HB 572: RELATING TO GENERAL EXCISE TAX.

A BILL FOR AN ACT

RELATING TO GENERAL EXCISE TAX.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that Hawaii has the highest cost of living in the nation.  The general excise tax is levied on nearly all economic activity, which is passed on to customers in the form of higher prices.  This can be alleviated by exempting food and medical services.

     According to the Consumer Price Index, grocery prices in Hawaii are fifty per cent higher than the national average.  Between 2021 and 2022, households in the Honolulu area spent an average of 17.3 per cent of their expenditure on food.  In comparison, the average American spent 12.6 per cent on food.  According to the United States Department of Agriculture, a Hawaii family of four on the Thrifty Food Plan spending $1,431.00 per month on food would save over $687 each year if food were exempt from the general excise tax.

     Thirty-nine states plus the District of Columbia exempt groceries from their sales taxes, and another five states tax groceries at lower rates than other goods.  The legislature finds that it is time for Hawaii to join this majority.

     Health care further contributes to the higher cost of living.  Hawaii is one of only a handful of states that tax medical services and, until the enactment of Act 47, Session Laws of Hawaii 2024 (Act 47), the only state to tax medicare services.  Act 47 exempted medical and dental services covered by medicare, medicaid, and TRICARE from the general excise tax.  A broader exemption on all medical and dental services would lighten the tax burden on privately practicing medical providers and address Hawaii's health professional shortage by incentivizing qualified physicians to practice in the State, thus resulting in lower health care costs to patients.  According to a study commissioned by the Grassroot Institute of Hawaii, Hawaii residents and health care professionals would receive a $222,000,000 tax cut if medical services were exempt from the general excise tax.

     The State's current general surplus of $1,000,000,000 and projected continued surplus over the next three fiscal years position the State to responsibly adopt the proposed tax exemptions.  The purpose of this Act is to exempt food and medical services from the general excise tax to lower the cost of living for Hawaii families.

     SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§237-     Exemption of gross proceeds of sales on food and groceries.  (a)  There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds arising from the sale of food and groceries.

     (b)  This chapter shall apply to food or groceries that are furnished, prepared, or served as meals, except:

     (1)  In the case of persons sixty years of age or over, or who receive supplemental security income benefits, or disability or blindness payments under Title I, II, X, XIV, or XVI or the Social Security Act (42 U.S.C. 301 et set., 401 et seq., 1201 et seq., 1351 et seq., 1381 et seq.) and their spouses, meals prepared by and served in senior citizen's centers, apartment buildings occupied primarily by such persons, public or private nonprofit establishments that feed such persons, private establishments that contract with the appropriate agency of the State to offer meals for such persons at concessional prices, and meals prepared for and served to residents of federally subsidized housing for the elderly;

     (2)  In the case of persons sixty years of age or over and persons who are physically or mentally handicapped or otherwise disabled in a way that they are unable to adequately prepare all of their meals, meals prepared for and delivered to them and their spouses at their home by a public or private nonprofit organization or by a private establishment that contracts with the appropriate state agency to perform such services at concessional prices;

     (3)  In the case of disabled or blind recipients of benefits under Title I, II, X, XIV, or XVI or the Social Security Act (42 U.S.C. 301 et set., 401 et seq., 1201 et seq., 1351 et seq., 1381 et seq.), who are residents in a public or private nonprofit organization living arrangement that serves no more than sixteen residents and is certified by the appropriate state agency or agencies, meals prepared and served under such arrangement;

     (4)  In the case of women and children temporarily residing in public or private nonprofit organization shelters for battered women and children, meals prepared and served by such shelters; and

     (5)  In the case of households that do not reside in permanent dwellings and households that have no fixed mailing addresses, meals prepared for and served by a public or private nonprofit organization approved by an appropriate state or local agency that feeds such individuals or by private establishments that contract with the appropriate agency of the State to offer meals for such individuals at concessional prices.

     (c)  As used in this section:

     "Groceries" means any food or food product for home consumption.  "Groceries" may be further defined by the department by rule through the enumeration of items in rules or tax informational release.

     "Food" or "food ingredients" means substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for their ingestion or chewing by humans and are consumed for their taste or nutritional value.  "Food" or "food ingredients" does not include alcoholic beverages, tobacco, prepared food, soft drinks, dietary supplements, or food or food ingredients sold from a vending machine, whether cold or hot; provided that food or food ingredients sold from a vending machine that is subsequently heated shall be subject to this chapter.

     "Prepared food" means:

     (1)  Food sold in a heated state or heated in by the seller;

     (2)  Food sold with eating utensils provided by the seller, including plates, knives, forks, spoons, chopsticks, glasses, cups, napkins, or straws.  A plate does not include a container or packaging used to transport the food; or

     (3)  Two or more food ingredients mixed or combined by the seller for sale as a single item, except:

          (A)  Food that is only cut, repackaged, or pasteurized by the seller; or

          (B)  Raw eggs, meat, poultry, or foods containing these raw animal foods requiring cooking by the consumer as recommended by the federal Food and Drug Administration in chapter 3, part 401.11 of the Food Code, published by the Food and Drug Administration, as amended or renumbered, to prevent foodborne illness."

     SECTION 3.  Section 237-24.3, Hawaii Revised Statutes, is amended to read as follows:

     "§237-24.3  Additional amounts not taxable.  In addition to the amounts not taxable under section 237-24, this chapter shall not apply to:

     (1)  Amounts received from the loading, transportation, and unloading of agricultural commodities shipped for a producer or produce dealer on one island of this State to a person, firm, or organization on another island of this State.  The terms "agricultural commodity", "producer", and "produce dealer" shall be defined in the same manner as they are defined in section 147-1; provided that agricultural commodities need not have been produced in the State;

     (2)  Amounts received by the manager, submanager, or board of directors of:

          (A)  An association of a condominium property regime established in accordance with chapter 514B or any predecessor thereto; or

          (B)  A nonprofit homeowners or community association incorporated in accordance with chapter 414D or any predecessor thereto and existing pursuant to covenants running with the land,

          in reimbursement of sums paid for common expenses;

     (3)  Amounts received or accrued from:

          (A)  The loading or unloading of cargo from ships, barges, vessels, or aircraft, including stevedoring services as defined in section 382-1, whether or not the ships, barges, vessels, or aircraft travel between the State and other states or countries or between the islands of the State;

          (B)  Tugboat services including pilotage fees performed within the State, and the towage of ships, barges, or vessels in and out of state harbors, or from one pier to another;

          (C)  The transportation of pilots or governmental officials to ships, barges, or vessels offshore; rigging gear; checking freight and similar services; standby charges; and use of moorings and running mooring lines; and

          (D)  Wharfage and demurrage imposed under chapter 266 that is paid to the department of transportation;

     (4)  Amounts received by an employee benefit plan by way of contributions, dividends, interest, and other income; and amounts received by a nonprofit organization or office, as payments for costs and expenses incurred for the administration of an employee benefit plan; provided that this exemption shall not apply to any gross rental income or gross rental proceeds received after June 30, 1994, as income from investments in real property in this State; and provided further that gross rental income or gross rental proceeds from investments in real property received by an employee benefit plan after June 30, 1994, under written contracts executed prior to July 1, 1994, shall not be taxed until the contracts are renegotiated, renewed, or extended, or until after December 31, 1998, whichever is earlier.  For the purposes of this paragraph, "employee benefit plan" means any plan as defined in title 29 United States Code section 1002(3), as amended;

     (5)  Amounts received for purchases made with United States Department of Agriculture food coupons under the federal food stamp program, and amounts received for purchases made with United States Department of Agriculture food vouchers under the Special Supplemental Foods Program for Women, Infants and Children;

     (6)  Amounts received by a hospital, infirmary, medical clinic, health care facility, pharmacy, or a practitioner licensed to administer the drug to an individual for selling prescription drugs or prosthetic devices to an individual; provided that this paragraph shall not apply to any amounts received for services provided in selling prescription drugs or prosthetic devices.  As used in this paragraph:

              "Prescription drugs" are those drugs defined under section 328-1 and dispensed by filling or refilling a written or oral prescription by a practitioner licensed under law to administer the drug and sold by a licensed pharmacist under section 328-16 or practitioners licensed to administer drugs; provided that "prescription drugs" shall not include cannabis or manufactured cannabis products authorized pursuant to chapters 329 and 329D; and

              "Prosthetic device" means any artificial device or appliance, instrument, apparatus, or contrivance, including their components, parts, accessories, and replacements thereof, used to replace a missing or surgically removed part of the human body, which is prescribed by a licensed practitioner of medicine, osteopathy, or podiatry and that is sold by the practitioner or that is dispensed and sold by a dealer of prosthetic devices; provided that "prosthetic device" shall not mean any auditory, ophthalmic, dental, or ocular device or appliance, instrument, apparatus, or contrivance;

     (7)  Taxes on transient accommodations imposed by chapter 237D and passed on and collected by operators holding certificates of registration under that chapter;

     (8)  Amounts received as dues by an unincorporated merchants association from its membership for advertising media, promotional, and advertising costs for the promotion of the association for the benefit of its members as a whole and not for the benefit of an individual member or group of members less than the entire membership;

     (9)  Amounts received by a labor organization for real property leased to:

          (A)  A labor organization; or

          (B)  A trust fund established by a labor organization for the benefit of its members, families, and dependents for medical or hospital care, pensions on retirement or death of employees, apprenticeship and training, and other membership service programs.

          As used in this paragraph, "labor organization" means a labor organization exempt from federal income tax under section 501(c)(5) of the Internal Revenue Code, as amended;

    (10)  Amounts received from foreign diplomats and consular officials who are holding cards issued or authorized by the United States Department of State granting them an exemption from state taxes;

    (11)  Amounts received as rent for the rental or leasing of aircraft or aircraft engines used by the lessees or renters for interstate air transportation of passengers and goods.  For purposes of this paragraph, payments made pursuant to a lease shall be considered rent regardless of whether the lease is an operating lease or a financing lease.  The definition of "interstate air transportation" is the same as in 49 U.S.C. section 40102; and

    (12)  Amounts received by a hospital, infirmary, medical clinic, health care facility, or pharmacy, or a medical or dental practitioner, for healthcare-related goods or services purchased [under the medicare, medicaid, or TRICARE programs].  For the purposes of this paragraph, the healthcare-related services need not be performed by a medical or dental practitioner but may be performed by a physician's assistant, nurse, or other employee under the medical or dental practitioner's direction.

              As used in this paragraph[:

              "Medicaid" means the program established under Title XIX of the Social Security Act of 1935, as amended;

              "Medical], "medical or dental practitioner" means a physician or osteopathic physician licensed pursuant to chapter 453; a dentist licensed under chapter 448; an advanced practice registered nurse licensed pursuant to chapter 457; or a pharmacist licensed pursuant to chapter 461[;

              "Medicare" means the program established under Title XVIII of the Social Security Act of 1935, as amended; and

              "TRICARE" means the program of the Department of Defense military health system managed by the Defense Health Agency, or any successor program]."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 3000.

Report Title:

GET; Exemption; Food; Medical Services; Dental Services

Description:

Exempts food and groceries from certain healthcare-related goods or services that were not the general excise tax.  Expands general excise tax exemptions to include purchased under the Medicare, Medicaid, and TRICARE programs.  Effective 7/1/3000.  (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

relating to general excise tax.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that Hawaii has the highest cost of living in the nation.  The general excise tax is levied on nearly all economic activity, which is passed on to customers in the form of higher prices.  This can be alleviated by exempting food and medical services.

     According to the Consumer Price Index, grocery prices in Hawaii are fifty per cent higher than the national average.  Between 2021 and 2022 households in the Honolulu area spent an average of 17.3 per cent of their expenditure on food.  In comparison, the average American spent 12.6 per cent on food.  According to the United States Department of Agriculture, a Hawaii family of four on the Thrifty Food Plan spending $1,431.00 per month on food would save over $687 each year if food were exempt from the general excise tax.

     Thirty-nine states plus the District of Columbia exempt groceries from their sales taxes, and another five states tax groceries at lower rates than other goods.  The legislature finds that it is time for Hawaii to join this majority.

     Health care further contributes to the higher cost of living.  Hawaii is one of only a handful of states that tax medical services and, until Act 47 passed in 2024, the only state to tax Medicare services.  Act 47 (2024) exempted medical and dental services covered by Medicare, Medicaid, and TRICARE from the General Excise Tax.  A broader exemption on all medical and dental services would lighten the tax burden on privately practicing medical providers and address Hawaii's health professional shortage by incentivizing qualified physicians to practice in the State, thus resulting in lower healthcare costs to patients.  According to a study commissioned by the Grassroot Institute of Hawaii, Hawaii residents and healthcare professionals would receive a $222 million tax cut if medical services were exempt from the general excise tax.

     The State's current general surplus of one billion dollars and projected continued surplus over the next three fiscal years position the State to responsibly adopt the proposed tax exemptions.  The purpose of this Act is to exempt food and medical services from the general excise tax to lower the cost of living for Hawaii families.

     SECTION 2.  Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§237-    Exemption of gross proceeds of sales on food and groceries.  (a)  There shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all of the gross proceeds arising from the sale of food and groceries.

     (b)  This chapter shall apply to food or groceries that are furnished, prepared, or served as meals, except:

     (1)  In the case of persons sixty years of age or over, or who receive supplemental security income benefits, or disability or blindness payments under Title I, II, X, XIV, or XVI or the Social Security Act (42 U.S.C. 301 et set., 401 et seq., 1201 et seq., 1351 et seq., 1381 et seq.) and their spouses, meals prepared by and served in senior citizen's centers, apartment buildings occupied primarily by such persons, public or private nonprofit establishments, eating or otherwise, that feed such persons, private establishments that contract with the appropriate agency of the State to offer meals for such persons at concessional prices, and meals prepared for and served to residents of federally subsidized housing for the elderly;

     (2)  In the case of persons sixty years of age or over and persons who are physically or mentally handicapped or otherwise disabled that they are unable to adequately prepare all of their meals, meals prepared for and delivered to them and their spouses at their home by a public or private nonprofit organization or by a private establishment that contracts with the appropriate state agency to perform such services at concessional prices;

     (3)  In the case of disabled or blind recipients of benefits under Title I, II, X, XIV, or XVI or the Social Security Act (42 U.S.C. 301 et set., 401 et seq., 1201 et seq., 1351 et seq., 1381 et seq.), who are residents in a public or private nonprofit group living arrangement that serves no more than sixteen residents and is certified by the appropriate state agency or agencies, meals prepared and served under such arrangement;

     (4)  In the case of women and children temporarily residing in public on private nonprofit shelters for battered women and children, meals prepared and served by such shelters; and

     (5)  In the case of households that do not reside in permanent dwellings and households that have no fixed mailing addresses, meals prepared for and served by a public or private nonprofit establishment approved by an appropriate state or local agency that feeds such individuals by private establishments that contract with the appropriate agency of the State to offer meals for such individuals at concessional prices.

     (c)  As used in this section:

     "Groceries" means any food or food product for home consumption.  "Groceries" may be further defined by the department by rule through the enumeration of items in rules or tax informational release.

     "Food" means substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for their ingestion or chewing by humans and are consumed for their taste or nutritional value.  Food or food ingredients does not include alcoholic beverages, tobacco, prepared food, soft drinks, dietary supplements, or food or food ingredients sold from a vending machine, whether cold or hot; provided that food or food ingredients sold from a vending machine that is subsequently heated shall be subject to this chapter.

     "Prepared food" means:

     (1)  Food sold in a heated state or heated in by the seller;

     (2)  Food sold with eating utensils provided by the seller, including plates, knives, forks, spoons, chopsticks, glasses, cups, napkins, or straws.  A plate does not include a container or packaging used to transport the food; or

     (3)  Two or more food ingredients mixed or combined by the seller for sale as a single item, except:

          (A)  Food that is only cut, repackaged, or pasteurized by the seller; or

          (B)  Raw eggs, meat, poultry, or foods containing these raw animal foods requiring cooking by the consumer as recommended by the federal Food and Drug Administration in Chapter 3, part 401.11 of the Food Code, published by the Food and Drug Administration, as amended or renumbered, to prevent foodborne illness."

     SECTION 3.  Act 47, Session Laws of Hawaii 2024, section 2, is amended by amending subsection (12) to read as follows:

   "(12)  Amounts received by a hospital, infirmary, medical clinic, health care facility, or pharmacy, or a medical or dental practitioner, for healthcare-related goods or services purchased [under the medicare, medicaid, or TRICARE programs].  For the purposes of this paragraph, the healthcare-related services need not be performed by a medical or dental practitioner but may be performed by a physician's assistant, nurse, or other employee under the medical or dental practitioner's direction.  As used in this paragraph:

               ["Medicaid" means the program established under Title XIX of the Social Security Act of 1935, as amended;]

               "Medical or dental practitioner" means a physician or osteopathic physician licensed pursuant to chapter 453; a dentist licensed under chapter 448; an advanced practice registered nurse licensed pursuant to chapter 457; or a pharmacist licensed pursuant to chapter 461[;]

              ["Medicare" means the program established under Title XVIII of the Social Security Act of 1935, as amended; and

              "TRICARE" means the program of the Department of Defense military health system managed by the Defense Health Agency, or any successor program]."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on January 1, 2027.

Report Title:

GET; Exemption; Food; Medical Services; Dental Services

Description:

Exempts food and groceries from the general excise tax.  Expands a 2024 session law exempting certain medical and dental services to include all medical and dental services.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO.  332

Honolulu, Hawaii

                , 2025

RE:   H.B. No. 572

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committee on Economic Development & Technology, to which was referred H.B. No. 572 entitled:

"A BILL FOR AN ACT RELATING TO GENERAL EXCISE TAX,"

begs leave to report as follows:

     The purpose of this measure is to:

     (1)  Exempt food and groceries from the General Excise Tax; and

     (2)  Expand General Excise Tax exemptions to include certain healthcare-related goods or services that were not purchased under the Medicare, Medicaid, and TRICARE programs.

     Your Committee received testimony in support of this measure from the Hawaiʻi Association of Professional Nurses; Hawaii Food Industry Association; University of Hawaiʻi System; AlohaCare; Hawaii Association of Health Plans; Grassroot Institute of Hawaii; Maui Chamber of Commerce; Hawaii Cattlemen's Council, Inc.; Chamber of Commerce Hawaii; and numerous individuals.  Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that expenses related to healthcare and food and groceries contribute heavily to the high cost of living in Hawaii.  This measure seeks to lower the cost of living in the State by exempting food and groceries from the General Excise Tax and expanding General Excise Tax exemptions to include certain healthcare-related goods or services that were not purchased under the Medicare, Medicaid, and TRICARE programs.

     Your Committee has amended this measure by:

     (1)  Changing the effective date to July 1, 3000, to encourage further discussion; and

     (2)  Making technical, nonsubstantive amendments for the purposes of clarity, consistency, and style.

     As affirmed by the record of votes of the members of your Committee on Economic Development & Technology that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 572, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 572, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Economic Development & Technology,