UPDATE: June 30, 2008
The history of a tax that finally ends July 1, 2008

The Supreme Court Ruling

In a 1972 decision, the Tax Appeal Court, in the case of 711 Motors, Inc. ruled that an automobile dealer was not taxable on reimbursements received from a manufacturer for the dealer’s costs incurred in making good the manufacturer’s warranty on cars sold.

However, this ruling was reversed in 1973, in the Aloha Motors case. And in 1975, the Hawaii Supreme Court upheld the Aloha Motors ruling and said that payments received by automobile dealers from manufacturers for warranty service to customers are taxable sales.”
   Excerpts-- Taxes of Hawaii 2008
   by Aileen Utterdyke

Throughout the rest of the 70’s, the 80’s, the 90’s and up until July 1, 2008, in this decade, Hawaii dealers have been paying the 4% tax on the warranty payments from a manufacturer to fulfill a new car warranty.

On July 1, 2008—the tax is reduced to the half percent rate by ACT 89.

Credit goes to the work of a lot of dealers and legislators.

Hawaii now joins all other states who have either eliminated the tax or reduced it to the wholesale level.

Hawaii auto dealers had earlier anticipated that ACT 71 (the de-pyramiding law of 1999) which had phased down the 4% GET to the .5% wholesale level over seven years on service-to-service transactions, would have applied to warranty payments but it developed that the additional language in the statutes was needed. After working with the Tax Department HADA initiated action for a statute in 2006.

HADA’s HB 1755

Sponsors of HADA’s de-pyramiding bill, HB1755, which was introduced in 2007 and just passed in the 2008 session) were Representative Kyle Yamashita and Representative Jon Riki Kiramatsu. The companion bill in the Senate was sponsored by Sen. Colleen Hanabusa. Speaker of the House Calvin Say played a large role in the passage of the bill, as did committee chairs in the two houses, including Yamashita, Representative Marcus Oshiro, and Senators Rosalyn Baker and Carol Fukunaga. Also Representatives James Tokioka and Pono Chong played important roles.

Tax is now at the wholesale rate of .5%

The HADA newsletter update of May 1 indicated that the bill had passed. Subsequent notification of the governor’s signature was sent out in mid June. The wholesale tax rate applies ONLY to payments received to fulfill the original new vehicle warranty obligation of the manufacturer.

HADA IS IN HOPES THAT THIS INFORMATION WILL BE PASSED TO ALL DEALERSHIP ACCOUNTING DEPARTMENTS.