LINDA LINGLEKURT KAWAFUCHIGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

MARIE C. LADERTA

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII

DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809

PHONE NO: (808) 587-1510
FAX NO: (808) 587-1560

July 29, 2005

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2005-11
RE:Act 247, Session Laws of Hawaii 2005, Relating to County Surcharge on State Tax(Act 247)

On July 13, 2005, H.B. No. 1309, H.D. 2, S.D. 2, C.D. 1 was enacted into law as Act 247.
Act 247 authorizes the counties to levy a county surcharge on state tax to fund public
transportation systems. However, the Governor has requested certain changes to Act 247 asenacted. This announcement describes Act 247 as enacted on July 13, 2005, without the changes
requested by the Governor.
Act 247 amends Chapter 46, HRS, to authorize each county to levy a surcharge on thegeneral excise tax and use tax. The surcharge cannot be levied prior to January 1, 2007. To
establish the surcharge, the county must adopt an ordinance prior to December 31, 2005. Thecounty must hold a public hearing on the ordinance before it is adopted. Within 10 days ofadopting the ordinance establishing the surcharge, the county must notify the director of taxationthat the ordinance has been adopted.
Act 247 limits how the counties can spend the surcharge. The City and County of
Honolulu is required to use the surcharge for operating and capital costs of a locally preferredalternative for a mass transit project and expenses in complying with the Americans with
Disabilities Act of 1990 with respect to the mass transit project. The City and County of
Honolulu cannot use the surcharge to build or repair public roads or highways, bicycle paths, or
support public transportation systems already in existence prior to July 13, 2005. The othercounties must use the surcharge for operating or capital costs of public transportation within eachcounty for public transportation systems, including public roadways or highways, public buses,trains, ferries, pedestrian paths or sidewalks, or bicycle paths and expenses in complying with theAmericans with Disabilities Act of 1990 with respect to the foregoing. "Capital costs" means
nonrecurring costs required to construct a transit facility or system, including debt service, costsof land acquisition and development, acquiring of rights-of-way, planning, design, construction,and equipping and furnishing the facility or system.
Act 247 amends Chapters 237 and 238 to provide that all provisions of those chapters areapplicable to the county surcharge. The county surcharge may not be at a rate greater than onehalf percent of all gross proceeds and gross income subject to general excise and use taxation. In

Department of Taxation Announcement No. 2005-11
July 29, 2005
Page 2 of 3addition, the county surcharge does not apply to gross income or gross proceeds taxable at theone-half percent tax rate or the 0.15 percent tax rate. The county surcharge also does not apply
to any transactions, amounts, persons, gross income or gross proceeds exempt from general
excise or use tax. Act 247 grants the director of taxation the exclusive right and power todetermine the county or counties in which a person is engaged in business or if a person isengaged in business in more than one county to apportion the tax between the counties.
Act 247 provides special rules in Chapter 237, HRS, for written contracts entered into
before June 30 of the year prior to the taxable year in which the tax becomes effective. If awritten contract, entered into before June 30 of the year prior to the year in which the county
surcharge becomes effective, requires the passing on of the general excise tax but does notprovide for the passing on of an increase in the rate of the general excise tax, then the county
surcharge does not apply. However, the county surcharge does apply to the gross income or
gross proceeds from all contracts entered into after June 30 of the year prior to the year of theeffective date of the county surcharge regardless of whether the contract allows for the passing
on of any tax or any tax increases.
Act 247 amends section 437D-8.4(a), HRS, to allow a lessor of a rental motor vehicle tovisibly pass on to a lessee the county surcharge, provided that the lessor itemizes the tax for thelessee.
Act 247 directs the director of taxation to revise the general excise tax and use tax forms
to clearly and separately designate the imposition and payment of the county surcharge. Inaddition, the taxpayer would be required to file a schedule with the taxpayer's periodic andannual general excise tax and use tax returns summarizing the amount of taxes assigned to eachcounty. Fiscal year taxpayers are required to file a short period return for the first year thecounty surcharge becomes effective.
The penalties for failure to file a tax return provided in section 231-39, HRS, shall be
imposed on the amount of the surcharge due on the return being filed for the failure to file theschedule required to accompany the return. In addition, a penalty of ten percent of the amount of
the surcharge and tax due on the return shall be imposed for the failure to file the schedule or thefailure to correctly report the assignment of the general excise or use tax by taxation district on
the required schedule.
Act 247 amends Chapter 248, HRS, by providing that all county surcharges collected by
the director of taxation be paid into the state treasury quarterly, within 10 working days aftercollection, and placed by the director of finance in special accounts. The director of finance will
deduct ten percent of the gross proceeds of a respective county's surcharge to reimburse the Statefor the costs of assessment, collection, and disposition of the county surcharge. These amounts
will be general fund realizations of the State. On a quarterly basis, the director of finance will
pay the counties their share of the county surcharge and will be a general fund realization of thecounty to be used as specified in Act 247.
Act 247 repeals Chapter 51D, HRS, concerning mass transit.

Department of Taxation Announcement No. 2005-11
July 29, 2005
Page 3 of 3

Act 247 is effective as of July 13, 2005, provided that:(1)

If none of the counties adopt an ordinance to levy a county surcharge by
December 31, 2005, then Act 247 is repealed and section 437D-8.4(a),HRS, is reenacted in the form in which it read on July 12, 2005;(2)

If any county does not adopt an ordinance to levy a county surcharge by
December 31, 2005, that county is prohibited from adopting such anordinance, unless otherwise authorized by the legislature through aseparate legislative act; and(3)

If an ordinance to levy a county surcharge is adopted by December 31,2005, the ordinance and Act 247 are repealed on December 31, 2022 andsection 437D-8.4, HRS, is reenacted in the form in which it read on July12, 2005.

Current forms and other tax information are available at the Department's website at:www.state.hi.us/tax. If you know which tax form or publication you need, please call theDepartment's request line at 808-587-7572, or toll-free from the neighbor islands and continental
U.S. at 1-800-222-7572. This service is available 24 hours a day, 7 days a week.

KURT KAWAFUCHI
Director of Taxation
HRS Sections Explained: HRS Sections 46-__, 237-__, 238-__, 248-__, 437D-8.4.