Category Archives: General Excise (HRS 237)

SB 1292, HD-1

SUBJECT:  GENERAL EXCISE, TRANSIENT ACCOMMODATIONS, Transient Accommodations Brokers as Tax Collection Agents

BILL NUMBER:  SB 1292, HD-1

INTRODUCED BY:  House Committee on Tourism & International Affairs

EXECUTIVE SUMMARY:  Adds definitions to the TAT law. Amends the definition of “transient accommodations” to include additional forms of transient accommodations. Makes any person who fails to register with DOTAX subject to a citation process and monetary fines. Requires hosting platforms that collect fees for booking services to register as collection agents on behalf of its operators and plan manager for GET and TAT.

SYNOPSIS:

Part I is the preamble.

Part II:  Definitions

Adds the following definitions to section 237D-1, HRS:

“Booking service” means any advertising, reservation, or payment service provided by a person or entity that facilitates a transient accommodation transaction between an operator and a prospective transient or occupant, and for which the person or entity collects or receives, directly or indirectly, through an agent or intermediary, a fee in connection with the advertising, reservation, or payment services provided for the transient accommodation transaction.

“Hosting platform” means a person or entity that participates in the transient accommodations business by providing, and collecting or receiving a fee for, booking services through which an operator may offer a transient accommodation.  Hosting platforms usually, though not necessarily, provide booking services through an online platform that allows an operator to advertise the transient accommodations through a website provided by the hosting platform and the hosting platform conducts a transaction by which potential renters arrange, use, pay, whether the renter pays rent directly to the operator or to the hosting platform.”

Adds to the definition of “transient accommodations” that the term includes “transient accommodations units”, “transient vacation rentals”, “transient vacation units”, transient vacation use”, or any similar term that may be defined by county ordinance to mean a room, apartment, house, condominium, beach house, hotel room, suite, or similar living accommodation rented to a transient person for less than one hundred eighty consecutive days in exchange for payment in cash, goods, or services.

Part III: Citation Process and Monetary Fines

Amends HRS section 237D-4 and 237D-4.5 to make a person who fails to register prior to engaging or continuing in the business of furnishing transient accommodations, which includes posting any advertisement for the furnishing of a transient accommodation, subject to a citation process and monetary fines; and to make any person who enters into an agreement to furnish transient accommodations without registering with DOTAX subject to a citation and monetary fines.

Repeals existing HRS section 237-4(g) which now provides for criminal penalties against noncompliant taxpayers or officers of noncompliant entities.

Part IV:  Hosting Platform Transparency and Data Sharing

Adds new sections to chapters 237 and 237D, HRS, providing that a hosting platform that collects fees for booking services shall register as a tax collection agent on behalf of all of its operators and plan managers.

Provides that a tax collection agent shall be issued a separate license under this chapter with respect to taxes due under this chapter on behalf of its operators and plan managers in its capacity as a tax collection agent.

Provides that in addition to its own responsibilities under the GET and TAT laws, a tax collection agent shall report, collect, and pay over the taxes due under this chapter on behalf of all of its operators and plan managers to or for whom booking services are provided; provided that the tax collection agent’s obligation to report, collect, and pay taxes on behalf of all of its operators and plan managers shall apply solely to transient accommodations in the State for which booking services were provided by the tax collection agent.

Provides that a tax collection agent shall be personally liable for the taxes imposed by this chapter that are due and collected on behalf of operators and plan managers, if taxes are collected, but not reported or paid, together with penalties and interest as provided by law.  If the tax collection agent is an entity, the personal liability applies to any officer, member, manager, or other person who has control or supervision over amounts collected to pay the taxes or who is charged with the responsibility for the filing of returns or the payment of taxes.

Provides that a tax collection agent’s operators and plan managers shall be deemed licensed as to the business activity conducted directly through the tax collection agent from the date of registration.  Licensure and payment requirements apply directly to the operators and plan managers for any other business activity.

Provides that a tax collection agent’s annual returns shall include a cover sheet reporting the following information for each operator and plan manager on whose behalf the tax collection agent is required to report, collect, and pay over taxes due under this chapter:

(1)  Name;

(2)  Address;

(3)  Social security or federal employer identification number; and

(4)  Income apportioned by county.

Provides that before collecting any fee for booking services, a tax collection agent shall notify each of its operators or plan managers that the reporting and remittance of Hawaii income tax is the responsibility of each operator and plan manager.

Provides that nothing in this section shall be construed to preempt or prohibit the authority of any county or political subdivision of the State, to adopt, monitor, and enforce local land use ordinances, rules, or regulations, nor to transfer the authority to monitor and enforce these ordinances, rules, or regulations away from the counties.

EFFECTIVE DATE:  Upon approval.

STAFF COMMENTS:  These comments are principally addressed to Part IV.

Act 143, SLH 1998, amended HRS section 237-9 to allow multi-level marketing companies to act as agents to collect and pay over GET on behalf of their independent entrepreneurs.  At the time, it was considered beneficial for the marketing companies to collect and pay over tax as opposed to having the Department of Taxation chase down a myriad of independent owners with varying degrees of tax compliance among them.

This bill presents an opportunity for the same logic and policy considerations to apply to transient vacation rental (TVR) activity operating through transient accommodation brokers such as AirBnB, Flipkey, Homeaway, and VRBO, except that the stakes may be a little higher because TAT as well as GET is being collected.  This bill would appear to be necessary or desirable to enhance the Department’s collection ability given the limited resources available for all of state government including the Department.

TVR activity is a business and the dollars earned in that business are subject to Hawaii state taxes.  Specifically, General Excise Tax (GET) and Transient Accommodations Tax (TAT) both apply, so those hosts that are in this business need to register appropriately and pay these taxes.  But alas, not everyone does.  So, the bill proposes to require the broker to register with the Department of Taxation and to remit the GET and TAT to the State on behalf of the hosts.  Once registered, any time a host earns money on the broker’s platform, the broker will pay the taxes and will pay over the balance to the host.  The concept is like withholding, with which those of us who receive a paycheck are quite familiar:  we work for an employer, the employer pays us our wages, but the employer deducts some taxes and pays them to the Department of Taxation and IRS.

A similar measure, HB 1850 (2016), passed three years ago but was vetoed by Governor Ige.  The principal objection concerns county-level restrictions on property use.  Some TVR activity violates county zoning laws.  Some counties, as well as neighboring residents, see withholding as described in this bill as enabling hosts to hide illegal activities from county law enforcement.  Some people have gone further.  They blame TVR hosts for wrecking the sanctity of neighbor­hoods with an unending stream of tourists or for yanking housing units off the market in the name of greed, resulting in stratospheric housing prices that are yet another crippling blow to hardworking families struggling to make ends meet.  Then, they turn to the brokers and demand that the brokers stop encouraging and facilitating such illegal, anti-societal, and morally depraved activity.

Ultimate responsibility as to both State tax and county zoning laws rests with the owners of the accommodations, not the broker.  Owners may be in varying degrees of compliance with the zoning laws just as they are in varying degrees of compliance with the tax laws.  The broker is not in an efficient position to police the former, but effectively can do something about the latter because money from the transient guests flows through the broker’s system.

One of the key provisions for which technical change is necessary is the personal liability provision, subsection (c) of the new sections.  We recommend that personal liability not be established except for a willful failure to pay over the amount collected, as in section 237-41.5, HRS.  This can be accomplished by replacing the last sentence of subsection (c) with:  “If the tax collection agent is an entity, the personal liability under this subsection shall apply to any officer, member, manager, or other person who wilfully fails to pay or to cause to be paid any taxes due from the taxpayer pursuant to this chapter.”

Digested 3/19/2019

SB 396, SD-1

SUBJECT:  GENERAL EXCISE, Apply Tax to Marketplace Facilitators

BILL NUMBER:  SB 396, SD-1

INTRODUCED BY:  Senate Committee on Ways & Means

EXECUTIVE SUMMARY:  Establishes marketplace facilitators as the sellers of tangible personal property, intangible property, or services. Requires other persons who provide a forum for listing of items for sale and the taking or processing of orders to report information about purchasers to the Department of Taxation.

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SB 530, SD-2

SUBJECT:  GENERAL EXCISE, Exempt Mobility Enhancing and Durable Medical Equipment

BILL NUMBER:  SB 530, SD-2

INTRODUCED BY:  Senate Committee on Ways & Means

EXECUTIVE SUMMARY:  Expands the current exemption for prescription drugs and prosthetic devices to include more items specific to health care.  The expanded list of items appears to be consistent with the policy justification for the original exemption.  In addition, some of the changes in this bill would rectify an anomaly that exists under current law.

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SB 1292, SD-2

SUBJECT:  GENERAL EXCISE, TRANSIENT ACCOMMODATIONS, Transient Accommodations Brokers as Tax Collection Agents

BILL NUMBER:  SB 1292, SD-2

INTRODUCED BY:  Senate Committees on Judiciary, and Ways & Means

EXECUTIVE SUMMARY:  Allows a transient accommodations broker to serve as a collection agent for general excise and transient accommodations taxes.  This type of arrangement would probably enhance collection of taxes because of the difficulty of policing individual owners.  However, the number of caveats, conditions, and restrictions that are placed on the broker signing up for this program is so large that it is unlikely that any broker in its right mind would sign up.  If no broker is motivated to sign up, this legislation will accomplish nothing.

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SB 1158, SD-2

SUBJECT:  GENERAL EXCISE TAX, Tax Holiday for School Supplies

BILL NUMBER:  SB 1158, SD-2

INTRODUCED BY:  Senate Committee on Ways & Means

EXECUTIVE SUMMARY:  Establishes a general excise tax holiday for consumers and businesses for school supplies sold during the weekend prior to the start of the school year on condition that businesses pass the savings on to consumers.  The holiday provisions may be unconstitutional to the extent they exclude orders from businesses operating outside Hawaii.

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SB 1474, SD-1

SUBJECT:  GENERAL EXCISE, USE, Increase Tax Rate, Give to Education

BILL NUMBER:  SB 1474, SD-1

INTRODUCED BY:  Senate Committees on Education and Higher Education

EXECUTIVE SUMMARY:  Increases the general excise and use taxes by 0.5% and provides that the revenue generated by the increased rate will be used for department of education (DOE) and University of Hawaii (UH) operations, including salaries and maintenance costs.  With a tax increase of this magnitude, economic ripple effects are likely to be enormous because of the all-encompassing nature of the tax.  We also question why such a massive increase is being sought given that DOE and UH already have a gargantuan share of the State budget but are still beset with such issues as frustrated teachers, students roasting in our classrooms, and a massive maintenance backlog.  It also should be kept in mind that the bill does not ensure that increased funding will be made available for DOE or UH, as the case may be.

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SB 1292, SD-1

SUBJECT:  GENERAL EXCISE, TRANSIENT ACCOMMODATIONS, Transient Accommodations Brokers as Tax Collection Agents

BILL NUMBER:  SB 1292, SD-1

INTRODUCED BY:  Senate Committees on Energy, Economic Development, and Tourism and Commerce, Consumer Protection, and Health

EXECUTIVE SUMMARY:  Allows a transient accommodations broker to serve as a collection agent for general excise and transient accommodations taxes.  This type of arrangement would probably enhance collection of taxes because of the difficulty of policing individual owners.  However, the number of caveats, conditions, and restrictions that are placed on the broker signing up for this program is so large that it is unlikely that any broker in its right mind would sign up.  If no broker is motivated to sign up, this legislation will accomplish nothing.

Continue reading SB 1292, SD-1

HB 1394; SB 1428 (Identical)

SUBJECT:  GENERAL EXCISE, Expand Permitted Usage on Neighbor Islands of County Surcharge

BILL NUMBER:  HB 1394; SB 1428 (Identical)

INTRODUCED BY:  HB by NAKAMURA, CREAGAN, MORIKAWA, NAKASHIMA, TARNAS, TODD, TOKIOKA, WILDBERGER; SB by KOUCHI by request

EXECUTIVE SUMMARY:  Authorizes any county with a population equal to or less than 500,000 that adopts a county surcharge on state tax ordinance to use the surcharges received from the State for infrastructure and public safety.  This bill will send us far afield from the original intent and philosophy of the county surcharge, which was a temporary tax to fund mass transportation.

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HB 632; HD-1

SUBJECT:  GENERAL EXCISE, Exempt Mobility Enhancing and Durable Medical Equipment

BILL NUMBER:  HB 632; HD-1

INTRODUCED BY:  House Committee on Health

EXECUTIVE SUMMARY:  Expands the current exemption for prescription drugs and prosthetic devices to include more items specific to health care.  The expanded list of items appears to be consistent with the policy justification for the original exemption.  In addition, some of the changes in this bill would rectify an anomaly that exists under current law.  Note that this draft of the bill is intended to result in medical marijuana being exempt.

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HB 616, HD-1

SUBJECT:  GENERAL EXCISE, Exemption for Locally Grown Food

BILL NUMBER:  HB 616, HD-1

INTRODUCED BY:  House Committees on Agriculture and Economic Development & Business

EXECUTIVE SUMMARY:  Exempts sales of locally grown food from GET.  Such an exemption violates the federal Commerce Clause and cannot be given effect, as held in In re Hawaiian Flour Mills, Inc., 76 Hawai’i 1, 868 P.2d 419 (1994).

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