2007-02_County_Surcharge_on_State_Excise_Tax

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March 19, 2007 Page 2 of 3 Allotment of income is dependant upon whether the subject of the taxis a tangible item such as a good, personal property, or real property, or an intangible item such as a service. For intangible items such as a service and for real property, further analysis is required to determine where the service is used or consumed.3 Physical presence means the presence of one or more employees, representatives, property or closely-related subsidiaries within the tax district where the item is intended to be used or consumed.4 Purchase of Goods Personal Property, and Tangible Items Other than Real Property For the purchase of goods,personal property, and tangible items other than real property, consideration must first be made as to the relative tax districts of the seller and buyer. If the buyer is outside of the Oahu Tax District;then no surcharge is applicable. In the case of the County of Hawaii acting as the buyer, this should be the norm. This includes cases where the County of Hawaii is buying goods from any of the other counties. Therefore, in no case should a vendor be assessing the County of Hawaii the surcharge of 0.5%to the State Excise Tax where the item is to be used or consumed in Hawaii County. Selling of Goods Personal Property, and Tangible Items Other than Real Propert y For the selling of goods, personal property, or other tangible items to a buyer in the Oahu Tax District, consideration must be made on whether the seller has substantial nexus or physical presence to the Oahu Tax District. Physical presence means the presence of one or more employees,representatives,property or closely-related subsidiaries.5 This substantial nexus would not likely include an employee briefly visiting the Oahu Tax District for a sale or delivery.6 In the case of the County of Hawaii selling goods to an Oahu entity, unless there is a substantial nexus to the Oahu Tax District, there should be no instance where the surcharge of 0.5%would apply. Likewise, where the County of Hawaii is selling goods to any other(non- Oahu) county, there should be no surcharge. Purchase and Sale of Real Property For the purchase and sale of real property, income is allocated solely based on the location of the real property. For the purchase of real property from the County of Hawaii or the purchase of services to be performed in the County of Hawaii, no surcharge should be assessed. Pursuant to HAR 1 8-237-8.6-06, allocation of income from the sale of real property is 'HAR 18-237-8.6-03. 4 HAR 18-237-8.6-01 -Definitions. 5 HAR 18-237-8.6-01 -Definitions. 6 Based on examples provided by HAR 18-237-8.6,a substantial nexus appears to mean a permanent presence in the district,such as an office or permanent station of an employee or representative,for the tax year.