July 16, 1999


RE: Act 70, Session Laws of Hawaii 1999 (Act 70), Relating to Taxation

Act 70 exempts services or contracting exported outside Hawaii from the general excise tax (GET) and imposes a new use tax on imported services. Act 70 is effective beginning January 1, 2000.

Under prior law services performed in Hawaii were subject to the GET even if exported outside Hawaii; contracting is subject to the GET if the project is located in Hawaii. Act 70 provides a GET exemption for services and contracting performed in Hawaii, for a customer located outside Hawaii where the services or contracting are for resale, consumption, or use outside Hawaii, the service or contracting would be subject to the GET at the 4% rate, and the customer provides a certificate certifying that the services or contracting will be resold, used, or consumed outside Hawaii. Act 70 also exempts services and contracting performed in Hawaii for a "purchaser" of the services or contracting if the "purchaser" meets the requirements of the preceding sentence. These exemptions increase the global competitiveness of Hawaii businesses and provides parity between the tax treatment of exported services and contracting and exported tangible personal property (exempt from the GET).

Under prior law, imported services were not subject to the use tax. Act 70 imposes the use tax on services which are performed outside Hawaii, but which are imported for resale, consumption, or use in Hawaii. The tax is imposed at different rates (0%, 1/2%, or 4%) on the importer or purchaser depending upon how the importer or purchaser "uses" (e.g, resells, consumes, uses) the imported service. The use tax on services levels the "playing field" between Hawaii service providers and out-of-State service providers and provides parity between the tax treatment of imported tangible personal property (subject to the use tax) and services. An exemption from the use tax is provided for imported services which are sold for resale, consumption, or use by a foreign customer located outside Hawaii.

This Act 70 and Act 71, relating to GET pyramiding relief will be discussed in a 3-hour workshop by the Department. The workshop will be held on Wednesday, August 25, 1999 from 8:30 a.m. to 11:30 a.m. at the State Capitol Auditorium. The registration deadline is Wednesday, August 11. The cost for the workshop is $25 per person and an additional $5 late registration fee will be charged after August 11. If you have any questions regarding the workshop, please call Frank Ruff or Lynne Kuroda at: 808-587-1577.

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: 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.

Director of Taxation