22 June 2011

Action Alert from AIA Honolulu

Wednesday, June 22, 2011

Action Alert: Governor signs Act 105 - to take effect July 1, 2011!

Mission of the AIA Hawaii State Council

The AIA Hawaii State Council is one of three AIA organizations in Hawaii, overseeing State matters for our two (local) AIA Honolulu and AIA Maui Chapters.

The objectives of the AIA Hawaii State Council are to represent AIA members on matters of state-wide interest and to provide assistance and advice to state, governmental and regulatory bodies regarding issues affecting the architecture profession in Hawaii and our built environment. Learn more.
Read History of AIA in Hawaii.

AIA Members as Citizen Architects

Click here to learn more about AIA's advocacy efforts in Hawaii found on our AIA Honolulu web site under ADVOCACY.

TWO-YEAR SUSPENSION OF CERTAIN GENERAL EXCISE TAX (GET) & USE TAX EXEMPTIONS


AIA opposed the temporary suspension of contractor exemptions debated in the 2011 State Legislative session, however Governor Abercrombie recently signed SB 754 into law as Act 105.  Read more!


The following is an important message regarding the newly enacted 2-year suspension of certain general excise tax and use tax exemptions that may affect your firm. 

Governor Abercrombie has signed Senate Bill 754 (S.B. No. 754, S.D. 1, H.D. 1, C.D. 1) into law as Act 105.  This law takes effect on July 1, 2011.

The purpose of this Act is to temporarily suspend the general excise and use tax exemptions for amounts received by certain persons and, instead, require those persons to pay the applicable tax on these amounts at a specified rate.  The suspension and imposition of the tax commences on July 1, 2011, and ends on June 30, 2013.  See attached Department of Taxation Announcement No. 2011-09 dated June 15, 2011 for further clarification. Click here for PDF Taxation Notice.

The industries and types of business contracts impacted by Act 105 are too varied to analyze and discuss in this message.  However, SB 754 does affect, among other areas,  the “subcontractor deduction”;  the “sublease” exemption;  trade show exhibit and display space revenues received by nonprofit organizations; sales of other tangible personal property to the United States.

Under the Hawaii GET law, a “contractor” is defined to mean a construction contractor, architect, professional engineer, land surveyor, or pest control operator under HRS 237-6.

 

PLANNING OPPORTUNITY


GRANDFATHER PROVISION: 
SB 754 provides an immediate tax planning opportunity; consult with your tax advisor.

The 2-year suspension law does not apply to gross income or gross proceeds from binding written contracts entered into prior to July 1, 2011, that do not permit the passing on of increased rates of GET; and that with respect to the use tax, SB 754 does not apply to any property, services, or contracting imported or purchased under binding written contracts entered into prior to July 1, 2011, that do not permit the passing on of increased rates of use tax.

Information received from the Hawaii State Department of Taxation on June 20, 2011:

In order for a contract to be grandfathered, the prior July 1, 2011 contract must contain explicit language that excludes the passing on of increased GET.  In other words, prior July 1, 2011 contracts will not be grandfathered if they include imprecise wording such as..."plus Hawaii general excise tax" or the like.

In order to meet grandfather requirements, the State requires that all applicable taxpayers obtain written, binding and signed addendums dated prior to July 1, 2011 that adds explicit language such as  "the Hawaii General Excise Tax shall not be increased for any tax rate increases "

CONCLUSION:
Consult with your tax advisor now to obtain the required contract addendums (or include the explicit language in your new subcontractor contracts, sublease contracts, etc. to be signed before July 1, 2011) as explained above to take advantage of the prior July 1, 2011 grandfather clause.
General excise tax reports submitted for periods after June 30, 2011 through June 30, 2013 should not include the GET exemptions that are temporarily suspended under Act 105.

ADDITIONAL CLARIFICATION:
Regarding the .5% GET surcharge for Oahu:  The exemptions disallowed under the 2-year suspension continue to be ALLOWABLE when computing the .5% Oahu surcharge.  In other words, you will not be able to take the disallowed exemptions on the 4% portion, but you will be able to take the exemptions for the calculation of the .5% surcharge.

Said another way:  For Oahu-related sales/services etc subject to GET, there is an additional .5% “surcharge” (this surcharge was added to help with the Oahu rail system costs).  The disallowed exemptions are only considered when calculating the 4% part of the GET.  When calculating the additional .5% of GET, the taxpayer can deduct the usual exemptions (ie, use prior 7/1/11 law).

Visit AIA Honolulu web site. This message has been sent on behalf of the AIA Hawaii State Council.

No comments:

Post a Comment