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

Universal Citation: HI Admin Rules 18-237-13(6)-04

Current through November, 2023

(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.

[Eff 1/22/99] (Auth: HRS §§ 231-3(9), 237-8) (Imp: HRS § 237-13)

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