LINDA LINGLEKURT KAWAFUCHIGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

STANLEY SHIRAKILT. 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 14, 2009

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2009-08
RE: Act 134, Session Laws of Hawaii 2009, Relating to Tax Administration.
On June 18, 2009, Governor Linda Lingle signed Senate Bill 972 SD2, HD1, CD1 intolaw as Act 134, the "Cash Economy Enforcement Act of 2009."
This Act provides the department with additional resources and tools to target high-risk,
cash-based transactions to shore up confidence in Hawaii's tax system. In this regard, thismeasure ensures that all sectors of Hawaii's economy, including those prone to substantial
underreporting, are paying their fair share of taxes.
This Act focuses on the civil collection and enforcement nature of Hawaii's tax laws, byestablishing the Special Enforcement Section, a group of tax officials charged with handlingsensitive and high-risk civil tax cases as directed by the director. This Act also provides various
enforcement tools, including the authority to issue monetary fines and cease and desist citations.
This Special Enforcement Section will investigate reported or suspected violations of tax
laws for civil enforcement purposes with a stated priority of investigating cash-based businesses.
The personnel assigned to the Special Enforcement Section are not allowed to participate in any
criminal investigations.
A cash-based business is defined as a person who operates a business, including for-profit
or not-for-profit, where transactions in goods or services are exchanged substantially for cash
and where the business is found to have met one or more of a number of factors, which include,
substantially underreporting or misreporting the proper amount of tax liability on any tax return,failing to have a license to do business as required by law, having no fixed and permanentprincipal place of business, or not accepting checks or electronic payment devices for business
transactions.
The Special Enforcement Section is authorized to inspect books, records, and premises,
without notice, if a warrant or writ of entry is issued by a circuit court based upon probablecause, and may seize and levy any assets in the custody or control of the person.
The Special Enforcement Section may issue cease and desist citations to any person if
there is cause to believe the person has violated, is violating, or is about to violate any provisionof title 14 or administrative rule adopted thereunder, which may be appealed to the director andthen the circuit court.

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July 14, 2009
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The Special Enforcement Section may bring civil actions in the circuit court to enjoin any
unlawful act under title 14 by a cash-based business.
This Act adds a number of new civil tax-related fines, applicable to both cash-based andnoncash-based businesses:

A fine for failing to produce upon demand by the Special Enforcement Section any
license or permit required under title 14. The fine may not exceed $1,000 for cashbased businesses, and may not exceed $500 for all other persons.

A fine for failing to produce any books or records upon demand of the Special
Enforcement Section, if those books or records must be kept pursuant to a
provision of title 14. The fine may not exceed $2,000 for cash-based businesses,and may not exceed $1,000 for all other persons.

A fine for conducting more than ten taxable business transactions per day in cash
and failing to provide a receipt or other record of the transaction when the means
for issuing a receipt or recording the transaction are available. The fine may notexceed $2,000 for cash-based businesses, and may not exceed $1,000 for all otherpersons.

A fine for conducting more than ten taxable business transactions per day in cash
and failing to record the transaction in a cash register when the means forrecording the transaction in the cash register are available. The fine may notexceed $2,000 for cash-based businesses, and may not exceed $1,000 for all otherpersons.

A fine for selling, offering to sell, or otherwise conveying more than one price forany business to be transacted when the lower price is offered if the transaction ispaid for in cash, unless there is a legitimate business purpose for the separate
prices. The fine may not exceed $3,000 for cash-based businesses, and may notexceed $2,000 for all other persons.

A fine for a person engaging in business in this state for possessing currency in theform of coin or note, where the possession is for tax avoidance purposes. The
burden of proof for establishing tax avoidance purposes is on the department. The
fine may not exceed $3,000 for cash-based businesses, and may not exceed $2,000
for all other persons.

A fine for any person intentionally interfering with, hindering, obstructing,preventing, or impeding any investigator, auditor, collector, or other employee ofthe department from obtaining license information, books, records, articles, or itemof business transacted, or other information or property rightfully entitled to thedepartment. The fine may not exceed $2,000. A showing of good cause is anabsolute defense to this fine.

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July 14, 2009
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A fine for any person who receives gross income from business conducted in thestate without first obtaining a license under chapter 237. The fine may not exceed$2,000 for cash-based businesses, and may not exceed $500 for all other persons.
The director may waive this fine upon a showing of good cause.

This Act also makes it a crime for any person to interfere, hinder, obstruct, prevent, orimpede any investigator or employee of the department with violence or threat of violence.
This Act also adds a reporting requirement to the General Excise Tax Law (Chapter 237,HRS) for contractors on a federal construction project. With respect to any construction project
located in the State undertaken pursuant to a federal contract, all persons working on the contract
who do not possess a valid general excise tax license at the time a federal contract is awarded
must report to the department the estimated gross receipts from the construction project and anyother information requested by the department on Form G-15, "Information Return for
Unlicensed Contractors on Federal Construction Projects." This form must be filed within thirtydays of the contract being awarded. Failure to report will result in a penalty of $1,000 per
month, or fraction thereof, for each month that a failure to report exists, up to a maximum
penalty of $6,000.
The provisions in this Act became effective upon approval, except that the citableoffenses provided for in Section 2 of the Act became effective on July 1, 2009, and all theprovisions will be repealed on June 30, 2014.
Additional information regarding the implementation of this Act will be made available
as it is developed by the department. For more information on Act 134, please contact the Rules
Office at 808-587-1577.

KURT KAWAFUCHI
Director of Taxation