Haw. Code R. § 18-237-13(6)-01 - One-half percent intermediary services rate, in general
(a) Section
237-13(6),
HRS, provides that where any person engaging or continuing within the State in
any service business or calling not otherwise specifically taxed under chapter
237 renders such services upon or at the request of another taxpayer who is
engaged in the service business and who, in fact, acts as or acts in the nature
of an intermediary between the person rendering such services and the ultimate
recipient of the benefits of such services, so much of the gross income as is
received by the person rendering the services shall be subject to tax at the
rate of one-half of one percent and all of the gross income received by the
intermediary from the principal shall be subject to tax at the rate of four
percent.
(b) This provision has
been interpreted very strictly by the courts in all three reported cases
addressing this issue. In re Tax Appeal Busk Enter.,
53 Haw. 518 (1972); In re Tax Appeal Pacific Laundry,
T.A. No. 1864, affirmed 65 Haw. 678 (1982); and
In re Tax Appeal McDonald's Restaurants, T.A. No. 2232
(1985). The Department has been guided by these cases in applying the
intermediary services rate and drafting these rules. These cases require a
"clear analogue to the wholesaler-retailer-customer transaction of goods" and
the intermediary must be a "mere conduit." While few states tax services as
extensively as Hawaii does, the Department has searched the statutes, rules,
and case law of other states for legal tests relating to the resale of property
or services, the wholesale sale of property or services, the consumption or use
of property or services, and the recipient of property or services. The
authorities that discuss services use the same terms that are used in the area
of property - use, consumption, recipient, resale. Others reach a conclusion
without articulating a clear reason for the conclusion, e.g., the "primary
objective" of the parties was to resell the service. This may be attributable
to the ephemeral nature of a service, as opposed to the sale of property which
can be tracked at each level of sale.
Notes
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