, its political subdivisions, or agencies or instrumentalities of the State or a political subdivision, or with the United States or its agencies or instrumentalities (other than national banks), or with a person designated in section 237-23 who is not subject to the tax imposed by this chapter, or with a person licensed under this chapter in connection with the person's business.

(3) This section relates to furnishing of transient accommodations in a hotel, apartment hotel, or other place in which lodgings are regularly furnished to transients for a consideration which includes the rendering of services.

(b) There is hereby levied, and shall be assessed and collected annually, a privilege tax against persons engaging or continuing within the State in the retailing to which this section relates, on account of such retailing activities, as set forth in subsection (a), equal to four per cent of the gross proceeds of sale or gross income received or derived from such retailing. Persons on whom a tax is imposed by this section hereinafter are called "retailers".

(c) No retailer shall advertise or hold out to the public in any manner, directly or indirectly, that the tax imposed by this section is not considered as an element in the price to the consumer. Any person violating this subsection shall be fined not more than $50 for each offense.

(d) This section shall not cause the tax upon a taxpayer, with respect to any item of the taxpayer's gross income, to exceed four per cent.

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HRS Section 237-17 Persons with impaired sight, hearing, or who are totally disabled.

Anything in section 237-13 to the contrary notwithstanding, the privilege tax levied, assessed, and collected on account of the business or other activities of individuals who are blind, deaf, or totally disabled, or corporations all of whose outstanding shares are owned by individuals who are blind, deaf, or totally disabled shall not exceed one-half of one per cent of the proceeds, sales, income, or other receipts subject to tax. For the purpose of this chapter "blind", "deaf", or "totally disabled" is defined as in section 235-1. The impairment of sight or hearing, or the disability, shall be certified to as provided in section 235-1.

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HRS Section 237-18 Further provisions as to application of tax.

(a) Where a coin operated device produces gross income which is divided between the owner or operator of the device, on the one hand, and the owner or operator of the premises where the device is located, on the other hand, the tax imposed by this chapter shall apply to each such person with respect to the person's portion of the proceeds, and no more.

(b) Where gate receipts or other admissions are divided between the person furnishing or producing a play, concert, lecture, athletic event, or similar spectacle (including any motion picture showing) on the one hand, and a promoter (including any proprietor or other operator of a motion picture house) offering the spectacle to the public, on the other hand, the tax imposed by this chapter, if the promoter is subject to the tax imposed by this chapter, shall apply only to the promoter measured by the whole of the proceeds, and the promoter shall be authorized to deduct and withhold from the portion of the proceeds payable to the person furnishing or producing the spectacle the amount of the tax payable by the person upon such portion. No tax shall apply to a promoter with respect to such portion of the proceeds as is payable to a person furnishing or producing the spectacle, who is exempted by section 237-23 from taxation upon such activity.

(c)Where, through the activity of a person taxable under section 237-13(6), a product has been milled, processed, or otherwise manufactured upon the order of another taxpayer who is a manufacturer taxable upon the value of the entire manufactured products, which consists in part of the value of the services taxable under section 237-13(6), so much gross income as is derived from the rendering of the services shall be subjected to tax on the person rendering the services at the rate of one-half of one per cent, and the value of the entire product shall be included in the measure of the tax imposed on the other taxpayer as elsewhere provided.

(d) Where, through the activity of a person taxable under section 237-13(6), there have been rendered to a cane planter services consisting in the harvesting or hauling of the cane, or consisting in road maintenance, under a contract between the person rendering the services and the cane planter, covering the services and also the milling of the sugar, the services of harvesting and hauling the cane and road maintenance shall be treated the same as the service of milling the cane, as provided by subsection (c), and the value of the entire product, manufactured or sold for the cane planter under the contract, shall be included in the measure of the tax imposed on the person as elsewhere provided.

(e) Where insurance agents, including general agents, subagents, or solicitors, who are not employees and are licensed pursuant to chapter 431, or real estate brokers or salespersons, who are not employees and are licensed pursuant to chapter 467, produce commissions which are divided between such general agents, subagents, or solicitors, or between such real estate brokers or salespersons, as the case may be, the tax levied under section 237-13(6) or under section 237-16 as to real estate brokers or salespersons, or under section 237-13(7) as to insurance general agents, subagents, or solicitors shall apply to each such person with respect to the person's portion of the commissions, and no more.

(f) Where tourism related services are furnished through arrangements made by a travel agency or tour packager and the gross income is divided between the provider of the services and the travel agency or tour packager, the tax imposed by this chapter shall apply to each such person with respect to such person's respective portion of the proceeds, and no more.

As used in this subsection "tourism related services" means catamaran cruises, canoe rides, dinner cruises, lei greetings, transportation included in a tour package, sightseeing tours not subject to chapter 239, admissions to luaus, dinner shows, extravaganzas, cultural and educational facilities, and other services rendered directly to the customer or tourist, but only if the providers of the services other than transportation are subject to a four per cent tax under this chapter or chapter 239.

(g) Where transient accommodations are furnished through arrangements made by a travel agency or tour packager at noncommissioned negotiated contract rates and the gross income is divided between the operator of transient accommodations on the one hand and the travel agency or tour packager on the other hand, the tax imposed by this chapter shall apply to each such person with respect to such person's respective portion of the proceeds, and no more.

As used in this subsection, the words "transient accommodations" and "operator" shall be defined in the same manner as they are defined in section 237D-1.

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HRS Section 237-19 Consideration paid not indicative of true value.

Where delivery of any products is made by a taxpayer, taxable under this chapter, to other affiliated companies or persons, or under other circumstances where the relation between the manufacturer or producer and the receiver of the products is such that the consideration paid, if any, is not indicative of the true value of the products delivered, the taxpayer shall pay the tax imposed by this chapter for the privilege of engaging in the business of producing or manufacturing the products so delivered, measured by the value, corresponding as nearly as possible to the gross proceeds of sale of similar products, of like quality and character, by other persons, where no common interest exists between the buyer and seller but the circumstances and conditions are otherwise similar. If no such comparable sales exist between nonaffiliated buyers and sellers, the department of taxation shall prescribe equitable and uniform rules for ascertaining the value.

 

HRS Section 237-20 Principles applicable in certain situations.

A person or company having shareholders or members (a corporation, association, group, trust, partnership, joint adventure, or other person) is taxable upon its business with them, and they are taxable upon their business with it. A person or company, whether or not called a cooperative, through which shareholders or members are pursuing a common objective (for example, the obtaining of property or services for their individual businesses or use, or the marketing of their individual products) is a taxable person, and such facts do not give rise to any tax exemption or tax benefit except as specifically provided. Even though a business has some of the aspects of agency it shall not be so regarded unless it is a true agency. The reimbursement of costs or advances made for or on behalf of one person by another shall not constitute gross income of the latter, unless the person receiving such reimbursement also receives additional monetary consideration for making such costs or advances.

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HRS Section 237-21 Apportionment.

If any person, other than persons liable to the tax on manufacturers as provided by section 237-13(l), is engaged in business both within and without the State or in selling goods for delivery outside the State, and if under the Constitution or laws of the United States or section 237-29.5 or 237-29.6 the entire gross income of such person cannot be included in the measure of this tax, there shall be apportioned to the State and included in the measure of the tax that portion of the gross income which is derived from activities within the State, to the extent that the apportionment is required by the Constitution or laws of the United States or section 237-29.5 or 237-29.6. In the case of a tax upon the production of property in the State the apportionment shall be determined as in the case of the tax on manufacturers. In other cases, if and to the extent that the apportionment cannot be accurately made by separate accounting methods, there shall be apportioned to the State and included in the measure of this tax that proportion of the total gross income, so requiring apportionment, which the cost of doing business within the State, applicable to the gross income, bears to the cost of doing business both within and without the State, applicable to the gross income.

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HRS Section 237-22 Conformity to Constitution, etc.

In computing the amounts of any tax imposed under this chapter, there shall be excepted or deducted from the values, gross proceeds of sales, or gross income so much thereof as, under the Constitution and laws of the United States, the State is prohibited from taxing, but only so long as and only to the extent that the State is so prohibited.

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HRS Section 237-23 Exemptions, persons exempt, applications for exemption.

(a) This chapter shall not apply to the following persons:

(1) Public service companies (as that term is defined in section 239-2), with respect to the gross income, either actual gross income or gross income estimated and adjusted, which is included in the measure of the tax imposed by chapter 239;

(2) Public utilities owned and operated by the State or any county or other political subdivision thereof;

(3) Fraternal benefit societies, orders, or associations, operating under the lodge system, or for the exclusive benefit of the members of the fraternity itself, operating under the lodge system, and providing for the payment of death, sick, accident, prepaid legal services, or other benefits to the members of such societies, orders, or associations, and to their dependents;

(4) Corporations, associations, trusts, or societies organized and operated exclusively for religious, charitable, scientific, or educational purposes, as well as that of operating senior citizens housing facilities qualifying for a loan under the laws of the United States as authorized by section 202 of the Housing Act of 1959, as amended, as well as that of operating a prepaid legal services plan, as well as that of operating or managing a homeless facility, or any other program for the homeless authorized under chapter 358D;

(5) Business leagues, chambers of commerce, boards of trade, civic leagues, agricultural and horticultural organizations, and organizations operated exclusively for the benefit of the community and for the promotion of social welfare which shall include the operation of a prepaid legal service plan, and from which no profit inures to the benefit of any private stockholder or individual;

(6) Hospitals, infirmaries, and sanitaria;

(7) Cooperative associations incorporated under chapter 421 or Code section 521 cooperatives which fully meet the requirements of section 421-23, except Code section 521 cooperatives need not be organized in Hawaii; provided that:

(A) The exemption shall apply only to the gross income derived from activities which are pursuant to purposes and powers authorized by chapter 421, except those provisions pertaining to or requiring corporate organization in Hawaii do not apply to Code section 521 cooperatives;

(B) The exemption shall not relieve any person who receives any proceeds of sale from the association of the duty of returning and paying the tax on the total gross proceeds of the sales on account of which the payment was made, in the same amount and at the same rate as would apply thereto had the sales been made directly by the person, and all such persons shall be so taxable; and

(C) As used in this paragraph, "section 521 cooperatives" mean associations which qualify as a cooperative under section 521 (with respect to exemption of farmers' cooperatives from tax) of the Internal Revenue Code of 1986, as amended;

(8) Persons affected with Hansen's disease and kokuas, with respect to business within the county of Kalawao;

(9) Corporations, companies, associations, or trusts organized for the establishment and conduct of cemeteries no part of the net earnings of which inures to the financial benefit of any private stockholder or individual (provided that the exemption shall apply only to the activities of such persons in the conduct of cemeteries and not to any activity the primary purpose of which is to produce income, even though the income is to be used for or in the furtherance of the exempt activities of such persons); and

(10) Nonprofit shippers associations operating under part 296 of the Civil Aeronautics Board Economic Regulations.

(b) The exemptions enumerated in subsection (a)(3) to (6) shall apply only:

(1) To those persons who shall have registered with the department of taxation by filing a written application for registration in such form as the department shall prescribe, shall have paid the registration fee of $20, and shall have had the exemption allowed by the department or by a court or tribunal of competent jurisdiction upon appeal from any assessment resulting from disallowance of the exemption by the department; and

(2) To activities from which no profit inures to the benefit of any private stockholder or individual, except for death or other benefits to the members of fraternal societies; and

(3) To the fraternal, religious, charitable, scientific, educational, communal, or social welfare activities of such persons, or to the activities of such hospitals, infirmaries, and sanitaria as such, and not to any activity the primary purpose of which is to produce income even though the income is to be used for or in furtherance of the exempt activities of such persons.

(c) In order to obtain allowance of an exemption an application for exemption shall be filed in the form of an affidavit or affidavits setting forth in general all facts affecting the right to the exemption and such particular facts as the department may require, to which shall be attached such records, papers, and other information as the department may prescribe. The application for exemption shall be filed on or before March 31 of the first year of registration or within three months after the commencement of business. In the event of allowance of the exemption no further application therefor need be filed unless there is a material change in the facts. In the event of disallowance of the exemption, a license may be obtained upon payment of the required fee as provided by section 237-9, less the $20 already paid under this section, which shall be credited thereon. In the event the registrant has a license under this chapter no further fee shall be required for registration under this section.

(d) The department for good cause may extend the time for registration or the time for filing an application for exemption, but the extension or extensions shall not aggregate more than a total of two months.

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HRS Section 237-23.5 Related entities; common paymaster; certain exempt transactions.

(a) This chapter shall not apply to amounts received, charged, or attributable to services furnished by one related entity to another related entity or to imputed or stated interest attributable to loans, advances, or use of capital between related entities.

As used in this subsection:

"Related entities" mean:

(1) An affiliated group of corporations within the meaning of section 1504 (with respect to affiliated group defined) of the federal Internal Revenue Code of 1986, as amended;

(2) A controlled group of corporations within the meaning of section 1563 (with respect to definitions and special rules) of the federal Internal Revenue Code of 1986, as amended; and

(3) Those entities connected through ownership of at least eighty per cent of the total value of each such entity, including partnerships, associations, trusts, S corporations, nonprofit corporations, or any other group or combination of these or other tax entities acting as a business unit;

whether or not the entity is located within or without the State or licensed under this chapter.

"Services" mean legal and accounting services and those managerial and administrative services performed by an employee, officer, partner, trustee, or sole proprietor in the person's capacity as an employee, officer, partner, trustee, or sole proprietor of one of the related entities and shall include overhead costs attributable to those services.

(b) This chapter shall not apply to amounts received by common paymasters which are disbursed as remuneration to employees of two or more related corporations where the common paymaster is making such remunerations on behalf of such corporations. Such amounts received or disbursed by the common paymaster shall include payments of payroll taxes and employee benefits which the common paymaster is making on behalf of related corporations and which payments are related to the employees being remunerated. The definitions of related corporations, common paymaster, multiple common paymasters, and concurrent employment contained in 26 Code of Federal Regulations, section 31.3121(s)-l(b) are incorporated and made a part of this subsection.

To the extent not covered by subsection (a), the exemption allowed by this subsection shall not apply to the cost of services, or reimbursements of such cost by one corporation to another corporation, of an employee disbursing the amounts exempted under this subsection. Each related corporation using a common paymaster or multiple common paymaster shall keep separate payroll records and other documentation required to prove the existence of concurrent employment. Such records and documents shall be available for inspection by the director of taxation during normal business hours.

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HRS Section 237-24 Amounts not taxable.

This chapter shall not apply to the following amounts:

(1) Amounts received under life insurance policies and contracts paid by reason of the death of the insured;

(2) Amounts received (other than amounts paid by reason of death of the insured) under life insurance, endowment, or annuity contracts, either during the term or at maturity or upon surrender of the contract;

(3) Amounts received under any accident insurance or health insurance policy or contract or under workers' compensation acts or employers' liability acts, as compensation for personal injuries, death, or sickness, including also the amount of any damages or other compensation received, whether as a result of action or by private agreement between the parties on account of the personal injuries, death, or sickness;

(4) The value of all property of every kind and sort acquired by gift, bequest, or devise, and the value of all property acquired by descent or inheritance;

(5) Amounts received by any person as compensatory damages for any tort injury to the person, or to the person's character reputation, or received as compensatory damages for any tort injury to or destruction of property, whether as the result of action or by private agreement between the parties (provided that amounts received as punitive damages for tort injury or breach of contract injury shall be included in gross income);

(6) Amounts received as salaries or wages for services rendered by an employee to an employer;

(7) Amounts received as alimony and other similar payments and settlements;

(8) Amounts collected by distributors as fuel taxes on 'liquid fuel" imposed by chapter 243, and the amounts collected by such distributors as a fuel tax imposed by any act of the Congress of the United States;

(9) Taxes on liquor imposed by chapter 244D on dealers holding permits under that chapter;

(10) The amounts of taxes on cigarettes and tobacco products imposed by chapter 245 on wholesalers or dealers holding licenses under that chapter and selling the products at wholesale;

(11) Federal excise taxes imposed on articles sold at retail and collected from the purchasers thereof and paid to the federal government by the retailer;

(12) The amounts of federal taxes under chapter 37 of the Internal Revenue Code, or similar federal taxes, imposed on sugar manufactured in the State, paid by the manufacturer to the federal government;

(13) An amount up to, but not in excess of, $2,000 a year of gross income received by any blind, deaf, or totally disabled person engaging, or continuing, in any business, trade, activity, occupation, or calling within the State;

(14) Amounts received by a producer of sugarcane from the manufacturer to whom the producer sells the sugarcane, where:

(A) The producer is an independent cane farmer, so classed by the Secretary of Agriculture under the Sugar Act of 1948 (61 Stat. 922, Chapter 519) as the Act may be amended or supplemented;

(B) The value or gross proceeds of sale of the sugar, and other products manufactured from the sugarcane, is included in the measure of the tax levied on the manufacturer under section 237-13(l) or 237-13(2);

(C) The producer's gross proceeds of sales are dependent upon the actual value of the products manufactured therefrom or the average value of all similar products manufactured by the manufacturer; and

(D) The producer's gross proceeds of sales are reduced by reason of the tax on the value or sale of the manufactured products;

(15) Money paid by the State or eleemosynary child-placing organizations to foster parents for their care of children in foster homes; and

(16) Amounts received by a cooperative housing corporation from its shareholders in reimbursement of funds paid by such corporation for lease rental, real property taxes, and other expenses of operating and maintaining the cooperative land and improvements; provided that such a cooperative corporation is a corporation:

(A) Having one and only one class of stock outstanding;

(B) Each of the stockholders of which is entitled solely by reason of the stockholder's ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building owned or leased by the corporation; and

(C) No stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except in a complete or partial liquidation of the corporation.

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HRS Section 237-24.3 Additional amounts not taxable.

In addition to the amounts not taxable under section 237-24, this chapter shall not apply to:

(1) Amounts received from the loading, transportation, and unloading of agricultural commodities shipped for a producer or produce dealer on one island of this State to a person, firm, or organization on another island of this State. The terms "agricultural commodity", "producer", and "produce dealer" shall be defined in the same manner as they are defined in section 147-1; provided that agricultural commodities need not have been produced in the State;

(2) Amounts received from sales of:

(A) Intoxicating liquor as the term 'liquor' is defined in chapter 244D;

(B) Cigarettes and tobacco products as defined in chapter 245; and

(C) Agricultural, meat, or fish products grown, raised, or caught in Hawaii, to any person or common carrier in interstate or foreign commerce, or both, whether ocean-going or air, for consumption out-of-state on the shipper's vessels or airplanes;

(3) Amounts received by the manager or board of directors of-

(A) An association of apartment owners of a condominium property regime established in accordance with chapter 514A; or

(B) A nonprofit homeowners or community association incorporated in accordance with chapter 415B or any predecessor thereto and existing pursuant to covenants running with the land, in reimbursement of sums paid for common expenses;

(4) Amounts received or accrued from:

(A) The loading or unloading of cargo from ships, barges, vessels, or aircraft, whether or not the ships, barges, vessels, or aircraft travel between the State and other states or countries or between the islands of the State;

(B) Tugboat services including pilotage fees performed within the State, and the towage of ships, barges, or vessels in and out of state harbors, or from one pier to another; and

(C) The transportation of pilots or governmental officials to ships, barges, or vessels offshore; rigging gear; checking freight and similar services; standby charges; and use of moorings and running mooring lines; (5) Amounts received by an employee benefit plan by way of contributions, dividends, interest, and other income; and amounts received by a nonprofit organization or office, as payments for costs and expenses incurred for the administration of an employee benefit plan; provided that this exemption shall not apply to any gross rental income or gross rental proceeds received after June 30, 1994, as income from investments in real property in this State; and provided further that gross rental income or gross rental proceeds from investments in real property received by an employee benefit plan after June 30, 1994, under written contracts executed prior to July- 1, 1994, shall not be taxed until the contracts are renegotiated, renewed, or extended, or until after December 31, 1998, whichever is earlier. For the purposes of this paragraph, "employee benefit plan" means any plan as defined in section 1002(3) of title 29 of the United States Code, as amended;

(6) Amounts received for purchases made with United States Department of Agriculture food coupons under the federal food stamp program, and amounts received for purchases made with the United States Department of Agriculture food vouchers under the Special Supplemental Foods Program for Women, Infants and Children;

(7) Amounts received by a hospital, infirmary, medical clinic, health care facility, pharmacy, or a practitioner licensed to administer the drug to an individual for selling prescription drugs or prosthetic devices to an individual; provided that this paragraph shall not apply to any amounts received for services provided in selling prescription drugs or prosthetic devices. As used in this paragraph:

(A) "Prescription drugs" are those drugs defined under section 328-1(4) and dispensed by filling or refilling a written or oral prescription by a practitioner licensed under law to administer the drug and sold by a licensed pharmacist under section 328-16 or practitioners licensed to administer drugs; and

(B) "Prosthetic device" means any artificial device or appliance, instrument, apparatus, or contrivance, including their components, parts, accessories, and replacements thereof, used to replace a missing or surgically removed part of the human body, which is prescribed by a licensed practitioner of medicine, osteopathy, or podiatry and which is sold by the practitioner or which is dispensed and sold by a dealer of prosthetic devices; provided that "prosthetic device" shall not mean any auditory, ophthalmic, dental, or ocular device or appliance, instrument, apparatus, or contrivance;

(8) Taxes on transient accommodations imposed by chapter 237D and passed on and collected by operators holding certificates of registration under that chapter;

(9) Amounts received as dues by an unincorporated merchants association from its membership for advertising media, promotional, and advertising costs for the promotion of the association for the benefit of its members as a whole and not for the benefit of an individual member or group of members less than the entire membership; and

(10) Amounts received by a labor organization for real property leased to:

(A) A labor organization; or

(B) A trust fund established by a labor organization for the benefit of its members, families, and dependents for medical or hospital care, pensions on retirement or death of employees, apprenticeship and training, and other membership service programs.

As used in this paragraph, "labor organization" means a labor organization exempt from federal income tax under section 501(c)(5) of the Internal Revenue Code, as amended.

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HRS Section 237-24.5 Additional exemptions.

(a) In addition to the amounts exempt under section 237-24, this chapter shall not apply to amounts received by:

(1) An exchange from:

(A) Transaction fees charged exchange members by the exchange for:

(i) The sale or purchase of securities or products. or both, bought or sold on an exchange by exchange members for their own account or an account for which they have responsibility as an agent, broker, or fiduciary;

(ii) Order book executions made for purposes of effecting transactions; and

(iii) Trade processing performed by an exchange in matching trades, keypunching, record keeping, post cashiering, and notarization;

(B) Membership dues, fees, charges, assessments, and fines from individuals or firms, including charges for firm symbols (member identification), application processing, registration, initiation, membership transfers, floor or post privileges, transaction time extensions, expediting transactions, crossover trades (trading out of assigned functions) and rule infractions;

(C) Service fees charged to members including fees for communications, badges, forms, documents, and reports;

(D) Listing fees and listing maintenance fees charged to companies that wish to be listed and have their securities or products traded on the exchange; and

(E) Participation in the communication network consortium operated collectively by United States exchanges or other markets recognized by the Securities and Exchange Commission, the Commodities Futures Trading Commission, or similar regulatory authorities outside the United States that provides last sale and quote securities information to subscribers or that connects such markets or exchanges for purposes of data transmission;

(2) Exchange members by reason of executing a securities or product transaction on an exchange; provided that this exemption shall apply only to amounts received by exchange members from brokers or dealers registered with the Securities and Exchange Commission, from futures commission merchants, brokers, or associates registered with the Commodities Futures Trading Commission, or from similar individuals or firms registered with similar regulatory authorities outside the United States; and

(3) Exchange members as proceeds from the sale of their exchange memberships.

(b) As used in this section:

"Exchange" means an exchange or board of trade as defined in 15 United States Code section 78c(a)(1) or in 7 United States Code section 7, respectively, which is subject to regulation by the Securities and Exchange Commission or the Commodities Futures Trading Commission or an organization subject to similar regulation under the laws of a jurisdiction outside the United States.

"Exchange member" means an individual or firm that is qualified by an exchange as a member and pays membership dues to an exchange in order to trade securities or products on an exchange.

"Securities" means securities as defined in 15 United States Code section 78c and "products" means contracts of sale of commodities for future delivery, futures contracts, options, calls, puts, and similar rights as defined in 7 United States Code section 2, which securities or products are permitted to be traded on an exchange.

(c) This section is repealed on June 30, 2000.

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HRS Section 237-24.7 Additional amounts not taxable.

In addition to the amounts not taxable under section 237-24, this chapter shall not apply to:

(1) Amounts received by the operator of a hotel from the owner of the hotel in amounts equal to and which are disbursed by the operator for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick pay, and health benefits. As used in this paragraph:

"Employee" means employees directly engaged in the day to day operation of the hotel and employed by the operator.

"Hotel" means an operation licensed under section 445-92.

"Operator" means any person who, pursuant to a written contract with the owner of a hotel, operates or manages the hotel for the owner.

"Owner" means the fee owner or lessee under a recorded lease of a hotel;

(2) Amounts received by the operator of a county transportation system operated under an operating contract with a political subdivision, where the political subdivision is the owner of the county transportation system. As used in this paragraph:

"County transportation system" means a mass transit system of motorized buses providing regularly scheduled transportation within a county.

"Operating contract" or "contract' means a contract to operate and manage a political subdivision's county transportation system, which provides that:

(A) The political subdivision shall exercise substantial control over all aspects of the operator's operation;

(B) The political subdivision controls the development of transit policy, service planning, routes, and fares; and

(C) The operator develops in advance a draft budget in the same format as prescribed for agencies of the political subdivision. The budget must be subject to the same constraints and controls regarding the lawful expenditure of public funds as any public sector agency, and deviations from the budget must be subject to approval by the appropriate political subdivision officials involved in the budgetary process.

"Operator" means any person who, pursuant to an operating contract with a political subdivision, operates or manages a county transportation system.

"Owner" means a political subdivision that owns or is the lessee of all the properties and facilities of the county transportation system (including buses, real estate, parking garages, fuel pumps, maintenance equipment, office supplies, etc.), and that owns all revenues derived therefrom;

(3) Surcharge taxes on rental motor vehicles imposed by chapter 251 and passed on and collected by persons holding certificates of registration under that chapter;

(4) Amounts received by the operator of orchard properties from the owner of the orchard property in amounts equal to and which are disbursed by the operator for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick pay, and health benefits. As used in this paragraph:

"Employee" means an employee directly engaged in the day to day operations of the orchard properties and employed by the operator.

"Operator" means a producer who, pursuant to a written contract with the owner of the orchard property, operates or manages the orchard property for the owner where the property contains an area sufficient to make the undertaking economically feasible.

"Orchard property" means any real property that is used to raise trees with a production life cycle of fifteen years or more producing fruits or nuts having a normal period of development from the initial planting to the first commercially saleable harvest of not less than three years.

"Owner" means a fee owner or lessee under a recorded lease of orchard property;

(5) Taxes on nursing facility income imposed by chapter 346E and passed on and collected by operators of nursing facilities;

(6) Amounts received under property and casualty insurance policies for damage or loss of inventory used in the conduct of a trade or business located within the state or a portion thereof that is declared a natural disaster area by the governor pursuant to section 209-2; and

(7) Amounts received as compensation by community organizations, school booster clubs, and nonprofit organizations under a contract with the chief election officer for the provision and compensation of precinct officials and other election related personnel, services, and activities, pursuant to section 11-5.

(8) Interest received by a person domiciled outside the state from a trust company (as defined in section 412:8-101) acting as payment agent or trustee on behalf of the issuer or payees of an interest bearing instrument or obligation, if the interest would not have been subject to tax under this chapter if paid directly to the person domiciled outside the State without the use of a paying agent or trustee; provided that if the interest would otherwise be taxable under this chapter if paid directly to the person domiciled outside the State it shall not be exempt solely because of the use of a Hawaii trust company as a paying agent or trustee.

"Financial institution" means banks, building and loan associations, development companies, financial corporations, financial services loan companies small business investment companies, financial holding companies, mortgage loan companies, and trust companies all as defined in chapter 241.

"Leasing of personal property" occurs if:

(1) The lease is to serve as the functional equivalent of an extension of credit to the lessee of the property;

(2) The property to be leased is acquired specifically for the leasing transaction under consideration, or was acquired specifically for an earlier leasing transaction;

(3) The lease is on a nonoperating basis, i.e., the financial institution may not, directly or indirectly:

(A) Provide for the maintenance, repair, replacement, or servicing of the leased property during the lease term;

(B) Purchase parts and accessories in bulk or for an individual property after the lessee has taken delivery of the property; or

(C) Purchase insurance for the lessee;

(4) At the inception of the lease the effect of the transaction will yield a return that will compensate the lessor financial institution for not less than the lessor's full investment in the property plus the estimated total cost of financing the property over the term of the lease, from:

(A) Rentals;

(B) Estimated tax benefits (capital goods excise tax credit, net economic gain from tax deferral from accelerated depreciation, and other tax benefits with a substantially similar effect); and

(C) The estimated residual value of the property at the expiration of the initial term of the lease;

(5) The maximum lease term during which the lessor financial institution must recover the lessor's full investment in the property, plus the estimated total cost of financing the property, shall be forty years; and

(6) At the expiration of the lease (including any renewals or extensions with the same lessee), all interest in the property shall be either liquidated or leased again on a nonoperating basis as soon as practicable (in no event later than two years from the expiration of the lease), but in no case shall the lessor retain any interest in the property beyond fifty years after the lessor's acquisition of the property.

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HRS Section 237-24.8 Amounts not taxable for financial institutions.

(a) In addition to the amounts not taxable under section 237-24, this chapter shall not apply to amounts received by:

(1) Financial institutions from:

(A) Interest, discount, points, commitment fees, loan fees, loan origination charges, and finance charges which are part of the computed annual percentage rate of interest and which are contracted and received for the use of money;

(B) Leasing of personal property;

(C) Fees or charges relating to the administration of deposits;

(D) Gains resulting from changes in foreign currency exchange rates but not including commissions or compensation derived from the purchase or sale of foreign currency or numismatic currency whether legal tender or not;

(E) The servicing and sale of loans contracted for and received by the financial institution; and

(F) Interest received from the investment of deposits received by the financial institution from financial or debt instruments;

(2) Trust companies or trust departments of financial institutions from:

(A) Trust agreements and retirement plans where the trust companies or trust departments are acting as fiduciaries;

(B) Custodial agreements; and

(C) Activities relating to the general servicing of fiduciary/ custodial accounts held by the trust companies or trust departments; and

(3) Financial corporations acting as interbank brokers as defined by chapter 241 from brokerage services.

(b) As used in this section:

"Activities relating to the general servicing of fiduciary/custodial accounts" means those activities performed by trust companies which are directly or indirectly performed within the fiduciary/custodial relationship between the trust company or trust department of a financial institution and its client and which are not offered to any person outside of the fiduciary/custodial relationship.

"Annual percentage rate" and "finance charge" have the same meaning as defined in the federal Truth in Lending Act (15 U.S.C. sections 1605(a) to (c) and 1606).

"Deposit" means:

(1) Money or its equivalent received or held by a financial institution in the usual course of business and for which it has given or is obligated to give credit to:

(A) A commercial (including public deposits), checking, savings, time, or thrift account;

(B) A check or draft drawn against a deposit account and certified by the financial institution;

(C) A letter of credit; or

(D) A traveler's check, on which the financial institution is primarily liable;

(2) Trust funds received or held by a financial institution, whether held in the trust department or held or deposited in any other department of the financial institution;

(3) Money received or held by a financial institution, or the credit given for money or its equivalent received or held by a financial institution in the usual course of business for a special or specific purpose, regardless of the legal relationship thereby established, including, without being limited to, escrow funds, funds held as security for an obligation due the financial institution or others (including funds held as dealers' reserves) or for securities loaned by the financial institution, funds deposited by a debtor to meet maturing obligations, funds deposited as advance payment on subscriptions to United States government securities, funds held for distribution or purchase of securities, funds held to meet the financial institution's acceptances or letters of credit, and withheld taxes;

(4) Outstanding drafts, cashier's checks, money orders, or other officer's checks issued in the usual course of business for any purpose; or

(5) Money or its equivalent held as a credit balance by a financial institution on behalf of its customer if the financial institution is engaged in soliciting and holding the balances in the regular course of its business.

"Financial institution" means banks, building and loan associations, development companies, financial corporations, financial services loan companies, small business investment companies, financial holding companies, mortgage loan companies, and trust companies all as defined in chapter 241.

"Leasing of personal property" occurs if:

(1) The lease is to serve as the functional equivalent of an extension of credit to the lessee of the property;

(2) The property to be leased is acquired specifically for the leasing transaction under consideration, or was acquired specifically for an earlier leasing transaction;

(3) The lease on a nonoperating basis, i.e., the financial institution may not, directly or indirectly:

(A) Provide for the maintenance, repair, replacement, or servicing of the leased property during the lease term;

(B) Purchase parts and accessories in bulk or for an individual property after the lessee has taken delivery of the property; or

(C) Purchase insurance for the lessee;

(4) At the inception of the lease the effect of the transaction will yield a return that will compensate the lessor financial institution for not less than the lessor's full investment in the property plus the estimated total cost of financing the property over the term of the lease, from:

(A) Rentals;

(B) Estimated tax benefits (capital goods excise tax credit, net economic gain from tax deferral from accelerated depreciation, and other tax benefits with a substantially similar effect); and

(C) The estimated residual value of the property at the expiration of the initial term of the lease;

(5) The maximum lease term during which the lessor financial institution must recover the lessor's full investment in the property, plus the estimated total cost of financing the property, shall be forty years; and

(6) At the expiration of the lease (including any renewals or extensions with the same lessee), all interest in the property shall be either liquidated or leased again on a nonoperating basis as soon as practicable (in no event later than two years from the expiration of the lease), but in no case shall the lessor retain any interest in the property beyond fifty years after the lessor's acquisition of the property.

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HRS Section 237-25 Exemptions of sales and gross proceeds of sales to federal government.

(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 246, 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 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) 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) 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.

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HRS Section 237-26 Exemption of certain scientific contracts with the United States.

(a) Any provision of law to the contrary notwithstanding, there shall be exempted from the measure of the taxes imposed by chapter 237, all of the gross proceeds derived by a contractor or subcontractor arising from the performance of any scientific work as defined in subsection (b), under a contract or subcontract entered into with the United States (including any agency or instrumentality thereof but not including national banks), and all of the gross proceeds derived from the sale of tangible personal property by a seller of such tangible personal property to such contractor or subcontractor; provided the exemption herein shall apply only to such tangible personal property which is to be affixed to, or to become a physical,, integral part of the scientific facility, or which is to be entirely consumed during the performance of the service required by the contract or subcontract.

(b) For purposes of this section, "scientific work" is work involving primarily the research and development for, or the design, manufacture, instrumentation, installation, maintenance, or operation of aerospace, agricultural, astronomical, biomedical, electronic, geophysical, oceanographic, test range, or other scientific facilities. Maintenance or operation, for purposes of this section, shall include housekeeping functions in providing certain nonscientific logistic and support services.

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HRS Section 237-27 Exemption of certain petroleum refiners.

(a) As used in this section:

(1) "Petroleum products" means petroleum, any distillate, fraction, or derivative of petroleum, natural gas or its components, gas manufactured from a petroleum product, and any product derived from the gas or from the manufacture thereof, such as benzene, xylene, toluene, acetylene, tars, components of tars, and ammonia.

(2) "Refiner" means any person who, in the State, engages in the business of refining petroleum products and is taxable under this chapter, upon the value or gross proceeds of sales of the petroleum products resultant from the business. A person who is engaged in business as a refiner and also in other business shall be deemed a refiner only in respect of the business that produces the products included in the measure of the tax imposed by this chapter.

(3) "Refining" means:

(A) Any process performed by a refiner that includes a change in the character or properties of a petroleum product through the application of heat, or

(B) The compounding by a refiner of a petroleum product with a product that has been refined by the refiner by the process stated in clause (A).

(b) There shall be excluded from the measure of the tax on a refiner such part of the petroleum products resultant from the refiner's business as is to be further refined by another refiner, to the extent that the petroleum products resultant from such further refining will be (or but for this subsection would be) included in the measure of the tax on such other refiner, and where petroleum products are to be used partly for such refining and partly for other purposes, the proportion used for each purpose shall be determined upon the basis of weight or BTU content.

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HRS Section 237-27.1 Exemption of sale of alcohol fuels.

(a) There shall be exempted from and excluded from the measure of the taxes imposed by this chapter all of the gross proceeds arising from the sale of alcohol fuels for consumption or use by the purchaser and not for resale.

(b) As used in this section, "alcohol fuels" means neat biomass-derived alcohol liquid fuel or a petroleum-derived fuel and alcohol liquid fuel mixture consisting of at least ten volume per cent denatured biomass-derived alcohol commercially usable as a fuel to power aircraft, seacraft, spacecraft, automobiles, or other motorized vehicles.

(c) The director of taxation shall annually submit a written report to the governor and legislature prior to the regular session of the legislature indicating a comparison of the number of gallons and average price per gallon of alcohol fuels and gasoline sold in the State.

(d) The director of taxation shall adopt rules pursuant to chapter 9l necessary to administer this section.

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HRS Section 237-27.5 Air pollution control facility.

(a) As used in this section, "air pollution control facility" shall mean a new identifiable treatment facility, equipment, device, or the like, which is used to abate or control atmospheric pollution or contamination by removing, reducing, or rendering less noxious air contaminants emitted into the atmosphere from a point immediately preceding the point of such removal, reduction, or rendering to the point of discharge of air, meeting emission standards as established by the department of health, excluding air conditioner, fan, or other similar facility for the comfort of persons at a place of business.

(b) Any provision of law to the contrary notwithstanding, and upon receipt of the certification required by subsection (c), there shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter, all of the gross proceeds arising from, and all of the amount of tangible personal property furnished in conjunction with, the construction, reconstruction, erection, operation, use, or maintenance of an air pollution control facility.

(c) Application for the exemption provided by this section shall first be made with the director of health who, if satisfied that the facility meets the pollution emission criteria established by the department of health, shall certify to that fact. A new certificate shall be obtained from the director of health and filed with the director of taxation every five years certifying that the pollution control facility complies with the pollutant emission criteria established by the department of health.

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HRS Section 237-27.6 Solid waste processing, disposal, and electric generating facility; certain amounts exempt.

(a) Any provision of the law to the contrary notwithstanding, there shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the amounts enumerated in subsection (b) arising from a transaction involving a sale and leaseback of a solid waste processing, disposal, and electric generating facility entered into by a political subdivision of the State under section 46-19.1 where the facility is owned or under construction by the subdivision before May 10, 1988.

(b) Amounts are exempted or excluded from taxation under this chapter only to the extent that they:

(1) Are received by an operator of a facility under an operating contract with a political subdivision, where the:

(A) Operator, or its successor, entered into an operating contract prior to May 10, 1988;

(B) Operator enters into a lease of the facility from the owner at a time that coincides with the time the owner and the political subdivision entering into a sale and leaseback transaction; and

(C) Amounts are used by the operator to make rental payments to the owner;

(2) Are received as rental payments by the owner of the facility from the operator of the facility;

(3) Do not exceed the payments made by the owner of the facility under the sale and leaseback transaction to the political subdivision; and

(4) In no case exceed debt service costs incurred by the political subdivision for the construction of the facility.

(c) For the purposes of this section:

"Debt service costs" means payments of principal and interest on general obligation bonds issued at any time by a political subdivision for the construction of the facility.

"Sale and leaseback" means a transaction in which a facility is sold by a political subdivision to a private entity for cash, under an installment sale, a financing lease, or similar arrangement, or any combination thereof, where the political subdivision has the right to repurchase the facility at a later date, and where the facility is leased to an operator of the facility.

"Solid waste processing, disposal, and electric generating facility" or "facility" means a facility for the processing and disposal of solid waste or the generation of electric energy, or both, the construction of which has been financed pursuant to section 47-4 and constitutes an undertaking as defined in section 49-1.

"Operator" means a private entity who enters into an agreement or other arrangement with the owner of a solid waste processing, disposal, and electric generating facility for the purpose of operating such facility for a political subdivision of the State.

"Owner" means any person who purchases a solid waste processing, disposal, and electric generating facility under section 46-19.1.

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HRS Section 237-28 REPEALED.

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HRS Section 237-28.1 Exemption of certain shipbuilding and ship repair business.

There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds arising from shipbuilding and ship repairs rendered to surface vessels federally owned or engaged in interstate or international trade.

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HRS Section 237-28.2 Exemption of producers of motion picture or television films.

Persons producing motion picture or television films are exempted from taxation on, and there shall be excluded from the measure of all state taxes imposed on such persons for a period of five years from July 1, 1971:

(1) The value of all materials imported in the State for incorporation into such production; and

(2) The value of such production, unless sold in the State, provided film rentals, advertising revenues, gross proceeds of sales, and other receipts, derived from the business of and sales made by such persons in the State shall not be exempt and shall be included in the measure of the tax or taxes imposed on such persons.

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HRS Section 237-29 Exemptions for certified or approved housing projects.

(a) All gross income received by any qualified person or firm for the planning, design, financing, construction, sale, or lease in the State of a housing project which has been certified or approved under section 201E-205 or section 356-42 shall be exempt from general excise taxes.

(b) All gross income received by a nonprofit or a limited distribution mortgagor for a low and moderate income housing project certified or approved under section 201E-205 or section 356-42 shall be exempt from general excise taxes.

(c) The director of taxation, the Hawaii housing authority, and the housing finance and development corporation shall adopt rules pursuant to chapter 91 for the purpose of this section, including any time limitation for the exemptions.

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HRS Section 237-29.5 Exemption for sales of tangible personal property shipped out of the State.

(a) There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the value or gross proceeds arising from the manufacture, production, or sale of tangible personal property:

(1) Shipped by the manufacturer, producer, or seller to a point outside the State where the property is resold or otherwise consumed or used outside the State; or

(2) The sale of which is exempt under section 237-24.3(2).

(b) For the purposes of this section, the manufacturer, producer, or seller shall take from the purchaser, a certificate, in such form as the department shall prescribe, certifying that the tangible personal property purchased is to be resold or otherwise consumed or used outside the State. Any purchaser who shall furnish such a certificate shall be obligated to pay to the seller, upon demand, if the property purchased is not resold or otherwise consumed or used outside the State, the amount of the additional tax which by reason thereof is imposed upon the seller.

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HRS Section 237-29.6 Exemption of certain computer services.

(a) There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds arising from technical services necessary for the production and sale of computer software where that software is shipped or transmitted by the provider of technical services to a customer at a point outside the State for use outside the State.

As used in this section:

"Computer software" means a set of computer programs, procedures, or associated documentation concerned with the operation and function of a computer system, and includes both systems and application programs and subdivisions, such as assemblers, compilers, routines, generators, and utility programs.

"Technical services" include the development, design, modification, and programming of computer software.

(b) For the purposes of this section, the provider of technical services shall take from the purchaser a certificate, in such form as the department shall prescribe, certifying that the software purchased is to be used outside the State. Any purchaser who shall furnish such a certificate shall be obligated to pay to the provider of technical services, upon demand, if the software purchased is used or sold by the purchaser in the State, the amount of the additional tax which by reason of such use or sale is imposed upon the provider of technical services.

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HRS Section 237-29.7 Exemption of insurance companies.

This chapter shall not apply to the gross income or gross proceeds of insurance companies authorized to do business under chapter 431; except this exemption shall not apply to any gross income or gross proceeds received after December 31, 1991, as rents from investments in real property in this State; provided that gross income or gross proceeds from investments in real property received by insurance companies after December 31, 1991, under written contracts entered into before January 1, 1992, that do not provide for the passing on of taxes or tax increases shall not be taxed until the contracts are renegotiated, renewed, or extended.

HRS 237-1 to 237-14 | HRS 237-15 to 237-29 | HRS 237-30 to End


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