Haw. Code R. § 18-237-4

Current through November, 2024

Section 18-237-4 - "Wholesaler", "jobber", defined

(a) Sales at wholesale defined. Pursuant to section 237-4, HRS, and taking into consideration sections 237-13(3)(C) and 237-13(3)(D), HRS, only the following are sales at wholesale:

(1) Sales to a licensed retail merchant, jobber or other licensed seller for purposes of resale;

(2) Sales to a licensed manufacturer of materials or commodities which are to be incorporated by such manufacturer into a finished or saleable product (including the container or package in which the product is contained) during the course of its preservation, manufacture or processing, including preparation for market, and which will remain in such finished or saleable product in such form as to be perceptible to the senses, which finished or saleable product is to be sold and not otherwise used by such manufacturer;

(3) Sales to a licensed agricultural or aquacultural producer or agricultural or aquacultural cooperative association of materials or commodities which are to be incorporated, used, or applied by the producer or by the cooperative association for the purpose of producing or raising a finished or saleable product or crop which is to be sold and not otherwise used by the producer or cooperative association, including specifically materials or commodities incorporated, used, or applied as essential to the planting, growth, nurturing, and production of agricultural or aquacultural products or crops which are sold by the producer or by the cooperative association;

(4) Sales to a licensed contractor of materials or commodities which are to be incorporated by the contractor into the finished work or project required by the contract and which will remain in the finished work or project in a form which is perceptible to the senses, unless governed by the election provided for by section 237-13(3)(C), HRS; and sales to a purchaser holding a license under the general excise tax law, of materials or commodities which are to be incorporated by the purchaser into a building, structure or other improvements on land held by the purchaser and which will remain in such improvement in a form which is perceptible to the senses, provided that the improvements are made with the intention of selling or otherwise disposing of them and that the property is afterward sold or otherwise disposed of in such manner as to render the purchaser of the materials or commodities, so incorporated, liable to the same tax as if engaged in the business of contracting;

(5) Sales to a licensed producer, or to a cooperative association described in section 237-23(9), HRS, for sale to such producer, or to a licensed person operating a feed lot, of:

(A) Poultry or animal feed, hatching eggs, semen, replacement stock, breeding services for the purpose of raising or producing animal or poultry products for disposition as described in section 237-5, HRS, or to be incorporated in a manufactured product as described in paragraph (2), or for the purpose of breeding, hatching, milking, or egg laying other than for the customer's own consumption of the meat, poultry, eggs, or milk so produced;

(B) In the case of a feed lot operator:

(i) Only the segregated cost of the feed furnished by the feed lot operator as part of his services to a licensed producer of poultry or animals to be butchered, or to a cooperative association described in section 237-23(1), HRS, of such licensed producers shall be deemed to be a sale at wholesale; and

(ii) Any amount derived from the furnishing of feed lot services, other than the segregated cost of feed, shall be deemed taxable at the service business rate.

(C) This paragraph shall not apply to the sale of feed for poultry or animals to be used for hauling, transportation, or sports purposes;

(6) Sales to a licensed producer, or to a cooperative association described in section 237-23(9), HRS, for sale to such producer, of:

(A) Seed for producing agricultural products to be sold or otherwise disposed of as described in section 237-5, HRS, or to be incorporated in a manufactured product as described in paragraph (2); or

(B) Bait for catching fish (including the catching of bait for catching fish) which are to be sold or otherwise disposed of as described in section 237-5, HRS, or to be incorporated in a manufactured product as described in paragraph (2);

(7) Sales to a licensed producer or to a cooperative association described in section 237-23(9), HRS, for sale to the producer, of:

(A) Cartons and other containers, wrappers and sacks, and binders to be used for packaging eggs, vegetables, fruits and other agricultural products; or

(B) Seedlings and cuttings for producing nursery plants; or

(C) Chick containers; which are to be used as described in section 237-5, HRS, or to be incorporated in a manufactured product as described in paragraph (2);

(8) Sales of tangible personal property to a licensed person engaged in the service business, provided that:

(A) The property is not consumed or incidental to the performance of service; and

(B) There is a sale of the article at the retail rate of four percent; and

(C) The resale of the article is separately charged or billed by the person rendering the service; and

(9) Sales to a licensed leasing company which leases capital goods as a service to others. For this purpose, capital goods are goods which in the hands of a licensed leasing company has a depreciable life and which are to be used by the licensed leasing company for leasing to others for a consideration.

The words "cooperative association" as used in paragraphs (5) to (7) mean a cooperative association incorporated under chapter 421 or under chapter 422, HRS, and which fully meet the requirements for tax exemption as specified in section 237-23(9), HRS.

The words "agricultural producer" as used in paragraph (3) and section 237-5, HRS, mean a producer of plant crops, including floriculture, horticulture, viticulture (vineyards), timber, nut, coffee, sugar cane, pineapple, or other similar agricultural activity where the products or crops are sold, but shall not include any animal or poultry products or a person operating a golf course, a cemetery, a property management activity, or an agricultural research organization.

The words "aquaculture producer" as used in paragraph (3) and section 237-5, HRS, mean a producer of aquatic plant and animal life for food or fiber within a controlled salt, brackish, or freshwater environment.

(b) Subsection (c) and (d) relate to the tax rates applicable under the general excise tax law with respect to containers and packaging materials sold in the State.

(c) Nonreturnable containers, packaging materials.

(1) Sale to manufacturer for incorporation during preparation for market.

(A) This paragraph applies to nonreturnable containers and packaging materials which are sold to a licensed manufacturer who incorporates the container or packaging material into a finished or saleable product during the course of its preservation, manufacturing, processing, or preparation for market, and which will remain in a form which is perceptible to the senses, which is to be sold and not otherwise used by the manufacturer.

(B) When containers and packaging materials to which this subparagraph applies are sold to a person and for the purpose above stated, they take the rate of:

(i) One-half of one percent if sold by the manufacturer of the container or packaging material; or

(ii) One-half of one percent if sold by a wholesaler.

Example 1: Taxpayer manufacturers cracker boxes, which taxpayer supplies to a cracker manufacturer. The boxes are used for packaging crackers, which are displayed and sold in packaged form. The rate applicable to the manufacture and sale of the boxes by the box manufacturer is one-half of one percent.

Example 2: Taxpayer imports from the mainland cardboard cartons which are sold to a brewery. The brewery takes the cartons to a printer who imprints the brewery's name and trade mark together with information as to the contents. The cartons are used by the brewery in putting cans of beer in case lots. This is done at the time of manufacture, and the beer is offered for sale by the case. The rate applicable to the taxpayer upon the sale of the cartons to the brewery is one-half of one percent.

(2) Special charge for container. Nonreturnable containers and packaging materials take a rate of one-half of one percent when sold to a licensed retailer or other licensed seller, who adds a special charge on account of the type of container or packaging materials used for his merchandise, for example, a special charge for a gift box.

(3) Four percent rate, when applicable. All sales to unlicensed persons, and all other sales of containers and packaging materials that are not shown to be covered by the one-half of one percent rate as set forth in subparagraphs (A) or (B) shall be deemed to be sales taking the four percent rate. The fact that the purchaser is engaged in making sales and uses the purchased containers or packaging materials for the purpose of delivering the goods sold or otherwise completing sales transactions shall not cause a lesser rate to apply.

Example 3: Taxpayer imports from the mainland boxes and wrapping paper, which are used by retail stores at the time of sale of their merchandise to box or wrap purchases made by customers. The four percent rate applies to the sale of the boxes and wrapping paper to the retail stores.

(d) Returnable containers.

(1) Sales of containers to licensed persons whose customers receive title to the containers shall take the one-half of one percent rate when the instance would be covered by subsection (c)(1) or (2), except for the fact that the containers are returnable by these customers. The circumstance that the customers may return the containers and receive a credit or refund for doing so does not necessarily show that title does not pass to the customers.

(2) However, in some instances involving returnable containers title to the containers does not pass to the customers of the purchaser and accordingly the containers are not "resold" by the purchaser; in such cases the sale of the containers to the purchaser so using them takes the four percent rate. For example, the name of the purchaser may appear on the containers in such a way as to show that there is no intention on his part to pass title to the containers, and accordingly the containers are not "resold" by the purchaser and the sale of the containers to this purchaser takes the four percent rate.

Whether paragraph (1) or (2) applies depends upon all the facts, which shall be submitted for ruling.

(e) Agricultural or aquacultural materials or commodities sold in the State. This subsection relates to the tax rates applicable under the general excise tax law with respect to agricultural and aquacultural materials or commodities sold in the State.

(1) This paragraph applies to the sale of materials or commodities incorporated, used, or applied as essential to the planting, growth, nurturing, and production of agricultural or aquacultural commodities to a licensed agricultural or aquacultural producer or cooperative association for use by the person in the production, processing, and preparation of agricultural or aquacultural products or crops for sale.

(A) Some examples of sales of materials or commodities representing qualifying uses include, but are not limited to: antibiotics (for aquaculture and not for cattle and animals), expendable drip irrigation tubings, fertilizers, fumigants, fungicides, growth regulators, herbicides, packaging supplies, polyethylene mulch films, pesticides, processing materials, roofing papers (used in field furrows), soil amendments, surfactants (wetting agents), water purchased for irrigation (from nonpublic utility companies). Pesticides shall be defined by section 149A-2(26), HRS.

(B) Some examples of sales of materials or commodities representing nonqualifying uses include, but are not limited to: construction materials and supplies, equipment and repair parts, filtering devices, harvesting equipment, irrigation systems, janitorial supplies, office supplies, odor control devices and materials, PVC pipes, all rendition of services.

(C) When materials or commodities to which this paragraph applies are sold to a person and for the purposes above stated, such sale takes the rate of:

(i) One-half of one percent, if sold for qualifying purposes, or

(ii) Four percent, if sold for nonqualifying purposes.

(2) In the event materials or commodities are both qualifying and nonqualifying uses, an allocation shall be made in order that only the sales made for qualifying uses will be reported at the rate of one-half of one percent as provided in paragraph (1)(C)(i). The materials or commodities sold for nonqualifying uses shall be reported at the rate of four percent as provided in paragraph (1)(C)(ii).

Example 1: Taxpayer sells materials and commodities to a licensed aquacultural producer engaged in research activities in addition to taxpayer's usual business of producing aquacultural products for market. The materials or commodities used in the research activities represent nonqualifying uses; therefore, the applicable rate imposed upon the sale of such materials and commodities is four percent.

Example 2: Taxpayer sells certain materials and commodities to a licensed agricultural producer, including a soil amendment in order to obtain optimum crop production. It is found, however, that the soil amendment releases certain offensive odors creating a serious pollution problem for the nearby community. To combat this situation, the agricultural producer adds odor controlling materials to the soil amendment which do not adversely affect crop production. Insamuch as the soil amendment is deemed essential to the production of agricultural commodities, the applicable rate of such sale is one-half of one percent. The applicable rate to the sale of the odor controlling materials is four percent since they are not considered essential to the production of agricultural commodities.

Example 3: After harvesting, a sugar plantation treats the soil with a substance which controls odors and which also acts as a fungicide. Without this fungicide treatment, subsequent yields would be adversely affected. In this situation, the applicable tax rate on the sale of the odor controlling fungicide to the plantation is one-half of one percent because of its dual use as a fungicide.

Example 4: A landscape contractor maintains its own nursery. The plants grown in the nursery are used in contracting activities or may be sold apart from any landscaping contract. The contractor also provides grounds maintenance services for various clients. The applicable tax rate on sales to this contractor of fertilizers and pesticides for nursery use is one-half of one percent. However, the applicable tax rate on sales of these same products for use in maintenance services is four percent.

(3) A seller may obtain a resale certificate from the buyer. For purposes of resale certificates, section 18-237-13(b)(4) applies.

Haw. Code R. § 18-237-4

[Eff 2/16/82; am 4/25/83] (Auth: HRS §§ 231-3(9), 237-8) (Imp: HRS §§ 237-4, 237-5)