Opinion ID: 1387085
Heading Depth: 2
Heading Rank: 2

Heading: Development of Tax Law Regarding Manufacturing

Text: In addition to the generally unsupported assertion that both the legislature and the courts have  made it clear that film development is taxable as a service (emphasis added), the Tax Director specifically counters Fuji's manufacturing assertion by stating that [w]here contemporaneous and practical interpretations made by an administrative agency have stood unchallenged for a considerable length of time, consideration of such interpretations will be regarded as very important at [sic] arriving at the proper construction of a statute. See 2 B Sutherland Statutory Construction § 49.07 at 62-63 (5th ed. 1992). [17] After close scrutiny, however, it appears that Fuji's photoprocessing activities more appropriately fall within the scope of manufacturing as currently contemplated by the legislature. The predecessor of HRS § 237-13(1)(A), RLH § 117-14(a) (1955), did not contain the term printing. [18] Such activities apparently were not considered manufacturing until 1970, when the legislature amended RLH § 117-14(a) by adding the word including after manufacturing and inserting commercial job printing but not including the printing and publishing of a newspaper after the word packing. See HRS § 237-13 (Supp.1970). However, in 1977, the legislature removed this limiting language and adopted a form substantially similar to the current statutory provision, HRS § 237-13(1). See supra note 3. In other words, the 1970 legislature deleted reference to photoprint[ing] from the tax on service businesses and, correspondingly, inserted commercial job printing [except newspapers] into the manufacturing category. Therefore, in its current form, the tax on manufacturers applies to all forms of printing.
In 1959, the Supreme Court of the Territory of Hawai`i adopted a definition of manufacturing for tax purposes, which included the phrase [t]o work, as raw or partly wrought materials, into suitable forms for use. Advertiser Publishing Co. v. Fase, 43 Haw. 154, 157 (1959). [19] Fuji presents a convincing argument (supported by affidavits and other exhibits in the record) that its activities fall within this definition. In Photo Management, this court noted that the service aspects of the taxpayer's activity [20] were merely incidental to and an inseparable part of the transaction and the article or photograph is the substance thereof. 63 Haw. at 583, 633 P.2d at 537. Thus, the predominant character of the business is the mass production and sale of photographs for purposes of resale. Id. [21] In the instant case, any service-related aspects of Fuji's business are similarly incidental, though inseparable, from the underlying transaction. In any event, the predominant character of Fuji's enterprise appears to be the manufacture of photographs [22] and not wholesaling as in Photo Management.