DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2001-21
November 16, 2001
RE: Act 9, Third Special Session Laws of Hawaii 2001 ("Act 9"), Relating to the Taxation of Transportation Service Providers
Beginning on October 1, 2001, Act 9 converts certain transportation service providers who are subject to the public service company ("PSC") tax system to the general excise tax ("GET") system. These transportation service providers will be subject to the GET in lieu of the PSC tax for gross income received on October 1, 2001, and thereafter, from transporting property or persons within the State. The affected transportation service providers include airlines, 1 motor carriers, common carriers by water, and contract carriers other than motor carriers who were subject to the PSC tax under Hawaii Revised Statutes ("HRS") §239-6. 2
Please note that Act 9 does not affect the Public Utilities Commission's oversight and regulation of transportation service providers.
Overview of Act 9
Act 9 was enacted in response to the negative impact that the events of September 11, 2001, have had on Hawaii's tourism-driven economy. Though both taxes are levied at the rate of four percent, the PSC tax is measured at four percent of the taxpayer's taxable gross income from its public service company business earned during the previous taxable year, while the GET is levied upon the actual income received during the reporting period. 3
Act 9 provides transitional rules for the conversion from the PSC tax system to the GET system. Affected taxpayers are required to file a 2001 Form U-6 (PSC tax return) for the tax year in which October 1, 2001, occurs, and pay the PSC tax payments assigned to the months of the taxable year up to September 30, 2001. 4 Act 9 contains a provision, which allows the PSC tax payments assigned to the months in the taxable year after September 30, 2001, to be abated. Instead, the actual gross income received on October 1, 2001, and thereafter, will be subject to the GET.
Abatement of PSC Tax Payments Due for the Period Beginning October 1, 2001
The Department of Taxation ("Department") will adjust the PSC tax account of all affected taxpayers to abate the installment payments due for that portion of the taxpayer's taxable year beginning on October 1, 2001, provided that:
Any adjustments will be reflected in the taxpayer's November 2001
statement from the Department, which will be mailed out in December.
Taxpayers should not submit PSC tax payments for amounts due after
September 30, 2001. If a taxpayer has already submitted a payment
for October, November, or December 2001, it will be reflected in the taxpayer's
November statement. Any overpayment resulting from either the adjustments
made by the Department or a payment made by the taxpayer for periods after
September 30, 2001, will be refunded in December.
For transportation services income received after September 30, 2001, the taxpayer shall report and pay the GET on line 9 ("services including professional") of Forms G-45 (general excise/use tax periodic return) and G-49 (general excise/use tax annual return).
Preservation of the Income-Splitting Provision for Motor Carriers
Under the PSC tax law, motor carriers were allowed to divide their income with another motor carrier when transportation of passengers or property was furnished through arrangements between the motor carriers. HRS §239-2. Act 9 preserves this benefit by adding a similar provision to the GET law. HRS §237-18(h).
Special Procedures for Taxpayers for Whom October 1, 2001, Occurs in the First, Second, or Final Year of Business
Though Act 9 does not specifically address filing and reporting procedures for taxpayers who are operating in their first, second, or final year of operation when October 1, 2001, occurs, the Department will administer the tax law as described below.
First and second year filers are still required to file an amended Form U-6 (PSC tax return). 6 To file an amended Form U-6, a first or second year filer must compute its PSC tax liability for the taxable year through September 30, 2001, only and state this amount on the amended Form U-6. (As stated above, the taxes due for the rest of the year are abated under Act 9.) The taxpayer should then offset the amended tax liability for the year with any PSC tax payments paid through September 30, 2001, (i.e., full payment or quarterly or monthly installments); any difference will represent a balance due to the Department or a refund due to the taxpayer. Any overpayment (including payments made by the taxpayer for PSC taxes due for October 2001, or thereafter) will be refunded to the taxpayer.
A transportation service provider in its first year of doing business must file an amended Form U-6 to adjust the estimate used in its original filing to reflect the actual gross income received during the year in which October 1, 2001, occurs. To file an amended Form U-6, the taxpayer should total the tax installments paid through September 30, 2001. Compare this amount with the actual income earned for the tax year through September 30, 2001, multiplied by the four percent tax rate. Any overpayment or underpayment of PSC taxes should be reported on the amended Form U-6. The first-year filer's PSC taxes due for the installments due after September 30, 2001, are abated. The gross income received on October 1, 2001, and thereafter must be reported on GET returns.
Example 1. Carrier ABC is a transportation service provider taxable under HRS §239-6. It began its public service company business on March 1, 2001, and is a calendar year taxpayer making quarterly installment payments. Carrier ABC will be subject to the PSC tax from the date that it commenced business (March 1, 2001) through September 30, 2001. Beginning on October 1, 2001, Carrier ABC will be subject to the GET on its gross income received on and after that date. Carrier ABC must file an amended PSC tax Form U-6 to reflect the actual gross income received for the period through September 30, 2001, multiplied by the four percent tax rate. See HRS §239-9(e). Compare this computed tax amount to the taxes paid through September 30, 2001, and report any overpayment or underpayment on the amended Form U-6. The PSC tax payments for the period October 1, 2001, through December 31, 2001, will be abated under Act 9.
A transportation service provider in its second year of doing business must file an amended Form U-6 to adjust the estimate used in its original filing. First, the taxpayer must compute the actual average monthly gross income from the inception of business through September 30, 2001. Next, multiply the resulting actual average monthly gross income by the number of months in the (second) taxable year occurring before October 1, 2001. Multiply this result by four percent to arrive at the PSC taxes due.
Second, to determine the amount of any underpayment or overpayment of PSC taxes for the portion of the taxable year through September 30, 2001, divide by twelve (12) the estimated taxes reported for the second PSC taxable year (made on the originally-filed Form U-6). Multiply the result by the number of months in the taxable year occurring before October 1, 2001, and subtract this result from the amount determined in the previous paragraph. Claim or report the resulting overpayment or underpayment on the amended Form U-6.
If a transportation service provider goes out of business in the tax year in which October 1, 2001, occurs, then it must continue to pay the PSC tax through September 30, 2001. The PSC tax installments due for the months remaining after September 30, 2001, will be abated. Gross income received beginning on October 1, 2001, will be subject to the GET.
Example 2. Pauhana Carriers ("Pauhana") chooses to end its PSC business on May 30, 2001, after 10 years of business. Pauhana is a calendar year taxpayer. For tax year 2001, Pauhana makes monthly installment tax payments based on its 2000 gross income. Pauhana must continue to pay its monthly PSC taxes through September 30, 2001. Under Act 9, the monthly PSC tax installments due for the months of October through December will be abated.
For more information on the procedures for first, second, or final year filers, please call Taxpayer Services at (808) 587-4242 or toll-free at 1-800-222-3229.
GET License Registration
If a transportation service provider affected by Act 9 does not currently hold a GET license, it must obtain such a license before filing its GET returns. The taxpayer should complete Form BB-1 (State of Hawaii Basic Business Application) and submit it to the Department with a one-time $20 license fee. Under normal circumstances, the Department would recommend that the Form BB-1 be mailed in; however, because of these special circumstances, we suggest that taxpayers apply for their licenses in person at any of the district offices for immediate issuance of a license number.
Current forms and other tax information are available at the Department's website at: www.hawaii.gov/tax. On Oahu, forms may be ordered by calling the Department's Forms Request Line at: 587-7572. Persons who are not calling from Oahu, may call: 1-800-222-7572 (toll-free) to receive forms by mail or by fax.
MARIE Y. OKAMURA
Director of Taxation
VIEW AN ON-LINE COPY OF THE ACT (SB 6) ON THE CAPITOL WEBSITE
For official copies of acts, please contact:
Office of the Lieutenant Governor, State Capitol, 5th Floor, Honolulu 96813.
Phone: 586-0255, Monday - Friday, 7:45 am - 4:30 pm