HAR § 18-237-13-02.01 — State

. . .” Section 237-2, HRS, states that “business” inclu des “all activities (personal, professional, or corporate), engaged in or caused to be engaged in with the object of gain or economic benefit either direct or indirect . . . .” (1) The act or place of passing of title is not the determinative factor for purposes of imposing the general excise tax. In states imposing a retail sales tax where a sale is defined as the transfer of title or ownership, the place where title passes may be relevant. The general excise tax, however, is not a sales tax imposed when title passes. Rather, the general excise tax is a gross receipts tax imposed when business is transacted in Hawaii. (2) The looks to the place of delivery of tangible personal property to determine whether the sale of tangible personal property is business transacted in Hawaii. (3) Hawaii does not impose the general excise tax on sales of tangible personal property which originate outside of this State unless the place of delivery of the tangible personal property is in Hawaii and the seller has nexus. There must be both: (1) a place of delivery within Hawaii by the purchaser, or its agent; and (2) the seller must have nexus for the general excise tax to apply to a particular sale. The general excise tax will not be imposed if one of these elements is missing. (4) Delivery of tangible personal property to a freight consolidator, freight forwarder, or for-hire carrier utilized only to arrange for and/or transport the tangible personal property does not constitute acceptance of the tangible personal property by the purchaser or its agent unless the freight consolidator, freight forwarder, or for-hire carrier has expressed written authority to accept the tangible personal property as an agent for the purchaser. Simply signing the bill of lading without this expressed written authority is not sufficient. (5) When the place of delivery of the tangible personal property is to a customer in Hawaii and the seller has nexus, the sale of that tangible personal property constitutes business subject to the general excise tax. Section 237-22, HRS, states that gross income or gross proceeds of sale will be exempt if the State is prohibited from taxing the gross income under federal law or constitutional principles. If an out-of-state seller has no nexus with Hawaii, its gross income or gross proceeds of sale would be exempt under section 237-22, HRS. (c) Imposition of the use tax on the sale of tangible personal property to a customer in Hawaii. Section 238-2, HRS, imposes use tax “on the use in this State of tangible personal property which is imported . . . for use in the State” if it is purchased from a seller that does not have a general excise tax license. All tangible personal property used or consumed in the State is subject to a uniform tax burden irrespective of whether it is acquired within or without the State. (1) The use tax is levied on the importer of tangible personal property based upon the landed value of the tangible personal property imported. (2) The tax rate is one-half of one per cent if the tangible personal property is intended for resale at retail, four per cent if the tangible personal property is intended for consumption or use by the importer or purchaser, or no tax if the tangible personal property is intended for resale to a reseller licensed under the general excise tax law. (d) The liability for paying the general excise tax or the use tax is dependent on all the factual circumstances. (e) The following is an example involving two parties and is treated as a single transaction. Example: S, an out-of-state seller of tangible personal property, receives an order over the telephone or through the mail, from H, a Hawaii customer who is the ultimate consumer. H requests that the tangible personal property be delivered to H in Hawaii. S ships the tangible personal property for delivery to and acceptance by H in Hawaii. The additional fact as to whether or not S has nexus with Hawaii determines the result in this example: (1) If S has nexus with Hawaii, S’s sale of tangible personal property constitutes business in Hawaii for purposes of the general excise tax law. As a result, S must obtain a general excise/use tax license. S is considered the importer for resale at retail and is subject to the use tax at one-half of one per cent. S is also subject to the general excise tax at four per cent on the sale. (2) If S does not have nexus with Hawaii, pursuant to section 237-22, HRS, the general excise tax is not imposed upon S. Because S is not a licensed seller and the import is for consumption by H, H is subject to the use tax at four per cent. (f) The following is an example of a drop shipment that involves three parties and is treated as two separate transactions.