HAR §18-237-16. Tax on certain retailing

(a) Gross income received or derived from recapping tires or from selling tangible personal property for use in recapping tires. See Administrative Rules §18-237-13(B)(1). (b) Furnishing or use of trading stamps and similar devices. See Administrative Rules §18-237-13(j). (c) Containers and packaging materials. See Administrative Rules §18-237-4(b). [Eff 2/16/82] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-16) §18-237-16.5-01 Definitions. For purposes of sections 18-237-16.5-02 to 18-237-16.5-07, unless the context otherwise requires: “Lease” means the rental of real property under an instrument in writing by which one conveys real property for a specified term and for a specified consideration, and includes the written extension or renegotiation of a lease, and any holdover tenancy. “Lessee” means one who holds real property under a lease, and includes a sublessee. A lessee or sublessee includes a sublessor subject to both the tax and applicable deduction under section 237-16.5, HRS, provided real property or space is conveyed by a sublease. “Lessor” means one who conveys real property by a lease, and includes a sublessor. A lessor does not include a person who is not subject to the taxes imposed by chapter 237, HRS, or a person whose gross proceeds or gross income from leasing the real property or space is not taxable under chapter 237, HRS. Example 1: L leases unimproved Hawaii real property X to A. A then subleases real property X and A’s improvements (e.g., Building Y) to B. Finally, B subleases real property X and Building Y to C. Assume that L, A and B are taxable under chapter 237, HRS, on their respective rental income from real property X and Building Y. L, A, and B are lessors. A, B, and C are lessees. “Personal services” means services that are unrelated to the “operation of the property” (as the term is defined in section 514A-3, HRS) such as secretarial services, messenger services, and receptionist services because the services directly benefit the lessee’s real property or space rather than the common elements of the real property or space. HRS §237-13(6) HRS §237-16 HRS §237-16.5 237- 41 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-16.5-02 “Real property or space” means the area actually rented and used by the Lessee, including common elements as defined in section 514A-3, HRS. Real property or space does not include the use of tangible personal property or the bundling of “personal services,” or both; such items instead being subject to tax on other business as provided in section 237-13(10), HRS. If a sublease does not specifically include the use of tangible personal property or the receipt of personal services, it is presumed that the sublessor is subject to the tax and is allowed the sublease deduction under section 237-16.5, HRS. If it is determined that the real property or space includes tangible personal property or the bundling of personal services or both, the real property or space shall instead be subject to tax on other business under section 237-13(10), HRS, unless the sublessor complies with section 18-237-16.5-07 by providing proof satisfactory to the department of taxation of the portion subject to the tax and sublease deduction under section 237-16.5, HRS. Example 2: Assume the same facts as Example 1 above except that sublessor B subleases real property X and Building Y to C and the written sublease to C does not specifically include the use of tangible personal property by C or the receipt of personal services by C. B is presumed to be subject to tax under section 237- 16.5, HRS, and qualifies for the sublease deduction. If the department of taxation; however, later determines that the “sublease” includes the use of tangible personal property or receipt of personal services or both, all of B’s income will be subject to tax on other business under section 237-13(10), HRS, unless B complies with section 18-237-16.5- 07 by providing proof satisfactory to the department of taxation of the portion which is subject to tax under section 237-16.5, HRS, and qualifies for the sublease deduction. The remaining portion of the gross income attributable to tangible personal property, personal services, or both shall be subject to tax on other business under 237-13(10), HRS. “Sublease” includes the rental of real property which is held under a lease and is made in a written document by which one conveys real property for a specified term and for a specified consideration. A sublease includes the written extension or renegotiation of a sublease, any holdover tenancy under the written sublease, multiple subleases of portions of the real property, and any number of successive subleases of the same real property or portions thereof. “Sublessee” means one who holds real property under a sublease. “Sublessor” means one who conveys real property by sublease under a lease. A sublessor includes a lessee subject to both the tax and applicable deduction as determined under section 237-16.5, HRS, provided a sublease is conveyed. [Eff 10/01/98 ] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-16.5) §18-237-16.5-02 Tax on written real property leases; deduction allowed. (a) Section 237-16.5, HRS, imposes the general excise tax at the rate of four per cent upon the gross proceeds or gross income received or derived from the business of leasing real property in the State. A Lessee who subleases real property under a sublease shall be allowed a deduction from the amount of gross proceeds or gross income received from the Sublessee under section 237-16.5, HRS, and sections 18-237-16.5-03 to 18-237-16.5-06. In no case shall the amount of the deduction exceed the total amount received from the sublease of the real property. Example 3: Lessor L leases its building to lessee A, who does not sublease the building or any portion of the building. A is subject to the tax under section 237-16.5, HRS, but is not allowed the sublease deduction because there is no sublease. (b) The requirements for the sublease deduction are as follows: (1) The Lessor must submit to the Lessee, a certificate that certifies that the Lessor is licensed and taxable under the general excise tax law; (2) The Lessee must be licensed and taxable under the general excise tax law; (3) The Lessee must report the amount paid to the Lessor, the amount of the sublease deduction, and the name and general excise tax number of the Lessor on the Lessee’s general excise tax return in lieu of filing a copy of the certificate with the general excise tax return; (4) The Lessee’s sublease deduction is limited to leases and subleases in writing and related to the same real property or space; and (5) The Lessee must compute the allocations required by section 18-237-16.5-04 and section 18-237-16.5-05 with no allowances for changes during the specified term of the sublease, provided that this requirement shall not apply to a lease with terms that vary in the amount of periodic rent due, including a percentage lease with fixed minimum rent, a percentage lease with no minimum rent, a combination percentage lease with fixed minimum rent or percentage leases with no minimum rent, whichever amount is higher, or a graduated or step-up lease. (c) The form of the certificate shall be prescribed by the department of taxation. (d) The absence of the certificate shall give rise to the presumption that the Lessee is not allowed the sublease deduction. [Eff 10/01/98] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-16.5) HRS §237-16.5 §18-237-16.5-03 GENERAL EXCISE TAX LAW 237- 42 (Unofficial Compilation as of 12/31/2025) §18-237-16.5-03 Deduction for sublease of real property or space. (a) General Rule. A Lessee who subleases real property or space shall be allowed a deduction from the amount of gross proceeds or gross income received from the Sublessee. The deduction shall be the total amount paid by the Lessee to the Lessor, subject to the requirements and allocations provided under section 237-16.5, HRS, and sections 18- 237-16.5-03 to 18-237-16.5- 06, at the maximum allowable rate. The allowable rate to be used in computing the deduction is as follows: (1) For gross proceeds or gross income paid in the months of October, November, and December, 1998, 0.125; (2) In calendar year 1999, 0.25; (3) In calendar year 2000, 0.375; (4) In calendar year 2001, 0.50; (5) In calendar year 2002, 0.625; (6) In calendar year 2003, 0.75; and (7) In calendar year 2004, and thereafter, 0.875. Example 4: Lessor L leases real property X to lessee A for $1,000 a year and lessee A subleases the same real property X under a written sublease to sublessee B for $2,500 a year. B subleases the same real property to “sub-sublessee” C for $2,500 a year. A’s deduction would be $1,000 multiplied by the maximum allowable rate listed above. Using a maximum allowable rate of 0.875 (or 87.5 per cent), A’s deduction would be $875 ($1,000 x 0.875). A would be subject to a general excise tax of $65 (($2,500 - $875) x 4 per cent tax rate). B’s deduction would be $2,187.50 ($2,500 x 0.875). B would be subject to a general excise tax of $12.50 (($2,500 - $2,187.50) x 4 per cent tax rate). L would be subject to a general excise tax of $40 ($1,000 x 4 per cent tax rate). (b) Percentage leases. Where real property or space is leased under a percentage lease, the amount of gross proceeds or gross income received by the Lessor will vary from period to period because the amount paid by the Lessee to the Lessor is based upon a percentage of the gross sales or net profits of the Lessee’s business. There may be a stipulated minimum lease amount. A percentage lease includes a percentage lease with a fixed minimum lease amount, a percentage lease with no minimum lease amount, and a combination percentage lease with a fixed minimum lease amount or percentage lease with no minimum lease amount, whichever is higher. Example 5: Assume the same facts as Example 4 above except that A subleases to B for $2,500 and 10 per cent of C’s sales. B subleases to C for $2,500 and 20 per cent of C’s sales. If C’s sales for the period were $4,000, the percentage of sales would be $400 ($4,000 x 10 per cent) which would be added to the $2,500 fixed minimum lease payment. $2,900 ($2,500 + $400) would be paid by B to A and reported by A. Assuming a maximum allowable rate of 87.5 per cent, A’s deduction would be $875 ($1,000 x 87.5 per cent). A would be subject to a general excise tax of $81 (($2,900 - $875) x 4 per cent tax rate). Because C’s sales for the period are $4,000, the percentage of sales would be $800 ($4,000 x 20 per cent) which is added to the $2,500 fixed minimum lease payment paid by C to B. $3,300 ($2,500 + $800) would be reported by B. B’s deduction would be $2,537.50 ($2,900 x 87.5 per cent). B would be subject to a general excise tax of $30.50 (($3,300 - $2,537.50) x 4 per cent tax rate). L would be subject to a general excise tax of $40 ($1,000 X 4 per cent tax rate). Example 6: Assume the same facts as Example 4 above except that A subleases to B for 10 per cent of C’s sales with no fixed lease payment. B subleases to C for 20 per cent of C’s sales with no fixed lease payment. If C’s sales for the period were $20,000, the percentage of sales would be $2,000 ($20,000 x 10 per cent) which would be paid by B to A and reported by A. Assuming a maximum allowable rate of 87.5 per cent, A’s deduction would be $875 ($1,000 x 87.5 per cent). A would be subject to a general excise tax of $45 (($2,000 - $875) x 4 per cent tax rate). Because C’s sales for the period are $20,000, the percentage of sales would be $4,000 ($20,000 x 20 per cent) which would be paid by C to B and reported by B. B’s deduction would be $1,750 ($2,000 x 87.5 per cent). B would be subject to a general excise tax of $90 (($4,000 - $1,750) x 4 per cent tax rate). L would be subject to a general excise tax of $40 ($1,000 X 4 per cent tax rate). [Eff 10/01/98 ] (Auth: HRS §§231­ 3(9), 237-8) (Imp: HRS §237-16.5) HRS §237-16.5 237- 43 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-16.5-04 §18-237-16.5-04 Allocation — sublease of less than one hundred per cent of the real property or space. (a) If the Lessee subleases less than one hundred per cent of the real property or space that was leased from the Lessor, the Lessee shall allocate the total amount of gross proceeds or gross income paid by the Lessee for that real property or space based upon the percentage of real property or space subleased, or the fair rental value as determined by the factors in section 18-237-16.5-06. The director of taxation may redetermine the amount of the Lessee’s deduction under section 237-16.5(d), HRS, if the director finds that the basis for the allocation is not reasonable or that redetermination is necessary to prevent the avoidance of taxes. The total amount allocated by the Lessee to all subleases shall not exceed the total amount of gross proceeds paid by the Lessee to the Lessor. (b) The Lessee’s allocation may be based upon the percentage of the real property or space subleased by the Lessee when it is reasonable under the circumstances. (1) The percentage of real property or space subleased by the Lessee shall be multiplied by the amount of gross proceeds or gross income paid by the Lessee to the Lessor for the real property or space. (2) The product of the preceding multiplication shall be deducted by the Lessee from the amount of gross proceeds or gross income received for subleasing the real property or space. Example 7: Lessor L leases real property XYZ, which is divided into spaces X, Y, and Z, to lessee A for $20,000 (space X at $10,000 + space Y at $5,000 + space Z at $5,000). Lessee A subleases less than one hundred percent of Spaces X (50 per cent) and Y (40 per cent). If reasonable under the circumstances, Lessee A may allocate the $20,000 paid to Lessor L and compute its tax in the following manner. Space X Step (1) A subleases fifty per cent of Space X for $7,000. The percentage of Space X subleased (50 per cent) multiplied by the amount of rent paid by A to L for Space X ($10,000) is $5,000. Step (2) Assuming a maximum allowable rate of 0.875, A’s deduction would be $4,375 ($5,000 x 87.5 per cent). A would be subject to a general excise tax of $105 (($7,000 - $4,375) x 4 per cent tax rate) on the income from subleasing fifty per cent of Space X. Space Y Step (1) A subleases forty per cent of Space Y for $3,000. The percentage of Space Y subleased (40 per cent) multiplied by the amount of rent paid by A to L for Space Y ($5,000) is $2,000. Step (2) Assuming a maximum allowable rate of 0.875, A’s deduction would be $1,750 ($2,000 x 87.5 per cent). A would be subject to a general excise tax of $50 (($3,000 - $1,750) x 4 per cent tax rate) on the income received from subleasing forty per cent of Space Y. L would be subject to a general excise tax of $800 ($20,000 x 4 per cent tax rate). (c) The Lessee’s allocation shall be based upon fair rental value as determined by the factors in section 237-16.5-06 if an allocation based upon the percentage of the real property or space subleased is not reasonable under the circumstances. (1) A ratio whose numerator is the fair rental value of the real property or space subleased by the Lessee and whose denominator is the fair rental value of all the real property or space leased by the Lessee shall be multiplied by the amount of gross proceeds or gross income paid by the Lessee to the Lessor for the real property or space. (2) The product of the preceding multiplication shall be deducted by the Lessee from the amount of gross proceeds or gross income received for subleasing the real property or space. Example 8: Lessor L leases real property Y to lessee A for $5,000 a month. Y consists of ground floor retail real property (which has a fair rental value of $7,500) and upper floor office real property (which has a fair rental value of $2,500) equal in size to the ground floor retail real property. Lessee A subleases only the upper floor office real property to sublessee B for $2,500 a month. Step (1) The property subleased represents twenty five per cent of the fair rental value of real property Y ($2,500 divided by ($2,500 + $7,500)). A’s deduction is $1,250 (25 per cent multiplied by $5,000 (the gross income paid to L for real property Y)). Step (2) Assuming a maximum allowable rate of 0.875, A’s deduction would be $1,093.75 ($1,250 x 87.5 per cent). A would be subject to a general excise tax of $56.25 (($2,500 - $1,093.75) x 4 per cent tax rate). HRS §237-16.5 §18-237-16.5-05 GENERAL EXCISE TAX LAW 237- 44 (Unofficial Compilation as of 12/31/2025) L would be subject to a general excise tax of $200 ($5,000 x 4 per cent tax rate). [Eff 10/01/98 ] (Auth: HRS §§231­ 3(9), 237-8) (Imp: HRS §237-16.5) §18-237-16.5-05 Allocation — Various real property or space with different rental values; sublease of one hundred per cent of the real property or space. If the Lessee leases from the Lessor various real property or space which has different rental values and the Lessee subleases the real property or space, the Lessee shall allocate the total amount of gross proceeds or gross income paid by the Lessee for all real property or space based upon the percentage of real property or space leased, or if not reasonable, the fair rental value as determined by factors in section 237-16.5-06 for each real property or space before the Lessee may compute the deduction under section 237-16.5(g), HRS. Example 9: Lessor L leases real property XYZ, which is divided into spaces X, Y, and Z, to lessee A for $10,000. Space X is fifty per cent of the entire real property and spaces Y and Z account for twenty-five per cent each of the real property. Lessee A allocates the gross proceeds paid to L based upon the percentage of space leased as follows: Space X ($5,000), Space Y ($2,500), and Space Z ($2,500). [Eff 10/01/98 ] (Auth: HRS §§231-3(9), 237- 8) (Imp: HRS §237-16.5) §18-237-16.5-06 Allocation based upon fair rental value. (a) The Lessee, in addition to the size, quality and location of the real property or space, shall consider the following factors when an allocation under section 18-237-16.5-04 or section 18-237-16.5-05 is required and the allocation based upon the percentage of the real property or space subleased is not reasonable under the circumstances. (1) Factors for vacant land. (A) Current rents paid and asked for comparable vacant lands in the same area as of the date when the lease is executed; and (B) The written opinion of a person knowledgeable about rental values for vacant lands, including a real estate appraiser certified under chapter 466K, HRS, or real estate broker licensed under chapter 467, HRS, with a knowledge of rental values for vacant lands. (2) Factors for apartment, hotel, and similar residential property. (A) Number and size of the rooms planned to be leased, quality and condition of the building, existence of special services or facilities, and the influence of such amenities as a desirable view; (B) Current rents paid and asked for comparable apartment, hotel, or similar residential property in the same area as of the date when the lease is executed; and (C) The written opinion of a person knowledgeable about rental values for applicable apartment, hotel, or residential property, including a real estate appraiser certified under chapter 466K, HRS, or real estate broker properly licensed under chapter 467, HRS, with a knowledge of rental values for the applicable apartment, hotel, or residential property. (3) Factors for store, office, and other commercial property. (A) For a retail store, consider sales volume, existence of nearby competition, and the availability of public transportation and parking facilities; (B) Current rents paid and asked for comparable stores, offices, or other commercial properties in the same area as of the date when the lease is executed; and (C) The written opinion of a person knowledgeable about rental values for applicable store, office, and commercial property, including a real estate appraiser certified under chapter 466K, HRS, or real estate broker properly licensed under chapter 467, HRS, with a knowledge of rental values for the applicable store, office, and other commercial property. (4) Factors for mining, manufacturing, and other industrial property. (A) Gross and net area, ceiling height, physical condition of the real property, availability of parking, loading and other service areas, access to transportation facilities, and the labor market in the area; (B) Current rents paid and asked for comparable mining, manufacturing, and other commercial properties in the same area as of the date when the lease is executed; and (C) The written opinion of a person knowledgeable about rental values for applicable mining, manufacture, and other industrial properties, including a real estate appraiser certified under chapter 466K, HRS, or real estate broker licensed under chapter 467, HRS, with a knowledge of rental values for mining, manufacturing, and other industrial property. HRS §237-16.5 HRS §237-16.5 237- 45 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-20-02 (5) Factors for farms and ranches. (A) For a farm, kinds of crops for which the land is suitable, and the probable yield. (B) Current rents paid and asked for comparable farms and ranches in the same area as of the date when the lease is executed; and (C) The written opinion of a person knowledgeable about rental values for applicable farms and ranches, including a real estate appraiser certified under chapter 466K, HRS, or real estate broker properly licensed under chapter 467, HRS, with a knowledge of rental values for farms and ranches. (b) This listing of factors is not exclusive. If these factors do not result in a reasonable allocation of the gross proceeds or gross income paid by the Lessee, the Lessee may use or the department of taxation may require the use of other factors. [Eff 10/01/98] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-16.5) §18-237-16.5-07 Burden of proof on the taxpayer. The taxpayer has the burden of providing evidence satisfactory to the department of taxation that the taxpayer qualifies to be taxed under section 237-16.5, HRS, instead of section 237-13(10), HRS. If the taxpayer qualifies to be taxed under section 237-16.5, HRS, the taxpayer has the burden of providing evidence satisfactory to the department that the taxpayer qualifies for the deduction for the sublease of the real property or space. [Eff 10/01/98 ] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-16.5) §18-237-17 to §18-237-19 (Reserved) §18-237-20-01 Reimbursement exemption, in general. (a) Section 237-20, HRS, provides that the reimbursement of a cost or advance made for or on behalf of one person by the taxpayer shall not constitute gross income to the taxpayer, unless the taxpayer receiving such reimbursement also receives additional monetary consideration for making such cost or advance. (b) This provision was enacted by Act 297, Session Laws of Hawaii 1967 (Act 297). The Legislature believed that Act 297 “would result in increased clarity of language with respect to the taxability of reimbursements. It is the intent of this bill that payments made by one person through another without monetary gain to the latter shall not create a taxable incident under the general excise tax law”. S. Stand. Com. Rep. No. 877, 1967 Reg. Sess., Haw. S.J. 1230-1231 (1967); H.R. Stand. Comm. Rep. No. 497, 1967 Reg. Sess., Haw. H.J. 658-659 (1967). Act 297, however, has not resulted in “increased clarity”. Since the passage of Act 297, the courts, department of taxation (department), and practitioners, have tried to distinguish between “reimbursements” that are not gross income under section 237-20, HRS, and the receipt of other payments that are included in taxable gross income. (c) Prior to Act 297, the law regarding reimbursements (old law), read as follows: Even though a business has some of the aspects of agency it shall not be so regarded unless it is a true agency. Without prejudice to the generality of the foregoing, the reimbursement by one person of the amount of costs incurred by another constitutes gross income to the latter, unless the person making the reimbursement was himself, as principal liable in that amount to the third party who furnished the property, services and the like for which the costs were incurred. The old law provided that the reimbursement exemption was applicable to amounts repaid to an agent (taxpayer) by its principal that reimburse the agent for costs that the principal was liable for. Under the current statute, and these rules an agency relationship is not required to qualify for the reimbursement exemption; although the reimbursement exemption may apply where there is an agency relationship. (d) The Department issued the first of two administrative guidelines, Taxability of Reimbursement of Costs or Advances under Section 117-17.1 of the General Excise Tax Law, Chapter 117, RLH 1955, as amended by Act 297, L. 1967 on June 17, 1968 (Taxability of Reimbursement, 1968). There are no substantive differences between section 117-17.1 and the current statute. Some of the principles and examples in these rules are drawn from Taxability of Reimbursement, 1968. (e) General Excise Tax Memorandum No. 5 was issued by the Department on December 23, 1986 as interim guidance to administer the current statute. These rules expand and clarify the concepts discussed in General Excise Tax Memorandum No. 5 and the Department withdraws General Excise Tax Memorandum No. 5. [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS§ 237-20) §18-237-20-02 Summary of the rules. The reimbursement exemption applies when: (1) Taxpayer pays a cost or advance to Third Party (section 18-237-20-05); (2) For or on behalf of Reimbursing Party (section 18-237- 20-06); and (3) Taxpayer is repaid the cost or advance and receives no additional monetary consideration for making the cost or advance (section 18-237-20-4). [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-20) HRS §237-16.5 HRS §237-20 HRS §237-20 §18-237-20-03 GENERAL EXCISE TAX LAW 237- 46 (Unofficial Compilation as of 12/31/2025) §18-237-20-03 Definitions; generally. For purposes of sections 18-237-20-01 to 18-237-20-07: “Reimbursement” means an amount that Taxpayer receives from the Reimbursing Party for making the cost or advance for or on behalf of Reimbursing Party and does not include additional monetary consideration. “Reimbursing Party” means the party who repays the Taxpayer for making the cost or advance to the Third Party for or on behalf of the Reimbursing Party. The term “Reimbursing Party” is used regardless of whether the amount received by the Taxpayer is a taxable or nontaxable reimbursement. “Taxpayer” means the party attempting to claim the exemption under section 237-20, HRS, for the amount received from the Reimbursing Party. The term “Taxpayer” is used regardless of whether the amount received by the Taxpayer is a taxable or nontaxable reimbursement. “Third Party” means the party to whom the Taxpayer pays the cost or advance and does not include the Taxpayer’s employees. The term “Third Party” is used regardless of whether the amount received by the Taxpayer is a taxable or nontaxable reimbursement. [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-20) §18-237-20-04 “Additional monetary consideration”, defined. (a) “Additional monetary consideration” means any amount, which Taxpayer receives that is in excess of the cost or advance to Third Party. For there to be no additional monetary consideration, the amount received by Taxpayer must be no more than the cost or advance. Example 1: Taxpayer, a consultant, is hired by Reimbursing Party to purchase theater tickets. Taxpayer purchases tickets from Third Party. Taxpayer receives from Reimbursing Party a fee and the amount covering the price of the tickets. Conclusion: Taxpayer received additional monetary consideration because Taxpayer received the fee, an amount in excess of the amount paid to Third Party. Example 2: Taxpayer is in the business of selling equipment. Taxpayer and an equipment manufacturer (Reimbursing Party) have entered into a preexisting cost-splitting agreement to equally share the expenses of advertising manufacturer’s equipment and Taxpayer’s dealership. The advertising is expected to equally benefit manufacturer and Taxpayer. The agreement provides that: Taxpayer will initially pay an advertising agency (Third Party) to provide advertising services, Taxpayer will provide manufacturer with an invoice reflecting all advertising costs, and manufacturer will repay Taxpayer for fifty per cent of the advertising costs without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Manufacturer repays Taxpayer. Conclusion: Taxpayer does not receive additional monetary consideration. Example 3: Taxpayer, a real estate broker, and real estate sales agents (Reimbursing Parties), classified as independent contractors for tax purposes, have entered into preexisting cost- splitting agreements relating to the use of Taxpayer’s phones by the agents to make long-distance telephone calls at Taxpayer’s offices. Taxpayer makes its own long-distance telephone calls. Taxpayer pays the phone company (Third Party) for Taxpayer’s and the agents’ long-distance charges and collects from each agent the exact amount of long-distance charges attributable to that agent at the end of each month without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: Taxpayer does not receive additional monetary consideration. (b) “Additional monetary consideration” includes money, property, services, or any-in-kind payment or value, which Taxpayer receives that is, related to the cost or advance. Example 4: Assume the same facts as above in Example 3, except that at the end of the month the Taxpayer receives a “rebate” from the phone company based on the volume of long- distance calls. The Taxpayer does not give any portion of the “rebate” to agents that paid for their long-distance calls. Conclusion: The Taxpayer receives additional monetary consideration unless that rebate is passed-on to each agent in proportion to the calls made by each agent and Taxpayer. (c) “Additional monetary consideration” does not include amounts received by the Taxpayer that are unrelated to the cost or advance to Third Party. Example 5: Taxpayer, a supermarket, advances $1,000 for Fish Market (Reimbursing Party) to a Third Party to purchase a truck. The Taxpayer receives from Fish Market $1,000 for the advance on the truck and $100 for a refund resulting from returned fish products. Conclusion: The HRS §237-20 HRS §237-20 237- 47 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-20-06 Taxpayer did not receive additional monetary consideration because Taxpayer’s $100 refund is unrelated to the cost or advance to Third Party. Example 6: The Taxpayer manages owner’s (Reimbursing Party) rental unit under a management agreement and receives a fee. The agreement requires the owner’s approval for major expenditures relating to the rental unit. The carpet in the unit must be replaced. Taxpayer locates a contractor (Third Party) to replace the carpet. The carpet replacement is a major expenditure under the terms of the management agreement, and Taxpayer secures the owner’s approval for the carpet replacement. Taxpayer initially pays contractor for the carpet and owner repays Taxpayer without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The Taxpayer did not receive additional monetary consideration because Taxpayer’s management fee is unrelated to the cost or advance to contractor. [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237- 8) (Imp: HRS §237-20) §18-237-20-05 “Cost or advance”, defined. (a) “Cost or advance” means the actual invoice amount that a Taxpayer pays to a Third Party. Example 7: Taxpayer is in the business of selling machinery and performing warranty work on machinery. The manufacturer (Reimbursing Party) directs the Taxpayer to perform warranty work on customer’s machinery. Taxpayer is unable to do such work and has another company (Third Party) perform the warranty work. The Third Party sends an invoice for $100 to Taxpayer and Taxpayer pays the invoice amount. Reimbursing Party pays Taxpayer $100 with no additional monetary consideration. Conclusion: The $100 is a cost or advance. (b) “Cost or advance” does not include an amount that a Taxpayer pays for costs or expenses consumed by the Taxpayer, such as an amount that the Taxpayer pays to its own employees; or an amount representing usage of the Taxpayer’s supplies or equipment. Example 8: Taxpayer provides warranty work for manufacturer (Reimbursing Party). Taxpayer’s employees perform warranty work, including repair services and replacement of parts for the manufacturer; no repair services or replacement of parts are performed by persons other than the employees. Taxpayer’s employees receive salaries for performing repair services and replacing parts. Taxpayer bills manufacturer a fee of $1,250 plus $1,000 representing the salaries paid to Taxpayer’s employees for services and replaced parts. Conclusion: The $1,000 is not a cost or advance. Example 9: Taxpayer, an accounting firm, bills its client (Reimbursing Party) $1,000 for professional services plus $100 representing a share of Taxpayer’s overhead costs, including supplies, equipment, and computers. Conclusion: The $100 is not a cost or advance. Example 10: Taxpayer, a law firm, bills its client (Reimbursing Party) $1,000 for professional services plus $100 for copying costs at 10 cents a page. The copies were made on Taxpayer’s copying equipment using Taxpayer’s employees. Conclusion: The $100 is not a cost or advance. [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-20) §18-237-20-06 “For or on behalf of Reimbursing Party”, defined. (a) A payment of a cost or advance is “for or on behalf of Reimbursing Party” when done at the request or direction of Reimbursing Party. (b) A cost or advance is done at the request or direction of Reimbursing Party if: (1) (A) The payment is made pursuant to a preexisting contract between Reimbursing Party and Third Party that creates a direct obligation for Reimbursing Party to pay Third Party for property or services; (B) The payment is made pursuant to a preexisting contract between Reimbursing Party and Taxpayer whereby Taxpayer pays Third Party for property or services to satisfy an obligation of Reimbursing Party; or (C) The payment is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays Third Party for property or services provided to both Taxpayer and Reimbursing Party, and Taxpayer receives from Reimbursing Party a payment proportionate to Reimbursing Party’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis (e.g., quantity of property, square footage, time spent, lines of advertising); HRS §237-20 HRS §237-20 §18-237-20-06 GENERAL EXCISE TAX LAW 237- 48 (Unofficial Compilation as of 12/31/2025) (2) A Taxpayer does not use, consume, or alter the property or services provided by Third Party. Third Party’s property or services are used, consumed, or altered by Taxpayer if the property or services are incorporated into or combined with the Taxpayer’s property or services or are amounts paid for the Taxpayer’s overhead. (c) “The payment is made pursuant to a preexisting contract between Reimbursing Party and Third Party that creates a direct obligation for Reimbursing Party to pay Third Party for property or services” is illustrated as follows: Example 11: Taxpayer manages owner’s (Reimbursing Party) rental unit under a management agreement that requires owner’s approval for major expenditures relating to the rental unit. Taxpayer locates a contractor (Third Party) to replace the carpet. The written contract with contractor is entered into in the name of owner, rather than Taxpayer, and the contract provides that owner, not Taxpayer, is to pay for the services provided by contractor. Conclusion: The contract between owner and contractor is a preexisting contract that creates a direct obligation for owner to pay contractor for the carpet. Example 12: Taxpayer manages owner’s (Reimbursing Party) rental unit under a management agreement that requires owner’s approval for major expenditures relating to the rental unit. The management agreement provides that owner, not the Taxpayer, ultimately is to pay for all major expenditures. Taxpayer locates a contractor (Third Party) to replace the carpet. The carpet replacement is a major expenditure under the terms of the management agreement that owner ultimately is liable for, and the Taxpayer secures owner’s approval for the carpet replacement. The written contract with contractor is entered into in the name of the Taxpayer. Taxpayer pays the Contractor’s bill and is reimbursed by Reimbursing Party with no additional consideration. Conclusion: The payment is made pursuant to a preexisting contract between Reimbursing Party and the Taxpayer whereby Taxpayer pays Third Party for property or services to satisfy an obligation of Reimbursing Party. Example 13: Taxpayer, the owner of an office building, leases a portion of the office building to tenant (Reimbursing Party) and agrees to provide janitorial services for tenant. Taxpayer contracts with a company providing janitorial services (Third Party) to clean the office building, including the portion leased to tenant. Taxpayer pays the janitorial services company. Tenant pays Taxpayer rent and its share of the expenses for janitorial services. Conclusion: Neither the lease nor the janitorial services contract is a preexisting contract that creates an obligation, direct or otherwise, for tenant to pay the janitorial services company for the janitorial services. Example 14: Taxpayer leases real property from landlord (Third Party) and subleases the real property to a hamburger franchisee (Reimbursing Party). The sublease agreement specifies that franchisee’s sublease rent is equal to or less than the amount of lease rent that Taxpayer is required to pay landlord (no additional monetary consideration received by Taxpayer). Franchisee pays its sublease rent to Taxpayer. Taxpayer pays its lease rent to landlord. Taxpayer’s lease rent payment to landlord is not made for or on behalf of franchisee because the payment satisfies Taxpayer’s obligation to pay rent to landlord under its lease and does not satisfy an obligation of franchisee to landlord. Pursuant to its sublease, franchisee has an obligation to pay sublease rent to Taxpayer. Conclusion: The sublease is not a preexisting contract that creates a direct obligation between franchisee and landlord. This sublease also does not qualify as a preexisting cost splitting contract under section 18-237-20-6(e) as discussed in Example 32. However, Taxpayer may be eligible for the sublease deduction under section 237-16.5, HRS. Example 15: Assume the same facts as in Example 14, except that instead of Taxpayer directly paying its lease rent to landlord (Third Party), Taxpayer discharges its rental obligation to landlord by requiring franchisee (Reimbursing Party) to directly pay sublease rent it owes Taxpayer to landlord as a condition of the sublease. Conclusion: Franchisee’s sublease rent payment is not considered a payment by Taxpayer made for or on behalf of franchisee because the sublease obligates franchisee to Taxpayer and not to landlord. Because the payment also discharges Taxpayer’s underlying obligation to landlord, the payment is not a reimbursement of a cost or advance for or on behalf of franchisee to landlord. The sublease merely requires that franchisee’s sublease rent payment be directed to landlord to satisfy Taxpayer’s lease rent obligation. Franchisee’s sublease rent payment directly to landlord is a payment for or on behalf of Taxpayer and not for or on behalf of franchisee. The sublease is not a preexisting contract that 237- 49 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-20-06 creates a direct obligation for franchisee to pay landlord the sublease rent. However, Taxpayer may be eligible for the sublease deduction under section 237-16.5, HRS. (d) “The payment is made pursuant to a preexisting contract between Reimbursing Party and Taxpayer whereby Taxpayer pays Third Party for property or services to satisfy an obligation of Reimbursing Party” is illustrated as follows: Example 16: Taxpayer is in the business of selling and performing warranty work on machinery. Manufacturer (Reimbursing Party) directs Taxpayer to perform warranty work on customer’s machinery. Taxpayer is unable to do such work so it pays another company (Third Party) to do the warranty work. Conclusion: These warranty work expenses are paid pursuant to a preexisting contract between Taxpayer and manufacturer whereby Taxpayer pays Third Party for property or services to satisfy an obligation of manufacturer. Example 17: Taxpayer, an attorney, enters into an agreement to represent Client (Reimbursing Party). The agreement is considered an agency agreement because Taxpayer has the power to bind Client, Taxpayer acts as a fiduciary for Client, and Taxpayer is subject to the control of Client. Taxpayer advances fees required by law (recording fees, filing fees, sheriff’s fees, witness fees, fees paid to court reporters, and fees paid for publishing legal notices) to Third Parties during the course of representing Client. Conclusion: These fees are paid pursuant to a preexisting contract between Taxpayer and Client whereby Taxpayer pays Third Parties for property or services to satisfy an obligation of Client. Example 18: Assume the same facts as in Example 17, except that Taxpayer passes-on to Client the costs paid for traveling expenses (lodging, transportation, and meals), long-distance telephone calls, and the cost of reproduction to Third Parties. Conclusion: These costs are not the obligation of client. These costs are the obligation of Taxpayer because they are necessarily incurred by Taxpayer to allow Taxpayer to perform legal services for Client. Taxpayer uses, consumes, or alters Third Parties’ services to perform legal services. See section 18-237-20-6(f). Example 19: Taxpayer, an automobile dealer, sells a car to Customer (Reimbursing Party). As part of the sales agreement, Taxpayer advances the automobile registration fee and Customer’s taxes to Third Parties. Conclusion: The fees and taxes are paid pursuant to a preexisting contract between Taxpayer and Customer whereby Taxpayer pays Third Parties for property or services to satisfy obligations of Customer. Example 20: Taxpayer, an advertising agency, agrees to produce a brochure for customer (Reimbursing Party). Taxpayer will receive a fee and the costs paid to Third Parties. Third Parties develop photographs and print the brochure and send invoices to Taxpayer. Taxpayer pays the invoices and then bills customer for Taxpayer’s services and the exact amount of costs paid to Third Parties. Conclusion: While the costs of developing photographs and printing the brochure are paid pursuant to a preexisting contract between Taxpayer and customer, Taxpayer uses, consumes, or alters Third Parties’ services to produce the brochure. See section 18-237-20-06(f). (e) “The payment is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays Third Party for property or services provided to both Taxpayer and Reimbursing Party, and Taxpayer receives from Reimbursing Party a payment proportionate to Reimbursing Party’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis (e.g., quantity of property, square footage, time spent, lines of advertising)” is illustrated as follows: Example 21: Taxpayer sells equipment. Taxpayer and one of the equipment manufacturers (Reimbursing Party) enter into a cooperative advertising agreement to equally share the expenses of advertising Taxpayer’s dealership and manufacturer’s equipment. The advertising is expected to equally benefit Taxpayer and manufacturer. The preexisting cost-splitting contract provides that: Taxpayer will initially pay an advertising agency (Third Party) for all the advertising costs, Taxpayer will provide manufacturer with an invoice reflecting all advertising costs, and manufacturer will repay Taxpayer for fifty per cent of the advertising costs, without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to advertising agency is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays agency for property or services provided to both Taxpayer and manufacturer. Taxpayer §18-237-20-06 GENERAL EXCISE TAX LAW 237- 50 (Unofficial Compilation as of 12/31/2025) receives from manufacturer a payment proportionate to manufacturer’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis because Taxpayer and manufacturer will benefit equally from the advertising. Example 22: Taxpayer, a real estate broker, and its real estate sales agents (Reimbursing Parties), classified as independent contractors for tax purposes, enter contracts regarding sharing of sales commissions and preexisting cost splitting contracts relating to the cost of advertising real property listings in Third Party’s newspaper. Taxpayer and each agent agree to place orders to advertise all of the agents’ listings in a single advertisement in the newspaper. Taxpayer pays for the portions of the advertisement that refer generally to Taxpayer. All of the advertising work, except for the copy that is submitted by each agent to Taxpayer and then to Third Party, is performed by Third Party. The contract provides that Taxpayer will initially pay Third Party for all the advertising costs. Each agent will repay Taxpayer a portion of the advertising costs based upon the total number of lines of advertising that are attributable to each agent’s listings without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to Third Party is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays Third Party for property or services provided to both Taxpayer and each agent, and Taxpayer receives from each agent a payment proportionate to the agent’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 23: Assume the same facts as in Example 22, except that Taxpayer and the agents enter into preexisting cost-splitting contracts to equally share the cost of business cards. Taxpayer hires a printing company (Third Party) to print business cards for the agents. The cards have the name of agents as well as the name and logo of Taxpayer. Taxpayer pays the printing company for all the costs to print the agents’ cards and each agent repays Taxpayer fifty per cent of the amount paid to the printing company for the agent’s cards without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to the printing company is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays the printing company for property or services provided to both Taxpayer and each agent, and Taxpayer receives from each agent a payment proportionate to the agent’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 24: Assume the same facts as in Example 22, except that the real estate broker is the Reimbursing Party and real estate agents are Taxpayers. The real estate broker enters into preexisting cost-splitting contracts with real estate agents to equally share the cost of brochures that advertise the agents’ services and affiliation with the real estate broker. The contract provides that agents will initially pay the printing company for all the brochure costs following broker’s approval of the form and content of a sample brochure. Broker will repay agents for fifty per cent of the brochure costs, without including any amount for agents’ overhead, salaries, incidental expenses, or profit. Conclusion: The payments to the printing company are made pursuant to preexisting cost-splitting contracts whereby agents pay the printing company for property or services provided to agents and broker, and agents receive from broker a payment proportionate to broker’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 25: Assume the same facts as in Example 22, except that Taxpayer (real estate broker) enters into preexisting cost-splitting contracts with real estate sales agents (Reimbursing Parties) to share the cost of errors and omissions insurance arranged by Taxpayer. The insurance premium paid to the insurance company (Third Party) is increased as each agent receives insurance coverage, and the agent repays Taxpayer one-half of the insurance premium attributable to the agent without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to the insurance company is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays the insurance company for property or services provided to both Taxpayer and the agent, and Taxpayer receives from each agent a payment proportionate to the agent’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 26: Assume the same facts as in Example 22, except that broker (Taxpayer) and agents (Reimbursing Parties) participate in the Multiple Listing Service’s (MLS) (Third Party) central property advertisement and other services. Taxpayer and agents enter into preexisting 237- 51 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-20-06 cost-splitting contracts that provide that the fee for “loading” each real estate listing is initially paid by Taxpayer. The agent who has the listing repays Taxpayer one-half of the fee for “loading” the listing without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to the MLS is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays the MLS for property or services provided to both Taxpayer and the agent, and Taxpayer receives from each agent a payment proportionate to agent’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 27: Assume the same facts as in Example 22, except that broker (Taxpayer) and agents (Reimbursing Parties) participate in the Multiple Listing Service’s (MLS) (Third Party) central property advertisement and other services. The annual dues, MLS participation fee, and cost for MLS books are assessed to Taxpayer and each of the agents, but the invoices are sent to Taxpayer. Taxpayer and the agents enter into preexisting cost-splitting contracts that provide that Taxpayer will initially pay the MLS dues, fee, and cost for books for Taxpayer and the agent. The agent will repay Taxpayer the exact amount Taxpayer pays to the MLS that is attributable to each agent without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to the MLS is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays the MLS for property or services provided to both Taxpayer and the agent, and Taxpayer receives from each agent a payment proportionate to the agent’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 28: Assume the same facts as in Example 22, except that Taxpayer and the agents (Reimbursing Parties) enter into preexisting cost-splitting contracts relating to the use of Taxpayer’s telephones by the agents to make long-distance telephone calls at Taxpayer’s office. Taxpayer makes some long-distance calls. Taxpayer pays the phone company (Third Party) for Taxpayer’s and the agents’ long-distance charges and collects from each agent the exact amount attributable to each agent at the end of each month without including any amount for Taxpayer’s overhead, salaries, incidental expenses, or profit. Conclusion: The payment to the phone company is made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays the phone company for property or services provided to both Taxpayer and the agent, and Taxpayer receives from the agent a payment proportionate to the agent’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. Example 29: Taxpayer, an architect, enters into a contract with client (Reimbursing Party). The contract provides that Taxpayer will receive, in addition to a fee for professional services, the costs paid to Third Parties. These costs include traveling expenses (lodging, transportation, and meals), long-distance telephone calls, the cost of reproduction, and postage and handling of drawings and specifications incurred in connection with projects for client. Taxpayer pays Third Parties and breaks down the billing to client into professional services and the exact amount of these incidental costs paid to Third Parties. Conclusion: The payments to Third Parties are not made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays Third Parties for property or services provided to both Taxpayer and Reimbursing Party, and Taxpayer receives from client a payment proportionate to client’s share of the cost of the property or services based upon an actually calculable factor that has an economic basis. These services are provided to Taxpayer to allow Taxpayer to fulfill its contract with client; the services are not provided to both Taxpayer and client. Example 30: Taxpayer, the owner of an office building, leases the office building to tenants (Reimbursing Parties) and agrees to provide janitorial services for the tenants. Taxpayer contracts with a company providing janitorial services (Third Party) to clean the office building. Taxpayer pays the janitorial services company. Tenants pay Taxpayer rent and a share of the amount paid by Taxpayer to the janitorial services company. Conclusion: The payment to the janitorial services company is not made pursuant to a preexisting cost-splitting contract whereby Taxpayer pays the janitorial services company for property or services provided to both Taxpayer and tenants, and Taxpayer receives from tenants a payment proportionate to tenants’ share of the cost of the property or services based upon an actually calculable factor that has an economic basis. These janitorial services are provided to Taxpayer to allow Taxpayer to fulfill its contract with tenants. §18-237-20-06 GENERAL EXCISE TAX LAW 237- 52 (Unofficial Compilation as of 12/31/2025) The amounts received by Taxpayer for these janitorial services are deemed to be part of the rent received by Taxpayer and do not qualify as a nontaxable reimbursement. Example 31: Assume the same facts as in Example 30, except that the owner of the office building (Taxpayer) contracts with a property management company to rent and maintain the building and the property management company contracts with a janitorial services company (Third Party) to clean the office building. Conclusion: The reimbursement exemption is not applicable to either Taxpayer or the property management company. (1) Taxpayer is subject to the general excise tax on the rent received from tenants, including the amounts received for janitorial services. The reimbursement exemption is not applicable because the payment to the janitorial service company is not made pursuant to a preexisting cost-splitting contract. (2) The property management company is subject to the general excise tax on the income received for managing the building, but not for Taxpayer’s income, including the amounts received by Taxpayer for janitorial services. Example 32: Assume the same facts as in Example 14. Conclusion: Franchisee’s (Reimbursing Party) sublease rent payment is made pursuant to a sublease between Taxpayer and franchisee, not pursuant to a preexisting cost-splitting contract. Unlike a preexisting cost-splitting contract involving three parties where Taxpayer and Reimbursing Party agree to proportionately share the cost of property or services provided by Third Party to both Taxpayer and Reimbursing Party, a sublease is a contract between only two parties where one party (the franchisee/ Reimbursing Party) agrees to pay rent to another (Taxpayer) in return for the use and possession of property. In this lease-sublease arrangement, the landlord (Third Party) provides the use and possession of property to Taxpayer in exchange for rent. Subsequently, Taxpayer provides the use and possession of the property to franchisee/Reimbursing Party in exchange for rent. The property is not provided to Taxpayer and franchisee at the same time, and the cost of using real property is not shared by Taxpayer and franchisee. (f) “Taxpayer does not use, consume, or alter the property or services provided by Third Party” is illustrated as follows: Example 33: Taxpayer is in the business of selling and performing warranty work on machinery. Manufacturer (Reimbursing Party) directs Taxpayer to perform warranty work on customer’s machinery. Taxpayer is unable to do such work so it pays Third Party to do the warranty work. Conclusion: Taxpayer does not use, consume, or alter Third Party’s services because the warranty work is not incorporated into or combined with Taxpayer’s property or services. Third Party’s warranty work is provided to manufacturer’s customer. Example 34: Assume the same facts as in Example 29, relating to the architect. Conclusion: The traveling expenses, long-distance telephone calls, the reproduced items, and postage are used, consumed, or altered because these incidental services are incorporated into or combined with Taxpayer’s architectural services. Example 35: Taxpayer, an interior decorator, is hired to decorate customer’s (Reimbursing Party) house. Taxpayer buys rugs and furnishings from a furniture store (Third Party) for customer. Conclusion: Taxpayer uses, consumes, or alters Third Parties’ property because the property is incorporated into or combined with Taxpayer’s interior decoration services. Example 36: Taxpayer, an accounting firm, is hired by customer (Reimbursing Party) to audit its financial records. Because the audit requires more personnel hours than could be performed by Taxpayer’s personnel, Taxpayer contracts with another accounting firm (Third Party) to perform part of the audit work, and combines that work with the work of Taxpayer’s auditors. Taxpayer pays the other accounting firm. Conclusion: Even if Taxpayer separately bills customer for the exact amount paid to the other accounting firm, Taxpayer uses, consumes, or alters the other accounting firm’s services because the services are incorporated into or combined with Taxpayer’s services. (g) A cost or advance cannot be made for or on behalf of Reimbursing Party if Taxpayer makes the cost or advance before a request by Reimbursing Party. 237- 53 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-29.53-01 Example 37: Assume the same facts as in Example 16, relating to warranty work on customer’s machinery. Conclusion: The payment for warranty work is a cost or advance because Taxpayer makes the cost or advance (payment of expenses) after a request by Reimbursing Party. Example 38: Taxpayer signs a contract with Third Party that provides Taxpayer unlimited access to a research database. Taxpayer subsequently allows Reimbursing Party to access the database using Taxpayer’s account and charges Reimbursing Party one-half of the access fee. Conclusion: The access fee is not a cost or advance for or on behalf of Reimbursing Party because Taxpayer makes the cost or advance (purchase of access to the data base) prior to any request by Reimbursing Party. [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-20) §18-237-20-07 Burden of proof on Taxpayer. (a) Taxpayer has the burden of providing evidence satisfactory to the Department that Taxpayer qualifies for the reimbursement exemption. Whether the transaction qualifies for the reimbursement exemption is determined by all the facts and circumstances; no single factor is controlling. (b) The designation or characterization by Taxpayer of a receipt of a payment as a reimbursement that qualifies for exemption from the general excise tax is not controlling. The substance of a transaction, not the form of the transaction nor the designation used by Taxpayer, shall determine whether the reimbursement exemption is applicable. Example 39: Taxpayer provides market surveys, issues press releases, and places advertisements for client (Reimbursing Party). Taxpayer’s contract with client includes a provision that costs of transportation, living expenses when traveling, payments for long distance telephone calls and telegrams, and other payments to Third Parties are deemed “reimbursements”. Taxpayer’s billings to client are broken down into services and “reimbursements”. Taxpayer receives payments from client and files a general excise tax return and excludes these costs paid to Third Parties claiming the reimbursement exemption. Conclusion: The expenses designated by Taxpayer as “reimbursements” do not qualify for the reimbursement exemption because the payments from Taxpayer to Third Parties were not for or on behalf of client. The property or services provided by the Third Parties were used, consumed, or altered by Taxpayer. Even though Taxpayer has claimed these costs as qualifying for the reimbursement exemption, such costs do not qualify for the reimbursement exemption. [Eff 7/15/2006] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-20) §18-237-21 to §18-237-28 (Reserved) §18-237-29.53-01 Definitions. As used in sections 18-237-29.53-01 to 18-237-29.53-13: “Collection actions” means all actions taken to enforce a money judgment or collect a debt. “Commissioned agent” means an agent that: (1) sells, buys, leases, or procures property; (2) sells, buys, or procures services; or (3) sells, books, or arranges transient accommodations or travel-related bookings on behalf of a principal, with the principal’s assent, for a predetermined fee. When a commissioned agent enters into a sales transaction with a third party on behalf of a principal, the total price of the sale is controlled by the principal; the total price cannot be unilaterally determined by the agent. “Customer” means the person personally receiving the service. “Noncommissioned negotiated contract rates” means the rates specified in a negotiated contract between a travel agent or tour packager and operator of a transient accommodation or operator of a travel-related booking that the operator of a transient accommodation or operator of a travel-related booking will receive for a transaction booked by the travel agent or tour packager. When transient accommodations are furnished or travel-related bookings are made through arrangements made by a travel agent or tour packager at noncommissioned negotiated contract rates, the travel agent or tour packager may unilaterally determine the mark-up of the noncommissioned negotiated contract rate and the total price charged to the customer; the operator of the transient accommodation or the operator of the travel-related booking has no control over the mark-up or the total price. “Transient accommodation” means the same as the term is defined in section 237D-1, HRS. “Travel-related booking” includes tours, excursions, transportation, rental vehicles, shows, dining, spa services, and any other reservation or booking made by a travel agent or tour packager. Example 1: World Travel Inc. enters into a contract with Gold Hotel whereby World Travel Inc. may sell the right to occupy rooms in Gold Hotel at $100 per room per night. The contract further provides that World Travel Inc. will receive a fee of ten per cent for each sale. World Travel Inc. is a commissioned agent of Gold Hotel. HRS §237-20 HRS §237-29.53 §18-237-29.53-02 GENERAL EXCISE TAX LAW 237- 54 (Unofficial Compilation as of 12/31/2025) Example 2: Assume the same facts as in Example 1, except that the contract between World Travel Inc. and Gold Hotel provides that World Travel Inc. will receive a fee of eight per cent if total sales for the month are less than $10,000 or ten per cent if total sales for the month are $10,000 or more. World Travel Inc. is a commissioned agent of Gold Hotel. Example 3: Island Planner Co. enters into a contract with Silver Hotel whereby Island Planner Co. may sell the right to occupy rooms in Silver Hotel. For each booking made by Island Planner Co., Silver Hotel will receive $100 per room per night. Island Planner Co. may unilaterally determine the mark-up and set the total price charged to the customer. Island Planner Co. is arranging transient accommodations at noncommissioned negotiated contract rates. Example 4: Assume the same facts as in Example 3, except that, for each booking made by Island Planner Co., Silver Hotel will receive ninety per cent of the net rate, the best available rate offered by Silver Hotel to the public at the time of the transaction. Island Planner Co. may unilaterally determine the mark-up of the net rate and set the total price charged to the customer. Island Planner Co. is arranging transient accommodations at noncommissioned negotiated contract rates. Example 5: Hawaii’s Best Inc., a travel agent, enters into a contract with Oceanside Spa to sell massage and facial treatments. For each massage or facial sold by Hawaii’s Best Inc., Oceanside Spa will receive $80. Hawaii’s Best Inc. may unilaterally determine the mark-up and set the total price charged to the customer. Hawaii’s Best Inc. is making travel-related bookings at noncommissioned negotiated contract rates. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-02 Exemption for contracting and services exported out of state, in general. (a) Absent bad faith, all of the value or gross income derived from contracting or services performed by a person engaged in a service business or calling are exempt from general excise tax if the contracting or services are used or consumed outside of the State; provided that services performed for a purchaser who resells the services are exempt from general excise tax only if the purchaser resells all of the services for use or consumption outside the State. (b) If contracting or services are used or consumed both in and outside of the State, all of the value or gross income will be subject to general excise tax in proportion to the benefit received in the State. Any reasonable method of apportioning all of the value or gross income may be used; provided that the method is consistently used by the taxpayer and supported by verifiable data that reasonably quantifies the proportionate benefit received in the State. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-03 Contracting. Contracting is used or consumed where the real property to which the contracting activity pertains is located. Example 1: General LLC, a general contractor based in Hawaii, is hired by Developer LLC, a Hawaii developer, for a construction project located in Guam. Employees of General LLC and Developer LLC meet in Hawaii on a weekly basis throughout the duration of the construction project to discuss plans, progress, and other matters related to the project. All of the value or gross income that General LLC receives for the construction project is exempt under section 237-29.53, HRS, because the contracting is used or consumed in Guam, where the real property is located. Example 2: Second Hawaiian Bank, a bank with its headquarters in Hawaii, hires General LLC, a general contractor based in Hawaii, to build two new branches, one in Guam and one in Hawaii. All of the value or gross income that General LLC receives for the Guam branch is exempt under section 237-29.53, HRS, because the contracting is used or consumed in Guam, where the real property is located. All of the value or gross income that General LLC receives for the Hawaii branch is not exempt under section 237-29.53, HRS, because the contracting is used or consumed in Hawaii, where the real property is located. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-04 Services related to real property. Services related to real property are used or consumed where the real property is located. Services related to real property include, but are not limited to, property management, real estate sales, real estate inspections, and real estate appraisals. Example 1: RPM Co., a Hawaii real property management company, is hired by RE Investor Inc., a Hawaii corporation, to manage a California property. All of the value or gross income that RPM Co. receives from HRS §237-29.53 HRS §237-29.53 HRS §237-29.53 237- 55 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-29.53-06 RE Investor Inc. to manage the California property is exempt under section 237-29.53, HRS, because the property management services are used or consumed in California, where the real property is located. Example 2: CPM LLC, a California real property management company, is hired by Irene Investor, a California resident who owns real property in Hawaii, to manage her property. All of the value or gross income that CPM LLC receives to manage the Hawaii property is not exempt under section 237-29.53, HRS, because the property management services are used or consumed in Hawaii, where the real property is located. Example 3: The Hawaii office of Legal Services LLP, a law firm with offices throughout the United States, is hired by Lisa Landlord, a Hawaii resident, to draft lease agreements for her rental properties in Hawaii, Arizona, and Nevada. Legal Services LLP charges Lisa Landlord $200 each for the Hawaii lease, Arizona lease, and Nevada lease, for a total fee of $600. Legal Services LLP shall report $600 in gross income on its general excise tax return and may claim two-thirds, or $400, as exempt under section 237-29.53, HRS, because two-thirds of the services relate to real property located outside Hawaii and are therefore used or consumed outside Hawaii. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-05 Services related to tangible personal property. Services related to tangible personal property are used or consumed where the tangible personal property is delivered after the services are performed. Services related to tangible personal property include, but are not limited to, inspection, appraisal, testing, and repair of tangible personal property. Services related to tangible personal property do not include services performed by commissioned agents. Example 1: Tom Tourist, a resident of Montana vacationing in Hawaii, takes his broken mobile phone to Fixer LLC, an electronic repair shop in Hawaii. After Fixer LLC repairs the mobile phone, Tom Tourist picks it up from Fixer LLC’s shop in Hawaii. All of the value or gross income that Fixer LLC receives is not exempt under section 237-29.53, HRS, because Fixer LLC’s service is used or consumed in Hawaii, where the property was delivered after the service was performed. Example 2: Assume the same facts as in Example 1, except that Fixer LLC, upon Tom Tourist’s request, ships the mobile phone to Tom Tourist’s home in Montana after completing the repair. All of the value or gross income that Fixer LLC receives is exempt under section 237-29.53, HRS, because Fixer LLC’s service is used or consumed in Montana, where the property was delivered after the service was performed. Example 3: Assume the same facts as in Example 1, except that Fixer LLC is unable to repair Tom Tourist’s mobile phone at its shop in Hawaii. Fixer LLC sends the phone to its warehouse in Arizona, where the repair is completed. The mobile phone is shipped back to Fixer LLC’s shop in Hawaii, where Tom Tourist picks it up. All of the value or gross income that Fixer LLC receives is not exempt under section 237-29.53, HRS, because Fixer LLC’s service is used or consumed in Hawaii, where the property was delivered after the service was performed. Example 4: Derrick Driver, a resident of Hawaii, calls Aloha Auto Finder, LLC, a car broker located in Hawaii, and hires it to find and negotiate a purchase price for a green classic car. Derrick Driver provides Aloha Auto Finder, LLC with a list of specifications that the car must have and the total amount he is willing to pay for the car. Derrick Driver and Aloha Auto Finder, LLC agree that Aloha Auto Finder, LLC will be paid a flat fee of $500. Aloha Auto Finder, LLC finds a green classic car in Michigan and negotiates a purchase price on behalf of Derrick Driver. Derrick Driver purchases the car and instructs the seller to ship the car from Michigan to Derrick Driver’s second home in Rhode Island. Section 237-29.53-05 does not apply because Aloha Auto Finder, LLC is a commissioned agent. Instead, section 237-29.53-10 applies. Under that rule, all of the value or gross income that Aloha Auto Finder, LLC receives is not exempt under section 237-29.53, HRS, because Aloha Auto Finder, LLC’s services are used or consumed in Hawaii, where Aloha Auto Finder, LLC is located. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-06 Services provided by a travel agency or tour packager at noncommissioned negotiated contract rates. (a) When transient accommodations are furnished through arrangements made by a travel agency or tour packager at noncommissioned negotiated contract rates, the travel agency’s or tour packager’s service is used or consumed where the transient accommodation is located. (b) When travel-related bookings other than transient accommodations are made or sold by a travel agency or tour packager at noncommissioned negotiated contract rates, the travel agency’s or tour packager’s service is used or consumed where the travel-related booking is located. HRS §237-29.53 HRS §237-29.53 §18-237-29.53-07 GENERAL EXCISE TAX LAW 237- 56 (Unofficial Compilation as of 12/31/2025) Example 1: Travel Services Corporation (“TSC”) sells a five-night stay at Luau Loft, a hotel in Hawaii, to Tammy Traveler, a resident of New Jersey. TSC arranges the transient accommodation at noncommissioned negotiated contract rates. The contract between TSC and Luau Loft provides that Luau Loft will receive ninety per cent of the net rate, the best available rate offered by Luau Loft to the public at the time of the transaction, and that TSC may unilaterally determine the mark-up of the net rate and set the total price charged to the customer. TSC charges Tammy Traveler $600 for the booking. The net rate at the time of TSC’s sale to Tammy Traveler is $100 per night, or $500 for five nights. TSC unilaterally sets the mark-up for the booking and the final price of $600. All of the value or gross income that TSC receives is not exempt under section 237-29.53, HRS. TSC’s service is used or consumed in Hawaii, where the transient accommodation is located, because the transient accommodation was furnished through arrangements made by a travel agency at noncommissioned negotiated contract rates. Example 2: Assume the same facts as in Example 1, except that TSC books a five-day rental of a vehicle in Hawaii for Tammy Traveler. TSC arranges the travel-related booking at noncommissioned negotiated contract rates. The contract between TSC and the rental vehicle company provides that the rental vehicle company will receive $50 per day for each vehicle rented and that TSC may unilaterally determine the mark-up and set the total price charged to the customer. TSC charges Tammy Traveler $300 for the booking. All of the value or gross income that TSC receives is not exempt under section 237-29.53, HRS. TSC’s service is used or consumed in Hawaii, where the travel-related booking is located. The travel-related booking was made by a travel agency at noncommissioned negotiated contract rates. Example 3: Alex Adventurer, a resident of Hawaii, visits the office of Maui Travel Agency (“MTA”), a travel agency located in Hawaii, to plan a vacation to Alaska. MTA sells a seven- night stay at Glacier Hotel, a hotel in Alaska, to Alex Adventurer. MTA arranges the transient accommodation at noncommissioned negotiated contract rates. The contract between MTA and Glacier Hotel provides that Glacier Hotel will receive $100 per room per night and that MTA may independently determine the mark-up and set the total price charged to the customer. MTA charges Alex Adventurer $1,000 for the booking, unilaterally determining to charge a mark-up of $300. All of the value or gross income that MTA receives is exempt under section 237-29.53, HRS. MTA’s service is used or consumed in Alaska, where the transient accommodation is located. The transient accommodation was furnished through arrangements made by a travel agency at noncommissioned negotiated contract rates. Example 4: Assume the same facts as in Example 3, except that the contract between MTA and Glacier Hotel provides that MTA may book rooms at Glacier Hotel for $125 per room per night and that, for each booking, MTA will receive ten per cent of the sale. MTA does not have the authority to mark up or unilaterally change the total price charged to the customer. Section 18- 237-29.53-06 does not apply because transient accommodations are not being furnished through arrangements made by a travel agency at noncommissioned negotiated contract rates. Instead, MTA is a commissioned agent and section 18-237-29.53-10 applies. Under that rule, all of the value or gross income that MTA receives is not exempt because MTA is in Hawaii and the booking occurred in Hawaii. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-07 Legal services in an action or proceeding. Legal services provided to a party in a judicial action or proceeding, administrative proceeding, arbitration, mediation, or other method of dispute resolution are used or consumed where the case or matter is filed. For purposes of this section, “party” means a party in an action or proceeding, including but not limited to, a plaintiff, defendant, petitioner, respondent, appellant, appellee, or real party in interest. Example 1: Annie Attorney, an attorney based in Hawaii, is hired by Aaron Appellant, a Hawaii resident, to represent him in an appeal pending in the Court of Appeals in California. Annie Attorney drafts the briefs in her office in Hawaii and attends the hearing in California. All of the value or gross income that Annie Attorney receives from Aaron Appellant is exempt under section 237-29.53, HRS, because Annie Attorney’s services are used or consumed in California, where the case was filed. Example 2: Annie Attorney, an attorney based in Hawaii, is hired by Daniel Defendant, an Oregon resident, to represent him in a lawsuit filed against him in Hawaii. All of the value or gross income that Annie Attorney receives from Daniel Defendant is not exempt under section 237-29.53, HRS, because Annie Attorney’s services are used or consumed in Hawaii, where the case was filed. HRS §237-29.53 237- 57 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-29.53-09 Example 3: XYZ, a multistate business, hires Legal Services LLP, a law firm with offices throughout the United States, including California and Hawaii, to represent it in a lawsuit filed in the United States District Court in Hawaii. The California office of Legal Services LLP performed eighty hours of work on the case and the Hawaii office of Legal Services LLP performed twenty hours of work on the case. All of the value or gross income that Legal Services LLP receives for its work performed in the California and Hawaii offices is not exempt under section 237-29.53, HRS, because Legal Services LLP’s services are used or consumed in Hawaii, where the case was filed. Example 4: Chris Client, a Hawaii resident, hires Legal Services LLP, a law firm with offices throughout the United States, to represent him in a personal injury case in California. Legal Services LLP drafts a complaint to be filed in California. Before the complaint is filed, however, Legal Services LLP settles the dispute. Because the complaint was not filed, section 18-237-29.53-07 does not apply. Instead, section 18-237-29.53-11 will apply. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-08 Debt collection services. Debt collection services are used or consumed where the collection actions take place. This section does not apply to businesses that engage in collection actions to recover their own debts. Example 1: Irene Investor, a California resident, hires Repo LLC to enforce a civil judgment against David Debtor, a Hawaii resident. Repo LLC performs the work necessary to levy David Debtor’s bank accounts and garnish David Debtor’s wages in Hawaii. All of the value or gross income that Repo LLC receives is not exempt under section 237-29.53, HRS, because Repo LLC’s services are used or consumed in Hawaii, where the collection actions took place. Example 2: Sam Spender, a California resident, has an outstanding debt owed to Credit Card Company. Cash Collectors Inc., a corporation located in Hawaii, purchases David Debtor’s debt from Credit Card Company and takes actions to recover the debt from Sam Spender. Section 237-29.53, HRS, does not apply because Cash Collectors Inc., in attempting to recover its own debt, is not engaging in a service business or calling. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-09 Services requiring customer to be physically present. Except as provided in sections 18-237-29.53-03 to 18-237-29.53-08, services that require the customer to be physically present at the time the service is performed are used or consumed where the service is performed. Example 1: Fiona Facial, an esthetician in Hawaii, sells a spa package consisting of a facial and manicure to Carol Colorado, a Colorado resident. Carol Colorado purchases the spa package online as a gift for her mother for an upcoming vacation to Hawaii. Carol Colorado’s mother travels to Hawaii, where she receives the facial and manicure from Fiona Facial. All of the value or gross income that Fiona Facial receives is not exempt under section 237-29.53, HRS, because Fiona Facial’s services are used or consumed in Hawaii. Carol Colorado’s mother, the customer, must be physically present in Hawaii at the time the service is performed. Example 2: ABC Company, an Arizona corporation, holds a corporate retreat in Hawaii. ABC Company hires Sue Speaker, a motivational speaker who resides in New Mexico, to fly to Hawaii and speak to ABC Company and its employees at the corporate retreat. All of the value or gross income that Sue Speaker receives from ABC Company is not exempt under section 237-29.53, HRS, because ABC Company must be physically present (through the presence of its employees) in Hawaii at the time the service is performed. Example 3: Assume the same facts as in Example 2 except that some employees of ABC Company are unable to attend the corporate retreat in Hawaii. Sue Speaker’s presentation is live-streamed to ABC Company’s office in Arizona for the employees in Arizona to view. All of the value or gross income that Sue Speaker receives from ABC Company is not exempt under section 237-29.53, HRS, because ABC Company must be physically present (through the presence of its employees) in Hawaii at the time the service is performed, notwithstanding the fact that some of its employees are not required to be physically present. Example 4: ABC Company, an Arizona corporation, hires Paul Presenter, a motivational speaker who resides in Hawaii, to speak to ABC Company and its employees via live-stream from Hawaii. The live-stream is accessed solely from ABC Company’s office in Arizona. Paul Presenter’s service does not require ABC Company to be physically present where the service is performed. Accordingly, section 18-237-29.53-09 does not apply. Instead, section 18-237-29.53-11 will apply. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) HRS §237-29.53 HRS §237-29.53 §18-237-29.53-10 GENERAL EXCISE TAX LAW 237- 58 (Unofficial Compilation as of 12/31/2025) §18-237-29.53-10 Services performed by commissioned agents. (a) Except as provided in section 18- 237-29.53-04, services performed by a commissioned agent are used or consumed where the agent is located at the time the agent’s services are performed; provided that: (1) when property is sold, purchased, leased, or procured online through a commissioned agent, the agent’s service is used or consumed where the property is delivered; (2) when services are sold, purchased, or procured online through a commissioned agent, the agent’s service is used or consumed where the transacted services are performed; (3) when transient accommodations or travel-related bookings are sold, purchased, or arranged online through a commissioned agent, the agent’s service is used or consumed where the transient accommodation or travel-related booking is located. (b) For purposes of this section, “online” means that the transaction occurs exclusively through a website or web application without any in-person contact. Example 1: Alex Adventurer, a resident of Hawaii, visits the office of Maui Travel Agency (“MTA”), a travel agency located in Hawaii, to plan a vacation to Alaska. MTA sells a seven- night stay at Glacier Hotel, a hotel in Alaska, to Alex Adventurer. The contract between MTA and Glacier Hotel provides that MTA may book rooms at Glacier Hotel for $125 per room per night and that, for each booking, MTA will receive ten per cent of the sale. MTA does not have the authority to mark up or unilaterally change the total price charged to the customer. All of the value or gross income that MTA receives is not exempt under section 237-29.53, HRS, because MTA is a commissioned agent and its services are used or consumed in Hawaii, where MTA is located. Example 2: Assume the same facts as in Example 1, except that Alex Adventurer books the stay at Glacier Hotel online through MTA’s website and does not visit MTA’s office. All of the value or gross income that MTA receives is exempt under section 237-29.53, HRS. MTA’s service is used or consumed in Alaska, where the transient accommodation is located, because the transient accommodation was booked online through MTA, a commissioned agent. Example 3: Vacation Rentals Online (“VRO”) operates a website that allows guests to book transient accommodations listed for rent by owners. Ryan Renter, a resident of Florida, uses VRO’s website to book a two-night stay at Olivia Owner’s unit in Hawaii for $100 per night. The contract between VRO and Olivia Owner provides that for each booking of Oliva Owner’s unit made through VRO’s website, VRO will receive ten per cent of the rental price, which is determined solely by Olivia Owner. VRO also charges Ryan Renter a fee of five per cent of the rental price. All of the value or gross income that VRO receives is not exempt under section 237- 29.53, HRS. VRO’s service is used or consumed in Hawaii, where the transient accommodation is located, because the transient accommodation was booked online through VRO, a commissioned agent. Example 4: Errand Runner Inc. operates a website through which users can request or offer the performance of short-term services, such as picking up dry cleaning, dog walking, and grocery shopping. Carrie Consumer, a resident of Virginia, uses Errand Runner Inc. to hire Andy Assistant, a resident of Hawaii, to stand in line at the Hanauma Bay State Park in Hawaii, where the first one hundred persons to enter the park will receive a collectible item. The terms of service between Errand Runner Inc. and Andy Assistant provides that Errand Runner Inc. will receive ten per cent of the income Andy Assistant receives for services booked through Errand Runner Inc. The amount charged for Andy Assistant’s services are determined solely by Andy Assistant. Errand Runner Inc. also charges Carrie Consumer a fee of ten dollars for using its website to book the service. All of the value or gross income that Errand Runner Inc. receives is not exempt under section 237-29.53, HRS. Errand Runner Inc.’s service is used or consumed in Hawaii, where Andy Assistant’s service was performed, because Andy Assistant’s service was booked online through Errand Runner Inc., a commissioned agent. Example 5: Derrick Driver, a resident of Hawaii, calls Aloha Auto Finder, LLC, a car broker located in Hawaii, and hires it to find and negotiate a purchase price for a green classic car. Derrick Driver provides Aloha Auto Finder, LLC with a list of specifications that the car must have and the total amount he is willing to pay for the car. Derrick Driver and Aloha Auto Finder, LLC agree that Aloha Auto Finder, LLC will be paid a flat fee of $500. Aloha Auto Finder, LLC finds a green classic car in Michigan and negotiates a purchase price on behalf of Derrick Driver. HRS §237-29.53 237- 59 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW §18-237-29.53-11 Derrick Driver purchases the car and instructs the seller to ship the car from Michigan to Derrick Driver’s second home in Rhode Island. All of the value or gross income that Aloha Auto Finder, LLC receives is not exempt under section 237-29.53, HRS, because Aloha Auto Finder, LLC is a commissioned agent and its services are used or consumed in Hawaii, where Aloha Auto Finder, LLC is located. [Eff 3/17/2018] (Auth: HRS §§231-3(9), 237-8) (Imp: HRS §237-29.53) §18-237-29.53-11 Other services. (a) Except as provided in sections 18-237-29.53-03 to 18-237-29.53- 10: (1) If the customer is a business and the service relates to the customer’s business activities, the service is used or consumed where the related business activities occur; (2) If the customer is a business and the service is unrelated to the customer’s business activities, the service is used or consumed where the customer’s principal place of business is located; (3) If the customer is an individual, the service is used or consumed where the individual resides; or (4) If the customer is the military or federal, state, or local government, the service is used or consumed where the benefit of the service is received. (b) For purposes of this section, “business activities” means the transactions and activities engaged in the regular course of trade or business for the ultimate purpose of obtaining gains or profits, or if the business is a tax- exempt organization, also includes the transactions and activities that further the exempt purpose of the organization. Example 1: Chris Client, a Hawaii resident, hires Legal Services LLP, a law firm with offices throughout the United States, including Hawaii, to represent him in a personal injury case in California. Legal Services LLP drafts a complaint to be filed in California. Before the complaint is filed, however, Legal Services LLP settles the dispute. All of the value or gross income that Legal Services LLP receives is not exempt under section 237-29.53, HRS, because Legal Services LLP’s services are used or consumed in Hawaii, where Chris Client resides, pursuant to section 18-237-29.53-11(a)(3). Example 2: ABC Company, an Arizona corporation with its principal place of business in Arizona, hires Paul Presenter, a motivational speaker who resides in Hawaii, to speak to ABC Company and its employees via live-stream from Hawaii. The motivational speech is a personal benefit that ABC Company provides to its employees and is not related to its business activities. The live-stream is accessed solely from ABC Company’s office in Arizona. All of the value or gross income that Paul Presenter receives is exempt under section 237-29.53, HRS, because Paul Presenter’s service is used or consumed in Arizona, where ABC Company’s principal place of business is located, pursuant to section 18-237-29.53-11(a)(2). Example 3: Annie Attorney, a Hawaii attorney, is hired by Wendy Wyoming, a Wyoming resident who owns stock and partnership interests in various enterprises, as well as Hawaii real property, to prepare her estate plan. All of the value or gross income that Annie Attorney receives to prepare Wendy Wyoming’s estate plan is exempt under section 237-29.53, HRS, because Annie Attorney’s services are used or consumed in Wyoming, where Wendy Wyoming resides, pursuant to section 18-237-29.53-11(a)(3). Example 4: XYZ, a multistate business, hires Legal Services LLP, a law firm with offices throughout the United States, including Hawaii, to represent it in a contract dispute relating to business activities in Hawaii. Legal Services LLP settles the case before a lawsuit is filed and charges XYZ $30,000 in legal fees. Attorneys from Legal Services LLP’s Hawaii office performed twenty per cent of the work and attorneys from Legal Services LLP’s California office performed the remaining eighty per cent of work. All of the value or gross income that Legal Services LLP receives is not exempt under section 237-29.53, HRS, because the legal services are used or consumed in Hawaii, where the business activities relating to the legal services occurred, pursuant to section 18-237-29.53-11(a)(1). Example 5: Arnold Accountant, an accountant located in Hawaii, is hired by Mary Mover, a California resident, in 2017 to prepare her 2016 federal and state tax returns. Mary Mover must file state tax returns in California, where she resided for the first half of 2016, and Hawaii, where she currently resides. All of the value or gross income that Arnold Accountant receives from Mary Mover is not exempt under section 237-29.53, HRS, because Arnold Accountant’s services are HRS §237-29.53 §18-237-29.53-11 GENERAL EXCISE TAX LAW 237- 60 (Unofficial Compilation as of 12/31/2025) used or consumed in Hawaii, where Mary Mover resides, pursuant to section 18-237-29.53-11(a) (3). Example 6: XYZ, a multistate business, hires Accounting Services LLP, a Hawaii accounting firm, to perform accounting services related to XYZ’s business activities in Hawaii. All of the value or gross income that Accounting Services LLP receives from XYZ is not exempt under section 237-29.53, HRS, because Accounting Services LLP’s services are used or consumed in Hawaii, where XYZ’s business activities related to the accounting services occur, pursuant to section 18-237-29.53-11(a)(1). Example 7: SP LLC, a software programmer located in Hawaii, is hired by MedServ, Inc., a medical service provider doing business in several states, including Hawaii, to create a customized and integrated patient file and billing program for use at all of its medical offices for a fee of $70,000. MedServ, Inc. has two of its seven medical offices in Hawaii. SP LLC’s services are used or consumed where MedServ, Inc.’s business activities relating to SP LLC’s services occurred, pursuant to section 18-237-29.53-11(a)(1). Because SP LLC’s service is used or consumed both in and outside of the State, SP LLC shall apportion its income pursuant to section 18-237-29.53­ 02(b). In this case, it is reasonable for SP LLC to apportion two-sevenths of its gross income to Hawaii. SP LLC shall report $70,000 in gross income on its general excise tax return and may claim $50,000 as exempt under section 237-29.53, HRS. Example 8: Honolulu Hut, a Hawaii retailer, hires GD Company, a graphic design company in California, to design a company logo that will be used on Honolulu Hut’s merchandise sold in Hawaii and in marketing materials distributed in Hawaii. GD Company contracts with Ashley Artist, a Hawaii resident, to create a digital image, which GD Company will incorporate into the logo it designs for Honolulu Hut. All of the value or gross income that GD Company receives from Honolulu Hut is not exempt under section 237-29.53, HRS, because GD Company’s services are used or consumed in Hawaii, where Honolulu Hut’s business activities related to the design services occur, pursuant to section 18-237-29.53-11(a)(1). All of the value or gross income that Ashley Artist receives is also not exempt under section 237-29.53, HRS, because Ashley Artist’s services are resold by GD Company for use or consumption in Hawaii. Pursuant to section 18- 237-29.53-02, services performed for a purchaser who resells the services are exempt from general excise tax only if the purchaser resells all of the services for use or consumption outside the State. Example 9: California Surf Co., a retail store in California, hires Hawaii Designs LLC, a Hawaii graphic design company, to design a logo that will be used on California Surf Co.’s merchandise sold in California and in marketing materials distributed in California. Hawaii Designs LLC hires Ashley Artist, a Hawaii resident, to design a digital image, which Hawaii Designs LLC incorporates into the logo it designs for California Surf Co. All of the value or gross income that Hawaii Designs LLC receives is exempt under section 237-29.53, HRS, because Hawaii Designs LLC’s services are used or consumed in California, where California Surf Co.’s business activities related to the design services occur, pursuant to section 18-237- 29.53-11(a)(1). All of the value or gross income that Ashley Artist receives is also exempt under section 237-29.53, HRS, because Ashley Artist’s services are resold for use or consumption in California. Pursuant to section 18-237-29.53-02, services performed for a purchaser who resells the services are exempt from general excise tax if the purchaser resells all of the services for use or consumption outside the State. Example 10: Data Inc., a company located in Hawaii, is paid $10,000 by the United States Navy to analyze data and prepare reports that will be used by Naval Base Guam. Naval Base Guam is the only naval base that will benefit from Data Inc.’s services. All of the value or gross income that Data Inc. receives is exempt under section 237-29.53, HRS, because the services are used or consumed by the military in Guam, where the benefit of the service is received, pursuant to section 18-237-29.53-11(a)(4). Example 11: Data Inc., a company located in Hawaii, is paid $10,000 by the United States Navy to analyze data and prepare reports that will be used by the United States Pacific Fleet. Data Inc.’s reports will be used by and benefit the United States Pacific Fleet in Hawaii, where its headquarters is located, as well as in other locations in the United States and abroad. Because Data Inc.’s service is used or consumed both in and outside of the State, Data Inc. shall apportion its 237- 61 (Unofficial Compilation as of 12/31/2025) GENERAL EXCISE TAX LAW