Hawaii Tax News
Volume 2, Number 3

State of Hawaii • Department of Taxation

Department IssuingFederal Employer’s
Identification NumberHawaii businesses are now able to obtain theirfederal employer’s identification number(FEIN) “over the counter” at the State Tax
Office. New businesses may bring their completed federal
application form to the State Tax Office, at the same timethey bring in their Basic Business Application (Form BB-1)
for Hawaii, and immediately obtain a temporary FEIN. The
temporary FEIN is later confirmed as the permanent number
by the Internal Revenue Service, usually within three weeks.
In the past, new businesses often submitted Stateapplications without the FEIN. The Department
followed up with a letter requesting the number andbusinesses had to respond after they received their FEIN.
Now, businesses can get their federal and State
identification numbers at the same time with nofollow-up needed.
According to Director Ray Kamikawa, “our on-goingcollaboration with the Internal Revenue Service has been areal plus for taxpayers. In this instance, the Internal
Revenue Service established new procedures and trained
our staff in issuing the federal number; the result is a morestreamlined registration process for Hawaii businesses.”Federal identification numbers currently are being
issued at the Oahu District Tax Office only. However,the Department hopes to extend this service to theneighbor islands sometime in the future. 3

FALL 1998

real property in determining the gross proceeds or grossincome subject to the general excise tax. The fraction ofseven-eighths was determined by comparing the retailrate of tax, four percent, with the rate of tax normallyapplicable to intermediate stage transactions (0.5 percent
or one-eighth of the 4.0 percent).
The Department held a public hearing on August 17,
1998, to adopt administrative rules that establish therequirements for the sublease deduction and provide
guidance on issues such as allocating rent paid by thelessee when the lessee subleases less than one hundred
percent of the real property which was leased from thelessor, allocating the rent paid by the lessee to various
real property which has different rental values, andallocating the rent paid by the lessee based on the fairrental value of the property. The administrative rules will
become effective on October 1, 1998.
New forms relating to the sublease deduction include
Form G-71, General Excise Sublease Deduction
Certificate; and Form G-72, Sublease Deduction
Worksheet. Form G-71 must be submitted by the lessor
to the lessee certifying that the lessor is licensed andtaxable under the general excise tax law. Form G-72 may
be used to calculate the amount of the sublease deduction
to claim on the monthly, quarterly, semi-annual, or
annual general excise tax return.
Forms G-71 and G-72 may be obtained at any district
tax office, by mail through the Department’s 24-hourForms Request Line, or via the Internet (see the last pagefor telephone numbers and addresses). 3

IN THIS ISSUE

Sublease Deduction

Effective October 1, 1998, Act 353, Session
Laws of Hawaii 1997 (Act 353), reduces the
pyramiding of the general excise tax onsubleased real property. Starting with returns filed for
October, 1998, sublessors may take a deduction fromtheir gross rental receipts reported on their general excise
tax returns. Once the deduction is fully phased in (overa seven-year period), a sublessor would be allowed toreduce the amount of gross proceeds or gross income
under a written lease of real property by seven-eighthsof the amount the sublessor pays to its lessor for the same

Department Issuing Federal
Employer’s Identification Number . . . . . . . 1
Sublease Deduction . . . . . . . . . . . . . . . . . . . 1
The Direct Line . . . . . . . . . . . . . . . . . . . . . . . 2
August Workshop Report. . . . . . . . . . . . . . . 2
Kauai Problem Solving Day . . . . . . . . . . . . . 2
Taxpayer Satisfaction Survey . . . . . . . . . . . 2
Questions and Answers . . . . . . . . . . . . . . . . 3
Recently Issued Tax Publications . . . . . . . . 3
Pending Tax Publications. . . . . . . . . . . . . . . 4
Criminal Section — Concluded
Investigations Resulting in
Prosecution/Convictions . . . . . . . . . . . . . . 6

Page 2

Hawaii Tax NewsThe Direct Line F
By Director Ray K. KamikawaIn this issue, we advise you of more initiatives
designed to ease the pain in dealing with us—
issuance of FEINs, workshops, problem-solving
day, etc. We will shortly announce the scheduling of oursecond practitioners’ forum this year to address in moredetail your concerns and suggestions in an effort tofurther refine and improve our operations.
Practitioner and taxpayer responses to two priorsurveys helped us reveal many areas of improvement.
We thank those of you who responded with suggestions.
As described in this issue of the News, we are also asking
for input on how our field auditors have performed on
specific cases. All of these surveys are returned directly
to Taxpayer Advocate Jan Fujii who answers directly tome.
So far, it looks like the IRS reorganization will resultin even more cooperative efforts between IRS and thestates. Better coordination between the two agencies
can only be good news to our taxpayers.
Because people have asked, we have recapped ourcriminal tax cases. Since our prosecutions are no longer
given detailed coverage by the media, people havewondered about our enforcement efforts in this area. 3

August Workshop
ReportFall 1998

Kauai Problem
Solving Day

Persons with ongoing problems with their taxes
had the opportunity to receive assistance at the
Problem Solving Day held on Kauai on
September 11. State and IRS officials were on hand tomeet and work with taxpayers in resolving their tax
problems such as recurring bills, missing refunds, andnon-filed returns.
The Kauai Problem Solving Day was the fourth joint
problem solving day in Hawaii this year. Others were
held in Wailuku, Honolulu, and Kailua-Kona. Persons
attending the problem solving days said they werepleased with the service they received and that working
face-to-face with State and IRS officials was very
effective. 3

Taxpayer Satisfaction
SurveyT

he Department of Taxation is conducting acustomer satisfaction survey of taxpayers
who recently have had contact with our Field
Audit Branch. A sampling of taxpayers whose audits
have recently closed are being asked to take a few
minutes to complete the survey questionnaire. We hopethat those taxpayers will help us determine what we aredoing right as well as what we can improve on. 3

T

he Department hosted its August Workshop
on August 26 at McCoy Pavilion. Over 175
practitioners and others attended theworkshop which featured Director Kamikawa speaking
on several topics including recent legislation and thegeneral excise taxation of services. The new subleasededuction was described in a presentation made by Grant
Tanimoto and Marshall Dimond of the Rules Office.
Lynne Kaneta of the Oahu Collection Branch offeredinformation on offers in compromise. A special guest
speaker was Floyd L. Williams, National Director forLegislative Affairs for the Internal Revenue Service who
described some of the recent federal legislation affecting
the IRS. The Department’s new field audit customer
satisfaction survey was introduced by Ronald Randall.
Overall, the workshop was well received by those inattendance.
Stay tuned for our Year-End Workshop coming in
December! 3

The Hawaii Tax News is a publication of the State of
Hawaii, Department of Taxation.
Director:
Editors:
Address:
Telephone:
Fax:
Website:Forms by Fax:
Consumer Dial:

Ray K. Kamikawa
Lynne Kuroda & Cathleen Tokishi
Princess Ruth Keelikolani Building
830 Punchbowl Street, Room 220
Honolulu, HI 96813-5094
808-587-1577
808-587-1488
http://www.state.hi.us/tax/tax.html
On Oahu: 808-587-7572
All Others: 808-678-0522 from yourfax machine808-587-1234 (message 7700)

Fall 1998

Hawaii Tax News

Questions andAnswersT

here were a couple of questions raised at the
Department’s August workshop. Here are theanswers to those questions.
Question: When a taxpayer makes a payment of taxes tothe Department of Taxation, why is the amount paid
applied first to interest, then to penalties, and then toprincipal?
Answer: Section 231-27, Hawaii Revised Statutes,
states that, “Whenever a taxpayer makes a partial
payment of a particular assessment of taxes, the amountreceived by the department of taxation shall first be
credited to interest, then to penalties, and then toprincipal.” For Hawaii tax purposes, interest is notcompounded, that is, interest is not computed on or added
to interest. The application of a partial payment of tax,
penalty, and interest is treated differently by the Internal
Revenue Service. For federal tax purposes, interest iscompounded.
Question: If an architect subcontracts with an engineer
to provide engineering services, can the architect claim
the subcontract deduction for payments made to theengineer?
Answer: For purposes of the general excise tax, a person
engaged in the practice of architecture and professional
engineering is classified as a contractor. Therefore,
payments made to the engineer may be deducted fromthe gross income of the architect provided the engineer’s
name, general excise tax number, and amount of thededuction are listed on the architect’s general excise tax
return. 3

Recently Issued Tax
Publications

T

he following is a list of the publications
issued by the Department of Taxation from
July 1997 through September 1998. Copiesof these publications may be obtained from any district
tax office, by calling the Forms Request Line on Oahu,or via the Internet. Addresses and telephone numbers areprovided on the last page of this newsletter.
Section 18-235-7-03(c), HAR - Relating to thetaxation of pensions under the Hawaii Income Tax Law.
Section 18-235-98, HAR - Relating to therequirements for extensions of time for filing income tax
returns.
Chapter 18-237 and Sections 18-238-1 and18-238-2, HAR - Relating to the application of thegeneral excise tax and use tax to the sale of tangible

Page 3

personal property by an out-of-state seller, including
drop shipments.
Section 18-235-38-06, HAR - Relating to themodification of the sales, property, and payroll factors in
the apportionment formula of taxpayers engaged in
multi-state radio or television broadcasting or
publishing.
Section 18-235-1, HAR - Relating to residency
determinations, disabilities, and resident estates andresident trusts.
Section 18-235-38-03, HAR - Relating to theinclusion in the sales factor of the apportionment
formula, the net gain from the short term investment,
reinvestment, or trading of intangible assets.
TIR No. 97-2 - Reiterates the requirement that a
corporate taxpayer engaged in a unitary business as partof a unitary group must file a combined Hawaii income
tax return and clarifies that if any corporation in theunitary group has sufficient nexus with Hawaii, thecombined income tax return must include the income andapportionment factors of all corporations of the unitarygroup.
TIR No. 97-3 - Provides information on the
expansion of the “timely mailing treated as timely
filing/paying rule” to documents and payments deliveredby a designated private delivery service.
TIR No. 97-4 - Provides guidance regarding theapplication of the business entity classification rules
under the “check-the-box” regulations to the Hawaii
income tax and other taxes.
TIR No. 97-5 - Explains the proper interpretation of
the law regarding business development corporations
and associated tax benefits.
TIR No. 98-1 - Provides information on the income
tax exemption and credits available for persons engaged
in the motion picture and television film production
business.
TIR No. 98-2 - Explains the application of thegeneral excise tax to income received from leasing
personal property.
TIR No. 98-3 - Provides information regarding the1998 Legislation on business development corporations.
TIR No. 98-4 - Provides guidance regarding theapplication of the transient accommodations tax andgeneral excise tax to an operator of transient
accommodations.
TIR No. 98-5 - Provides guidance regarding thegeneral excise tax exemption for tangible personal
property, including souvenirs and gift items, shipped outof the State.
TIR No. 98-6 - Provides guidance regarding theapplication of Hawaii’s income tax and franchise tax
laws to real estate investment trusts and their owners.
TIR No. 98-7 - Provides guidance to public service
companies which change their accounting period from a(See Recent Publications, Page 4)

Page 4

Hawaii Tax News

Recent Publications(From Page 3)

calendar year to a fiscal year.
Announcement No. 97-7 - Informs taxpayers of theincrease in the cigarette tax rates.
Announcement No. 97-8 - Informs taxpayers of thepenalties for electronic funds transfer payments that aredishonored and the penalties for failure to remit by an
EFT method approved by the Department of Taxation.
Announcement No. 98-1 - Provides a list of
candidates for political office who have registered withthe campaign spending commission.
Announcement No. 98-2 - Announces the adoptionof Hawaii Administrative Rules, relating to the taxationof pensions under the Hawaii Income Tax Law.
Announcement No. 98-3 - Announces the adoptionof Hawaii Administrative Rules, relating to therequirements for extensions of time for filing income tax
returns.
Announcement No. 98-4 - A listing of the Tax
Information Releases in effect and obsolete as of January
23, 1998, and a listing of Hawaii Administrative Rules.
Announcement No. 98-5 - Informs taxpayers of the
Department’s administration of the dividends received
deduction under section 235-7(c), HRS.
Announcement No. 98-6 - A Listing of New and
Obsolete/Retired Tax Forms, Instructions, andSchedules; Errors Found on Hawaii Tax Forms as ofMarch 1, 1998.
Announcement No. 98-7 - Informs taxpayers of theincrease in the liquor tax rates.
Announcement No. 98-8 - Requesting suggestions
for improving the tax forms.
Announcement No. 98-9 - Informs taxpayers of the
Hawaii Income Tax Law conformity to the Internal
Revenue Code.
Announcement No. 98-10 - Announces the adoptionof Hawaii Administrative Rules, relating to theapplication of the general excise tax and use tax to thesale of tangible personal property by an out-of-state
seller, including drop shipments.
Announcement No. 98-11 - Informs taxpayers of theincrease in the cigarette tax from 4 cents per cigarette tofive cents per cigarette beginning July 1, 1998.
Announcement No. 98-12 - Requesting comments
relating to the taxation of the telecommunicationsindustry.
Announcement No. 98-13 - Informs taxpayers thatbeginning September 1, 1998, the cigarette and tobacco
tax will be imposed on the sale, use, or possession ofcigarettes and the sale of tobacco products bywholesalers and dealers to the United States.
Announcement No. 98-14 - Provides information on
Act 143, SLH 1998, which allows a company engaged

Fall 1998

in a network or multi-level marketing arrangement toobtain a single general excise tax license for all of its
direct sellers doing business in the State.
Announcement No. 98-15 - Informs taxpayers thatthe Department of Taxation is postponing the September
1, 1998 effective date for the imposition of the cigaretteand tobacco taxes on sales and gross proceeds of sales ofcigarettes and tobacco products to the United States.
Announcement No. 98-16 - Provides information on
Act 169, SLH 1998, which relieves the generalcontractor of liability for the general excise taxes on thecontract amounts paid by the general contractor to a
subcontractor.
Announcement No. 98-17 - Announces the adoptionof Hawaii Administrative Rules, relating to theapportionment of income for multi-state radio andtelevision broadcasters and publishers.
Announcement No. 98-18 - Provides information on
Act 125, SLH 1998, which amends certain public service
company tax provisions.
Announcement No. 98-19 - Announces the adoptionof Hawaii Administrative Rules, relating to definitions
involving residency determinations and persons withdisabilities.
Announcement No. 98-20 - Announces the adoptionof Hawaii Administrative Rules relating to the sales
factor of the apportionment formula.
Tax Facts No. 97-3 - Provides information on thegeneral requirements for individuals starting a business.
Tax Facts No. 97-4 - Provides information on the1997 Form N-15 which was revised as a nonresident andpart-year resident income tax return.
Tax Facts No. 98-1 - Provides information regarding
the general excise tax on medical and dental charges.
Tax Information, dated April 9, 1998 - Provides
information on Act 281, SLH 1997, with respect tononresident active duty military personnel and theirspouses. 3

Pending Tax
Publications

T

he following is a list of tax projects inprogress, and the name and telephone
number of the staff member assigned to theproject. We will coordinate with the Director’s Advisory
Group in opening new tax projects.
Administration of Taxes• Clarify the application of cost recovery fees toselected goods and services, including installment
agreements - sections 231-3.4 and 231-25.5, HRS.
(Jayna Uyehara, 587-1553)(See Pending Publications, Page 5)

Fall 1998

Hawaii Tax News

Pending Publications(From Page 4)• Clarify the application of penalties and interest and thewaiver of penalties and interest - sections 231-3 and231-39, HRS. (Jayna Uyehara, 587-1553)
Income Tax Law• Clarify the application of the income tax to amounts
from a pension plan that are “rolled over” into an
Individual Retirement Account - section 235-7, HRS.
(Iris Kitamura, 587-1570)• Clarify the application of the business entity
classification rules under the check the box
regulations to the Hawaii income tax. (Johnson Lau,587-1562)• Clarify the withholding exemption for nonresidents.
(Dana Oshiro-Viola, 587-1564)• Clarify the filing of composite returns. (Dana
Oshiro-Viola, 587-1564)
General Excise Tax Law• Clarify the application of the general excise tax tointerest income - section 237-3, HRS.
• Clarify the application of the general excise tax tointermediary services - section 237-13, HRS. (Grant
Tanimoto, 587-1569)• Clarify the application of the general excise tax toprepaid telephone calling cards - section 237-13,
HRS. (Jayna Uyehara, 587-1553)• Clarify the application of the general excise tax tosatellite broadcasters - section 237-13, HRS. (Jayna
Uyehara, 587-1553)• Clarify the application of the general excise tax toInternet service providers - section 237-13, HRS.
(Jayna Uyehara, 587-1553)• Clarify the use of resale certificates - section 237-13,
HRS. (Dana Oshiro-Viola, 587-1564)• Clarify the application of the general excise tax to thesale of gift certificates - section 237-13, HRS. (Iris
Kitamura 587-1570)• Clarify the application of the general excise tax toemployee leasing companies - section 237-13, HRS.
(Johnson Lau, 587-1562)• Clarify the application of the sublease deduction section 237-16.5, HRS. (Marshall Dimond,587-1533)• Clarify the income-splitting exemption for tour
companies and tour packagers - section 237-18, HRS.
(Grant Tanimoto, 587-1569)• Clarify the application of the general excise tax toreimbursements - section 237-20, HRS. (Grant
Tanimoto, 587-1569)• Clarify the taxation of services for purposes of thegeneral excise tax - sections 237-13 and 237-21, HRS.
(Johnson Lau, 587-1562)

Page 5• Clarify the application of the general excise tax toscientific contracts - section 237-26, HRS. (Johnson
Lau, 587-1562)• Clarify the application of the business entity
classification rules under the check the box
regulations to the Hawaii general excise tax. (Johnson
Lau, 587-1562)• Clarify the application of the general excise tax tosales of computer software. (Marshall Dimond,587-1533)• Clarify the application of the motion picture credit andexemption. (Marshall Dimond, 587-1533)• Clarify the application of the general excise tax - new
exemption for wholesale sales passed during the 1998
Legislative session. (Iris Kitamura, 587-1570)• Clarify the general excise tax licensing and tax
clearance requirements of S corporations. (Johnson
Lau, 587-1562)• Clarify the application of the general excise tax to thesale of condiments. (Iris Kitamura, 587-1570)
Use Tax Law• Clarify the temporary use exemption for property section 238-1, HRS. (Marshall Dimond, 587-1533)• Clarify the application of the use tax to sales to thefederal government.
Franchise Tax Law• Clarify the application of the franchise tax to mortgage
brokers, including sole proprietors and flow-throughentities - section 241-3, HRS. (Marshall Dimond,587-1533)
Conveyance Tax Law• Clarify the application of the conveyance tax.
(Marshall Dimond, 587-1533)
Miscellaneous• Clarify the state business tax credits and general
excise exemption for business located in enterprisezones - chapter 209E, HRS. (Grant Tanimoto,587-1569, Dana Oshiro-Viola, 587-1564)• Clarify the exemption for certified or approved
housing projects - section 237-29, HRS. (MarshallDimond, 587-1533) 3

Page 6

Hawaii Tax News

Fall 1998

Criminal Section — Concluded Investigations Resulting
in Prosecution/Convictions
The following is a recap of criminal cases:

VIOLATIONSNameBusiness
Activity

Violation

ResultConviction
Date

Taxes

Snorkel Bob’s etal

Tourism-Retail

Failure to File GE

Pled Guilty

11/24/95$950,000 (GE)ERA Maui Real
EstateReal Estate

Failure to File GE

Pled Guilty

03/22/96 *$99,000 (GE)Douglas Halsted

Attorney

Failure to File GE

Pled Nolo04/30/96$48,000 (GE)Stephen Yamada

Attorney

Failure to File GE

Pled Guilty

06/09/96$102,000 (GE)Bruss Keppeler

Attorney

Failure to File GE

Pled Guilty

06/28/96$5,900 (GE)Janell Israel &Associates

Tax Preparation

Failure to File GE

Pled Guilty

08/31/96 *$339,361 (GE)and $18,210(Income)Janell Israel

Tax Preparer

Failure to File GE

Pled Guilty

08/31/96 *$65,387 (GE)and $141,609(Income)William Abell

CPA

Failure to File GE

Pled Nolo

10/07/96$49,844 (GE)

Nicanor Joaquin MD,
Inc.

PhysicianFailure to File GE

Pled Guilty

12/27/96$62,587 (GE)Business Doctor, Inc.

Tax Preparation

Failure to File GE

Pled Nolo

04/09/97$24,034 (GE)

Venus Pagharion

WelfareTheft Class C

Pled Nolo

05/27/97$9,770 (Income)Mark Schmalz

PhysicianFailure to File GE

Pled Nolo

06/24/97$19,093 (GE)Barbara Price

Publisher

Evasion of GE

Trial- Guilty

08/07/97$33,844 (GE)Marc Mendoza

WriterAiding & Abetting

Pled Guilty

08/01/97

Jail - 30 days

Kathea Suzuki Latham

Publisher

Theft Class B

Pled Guilty

10/20/97$20,000+ (WH)

Hamlet Bennett

Architect

Failure to File GE

Pled Nolo

02/04/98$153,709 (GE)

Pacific Petroleum
Service

Oil Jobber

Failure to File GE

Pled Guilty

01/09/98$87,154 (GE)$13,500 (Fuel)

Helen Patlingrao

Tax Preparer

Aiding & Abetting

Pled Nolo

06/08/98

None

Michael Latham

Publisher

Theft Class B

Pled Nolo

07/14/98$20,000+ (WH)

Sieghard Kramer

Graphic
Designer

Failure to File GE

Pending Trial
Trial 10/05/98

Undisclosed

Sieghard Kramer

Graphic
Designer

Theft- WH

Pending Trial
Trial 10/05/98$20,000+ (WH)

Clarence Rengulbai

State
Government

Failure to File GE

Pending Trial
Trial 10/06/98

Undisclosed* Convicted and dismissed with prejudice(See Criminal Section, Page 7)

Fall 1998

Hawaii Tax News

Page 7

Criminal Section(From Page 6)

VIOLATIONSNameBusiness
Activity

Violation

ResultClaude Hebaru

Ewa Village
Contractor

Failure to Report
IncomePending Trial
Trial 03/15/99

Undisclosed

R. J. Williams

Ewa Village
Contractor

Failure to Report
IncomePending Trial
Trial 03/15/99

Undisclosed

Donna Abelaye

Ewa Village
Contractor

Failure to Report
IncomePending Trial
Trial 03/15/99

Undisclosed

Michael Kahapea

City
Government

Evasion of Tax

Pending Trial
Trial 03/15/99

Undisclosed

Herbert Ishibashi

Contractor

Theft-Withholding

Pending Trial
Trial 10/19/98

Undisclosed

Richard A.
MacMillan

Attorney

Failure to File GE

Pending Trial
Trial 02/15/99

Undisclosed

Donald A. Lewis

RealtorFailure to File GE

Pending Trial
Trial 01/11/99

Undisclosed

Perfect Title
Company

Title

Failure to File GE

Pending Trial
Trial 01/11/99

Undisclosed

David Huggett

RealtorFailure to File GE

Pending Arraignment(Complaint 05/15/98)

Undisclosed

Note: Pending investigations cannot be disclosed.

Conviction
Date

Taxes

DISTRICT TAX OFFICESState Office Building
3060 Eiwa Street, #105
Lihue, HI 96766-1889
FAX: 808-274-3461
TELEPHONE: 808-274-3456

KAUAI DISTRICT OFFICE

State Office Building
75 Aupuni Street, #101
Hilo, HI 96720-4245
FAX: 808-974-6300
TELEPHONE: 808-974-6321

HAWAII DISTRICT OFFICE

State Office Building
54 S. High Street, #208
Wailuku, HI 96793-2198
FAX: 808-984-8522
TELEPHONE: 808-984-8500

MAUI DISTRICT OFFICE

Princess Ruth Keelikolani Building
830 Punchbowl Street
Honolulu, HI 96813-5094
FAX: 808-587-1488
TELEPHONE:For Tax Information:808-587-6515 (January - April 20)
808-587-4242
1-800-222-3229 (Toll-Free)808-587-1418 (TDD)
1-800-887-8974 (TDD Toll-Free)
Tax Forms and CD-ROM (Nominal Cost) by Mail:
808-587-7572
1-800-222-7572 (Toll-Free)
Tax Forms by Fax:
On Oahu: 808-587-7572
All Others: 808-678-0522 from your fax machine

OAHU DISTRICT OFFICE

http://www.state.hi.us/tax/tax.html

WEB INFORMATION AND FORMS

Forms and Information may be obtained from any district tax office,Mondays through Fridays, except State holidays, from 7:45 A.M. to 4:30
P.M.

Taxpayer Services BranchState of Hawaii
Department of Taxation
P.O. Box 259
Honolulu, HI 96809-0259