Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 237 - GENERAL EXCISE TAX LAW
Subchapter 2 - LICENSES; TAX; EXEMPTIONS
Section 18-237-13(6)-06 - "Intermediary" between Service Provider and Customer

In order for Service Provider to be eligible for the intermediary services rate, the person requesting or ordering the service from Service Provider must act as or act in the nature of an Intermediary between Service Provider and the ultimate recipient of the benefits of such services (Customer). The person requesting or ordering the service from the Service Provider acts as or acts in the nature of an Intermediary when there is a direct flow of services from Service Provider through Intermediary (or Intermediaries) and then to Customer. As a mere conduit for the services en route to Customer, Intermediary does not alter, use, or otherwise consume the services provided by Service Provider. Service Provider's services are altered, used or consumed if the services constitute a portion of the total services performed by Intermediary for Customer, or Service Provider's services are incorporated into services performed by other persons for Customer.

Example 1: Intermediary provides salon services. Customer requests a facial. Intermediary contracts with Service Provider to provide Customer with the facial. Service Provider bills Intermediary. Intermediary bills Customer. Customer pays Intermediary and Intermediary pays Service Provider.

In order for Service Provider to be eligible for the intermediary services rate, there must be a direct flow of services from Service Provider to Customer, the ultimate recipient of the benefits. There is a direct flow of services because the total services requested by Customer were performed by Service Provider; Service Provider's services were not incorporated in other services performed for Customer.

Example 2: Intermediary is a magician. Customer requests the performance of Intermediary. Intermediary contracts with Service Provider, another magician, to perform for Customer. Service Provider bills Intermediary. Intermediary bills Customer. Customer pays Intermediary and Intermediary pays Service Provider.

In order for Service Provider to be eligible for the intermediary services rate, there must be a direct flow of services from Service Provider to Customer, the ultimate recipient of the benefits. There is a direct flow of services because the total services requested by Customer were performed by Service Provider; Service Provider's services were not incorporated in other services performed for Customer.

However, if Intermediary contracted to put on a gala event which includes a piano performance by Service Provider, there would not be a direct flow of services because Service Provider's services would be incorporated in other services performed for Customer. Service Provider would be subject to the general excise tax at the rate of four percent.

Example 3: Intermediary, an automobile dealer, sells an automobile to Customer. Intermediary contracts with Service Provider to perform cleaning, repairing, and restoring services on the automobile. Service Provider bills Intermediary. Intermediary bills Customer. Customer pays Intermediary and Intermediary pays Service Provider.

In order for Service Provider to be eligible for the intermediary services rate, there must be a direct flow of services from Service Provider to Customer, the ultimate recipient of the benefits. There is no direct flow of services from Service Provider to Customer because the total services requested by Customer were not performed by Service Provider; rather, Service Provider's services were incorporated as part of the sale of the automobile to Customer. Moreover, Intermediary, is engaged in the sale of goods (automobiles), rather than a service business. The intermediary services rate of one-half percent is not applicable to the payment Service Provider receives from Intermediary. Service Provider is subject to the general excise tax at the rate of four percent.

Example 4: Intermediary, a graphic design firm, contracts with Customer to develop an advertisement. Intermediary contracts with Service Provider to provide illustrations. Service Provider bills Intermediary. Intermediary bills Customer. Customer pays Intermediary and Intermediary pays Service Provider.

In order for Service Provider to be eligible for the intermediary services rate, there must be a direct flow of services from Service Provider to Customer, the ultimate recipient of the benefits, or another person who acts as or acts in the nature of an Intermediary. There is no direct flow of services from Service Provider to Customer because the total services requested by Customer were not performed by Service Provider; rather, Service Provider's services were incorporated in the advertisement with other services performed for Customer. The intermediary services rate of one-half percent is not applicable to the payment Service Provider receives from Intermediary. Service Provider is subject to the general excise tax at the rate of four percent.

Example 5: Intermediary, a management consultant, enters into a contract with Customer to study the reason for Customer's declining sales. Intermediary contracts with Service Provider, a marketing company, to do part of the study. Service Provider bills Intermediary. Intermediary bills Customer. Customer pays Intermediary and Intermediary pays Service Provider.

In order for Service Provider to be eligible for the intermediary services rate, there must be a direct flow of services from Service Provider to Customer, the ultimate recipient of the benefits, or another person who acts as or acts in the nature of an Intermediary. There is no direct flow of services from Service Provider to Customer because the total services requested by Customer were not performed by Service Provider; rather, Service Provider's services were incorporated in the study with other services performed for Customer. The intermediary services rate of one-half percent is not applicable to the payment Service Provider receives from Intermediary. Service Provider is subject to the general excise tax at the rate of four percent.