SALT Report 1672 – The Hawaii Department of Taxation issued a letter ruling regarding the taxability of fees received by a Hawaiian taxpayer working as an editor for an out-of-state nonprofit Journal.
Hawaii provides an exemption for exported services under section 237-29.53 HRS which states, “There shall be exempted from, and excluded from the measure of, taxes imposed [on] all of the value or gross income derived from contracting or services performed by a person engaged in a service business or calling in the State for use outside the State where the contracting or services are for resale, consumption, or use outside the State and the value or gross income derived from the contracting or services performed would otherwise be subject to the tax imposed under this chapter on contracting or services at the highest rate.”
For the exemption to apply, the Department must determine whether the Taxpayer met the two requirements listed above.
Was the Service Consumed Outside the State?
Hawaii’s sourcing rules are determined by the location in which the customer first uses or receives the goods or services. The Department ruled that the out-of-state Journal was the purchaser/consumer of the editing service and therefore the service was consumed outside the state.
GET is assessed and collected from businesses at a rate of 4% or in the case of wholesalers at a rate of 0.05%. The Department determined that the Taxpayer is not a wholesaler and would be subject to GET at the highest rate of 4% of the gross income without the exported service exemption.
The Department determined that the Taxpayer met both of the requirements of the exemption and the editing services were not taxable.
To claim the exemption the Taxpayer must obtain an export exemption certificate (Form G-61) from the Journal to certify that the editing services were purchased for use outside Hawaii. The certificate obligates the Journal to pay tax if the editing service is ever used in Hawaii.
Also, the Taxpayer must report any editing income on the general excise tax return (Forms G-45 and G-49) and claim the exemption on the schedule of exemptions and deductions (Schedule GE).
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