Hawaii – Taxability of Third-Party Reimbursements for Electricity

SALT Report 1284 – The Hawaii Department of Taxation ruled that the gross receipts received by a condominium association from a developer in repayment for electricity used by the developer’s tenants were exempt from Hawaii general excise tax because the payments were considered reimbursements and exempt under HRS § 237-20.

The developer of the condominium project rented the rooftop space of the building to television and cell phone companies to install their antennas. The building has only a single electric meter; therefore the condominium association was responsible for paying the entire balance of monthly electric bills. The association would then calculate the rooftop tenant’s share of electricity usage and bill the developer for that portion. The developer agreed to reimburse the association for the electricity his rooftop tenants used.
HRS § 237-20 provides an exemption for third-party reimbursements provided the following conditions are met:
  • The taxpayer pays a cost or advance to a third party, for or on behalf of a reimbursing party; and
  • The taxpayer is repaid the cost or advance and receives no additional monetary compensation.
Therefore, because the association paid the initial cost to a third party, on behalf of the developer as part of a cost-splitting contract, and the taxpayer received no additional monetary consideration from the developer, all of the conditions were met and the payments were considered tax exempt reimbursements.
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