Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 237 - GENERAL EXCISE TAX LAW
Subchapter 2 - LICENSES; TAX; EXEMPTIONS
Section 18-237-29.53-11 - Other services

Universal Citation: HI Admin Rules 18-237-29.53-11

Current through November, 2023

(a) Except as provided in sections 18-237-2953-03 to 18-237-2953-10:

(1) If the customer is a business and the service relates to the customer's business activities, the service is used or consumed where the related business activities occur;

(2) If the customer is a business and the service is unrelated to the customer's business activities, the service is used or consumed where the customer's principal place of business is located;

(3) If the customer is an individual, the service is used or consumed where the individual resides; or

(4) If the customer is the military or federal, state, or local government, the service is used or consumed where the benefit of the service is received.

(b) For purposes of this section, "business activities" means the transactions and activities engaged in the regular course of trade or business for the ultimate purpose of obtaining gains or profits, or if the business is a tax-exempt organization, also includes the transactions and activities that further the exempt purpose of the organization.

Example 1: Chris Client, a Hawaii resident, hires Legal Services LLR a law firm with offices throughout the United States, including Hawaii, to represent him in a personal injury case in California. Legal Services LLP drafts a complaint to be filed in California. Before the complaint is filed, however, Legal Services LLP settles the dispute. All of the value or gross income that Legal Services LLP receives is not exempt under section 237-29.53, HRS, because Legal Services LLP's services are used or consumed in Hawaii, where Chris Client resides, pursuant to section 18-237-29.53 -ll(a)(3).

Example 2: ABC Company, an Arizona corporation with its principal place of business in Arizona, hires Paul Presenter, a motivational speaker who resides in Hawaii, to speak to ABC Company and its employees via live-stream from Hawaii. The motivational speech is a personal benefit that ABC Company provides to its employees and is not related to its business activities. The live-stream is accessed solely from ABC Company's office in Arizona. All of the value or gross income that Paul Presenter receives is exempt under section 237-29.53, HRS, because Paul Presenter's service is used or consumed in Arizona, where ABC Company's principal place of business is located, pursuant to section 18-237-29.53-11(a)(2).

Example 3: Annie Attorney, a Hawaii attorney, is hired by Wendy Wyoming, a Wyoming resident who owns stock and partnership interests in various enterprises, as well as Hawaii real property, to prepare her estate plan. All of the value or gross income that Annie Attorney receives to prepare Wendy Wyoming's estate plan is exempt under section 237-29.53, HRS, because Annie Attorney's services are used or consumed in Wyoming, where Wendy Wyoming resides, pursuant to section 18-237-29.53-11(a)(3).

Example 4: XYZ, a multistate business, hires Legal Services LLP, a law firm with offices throughout the United States, including Hawaii, to represent it in a contract dispute relating to business activities in Hawaii. Legal Services LLP settles the case before a lawsuit is filed and charges XYZ $30,000 in legal fees. Attorneys from Legal Services LLP's Hawaii office performed twenty per cent of the work and attorneys from Legal Services LLP's California office performed the remaining eighty per cent of work. All of the value or gross income that Legal Services LLP receives is not exempt under section 237-29.53, HRS, because the legal services are used or consumed in Hawaii, where the business activities relating to the legal services occurred, pursuant to section 18-237-29.53-11(a)(1).

Example 5: Arnold Accountant, an accountant located in Hawaii, is hired by Mary Mover, a California resident, in 2017 to prepare her 2016 federal and state tax returns. Mary Mover must file state tax returns in California, where she resided for the first half of 2016, and Hawaii, where she currently resides. All of the value or gross income that Arnold Accountant receives from Mary Mover is not exempt under section 237-29.53, HRS, because Arnold Accountant's services are used or consumed in Hawaii, where Mary Mover resides, pursuant to section 18-237-29.53 -ll(a) (3).

Example 6: XYZ, a multistate business, hires Accounting Services LLP, a Hawaii accounting firm, to perform accounting services related to XYZ's business activities in Hawaii. All of the value or gross income that Accounting Services LLP receives from XYZ is not exempt under section 237-29.53, HRS, because Accounting Services LLP's services are used or consumed in Hawaii, where XYZ's business activities related to the accounting services occur, pursuant to section 18-237-29.53 -ll(a)(l).

Example 7: SP LLC, a software programmer located in Hawaii, is hired by MedServ, Inc., a medical service provider doing business in several states, including Hawaii, to create a customized and integrated patient file and billing program for use at all of its medical offices for a fee of $70,000. MedServ, Inc. has two of its seven medical offices in Hawaii. SP LLC's services are used or consumed where MedServ, Inc.'s business activities relating to SP LLC's services occurred, pursuant to section 18-237-29.53-11(a)(1). Because SP LLC's service is used or consumed both in and outside of the State, SP LLC shall apportion its income pursuant to section 18-237-29.53-02(b). In this case, it is reasonable for SP LLC to apportion two-sevenths of its gross income to Hawaii. SP LLC shall report $70,000 in gross income on its general excise tax return and may claim $50,000 as exempt under section 237-29.53, HRS.

Example 8: Honolulu Hut, a Hawaii retailer, hires GD Company, a graphic design company in California, to design a company logo that will be used on Honolulu Hut's merchandise sold in Hawaii and in marketing materials distributed in Hawaii. GD Company contracts with Ashley Artist, a Hawaii resident, to create a digital image, which GD Company will incorporate into the logo it designs for Honolulu Hut. All of the value or gross income that GD Company receives from Honolulu Hut is not exempt under section 237-29.53, HRS, because GD Company's services are used or consumed in Hawaii, where Honolulu Hut's business activities related to the design services occur, pursuant to section 18-237-29.53 -ll(a)(l). All of the value or gross income that Ashley Artist receives is also not exempt under section 237-29.53, HRS, because Ashley Artist's services are resold by GD Company for use or consumption in Hawaii. Pursuant to section 18-237-29.53-02, services performed for a purchaser who resells the services are exempt from general excise tax only if the purchaser resells all of the services for use or consumption outside the State.

Example 9: California Surf Co., a retail store in California, hires Hawaii Designs LLC, a Hawaii graphic design company, to design a logo that will be used on California Surf Co.'s merchandise sold in California and in marketing materials distributed in California. Hawaii Designs LLC hires Ashley Artist, a Hawaii resident, to design a digital image, which Hawaii Designs LLC incorporates into the logo it designs for California Surf Co. All of the value or gross income that Hawaii Designs LLC receives is exempt under section 237-29.53, HRS, because Hawaii Designs LLC's services are used or consumed in California, where California Surf Co.'s business activities related to the design services occur, pursuant to section 18-237-29.53 -ll(a)(l). All of the value or gross income that Ashley Artist receives is also exempt under section 237-29.53, HRS, because Ashley Artist's services are resold for use or consumption in California. Pursuant to section 18-237-29.53-02, services performed for a purchaser who resells die services are exempt from general excise tax if the purchaser resells all of the services for use or consumption outside the State.

Example 10: Data Inc., a company located in Hawaii, is paid $10,000 by the United States Navy to analyze data and prepare reports that will be used by Naval Base Guam. Naval Base Guam is the only naval base that will benefit from Data Inc. services. All of the value or gross income that Data Inc. receives is exempt under section 237-29.53, HRS, because the services are used or consumed by the military in Guam, where the benefit of the service is received, pursuant to section 18-237-29.53-11(a)(4).

Example 11: Data Inc., a company located in Hawaii, is paid $10,000 by the United States Navy to analyze data and prepare reports that will be used by the United States Pacific Fleet. Data Inc.'s reports will be used by and benefit the United States Pacific Fleet in Hawaii, where its headquarters is located, as well as in other locations in the United States and abroad. Because Data Inc.'s service is used or consumed both in and outside of the State, Data Inc. shall apportion its income pursuant to section 18-237-29.53-02(b). Data Inc. shall report $10,000 in gross income on its general excise tax return and may claim an exemption under section 237-29.53, HRS, for the portion of income attributable to services used or consumed outside of the State.

Example 12: Remodelers Hawaii LLC, a general contractor, is hired by the United States Army to renovate a building at Schofield Barracks in Hawaii. Section 18-237-29.53-11 does not apply because Remodelers Hawaii LLC is performing contracting work, which is governed by section 18-237-29.53-03. Under that rule, all of the value or gross income that Remodelers Hawaii LLC receives is not exempt because the contracting is used or consumed in Hawaii, where the real property is located.

[Eff 3/17/2018] (Auth: HRS §§ 231-3(9), 237-8) (Imp: HRS § 237-29.53)

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