Rules regarding the application of the intermediary services rate in section 237-13(6), Hawaii Revised Statutes (HRS), have been adopted by the Department of Taxation ("Department") and signed by Governor Benjamin J. Cayetano. The rules took effect on January 22, 1999.
Pyramiding of the general excise tax is alleviated by the one-half percent intermediary services rate. The rules implementing section 237-13(6), HRS, were based upon case law strictly interpreting the application of the one-half percent intermediary services rate.1
A taxpayer qualifies for the one-half percent intermediary services rate if the following conditions are satisfied:
For example, the intermediary services rate may be applicable where a customer goes to an auto body shop (intermediary) and the auto body shop subcontracts the entire work to another auto body shop. The intermediary services rate, however, is not applicable where the auto body shop subcontracts only the painting to an auto paint shop and the auto body shop does the rest of the work.
A new Form G-16, relating to the certificate for the resale of services by a licensed intermediary, has been developed by the Department. A copy of Form G-16 is attached to this Announcement. If an intermediary executes Form G-16, it is applicable to every purchase of services from a taxpayer (Service Provider), unless it is specified in writing that the certificate does not apply or until the certificate is revoked by notice in writing. HAR Section 237-13(6)-09(b)(3).
The adopted rules also clarify that professionals qualify for intermediary services relief if they fulfill all five conditions discussed above.
A copy of the rule and other tax information may be downloaded from the Department's website at: http://www.state/hi.us/tax/tax.html. Alternatively, to request a written copy of the rule, please mail a request to the Department of Taxation, Attention: Rules Office, P. O. Box 259, Honolulu, Hawaii, 96809-0259. Please include your name and address, identify the rule ("intermediary services rule"), and a check for $14.00 (50 cents per copied page x 28 pages) payable to the "Director of Finance." The law requires that agencies, including the Department of Taxation, charge for copies of the rules. While several bills have been introduced in the 1999 Legislature to clarify the law, including bills which would reduce the copying fee, nothing has been enacted at the present time.
RAY K. KAMIKAWA
Director of Taxation
Attachment: Form G-16, Rev. 1999
<<CLICK HERE FOR A PDF COPY OF THE RULE>>
HRS Section Explained: HRS Section 237-13