In 1993, the Department of Taxation ("Department") promulgated Hawaii Administrative Rule (HAR) section 18-237-4-01.01 which provides guidance on the application of the general excise tax to sales to eating or drinking retailers. HAR section 18-237-4-01.01 generally provides that: (1) the sale of any container, wrapper, or packaging which is used to contain food or beverage sold at retail and is necessary to contain food or beverage for delivery shall be subject to the general excise tax at the wholesale rate of 1/2%; (2) the sale of bulk condiments to an eating or drinking retailer is subject to the general excise tax at the wholesale rate of 1/2%; and (3) the sale of prepackaged condiments to an eating or drinking retailer is subject to the general excise tax at the retail rate of 4% unless the packets are resold for a separate charge.
To address the disparate tax treatment of prepackaged condiments, the Department attempted to amend HAR section18-237-4-01.01(f) so that prepackaged condiments would also be taxed at the wholesale rate of 1/2%, and not at 4%. The wholesale treatment of containers and bulk condiments in HAR section 18-237-4-01.01 was based on Hawaii Revised Statutes (HRS) section 237-4(1), which provides that "[s]ales to a licensed retail merchant, jobber, or other licensed seller for purposes of resale" are sales at wholesale. The Attorney General, however, refused to approve the Department's proposed rule, and advised the Department to seek legislation which provides for the wholesale treatment of the sale of containers and condiments to eating or drinking retailers. 1
Accordingly, the Department has drafted legislation for introduction during the 1999 Legislature to clarify the application of the general excise tax to sales to eating or drinking retailers (see attached) and would appreciate receiving your comments no later than Friday, October 9, 1998. Written comments may be faxed to Iris Kitamura at 808-587-1560 or mailed to the following address:
Attention: Ms. Iris Kitamura
Department of Taxation
P. O. Box 259
Honolulu, Hawaii 96809-0259
If you have any questions regarding this Announcement, please call Iris Kitamura, Administrative Rules Specialist, at 587-1570. Forms and other tax information may be downloaded from the Department's website at http://www.state.hi.us/tax/tax.html. On Oahu, forms may be ordered by calling the Department's Forms Request Line at 808-587-7572. Persons who are not calling from Oahu may call 1-800-222-7572 to receive forms by mail or 808-678-0522 from a fax machine to receive forms by fax.
RAY K. KAMIKAWA
Director of Taxation
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