HAR § 18-237-13-06.16 — Tax on service business; telecommunication services

(a) Scope. This section is intended to provide uniform rules of administrative procedure to govern the taxation of the telecommunication industry pursuant to section 237-13(6), HRS, of the general excise tax law. This section shall not apply to gross income that is taxable under chapter 239, HRS, the public service company tax law. (b) Definitions. As used in this section, unless the context otherwise requires: “Directly related to Hawaii” means geographically located within Hawaii or allocated to Hawaii according to generally accepted accounting principles and practices. “Foreign common carrier” means any person operating under the legal jurisdiction of a country other than the United States which provides telecommunication service to the public in general or to specified classes of the public. “Gross income” means the gross receipts, as defined in section 237-3, HRS, of a long distance carrier. “Hawaii billed income” means the gross income received or accrued by a long distance carrier from telecommunication service which is originated or terminated in this State and is charged to a telephone number, customer, or account in this State. “Interexchange carrier” means any person which provides telecommunication service between local access transport areas. “Interstate telecommunications” means all telecommunications that either originate or terminate outside of this State. HRS §237-13(6) HRS §237-13(6) §18-237-13-06.16 “Intrastate telecommunications” means all telecommunications that originate and terminate within this State. “Local access transport area” means any local intrastate calling area. “Long distance carrier” means any interexchange carrier, reseller, or foreign common carrier which purchases, installs, rents, or leases a telephone system, telecommunication system, or telecommunications service for the interexchange carrier, reseller, or foreign common carrier’s own use to provide the interexchange carrier, reseller, or foreign common carrier or other persons with telephonic interstate or international telecommunication service which is wholly or partially independent of any local exchange system or any intrastate or interstate interexchange network or which is a substitute for any dedicated facility by which an interexchange or foreign common carrier provides a telephonic communication path in the State. “Reseller” means any person which provides telecommunication service through the use of facilities or services owned or provided by another telecommunication service provider. “Telecommunication service” means the transmission, conveyance, routing, or reception of any electronic, electromagnetic interactive transmission, or any other kind of energy force variations of information in any form, including but not limited to voice, image, data, or printed copy signal by means of wires, cables, radio waves, laser microwaves, satellites, fiber optics, any combination of these media, or any other method now in existence or that may be devised. (c) Application. (1) This section shall apply to all long distance carriers conducting business, by providing telecommunication service, in the State. (2) The income of a long distance carrier that is subject to tax is that portion of gross income received by any long distance carrier from telecommunication service which is originated or terminated in this State and is charged to a telephone number, customer, or account in this State. (3) Apportionment. Under the Constitution and laws of the United States, the entire gross income as determined in paragraph (2) cannot be included in the measure of tax; such gross income shall be apportioned by using the apportionment formula in subsection (e)(1). (d) Apportionment factor. (1) The apportionment factor shall be as follows: H C OP NHOA + NHTA + HCOP + [ HBI x NCOP]NBI HBI = Hawaii Billed Income originating or terminating in the State and charged to a telephone number, customer, or account in the State. HCOP = Hawaii Cost of Operations includes those costs charged, under a long distance carrier’s normal method of accounting, to the following tax return and Federal Communication Commission-prescribed account titles or their equivalents, which are directly related to Hawaii. - Cost of Operations - Contributions - Bad Debts - Operating Expenses - Hawaii Originating or Terminating Connection Expenses or Access Fees or Costs - General and Administrative Expenses - Advertising Expenses - Leases - Payroll - Maintenance, including repair to: Cables Central Office Equipment Buildings and Grounds Maintenance of Transmission Power Other Maintenance Expenses - Depreciation and Amortization Expenses - Traffic Expenses - Commercial Expenses other than advertising §18-237-13-06.16 - General Office Salaries and Expenses other than general and administrative expenses and payroll - Insurance - Accidents and Damages - Operating Rents - Relief and Pensions - Operating Taxes - Miscellaneous Deductions From Income NBI = Nationwide Billed Income received from providing telecommunication service. NCOP = Nationwide Cost of Operations includes the tax return and Federal Communication Commission-prescribed account titles or equivalents described by HCOP above. NCOP specifically excludes costs included in HCOP, NHOA, NHTA, and connection expenses or access fees not included in HCOP, NHOA, or NHTA. NHOA = Non-Hawaii Originating Access Cost relating to HBI, which may be (1) The actual non-Hawaii originating access cost relating to a specific call resulting in Hawaii billed income; or (2) A reasonable estimate derived by using the nationwide or average Hawaii trunk access cost per unit to originate calls multiplied by the number of calls terminating in Hawaii resulting in Hawaii billed income; or (3) A reasonable estimate using the proportional relationship of the Hawaii originating and terminating access costs to derive the non-Hawaii originating access costs as a proportion of the total Hawaii terminating access costs. NHTA = Non-Hawaii Terminating Access Cost relating to HBI, which may be (1) The actual non-Hawaii terminating access cost relating to a specific call resulting in Hawaii billed income; or (2) A reasonable estimate derived by using the nationwide or average Hawaii trunk access cost per unit to terminate calls multiplied by the number of calls originating in Hawaii resulting in Hawaii billed income; or (3) A reasonable estimate using the proportional relationship of the Hawaii originating and terminating access costs to derive the non-Hawaii terminating access costs as a proportion of the total Hawaii originating access costs. Example: ABC Long Distance does not have figures for access costs for specific phone calls and decides it can reasonably estimate its non-Hawaii terminating access costs on a per unit basis as allowed by (2). For ABC Long Distance, the originating access cost is $.80 and the terminating access cost is $1.00 through the local exchange in Hawaii or on a nationwide basis for each call. If ABC Long Distance customers place 200,000 outgoing calls and receive 100,000 incoming calls during the reporting period, the NHTA would be estimated to be (200,000 X $1.00) $200,000 and the NHOA as (100,000 X $.80) $80,000. Example: XYZ Long Distance decides to make its estimate for non-Hawaii terminating access costs on a proportional basis as allowed by (3). Assume the same cost relationship for Hawaii-located originating and terminating access costs exists for XYZ as in the above example. Therefore, if it costs $1.00 to terminate a call in Hawaii and $.80 to originate a call, the originating access cost is equivalent to eighty per cent of the terminating access cost. If XYZ Long Distance incurs $4,000,000 in originating access costs and $1,000,000 in terminating access costs in Hawaii, then XYZ Long Distance’s non-Hawaii terminating access costs may be calculated as follows: $4.0M = $5.0M .8 XYZ Long Distance’s non-Hawaii originating access costs may be calculated as follows: $1.0M x .8 = $.8M or $800,000