B-134347, MAY 16, 1958, 37 COMP. GEN. 772

B-134347, MAY 16, 1958, 37 COMP. GEN. 772

TAXES - HAWAII - BUSINESS PRIVILEGE TAX - GOVERNMENT LIABILITY ALTHOUGH AN ADDITION TO THE HAWAII TAX LAWS IN 1957 APPEARS TO EXPRESSLY EXEMPT THE UNITED STATES FROM LIABILITY FOR TAXES ON SERVICES, SO THAT A TERRITORIAL TAX INCLUDED ON AN INVOICE FOR REPAIRS TO A GOVERNMENT-OWNED MOTOR WOULD NOT BE PAYABLE BY THE UNITED STATES, EVIDENCE THAT THE PURPOSE OF THE 1957 AMENDMENT WAS NOT INTENDED TO AFFECT EXISTING TAXES, BUT WAS MERELY FOR THE PURPOSE OF CLASSIFYING TAXES ACCORDING TO RATE SCHEDULES, ESTABLISHES THAT THE EXEMPTION MAY NOT BE APPLIED TO PRECLUDE THE PAYMENT BY THE UNITED STATES OF A TAX ON THE REPAIR SERVICES WHEN THE INCIDENCE OF THE TAX FALLS ON THE CONTRACTOR AND IS IMPOSED PURSUANT TO SECTION 117-14 (F) OF THE REVISED LAWS OF HAWAII, 1955. B-134347, JANUARY 15, 1958, UNPUBLISHED DECISION, OVERRULED.

TO R. P. HOGAN, DEPARTMENT OF COMMERCE, MAY 16, 1958:

THIS REFERS TO OUR DECISION OF JANUARY 15, 1958, B-134347, TO YOU, RENDERED UPON THE QUESTION PRESENTED IN YOUR LETTER OF NOVEMBER 6, 1957, REGARDING A TERRITORY OF HAWAII TAX INCLUDED ON AN INVOICE COVERING REPAIRS TO A WEATHER BUREAU-OWNED MOTOR SUBMITTED BY THE HONOLULU ELECTRICAL PRODUCTS COMPANY, INC. IN OUR DECISION WE HELD THAT ON THE BASIS OF THE RECORD BEFORE US, INCLUDING THE 1957 AMENDMENTS TO THE HAWAII TAX STATUTES, THE TAX INVOLVED COULD NOT BE CERTIFIED FOR PAYMENT. THAT HOLDING WAS PREDICATED UPON THE PROVISIONS OF SECTION 117-14.6, A NEW SECTION ADDED IN 1957 TO CHAPTER 117 OF THE REVISED LAWS OF HAWAII 1955. SECTION 117-14.6 LEVIES A TAX ON THE RENDERING OF SERVICES BUT EXPRESSLY EXEMPTS THE UNITED STATES AND ITS INSTRUMENTALITIES FROM ITS PROVISIONS.

WE HAVE BEFORE US FOR CONSIDERATION A LETTER DATED MARCH 5, 1958, FROM THE TAX COMMISSIONER AND THE ATTORNEY GENERAL OF THE TERRITORY OF HAWAII CONCERNING THIS MATTER. AMONG THE ENCLOSURES ACCOMPANYING THAT LETTER ARE A MEMORANDUM PREPARED BY A DEPUTY ATTORNEY GENERAL OF HAWAII RELATING TO THE APPLICABILITY OF THE TERRITORIAL EXCISE TAX AND A COPY OF A COMPILATION OF THE HAWAII TAX LAWS. IT IS NOW EVIDENT, ON THE BASIS OF THE ADDITIONAL INFORMATION FURNISHED TO US, THAT OTHER STATUTORY PROVISIONS ARE ALSO FOR CONSIDERATION IN THE DETERMINATION OF WHETHER PAYMENT OF A TAX OF THE NATURE DESCRIBED IN YOUR LETTER OF NOVEMBER 6, 1957, MAY BE AUTHORIZED. A CAREFUL CONSIDERATION OF CHAPTER 117, REVISED LAWS OF HAWAII 1955, AND THE AMENDMENTS THERETO DISCLOSES THAT SECTION 117 -14.6 IS AN ADDITIONAL SECTION ADDED TO CHAPTER 117 BY SECTION 3 (U) OF ACT 1 OF THE SPECIAL SESSION LAWS OF 1957, AND WAS NOT INTENDED TO CHANGE THE EFFECT OF OTHER STATUTORY PROVISIONS TO THE EXTENT OF GRANTING AN EXEMPTION FROM TAXATION WHERE A PARTICULAR TRANSACTION WAS OTHERWISE TAXABLE. THE APPARENT PURPOSE OF SECTION 117-14.6 AS EVIDENCED BY GENERAL EXCISE TAX MEMORANDUM NO. 5 AND THE DEPUTY ATTORNEY GENERAL'S RECENT MEMORANDUM IS TO PERMIT THE DELINEATION OF TAXABLE TRANSACTIONS ACCORDING TO SCHEDULES, UNDER WHICH TAXPAYERS, ENGAGING IN CERTAIN STATED BUSINESSES, ARE LICENSED. TRANSACTIONS FORMERLY TAXABLE UNDER OTHER PROVISIONS OF CHAPTER 117 ARE THEREFORE NOT EXEMPTED FROM TAXATION BY SECTION 117-14.6. AS POINTED OUT BY THE DEPUTY ATTORNEY GENERAL, THE CONTRACTOR INVOLVED IN OUR DECISION OF JANUARY 15, 1958 TO YOU, BEING ENGAGED IN A ,SERVICE BUSINESS OR CALLING" IS TAXED UNDER SECTION 117-14 (F) WHICH PROVIDES AS FOLLOWS:

TAX ON SERVICE BUSINESS. UPON EVERY PERSON ENGAGING OR CONTINUING WITHIN THE TERRITORY IN ANY SERVICE BUSINESS OR CALLING NOT OTHERWISE SPECIFICALLY TAXED UNDER THIS CHAPTER, THERE IS LIKEWISE HEREBY LEVIED AND SHALL BE ASSESSED AND COLLECTED A TAX EQUAL TO THREE AND ONE-HALF PERCENT OF THE GROSS INCOME OF ANY SUCH BUSINESS.

THIS SECTION LEVIES A TAX UPON THE RECEIPTS DERIVED BY PERSONS DOING BUSINESS IN HAWAII AND IS IN EFFECT A TAX UPON THE VENDOR. WHERE THE INCIDENCE OF THE TAX IS ON THE VENDOR, THE UNITED STATES HAS NO RIGHT-- APART FROM STATE (OR TERRITORIAL) STATUTES OR REGULATIONS PROMULGATED THEREUNDER BY STATE (OR TERRITORIAL) AUTHORITIES--- TO PURCHASE SUPPLIES OR SERVICES WITHIN THE TERRITORIAL JURISDICTION OF THE STATE (OR TERRITORY) ON A TAX-FREE BASIS. SEE ALABAMA V. KING AND BOOZER, 314 U.S. 1; 33 COMP. GEN. 454.

SECTION 117-14 (F) IS THE NUMBER ASSIGNED BY THE REVISED LAWS OF HAWAII 1955; AND, AS POINTED OUT BY THE DEPUTY ATTORNEY GENERAL OF HAWAII, IS SUBSTANTIALLY THE SAME AS SECTION 5455 E OF THE REVISED LAWS OF HAWAII, 1945. IN OUR DECISION, B-70233, DECEMBER 31, 1947, WHICH INVOLVED THE INCLUSION OF A 2 1/2 PERCENT TERRITORIAL GROSS INCOME TAX IN THE SALES PRICE OF A QUANTITY OF INSECTICIDE PURCHASED BY A UNITED STATES ARMY INSTALLATION IN HAWAII, WE HELD THAT SINCE THE INCIDENCE OF THE TAX UNDER THE FOREGOING STATUTORY PROVISION IS UPON THE CONTRACTOR, THE AMOUNT PAID AS TAXES AS PART OF THE CONTRACT PRICE COULD NOT BE RECOVERED FROM THE TERRITORY BY THE UNITED STATES. IT WOULD APPEAR TO BE IMMATERIAL WHETHER THE VENDOR SEEKS TO RECOUP THE TAX HE MUST PAY BY INCREASING THE PRICE BY THE AMOUNT OF THE TAX, OR AS IN THE INSTANT CASE, BY SEPARATELY DESIGNATING THE COST OF THE REPAIRS AND THE TAX.

SINCE THE PROVISIONS OF SECTION 117-14.6 DO NOT PRECLUDE THE IMPOSITION OF A TAX OF THE NATURE HERE INVOLVED UPON THE VENDOR, THE DECISION OF JANUARY 15, 1958, B-134347, IS TO BE DISREGARDED.