Act 125 amends certain PSC tax provisions by: (1) excluding tour packagers from the definition of "carrier"; (2) amending the definition of "gross income" to allow motor carriers to pay the public service company tax only on their portion of gross receipts received through arrangements with other motor carriers; (3) amending the definition of "gross income" to exempt worthless accounts; and (4) defining "motor carrier" to include the transportation of passengers.

The PSC tax is a means of taxing the tangible and intangible personal property of a motor carrier, including going concern value and is in lieu of the general excise tax (but not in lieu of any other State tax). Hawaii Revised Statutes (HRS) sections 237-23(a)(1) and 239-6. "Motor carrier," as amended by Act 125, means a common carrier or contract carrier transporting persons or property for compensation on the public highways, other than a public utility or taxicab; a "contract carrier" includes a person that engages in the transportation of persons or property for compensation by land, water, or air. HRS section 239-2.

HRS section 239-6 assesses the PSC tax on motor carriers at an amount measured by 4 percent of the "gross income" derived from the motor carrier business in the preceding taxable year. Prior to Act 125, the "gross income" included receipts that were paid by motor carriers to other motor carriers.

Act 125 amends the definition of "gross income" in HRS section 239-2 to allow motor carriers to pay the PSC tax only on their portion of gross receipts received through arrangements with other motor carriers. This is similar to an existing exemption in HRS section 239-2 which allows "providers of services" (motor carriers) to pay the PSC tax only on their portion of income received from a travel agency or tour packager. There is a similar exemption in HRS section 237-18(f), which allows other "providers of services" to pay the general excise tax only on their portion of income received from a travel agency or tour packager.

Act 125 amends the definition of "gross income" in HRS section 239-2 to exclude from the definition of "gross income" worthless accounts charged off for net income tax purposes, except that these accounts would be added to "gross income" if subsequently collected. There is an identical exclusion in the general excise tax law's definition of "gross income." HRS section 237-3.

Act 125 amends the definition of "carrier" to exclude tour packagers.

Act 125 is applicable to any gross income received by a motor carrier on or after June 22, 1998.

If you have any questions regarding this Announcement, please call Rules Officer Grant Tanimoto at 808-587-1569. 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 1-800-222-7575 to receive forms by mail or 808-678-0522 from a fax machine to receive forms by fax.

/s/
RAY K. KAMIKAWA
Director of Taxation