Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 237 - GENERAL EXCISE TAX LAW › Subchapter 2 - LICENSES; TAX; EXEMPTIONS › Section 18-237-20-01 - Reimbursement exemption, in general

Current through June, 2024
(a) Section
				237-20,
				HRS, provides that the reimbursement of a cost or advance made for or on behalf
				of one person by the taxpayer shall not constitute gross income to the
				taxpayer, unless the taxpayer receiving such reimbursement also receives
				additional monetary consideration for making such cost or advance.
(b) This provision was enacted by Act 297,
				Session Laws of Hawaii 1967 (Act 297). The Legislature believed that Act 297
				"would result in increased clarity of language with respect to the taxability
				of reimbursements. It is the intent of this bill that payments made by one
				person through another without monetary gain to the latter shall not create a
				taxable incident under the general excise tax law". S. Stand. Com. Rep. No.
				877, 1967 Reg. Sess., Haw. S.J. 1230-1231 (1967); H.R. Stand. Comm. Rep. No.
				497, 1967 Reg. Sess., Haw. H.J. 658-659 (1967). Act 297, however, has not
				resulted in "increased clarity". Since the passage of Act 297, the courts,
				department of taxation (department), and practitioners, have tried to
				distinguish between "reimbursements" that are not gross income under section
				237-20,
				HRS, and the receipt of other payments that are included in taxable gross
				income.
(c) Prior to Act 297, the
				law regarding reimbursements (old law), read as follows:
Even though a business has some of the aspects of agency it
				  shall not be so regarded unless it is a true agency. Without prejudice to the
				  generality of the foregoing, the reimbursement by one person of the amount of
				  costs incurred by another constitutes gross income to the latter, unless the
				  person making the reimbursement was himself, as principal liable in that amount
				  to the third party who furnished the property, services and the like for which
				  the costs were incurred.
The old law provided that the reimbursement exemption was
				  applicable to amounts repaid to an agent (taxpayer) by its principal that
				  reimburse the agent for costs that the principal was liable for. Under the
				  current statute, and these rules an agency relationship is not required to
				  qualify for the reimbursement exemption; although the reimbursement exemption
				  may apply where there is an agency relationship.
(d) The Department issued the first of two
				administrative guidelines, Taxability of Reimbursement of Costs or Advances
				under Section 117-17.1 of the General Excise Tax Law, Chapter 117, RLH 1955, as
				amended by Act 297, L. 1967 on June 17, 1968 (Taxability of Reimbursement,
				1968). There are no substantive differences between section 117-17.1 and the
				current statute.
Some of the principles and examples in these rules are drawn
				  from Taxability of Reimbursement, 1968.
(e) General Excise Tax Memorandum No. 5 was
				issued by the Department on December 23, 1986 as interim guidance to administer
				the current statute. These rules expand and clarify the concepts discussed in
				General Excise Tax Memorandum No. 5 and the Department withdraws General Excise
				Tax Memorandum No. 5.