Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 238 - USE TAX LAW › Section 18-238-2 - Imposition of tax, exemptions

Current through June, 2024
(a) Wholesaler,
			 jobber, manufacturer. Section
			 238-2(1),
			 HRS, provides that if the importer or purchaser is licensed under the general
			 excise tax law, chapter
			 237, HRS, and is (1) a wholesaler or
			 jobber, importing or purchasing tangible personal property exclusively for the
			 purposes of resale at wholesale or (2) a manufacturer importing or purchasing
			 material to be incorporated by the manufacturer into a finished product, which,
			 when sold, will result in a further tax on the activity of the manufacturer as
			 a manufacturer or as a wholesaler, and not as a retailer, there shall be no
			 tax. If the importer or purchaser as set forth in (1) or (2) above is also
			 engaged in business as a retailer, subsection (b) shall apply to the importer
			 or purchaser, but the director shall refund to the importer or purchaser in the
			 manner provided under section
			 231-23(d),
			 HRS, such amount of tax as the importer or purchaser shall, to the satisfaction
			 of the director, establish to have been paid by the importer or purchaser on
			 such imports or purchases which were sold by the importer or purchaser as a
			 wholesaler or as a manufacturer. See subsection (h) for deduction and credit
			 procedures, other than refund method provided in section
			 231-23(d),
			 HRS, which a wholesaler or manufacturer who is also a retailer is permitted to
			 use in determining tax liability under chapter
			 238,
			 HRS.
(b) Retailer or any other
			 person not exempted by subsection (a). Section
			 238-2(2),
			 HRS, provides that if the importer or purchaser is licensed under the general
			 excise tax law, chapter
			 237, HRS, and is (1) a retailer or
			 other person importing or purchasing for purposes of resale and not exempted by
			 subsection (a), or (2) a manufacturer as set forth in subsection (a)(2) except
			 for the fact that the manufacturer sells his products at retail, or (3) a
			 contractor incorporating imported or purchased material or commodities into the
			 finished work or project, the tax shall be one-half of one percent of the
			 purchase price of such tangible personal property, if the purchase and sale are
			 consummated in Hawaii, or, if there is no purchase price applicable thereto, or
			 if the purchase or sale is consummated outside of Hawaii, then one-half of one
			 percent of the landed value of such property imported into Hawaii. For taxes on
			 sales of tangible personal property by an out-of-state seller, including drop
			 shipments and definitions, see § 18-237-13-02.01. See subsection (g) for
			 rules relating to basis of property.
(c) Certain scientific contracts with the
			 United States. Notwithstanding the provisions of subsection (b) of this rule,
			 the tax imposed by chapter
			 238,
			 HRS, shall not apply to any use of property exempted by section
			 237-26,
			 HRS. Thus, no use tax shall be levied or collected on tangible personal
			 property which is to be affixed to, or to become a physical, integral part of
			 the scientific facility, or which is to be entirely consumed during the
			 performance of the service required by the contract or subcontract.
(d) All others. HRS section
			 238-2(3)
			 provides that in all other cases, the tax shall be four percent of the landed
			 value of such tangible personal property. For taxes on sales of tangible
			 personal property by an out-of-state seller, including drop shipments and
			 definitions, see § 18-237-13-02.01. See subsection (g) for rules relating
			 to basis of property.
(e)
			 Producers. See § 18-238-4 relating to producers.
(f) Application of the rules contained in
			 subsections (a), (b), (c), (d) and (e) of this section may be illustrated by
			 the following examples.
Example 1:
"A" purchases and imports a container
				load of merchandise from an out-of-state seller for resale in Hawaii to "X", a
				retail discount store. "A's" records further disclose that other imports and
				purchases made by "A" are sold to various other retail stores. Thus, because
				all sales are at the wholesale level, all such imports and purchases from an
				out-of-state seller are exempt from the use tax.
Example 2:
"B", who is in the business of
				manufacturing food items, imports food preservatives and food containers. The
				preservatives are to be incorporated into the manufactured product while the
				containers are used to make the finished product marketable. "B" has an
				agreement to sell all of his manufactured products exclusively to "S", a large
				retail supermarket with many branches. Because all sales are at the wholesale
				level, "B" is exempt from the use tax. "B", however, will be taxed on the
				activity of a manufacturer as provided under the general excise tax law.
Example 3:
"C" is engaged in a scientific
				contract with the United States. To complete this construction project, certain
				scientific equipment and supplies which are to become an integral part of the
				project are imported because they are not available in Hawaii. On the basis of
				the fact that the imported properties are to become an integral part of the
				project, no use tax shall be levied or collected on the equipment and supplies
				imported by "C".
Example 4:
Assume the same facts in Example 3
				except that "C" is engaged in an operation and maintenance scientific contract
				with the United States and imports supplies which are to be entirely consumed
				during the performance of the service contract. On the basis of the fact that
				the imported supplies are to be entirely consumed in the performance of the
				contract, no use tax shall be levied or collected on the supplies imported by
				"C".
Example 5:
If "A" and "B" in Examples 1 and 2
				were also engaged in selling their merchandise and products at the retail
				level, use tax at the rate of one-half of one percent would apply on the
				imports and purchases (for resale at retail) plus four percent general excise
				tax on their subsequent sale at the retail level.
If "C" in Example 3 is involved in other construction projects
				which do not meet the provisions of section
				237-26,
				HRS, "C" would be subject to the use tax at the rate of one-half of one percent
				on the landed value of the tangible personal property imported and incorporated
				into such nonscientific projects.
If "C" in Example 4 is involved in other operation and
				maintenance contracts which do not meet the provisions of section
				237-26,
				HRS, "C" would be subject to the use tax at the rate of four percent on the
				landed value of the supplies imported for use in such nonscientific
				contracts.
Example 6:
Service business. A tire recapper,
				"D", who recaps tires belonging to other persons is subject to the use tax at
				the rate of four percent in respect of tangible personal property (that is
				consumed in performance of a service) which:
(1) "D" imports and incorporates into such
			 tires; or
(2) is transferred to "D"
			 by another person who is not taxable under the general excise tax law in
			 respect of such transfer and which is incorporated into such tires.
Example 7:
Manufacturer. A tire recapper, "E",
				who recaps tires for "E's" own stock for resale is not subject to the use tax
				in respect of tangible personal property which:
(1) "E" imports or acquires and incorporates
			 into such tires; or
(2) is
			 transferred to "E" by another person who is not taxable under the general
			 excise tax law in respect of such transfer and which is incorporated into such
			 tires.