Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 237 - GENERAL EXCISE TAX LAW › Subchapter 2 - LICENSES; TAX; EXEMPTIONS › Section 18-237-13(6)-04 - "Service business," defined

Current through June, 2024
(a) "Service
				business" means a person who engages in a service business or calling, as
				defined in section
				237-7,
				HRS. A service business or calling is defined in section
				237-7,
				HRS, as "all activities engaged in for other persons for a consideration which
				involve the rendering of a service as distinguished from the sale of tangible
				property or the production and sale of tangible property."
Example 1:
Intermediary, a photographic studio,
				  contracts with Customers to provide photographic services at Customers' wedding
				  in Hawaii. Intermediary contracts with Service Provider, another photographic
				  studio, to provide the photographic services at the wedding. Service Provider
				  provides the photographic services at the wedding and bills Intermediary.
				  Intermediary bills Customers. Customers pay Intermediary and Intermediary pays
				  Service Provider.
In order for Service Provider to be eligible for the
				  intermediary services rate, both Service Provider and Intermediary must be
				  engaged in service businesses. Both Service Provider and Intermediary are
				  engaged in service businesses because photography is a service business or
				  calling as defined in section
				  237-7,
				  HRS.
Example 2:
Intermediary, a corporation
				  organized to render professional medical services, contracts to provide medical
				  services to Customers (Intermediary's patients). Intermediary contracts with
				  Service Providers to provide the medical services. Service Providers provide
				  the medical services and bill Intermediary. Intermediary bills Customers.
				  Customers pay Intermediary and Intermediary pays Service Providers.
In order for Service Providers to be eligible for the
				  intermediary services rate, both Service Providers and Intermediary must be
				  engaged in service businesses. Both Service Providers and Intermediary are
				  engaged in service businesses because professional medical services is a
				  service business or calling as defined in section
				  237-7,
				  HRS.
(b) "Service business" does not
				include a person who is not engaged in a service business or calling as defined
				in section
				237-7,
				HRS.
(1) "Service business" does not include
				a person subject to tax under section
				237-13(3),
				HRS, relating to the taxation of contracting.
Example 3:
Intermediary, a general contractor,
				  enters into a contract with Customer to construct a building. Intermediary
				  subcontracts with Service Provider, a solar company, to install solar heating
				  and another Service Provider, an electrician, to install the wiring in the
				  building. Both Service Providers bill Intermediary and Intermediary bills
				  Customer. Customer pays Intermediary and Intermediary pays Service
				  Providers.
In order for Service Providers to be eligible for the
				  intermediary services rate, both Service Providers and Intermediary must be
				  engaged in service businesses. Service Providers and Intermediary are not
				  engaged in a service business because they are engaged in contracting
				  activities subject to tax under section
				  237-13(3),
				  HRS. The intermediary services rate is not applicable to the payments that
				  Service Providers receive from Intermediary. Service Providers are subject to
				  the general excise tax at the rate of four percent on the payments received
				  from Intermediary. Intermediary may be allowed a subcontract deduction for the
				  payments to Service Providers if Intermediary fulfills the requirements of
				  section
				  237-13(3)(B),
				  HRS.
(2) "Service business"
				does not include a person subject to tax under section 237-(13)(5), HRS,
				relating to the taxation of a sales representative receiving commissions.
Example 4:
Intermediary, a manufacturer's sales
				  representative, receives commissions from Customer, a manufacturer, for sales
				  of goods. Intermediary contracts with Service Provider, another sales
				  representative, to assist Intermediary in selling the goods. Customer pays
				  Intermediary commissions and Intermediary pays the commissions to Service
				  Provider.
In order for Service Provider to be eligible for the
				  intermediary services rate, both Service Provider and Intermediary must be
				  engaged in service businesses. Both Service Provider and Intermediary are not
				  engaged in service businesses because they are sales representatives and their
				  commission income is subject to tax under section
				  237-13(5),
				  HRS. The intermediary services rate is not applicable to the payment that
				  Service Provider receives from Intermediary. Service Provider is subject to the
				  general excise tax at the rate of four percent on the payment received from
				  Intermediary.
(3) "Service
				business" does not include a person subject to tax under section
				237-13(10),
				HRS, relating to the taxation of other business, such as a licensing business.
Example 5:
Intermediary, through licensing
				  agreements, franchises fast-food restaurants in Hawaii to Customers. The
				  licensing agreements provide that Customers shall have the right, license, and
				  privilege to use Intermediary's system at restaurants and that Intermediary
				  shall provide management services. Intermediary and Service Provider enter into
				  an agreement which specifies that Service Provider will provide the management
				  services to Customers. Service Provider bills Intermediary and Intermediary
				  bills Customers. Customers pay Intermediary and Intermediary pays Service
				  Provider.
In order for Service Provider to be eligible for the
				  intermediary services rate, both Service Provider and Intermediary must be
				  engaged in service businesses. Intermediary is not a service business because
				  Intermediary is engaged in a licensing business subject to tax as other
				  business under section
				  237-13(10),
				  HRS. The intermediary services rate is not applicable to the payment that
				  Service Provider receives from Intermediary. Service Provider is subject to the
				  general excise tax at the rate of four percent on the payment received from
				  Intermediary.
(4) Service
				business" does not include a person subject to tax under section
				237-13(10),
				HRS, relating to the taxation of other business, such as rental activity.
Example 6:
Intermediary enters into an
				  agreement with Customer to rent Intermediary's ballroom. Intermediary then
				  contracts with Service Provider, an audio visual company, to provide the audio
				  visual services required by Customer. Service Provider bills Intermediary and
				  Intermediary bills Customer. Customer pays Intermediary and Intermediary pays
				  Service Provider.
In order for Service Provider to be eligible for the
				  intermediary services rate, both Service Provider and Intermediary must be
				  engaged in service businesses. Intermediary is not engaged in a service
				  business because Intermediary is engaged in a rental business subject to tax
				  under section
				  237-13(10),
				  HRS. The intermediary services rate is not applicable to the payment that
				  Service Provider receives from Intermediary. Service Provider is subject to the
				  general excise tax at the rate of four percent on the payment received from
				  Intermediary.
(5) "Service
				business" does not include a person subject to tax under chapter
				239, HRS, relating to the public
				service company tax.
Example 7:
Intermediary, a moving and storage
				  company licensed by the Public Utilities Commission, enters into an agreement
				  with Customer to transport goods. To complete the job, Intermediary obtains
				  laborers through Service Provider, an employee leasing company. Service
				  Provider bills Intermediary and Intermediary bills Customer. Customer pays
				  Intermediary and Intermediary pays Service Provider.
In order for Service Provider to be eligible for the
				  intermediary services rate, both Service Provider and Intermediary must be
				  engaged in service businesses. Service Provider is a service business.
				  Intermediary, however, is not a service business because Intermediary is
				  engaged in a public service company business subject to the public service
				  company tax under chapter
				  239, HRS. The intermediary services
				  rate is not applicable to the payments that Service Provider receives from
				  Intermediary. Service Provider is subject to the general excise tax at the rate
				  of four percent on the total payments received from
				  Intermediary.