Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 237 - GENERAL EXCISE TAX LAW
Subchapter 2 - LICENSES; TAX; EXEMPTIONS
Section 18-237-13(6)-01 - One-half percent intermediary services rate, in general

(a) Section 237-13(6), HRS, provides that where any person engaging or continuing within the State in any service business or calling not otherwise specifically taxed under chapter 237 renders such services upon or at the request of another taxpayer who is engaged in the service business and who, in fact, acts as or acts in the nature of an intermediary between the person rendering such services and the ultimate recipient of the benefits of such services, so much of the gross income as is received by the person rendering the services shall be subject to tax at the rate of one-half of one percent and all of the gross income received by the intermediary from the principal shall be subject to tax at the rate of four percent.

(b) This provision has been interpreted very strictly by the courts in all three reported cases addressing this issue. In re Tax Appeal Busk Enter., 53 Haw. 518 (1972); In re Tax Appeal Pacific Laundry, T.A. No. 1864, affirmed 65 Haw. 678 (1982); and In re Tax Appeal McDonald's Restaurants, T.A. No. 2232 (1985). The Department has been guided by these cases in applying the intermediary services rate and drafting these rules. These cases require a "clear analogue to the wholesaler-retailer-customer transaction of goods" and the intermediary must be a "mere conduit." While few states tax services as extensively as Hawaii does, the Department has searched the statutes, rules, and case law of other states for legal tests relating to the resale of property or services, the wholesale sale of property or services, the consumption or use of property or services, and the recipient of property or services. The authorities that discuss services use the same terms that are used in the area of property - use, consumption, recipient, resale. Others reach a conclusion without articulating a clear reason for the conclusion, e.g., the "primary objective" of the parties was to resell the service. This may be attributable to the ephemeral nature of a service, as opposed to the sale of property which can be tracked at each level of sale.