SALT Report 2590 – The Hawaii Department of Taxation issued guidance regarding Act 105, Laws 2011 which suspended several general excise exemptions, use tax exemptions, and deductions. Effective June 30, 2013, the provisions in Act 105 are repealed and on that date, the exemptions and deductions will no longer be suspended.
Therefore, the provisions in the Act will not apply to any gross receipts received or accrued after June 30, 2013. The fact that the receipts may be the result of a contract entered into before July 1, 2013, does not affect whether the receipts are subject to an exemption. The determining factor is the date the income is received or accrued.
Additionally, Act 105 does not contain any “grandfathering out” provisions. Therefore, gross receipts received or accrued on or after July 1, 2013 will qualify for all applicable exemptions and exclusions that may have been suspended under the Act, regardless of when the taxpayer may have entered into a contract.
As a result of the repeal of Act 015, the gross proceeds for business transactions that occur prior to July 1, 2013 may be subject to different tax rates depending on whether the taxpayer uses the cash basis method of accounting or the accrual basis method. This means that two different taxpayers entering into identical transactions could pay general excise tax at two different rates.
For example, if a contract is entered into, and the amount of income due is determined by June 30, 2013 but the cash payment will be received on or after July 1, 2013, then a cash-basis accounting taxpayer would be exempt from GE tax on the proceeds from that contract. However, an accrual-basis accounting taxpayer’s proceeds would be subject to the 4% GE tax.
Act 105 also required taxpayers to provide information reporting on any general excise and use tax exemptions and exclusions, beginning July 1, 2011. Because of this, the Department issued Survey of General Excise Tax Exemptions and Deductions – Schedule GE1, which must be filed by taxpayers claiming a general excise or use tax exemption or deduction for tax years 2010, 2011, and 2012.
However, this reporting requirement does not apply to amounts exempt under statute, including amounts received from certain insurance policies, gifts, compensatory tort damages, employee wages, and alimony. In addition, nonprofit organizations that have received from the Department an exemption from the general excise tax are not subject to the reporting requirement and are not required to file Schedule GE-1.
Finally, the Department’s notice provides a complete list of the exemptions and deductions affected by Act 105 that will no longer be suspended.
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