(a) Wholesaler,
jobber, manufacturer. Section
238-2(1),
HRS, provides that if the importer or purchaser is licensed under the general
excise tax law, chapter 237, HRS, and is (1) a wholesaler or jobber, importing
or purchasing tangible personal property exclusively for the purposes of resale
at wholesale or (2) a manufacturer importing or purchasing material to be
incorporated by the manufacturer into a finished product, which, when sold,
will result in a further tax on the activity of the manufacturer as a
manufacturer or as a wholesaler, and not as a retailer, there shall be no tax.
If the importer or purchaser as set forth in (1) or (2) above is also engaged
in business as a retailer, subsection (b) shall apply to the importer or
purchaser, but the director shall refund to the importer or purchaser in the
manner provided under section
231-23(d),
HRS, such amount of tax as the importer or purchaser shall, to the satisfaction
of the director, establish to have been paid by the importer or purchaser on
such imports or purchases which were sold by the importer or purchaser as a
wholesaler or as a manufacturer. See subsection (h) for deduction and credit
procedures, other than refund method provided in section
231-23(d),
HRS, which a wholesaler or manufacturer who is also a retailer is permitted to
use in determining tax liability under chapter 238, HRS.
(b) Retailer or any other person not exempted
by subsection (a). Section
238-2(2),
HRS, provides that if the importer or purchaser is licensed under the general
excise tax law, chapter 237, HRS, and is (1) a retailer or other person
importing or purchasing for purposes of resale and not exempted by subsection
(a), or (2) a manufacturer as set forth in subsection (a)(2) except for the
fact that the manufacturer sells his products at retail, or (3) a contractor
incorporating imported or purchased material or commodities into the finished
work or project, the tax shall be one-half of one percent of the purchase price
of such tangible personal property, if the purchase and sale are consummated in
Hawaii, or, if there is no purchase price applicable thereto, or if the
purchase or sale is consummated outside of Hawaii, then one-half of one percent
of the landed value of such property imported into Hawaii. For taxes on sales
of tangible personal property by an out-of-state seller, including drop
shipments and definitions, see §
18-237-13-02.01. See subsection (g) for rules
relating to basis of property.
(c)
Certain scientific contracts with the United States. Notwithstanding the
provisions of subsection (b) of this rule, the tax imposed by chapter 238, HRS,
shall not apply to any use of property exempted by section
237-26,
HRS. Thus, no use tax shall be levied or collected on tangible personal
property which is to be affixed to, or to become a physical, integral part of
the scientific facility, or which is to be entirely consumed during the
performance of the service required by the contract or subcontract.
(d) All others. HRS section
238-2(3)
provides that in all other cases, the tax shall be four percent of the landed
value of such tangible personal property. For taxes on sales of tangible
personal property by an out-of-state seller, including drop shipments and
definitions, see §
18-237-13-02.01. See subsection (g) for rules relating to
basis of property.
(e) Producers.
See §
18-238-4 relating to producers.
(f) Application of the rules contained in
subsections (a), (b), (c), (d) and (e) of this section may be illustrated by
the following examples.
Example 1: "A" purchases and imports a container
load of merchandise from an out-of-state seller for resale in Hawaii to "X", a
retail discount store. "A's" records further disclose that other imports and
purchases made by "A" are sold to various other retail stores. Thus, because
all sales are at the wholesale level, all such imports and purchases from an
out-of-state seller are exempt from the use tax.
Example 2: "B", who is in the business of
manufacturing food items, imports food preservatives and food containers. The
preservatives are to be incorporated into the manufactured product while the
containers are used to make the finished product marketable. "B" has an
agreement to sell all of his manufactured products exclusively to "S", a large
retail supermarket with many branches. Because all sales are at the wholesale
level, "B" is exempt from the use tax. "B", however, will be taxed on the
activity of a manufacturer as provided under the general excise tax law.
Example 3: "C" is engaged in a scientific
contract with the United States. To complete this construction project, certain
scientific equipment and supplies which are to become an integral part of the
project are imported because they are not available in Hawaii. On the basis of
the fact that the imported properties are to become an integral part of the
project, no use tax shall be levied or collected on the equipment and supplies
imported by "C".
Example 4: Assume the same facts in Example 3
except that "C" is engaged in an operation and maintenance scientific contract
with the United States and imports supplies which are to be entirely consumed
during the performance of the service contract. On the basis of the fact that
the imported supplies are to be entirely consumed in the performance of the
contract, no use tax shall be levied or collected on the supplies imported by
"C".
Example 5: If "A" and "B" in Examples 1 and 2
were also engaged in selling their merchandise and products at the retail
level, use tax at the rate of one-half of one percent would apply on the
imports and purchases (for resale at retail) plus four percent general excise
tax on their subsequent sale at the retail level.
If "C" in Example 3 is involved in other construction projects
which do not meet the provisions of section
237-26,
HRS, "C" would be subject to the use tax at the rate of one-half of one percent
on the landed value of the tangible personal property imported and incorporated
into such nonscientific projects.
If "C" in Example 4 is involved in other operation and
maintenance contracts which do not meet the provisions of section
237-26,
HRS, "C" would be subject to the use tax at the rate of four percent on the
landed value of the supplies imported for use in such nonscientific
contracts.
Example 6: Service business. A tire recapper,
"D", who recaps tires belonging to other persons is subject to the use tax at
the rate of four percent in respect of tangible personal property (that is
consumed in performance of a service) which:
(1) "D" imports and incorporates into such
tires; or
(2) is transferred to "D"
by another person who is not taxable under the general excise tax law in
respect of such transfer and which is incorporated into such tires.
Example 7: Manufacturer. A tire recapper, "E",
who recaps tires for "E's" own stock for resale is not subject to the use tax
in respect of tangible personal property which:
(1) "E" imports or acquires and incorporates
into such tires; or
(2) is
transferred to "E" by another person who is not taxable under the general
excise tax law in respect of such transfer and which is incorporated into such
tires.
(g) Basis of
Property.
(1) Purchase price or landed value.
Except as provided in paragraph (2), for purposes of section
238-2,
HRS, and these rules, the basis of property shall be the purchase price of the
tangible personal property if the purchase and sale are consummated in Hawaii
or landed value of the tangible personal property if the purchase and sale are
consummated outside of Hawaii or if there is no purchase price applicable
thereto.
(2) Deduction for
trade-in; depreciation, etc. The time of accrual of the tax in the case of an
automobile imported into the State for use shall be at the time the automobile
comes to rest in the State and ceases its character as an article in interstate
commerce. The landed value for purposes of the use tax basis shall be the
landed cost in the State. Such landed cost shall consist of invoice price plus
freight, insurance, custom duty, and any other charges incident to landing the
motor vehicle in the State, less:
(1)
trade-in allowance for old car;
(2) any charges for license plates outside
Hawaii; and
(3) a depreciation
allowance of ten percent for normal use outside Hawaii, but this rate may be
adjusted depending upon the mileage and condition of the car. The landed value
of the motor vehicle shall not include any retail sales tax paid to another
state or local government.
(A) When the motor
vehicle has been used prior to bringing it into the State, the landed value for
purposes of the use tax basis may be reduced by applying a depreciation
allowance for normal use of the motor vehicle outside of the State. The
depreciation allowed depends on the mileage and condition of the motor vehicle.
No depreciation is allowed for a motor vehicle brought in to the State within
90 days of its date of purchase. The 90 day period shall not include any
shipping time or any time during which a motor vehicle was placed in storage
prior to its import into the State.
(B) For purposes of depreciation, the
calculation of the landed value of a motor vehicle used prior to its
importation into the State also may include the cost of any repairs or
replacement parts added to the motor vehicle to maintain or increase its value
during the taxpayer's use of the motor vehicle prior to shipping the motor
vehicle into the State. The department of taxation may require an explanation
and supporting information for any depreciation reduction of the landed value
of a motor vehicle. Taxpayers who believe a depreciation allowance is warranted
may use the depreciation schedule printed on the back of the Use Tax Return
(Form G-26).
(C) Section
238-3(h),
HRS, allows a credit against the Hawaii use tax for the combined amount of
sales or use taxes imposed by and paid to another state (or any subdivision
thereof) on tangible personal property before it is imported into the State.
Accordingly, a taxpayer may receive a credit up to the amount of Hawaii use tax
due (4 percent of the landed value of the motor vehicle) for any sales or use
taxes paid by the taxpayer to another state upon the purchase or use of the
motor vehicle. The calculation of the credit shall not include any other taxes
paid to other states, such as taxes on manufacturing, license fees, or transfer
taxes. The amount of credit also shall not exceed the amount of use tax imposed
by the State of Hawaii on such tangible personal property. To substantiate the
claim for the credit allowance, the department of taxation may require copies
of receipts or vouchers indicating the payment of the sales or use taxes to
another state.
(3) Temporary use. Temporary use of property
shall not include any property located in or in use within the State for a
period exceeding 365 days.
(4)
Labor charges. Labor charges for the repair or reconditioning of tangible
personal property shall be included in the purchase price or landed value of
the tangible personal property for purposes of determining the use tax
basis.
(5) Although the sales
transaction may be based outside of Hawaii, which is merely a method or means
of determining who is to pay the freight from that particular point, primary
consideration should be given to the place of delivery of the tangible personal
property. Whether the general excise tax or the use tax would be applicable
depends upon where the place of delivery of the tangible personal property is
located and whether the seller has nexus.
(6) Application of the rules contained in
paragraphs (1) and (5) may be illustrated by the following
examples:
Example 1: A contract is executed in Hawaii by a
local consumer and a dealer doing business in Hawaii with the place of delivery
in San Francisco and the purchaser arranging for the shipment of the
merchandise into Hawaii directly with a common carrier. The use tax of four
percent is applicable. Because the sale is consummated outside of Hawaii, the
tax shall be based on the landed value of the merchandise; such value shall
include the freight, insurance and handling charges and the seller is required
to collect such taxes as provided by section
238-6,
HRS, and §
18-238-6.
Example 2: A local wholesaler purchases machinery
through a dealer doing business in Hawaii. Although the transaction is F.O.B.
San Francisco (the purchaser ultimately paying the freight), the actual place
of delivery of the merchandise is in Honolulu. Because the dealer is doing
business in Hawaii and the sale is consummated in Hawaii, the use tax is not
applicable. However, the general excise tax is applicable to the dealer and the
gross receipts of the dealer should include the freight, insurance and handling
charges.
(h) Deduction and Credit
Procedures.
(1) General Rule.
(A) Section
238-2(1),
HRS, provides that if a licensed wholesaler, jobber or manufacturer is also
engaged in business as a retailer, a use tax of one-half of one percent shall
apply on all imports and purchases, but the director shall refund to the
taxpayer in the manner provided in section
231-23(d),
HRS, such amount of tax as the taxpayer shall to the satisfaction of the
director, establish to have been paid by the taxpayer on such imports and
purchases sold by the taxpayer as a wholesaler or manufacturer.
(B) Section
238-4,
HRS, provides that if a licensed producer who is an importer or purchaser of
certain property, as specified in §
18-238-4(b), is also engaged in business as
a retailer, or in any manner other than as a wholesaler, a use tax of one-half
of one percent shall apply, the same as in the case of a purchaser who is a
licensed retailer.
(C) In lieu of
the refund method provided in section
231-23(d),
HRS, a taxpayer described in this paragraph (1) may elect to compute the tax
liability for purposes of this chapter under one of the methods described in
paragraph (2).
(2)
Permissible methods. The taxpayer may receive a deduction or credit, as the
case may be, for imports and purchases from unlicensed sellers that were sold
by the taxpayer as a wholesaler, jobber, manufacturer or producer if the
taxpayer computes the taxpayer's liability under any of the following methods:
(A) Method A (Direct Cost Method). Determine
the total amount of imports and purchases from unlicensed sellers for the
month. Ascertain from your records, category by category, the landed cost of
the wholesale and manufacturing sales included in imports and purchases from
unlicensed sellers for the month. Deduct this amount from the total imports and
purchases from unlicensed sellers for the month and compute and pay the use tax
on the remaining balance. Total amount and deductions must be reflected on
monthly tax returns.
|
Example - A car
dealer
|
| 1. |
Total retail sales for the month
|
$75,000 |
| 2. |
Total wholesale sales for the month
|
$15,000 |
| 3. |
Total imports and purchases from unlicensed
sellers for the month |
$50,000 |
| 4. |
Compute cost of automobiles and
accessories sold at wholesale during the month which has been included in item
3, item by item, or category by category
|
Cost
|
| Model "X" sedans |
$4,000 |
| Model "Y" delivery trucks |
6,000 |
| Model "Z" station wagons |
2,000 |
| Accessories |
1,000
|
| Total cost of wholesale sales to be excluded from the
use tax basis |
$13,000
|
| 5. |
Balance subject to the use tax |
$37,000
|
(B)
Method B (Percentage of wholesale sales to total sales method). Determine the
total amount of imports and purchases from unlicensed sellers for the month.
Ascertain the percentage of wholesale sales to total sales for the month. Apply
the percentage so determined to the total amount of imports and purchases from
unlicensed sellers for the month. This amount would be the amount excluded from
the use tax base.
|
Example:
|
| 1. |
Total retail sales for the month
|
$85,000 |
| 2. |
Total wholesale sales for this month
|
$15,000 |
| 3. |
Total imports and purchases from unlicensed
sellers for the month |
$50,000 |
| 4. |
Percentage of wholesale sales to total
sales ($15,000 ÷ $100,000) |
15% |
| 5. |
Total purchases to be excluded from the use
tax base ($50,000 x fifteen percent) |
$
7,500
|
| 6. |
Imports and purchases subject to the use
tax for the month ($50,000 - $7,500)
|
$42,500
|
It will be permissible for a taxpayer to use the cost of sales
to arrive at the percentage ratio for the exclusion of imports or purchases
from unlicensed sellers for wholesale sales to compute the use tax base, if the
taxpayer has accurate records to support these costs of sales figures. A
schedule of these computations must be attached to the monthly tax
returns.
(C) Method C
(Gross profit percentage method). Determine the total amount of imports and
purchases from unlicensed sellers for the month. Ascertain by gross profit
percentage method the cost of wholesale sales included in imports and purchases
from unlicensed sellers for the month. Deduct this amount from the total amount
of imports and purchases from unlicensed sellers for the month and compute the
use tax on the remaining balance.
|
Example: |
| 1. |
Total imports and purchases from unlicensed
sellers for the month |
$50,000 |
| 2. |
Total wholesale sales for the
month |
$10,000 |
| The average gross profit percentage as determined by
taxpayer's records |
40%
|
| Gross profit on wholesale sales |
$
4,000
|
| 3. |
Cost of wholesale sales for the month ($
10,000 - $4,000) |
6,000
|
| 4. |
Balance subject to use tax for the
month |
$44,000
|
Method C may be utilized only if taxpayer has good records and
accounting data to compute proper gross profit percentage.
(D) Method D (Other methods). The taxpayer
may utilize any other method that will reflect the taxpayer's correct tax
liability, provided such method is submitted to and approved by the
director.
(3) Special
rules for paragraph (2). The taxpayer must select and use the method that will
clearly reflect the taxpayer's correct tax liability. Whatever method is used
must be used consistently. Permission to change method must have the consent of
the director. However, the director may change the method used by the taxpayer
anytime the director finds that the method used by the taxpayer does not
reflect the taxpayer's correct tax liability.
