RELATING TO TAXATION.

HB1611

HOUSE OF REPRESENTATIVES

H.B. NO.

1611

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

relating
to taxation
.

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

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SECTION 1.
�
The legislature finds that the cost of living
in the State is among the highest in the nation, with many residents struggling
to afford basic necessities, such as food and medication.
�
According to the Hawaii Foodbank, nearly
thirty per cent of households were food insecure in 2023, including nineteen
per cent experiencing very low food security.
�

Unlike most states, Hawaii continues to fully tax groceries and
nonprescription drugs.
�
Just ten states
in the nation impose a tax on groceries, while only Hawaii, Mississippi, and
South Dakota continue to tax groceries at the full, regular rate.
�
Nearly all other states exempt these
necessities or tax them at a reduced rate.

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The legislature further finds that taxes
on food are regressive, because low- and middle-income families spend a larger
share of their income on necessities.
�
The state refundable food/excise tax credit
provides limited relief in practice.
�
At
the highest income bracket that qualifies for the credit at $50,000 to $60,000
of adjusted gross income for a family of four�the credit amounts to $70 per
exemption, or about $280 annually for a four-person household.
�
Many ALICE (asset limited, income constrained,
employed) households need roughly $110,000 annually for a family of four to
meet basic needs and do not qualify at all because eligibility for the credit
phases out well below ALICE income levels.
�
In addition, a significant portion of
low-income households do not file state income tax returns, resulting in many
eligible residents receiving no credit, even though the food/excise tax credit
is refundable.

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Research shows that taxing groceries
worsens food insecurity.
�
A 2021 study
conducted by Cornell University researchers found that each one percentage point
increase in grocery taxation is associated with a 0.84 per cent increase in the
probability of food insecurity among low-income households, demonstrating that
grocery taxes meaningfully worsen food hardship.
�
Applying that estimate to Hawaii's general
excise tax rate of 4.5 per cent indicates that the tax contributes to roughly a
3.78 percentage-point increase in food insecurity.

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The legislature also finds that
United States Department of Agriculture food expenditure data show that in
2023, Hawaii residents spent an estimated $5,510,000,000 on food-at-home
purchases, such as groceries.
�
Visitors
to Hawaii, by contrast, spend the overwhelming majority of their food dollars
on restaurants, hotels, and other food-away-from-home establishments.
�
Although federal data do not directly separate
food purchases by residents and tourists, Hawaii's high share of restaurant and
hotel food sales, combined with well-established tourism spending patterns,
indicates that nearly all grocery purchases are made by resident households,
particularly low- and middle-income families.

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The legislature additionally finds
that applying the general excise tax to groceries meaningfully increases the
cost of basic necessities for Hawaii families.
�
Using the 2023 food-at-home figure of $5,510,000,000,
the estimated general excise tax burden on groceries is approximately
$220,000,000 to $250,000,000 annually.
�
The
legislature believes that exempting essential groceries from the tax base will
directly reduce household food costs, particularly for low- and moderate-income
residents, while reducing the tax burden on necessities more fairly.

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Accordingly, the purpose of this Act
is to:

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(1)
�
Beginning January
1, 2027, establish a yearly reduction in the general excise tax rate on
groceries and nonprescription drugs on a tiered schedule until January 1, 2034,
when a full general excise tax exemption will begin;

����
(2)
�
Beginning January
1, 2028, provide a general excise tax exemption on the wholesale sale of
groceries and nonprescription drugs of groceries and nonprescription drugs; and

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(3)
�
Beginning January
1, 2027, prohibit the counties from imposing a county surcharge on groceries
and nonprescription drugs.

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

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"
�237-
�
Groceries;
nonprescription drugs; reduced rates.
�
(a)
�
Notwithstanding
any provision of law to the
contrary, except in the case of a wholesaler
under section 237-13(2)(A), beginning January 1, 2027, there is hereby levied
and shall be assessed and collected a tax on the gross proceeds or gross income
received from the sale of groceries and nonprescription drugs at the following
rates:

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(1)
�
Beginning
January 1, 2027:
�
3.5 per cent;

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(2)
�
Beginning
January 1, 2028:
�
3.0 per cent;

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(3)
�
Beginning
January 1, 2029:
�
2.5 per cent;

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(4)
�
Beginning
January 1, 2030:
�
2.0 per cent;

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(5)
�
Beginning
January 1, 2031:
�
1.5 per cent;

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(6)
�
Beginning
January 1, 2032:
�
1.0 per cent; and

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(7)
�
Beginning
January 1, 2033:
�
0.5 per cent.

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(b)
�

Notwithstanding any provision of law to the contrary, beginning
January
1, 2034, and thereafter, there shall be exempted from, and excluded from the
measure of, the taxes imposed by this chapter all of the gross proceeds or
gross income received from the
sale of
groceries and nonprescription drugs.
"

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SECTION 3.
�
Section 237-1, Hawaii Revised Statutes, is
amended by adding three new definitions to be appropriately inserted and to
read as follows:

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"
"Groceries" means
substances, whether in liquid, concentrated, solid, frozen, dried, or
dehydrated form, that are sold for ingestion or chewing by humans and are
consumed for their taste or nutritional value, including any food or food
product for home consumption.
�

"Groceries" does not include alcoholic beverages, tobacco, and
hot foods or hot food products prepared for immediate consumption.

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"Nonprescription drug"
has the same meaning as in section 328-1.

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"Wholesale transaction"
means a sale of groceries or nonprescription drugs for resale, including
transactions between manufacturers, distributors, and retailers.
"

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SECTION
4
.
�
Section 237-13,
Hawaii Revised Statutes, is amended to read as follows:

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"
�237-13
�
Imposition of tax.
�
There is hereby levied and shall be assessed
and collected annually privilege taxes against persons on account of their
business and other activities in the State measured by the application of rates
against values of products, gross proceeds of sales, or gross income, whichever
is specified, as follows:

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(1)
�
Tax on
manufacturers.

���������
(A)
�
Upon every person
engaging or continuing within the State in the business of manufacturing,
including compounding, canning, preserving, packing, printing, publishing,
milling, processing, refining, or preparing for sale, profit, or commercial
use, either directly or through the activity of others, in whole or in part,
any article or articles, substance or substances, commodity or commodities, the
amount of the tax to be equal to the value of the articles, substances, or
commodities, manufactured, compounded, canned, preserved, packed, printed,
milled, processed, refined, or prepared for sale, as shown by the gross
proceeds derived from the sale thereof by the manufacturer or person
compounding, preparing, or printing them, multiplied by one-half of one per
cent.

���������
(B)
�
The measure of the tax on manufacturers is the
value of the entire product for sale.

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(2)
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Tax on business of
selling tangible personal property; producing.

���������
(A)
�
Upon every person engaging or continuing in
the business of selling any tangible personal property whatsoever, there is
likewise hereby levied, and shall be assessed and collected, a tax equivalent
to four per cent of the gross proceeds of sales of the business; provided that,
in the case of a wholesaler[
, the
]
:

�������������
(i)
�
The

tax shall be equal to one-half of one per cent of the gross proceeds of sales
of the business; [
and provided further that insofar
]

�����������
(ii)_
�
Beginning
January 1, 2028, the gross proceeds or gross income arising from the wholesale
sale of groceries or nonprescription drugs shall be exempt from the tax imposed
by this subparagraph; and

�����������
(iii)
�
Insofar

as the sale of tangible personal property is a wholesale sale under section
237-4(a)(8), the tax shall be one-half of one per cent of the gross proceeds.

�������������
Upon every person engaging
or continuing within this State in the business of a producer, the tax shall be
equal to one-half of one per cent of the gross proceeds of sales of the
business, or the value of the products, for sale.

���������
(B)
�
Gross proceeds of
sales of tangible property in interstate and foreign commerce shall constitute
a part of the measure of the tax imposed on persons in the business of selling
tangible personal property, to the extent, under the conditions, and in accordance
with the provisions of the Constitution of the United States and the Acts of
the Congress of the United States which may be now in force or may be hereafter
adopted, and whenever there occurs in the State an activity to which, under the
Constitution and Acts of Congress, there may be attributed gross proceeds of
sales, the gross proceeds shall be so attributed.

���������
(C)
�
No manufacturer or producer, engaged in such
business in the State and selling the manufacturer's or producer's products for
delivery outside of the State (for example, consigned to a mainland purchaser
via common carrier f.o.b. Honolulu), shall be required to pay the tax imposed
in this chapter for the privilege of so selling the products, and the value or
gross proceeds of sales of the products shall be included only in determining
the measure of the tax imposed upon the manufacturer or producer.

���������
(D)
�
A manufacturer or producer, engaged in such
business in the State, shall pay the tax imposed in this chapter for the
privilege of selling its products in the State, and the value or gross proceeds
of sales of the products, thus subjected to tax, may be deducted insofar as
duplicated as to the same products by the measure of the tax upon the
manufacturer or producer for the privilege of manufacturing or producing in the
State; provided that no producer of agricultural products who sells the
products to a purchaser who will process the products outside the State shall
be required to pay the tax imposed in this chapter for the privilege of
producing or selling those products.

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(E)
�
A taxpayer selling to a federal cost-plus
contractor may make the election provided for by paragraph (3)(C), and in that
case the tax shall be computed pursuant to the election, notwithstanding this
paragraph or paragraph (1) to the contrary.

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(F)
�
The department, by rule, may require that a
seller take from the purchaser of tangible personal property a certificate, in
a form prescribed by the department, certifying that the sale is a sale at
wholesale; provided that:

�������������
(i)
�
Any purchaser who
furnishes a certificate shall be obligated to pay to the seller, upon demand,
the amount of the additional tax that is imposed upon the seller whenever the
sale in fact is not at wholesale; and

������������
(ii)
�
The absence of a certificate in itself shall
give rise to the presumption that the sale is not at wholesale unless the sales
of the business are exclusively at wholesale.

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(3)
�
Tax upon
contractors.

���������
(A)
�
Upon every person
engaging or continuing within the State in the business of contracting, the tax
shall be equal to four per cent of the gross income of the business.

���������
(B)
�
In computing the tax levied under this
paragraph, there shall be deducted from the gross income of the taxpayer so
much thereof as has been included in the measure of the tax levied under
subparagraph (A), on
another taxpayer who is a contractor, as defined in
section 237-6; provided that any person claiming a deduction under this
paragraph shall be required to show in the person's return the name and general
excise number of the person paying the tax on the amount deducted by the
person.

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(C)
�
In computing the tax levied under this
paragraph against any federal cost-plus contractor, there shall be excluded
from the gross income of the contractor so much thereof as fulfills the
following requirements:

�������������
(i)
�
The gross income exempted shall constitute
reimbursement of costs incurred for materials, plant, or equipment purchased
from a taxpayer licensed under this chapter, not exceeding the gross proceeds
of sale of the taxpayer on account of the transaction; and

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(ii)
�
The taxpayer making the sale shall have
certified to the department that the taxpayer is taxable with respect to the
gross proceeds of the sale, and that the taxpayer elects to have the tax on
gross income computed the same as upon a sale to the state government.

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(D)
�
A person who, as a business or as a part of a
business in which the person is engaged, erects, constructs, or improves any
building or structure, of any kind or description, or makes, constructs, or
improves any road, street, sidewalk, sewer, or water system, or other
improvements on land held by the person (whether held as a leasehold, fee
simple, or otherwise), upon the sale or other disposition of the land or
improvements, even if the work was not done pursuant to a contract, shall be
liable to the same tax as if engaged in the business of contracting, unless the
person shows that at the time the person was engaged in making the improvements
the person intended, and for the period of at least one year after completion
of the building, structure, or other improvements the person continued to
intend to hold and not sell or otherwise dispose of the land or
improvements.
�
The tax in respect of the
improvements shall be measured by the amount of the proceeds of the sale or
other disposition that is attributable to the erection, construction, or
improvement of such building or structure, or the making, constructing, or
improving of the road, street, sidewalk, sewer, or water system, or other
improvements.
�
The measure of tax in
respect of the improvements shall not exceed the amount which would have been
taxable had the work been performed by another, subject as in other cases to
the deductions allowed by subparagraph (B).
�

Upon the election of the taxpayer, this paragraph may be applied
notwithstanding that the improvements were not made by the taxpayer, or were
not made as a business or as a part of a business, or were made with the
intention of holding the same.
�
However,
this paragraph shall not apply in respect of any proceeds that constitute or
are in the nature of rent, which shall be taxable under paragraph (9); provided
that insofar as the business of renting or leasing real property under a lease
is taxed under section 237-16.5, the tax shall be levied by section 237-16.5.

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(4)
�
Tax upon theaters,
amusements, radio broadcasting stations, etc.

���������
(A)
�
Upon every person
engaging or continuing within the State in the business of operating a theater,
opera house, moving picture show, vaudeville, amusement park, dance hall,
skating rink, radio broadcasting station, or any other place at which
amusements are offered to the public, the tax shall be equal to four per cent
of the gross income of the business, and in the case of a sale of an amusement
at wholesale under section 237-4(a)(13), the tax shall be one-half of one per
cent of the gross income.

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(B)
�
The department may require that the person
rendering an amusement at wholesale take from the licensed seller a
certificate, in a form prescribed by the department, certifying that the sale
is a sale at wholesale; provided that:

�������������
(i)
�
Any licensed
seller who furnishes a certificate shall be obligated to pay to the person
rendering the amusement, upon demand, the amount of additional tax that is
imposed upon the seller whenever the sale is not at wholesale; and

������������
(ii)
�
The absence of a certificate in itself shall
give rise to the presumption that the sale is not at wholesale unless the
person rendering the sale is exclusively rendering the amusement at wholesale.

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(5)
�
Tax upon sales representatives, etc.
�
Upon every person classified as a
representative or purchasing agent under section 237-1, engaging or continuing
within the State in the business of performing services for another, other than
as an employee, there is likewise hereby levied and shall be assessed and
collected a tax equal to four per cent of the commissions and other
compensation attributable to the services so rendered by the person.

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(6)
�
Tax on service business.

���������
(A)
�
Upon every person
engaging or continuing within the State in any service business or calling
including professional services not otherwise specifically taxed under this
chapter, there is likewise hereby levied and shall be assessed and collected a
tax equal to four per cent of the gross income of the business, and in the case
of a wholesaler under section 237-4(a)(10), the tax shall be equal to one-half
of one per cent of the gross income of the business.

���������
(B)
�
The department may require that the person
rendering a service at wholesale take from the licensed seller a certificate,
in a form prescribed by the department, certifying that the sale is a sale at
wholesale; provided that:

�������������
(i)
�
Any licensed
seller who furnishes a certificate shall be obligated to pay to the person
rendering the service, upon demand, the amount of additional tax that is
imposed upon the seller whenever the sale is not at wholesale; and

������������
(ii)
�
The absence of a certificate in itself shall
give rise to the presumption that the sale is not at wholesale unless the
person rendering the sale is exclusively rendering services at wholesale.

���������
(C)
�
Where any person is engaged in the business of
selling interstate or foreign common carrier telecommunication services within
and without the State, other than as a home service provider, the tax shall be
imposed on that portion of gross income received by a person from service which
is originated or terminated in this State and is charged to a telephone number,
customer, or account in this State notwithstanding any other state law (except
for the exemption under section 237-23(a)(1)) to the contrary.
�
If, under the Constitution and laws of the
United States, the entire gross income as determined under this paragraph of a
business selling interstate or foreign common carrier telecommunication
services cannot be included in the measure of the tax, the gross income shall
be apportioned as provided in section 237-21; provided that the apportionment
factor and formula shall be the same for all persons providing those services
in the State.

���������
(D)
�
Where any person is engaged in the business of
a home service provider, the tax shall be imposed on the gross income received
or derived from providing interstate or foreign mobile telecommunications
services to a customer with a place of primary use in this State when the
services originate in one state and terminate in another state, territory, or
foreign country; provided that all charges for mobile telecommunications
services which are billed by or for the home service provider are deemed to be
provided by the home service provider at the customer's place of primary use,
regardless of where the mobile telecommunications originate, terminate, or pass
through; provided further that the income from charges specifically derived
from interstate or foreign mobile telecommunications services, as determined by
books and records that are kept in the regular course of business by the home
service provider in accordance with section 239-24, shall be apportioned under
any apportionment factor or formula adopted under subparagraph (C).
�
Gross income shall not include:

�������������
(i)
�
Gross receipts
from mobile telecommunications services provided to a customer with a place of
primary use outside this State;

������������
(ii)
�
Gross receipts from mobile telecommunications
services that are subject to the tax imposed by chapter 239;

�����������
(iii)
�
Gross receipts from mobile telecommunications
services taxed under section 237-13.8; and

������������
(iv)
�
Gross receipts of a home service provider
acting as a serving carrier providing mobile telecommunications services to
another home service provider's customer.

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For the purposes of this
paragraph, "charges for mobile telecommunications services", "customer",
"home service provider", "mobile telecommunications services",
"place of primary use", and "serving carrier" have the same
meaning as in section 239-22.

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(7)
�
Tax on insurance
producers.
�
Upon every person engaged as
a licensed producer pursuant to chapter 431, there is hereby levied and shall
be assessed and collected a tax equal to 0.15 per cent of the commissions due
to that activity.

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(8)
�
Tax on receipts of sugar benefit
payments.
�
Upon the amounts received from
the United States government by any producer of sugar (or the producer's legal
representative or heirs), as defined under and by virtue of the Sugar Act of
1948, as amended, or other Acts of the Congress of the United States relating
thereto, there is hereby levied a tax of one-half of one per cent of the gross
amount received; provided that the tax levied hereunder on any amount so
received and actually disbursed to another by a producer in the form of a
benefit payment shall be paid by the person or persons to whom the amount is
actually disbursed, and the producer actually making a benefit payment to
another shall be entitled to claim on the producer's return a deduction from
the gross amount taxable hereunder in the sum of the amount so disbursed.
�
The amounts taxed under this paragraph shall
not be taxable under any other paragraph, subsection, or section of this
chapter.

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(9)
�
Tax on other business.
�
Upon every person engaging or continuing
within the State in any business, trade, activity, occupation, or calling not
included in the preceding paragraphs or any other provisions of this chapter,
there is likewise hereby levied and shall be assessed and collected, a tax
equal to four per cent of the gross income thereof.
�
In addition, the rate prescribed by this
paragraph shall apply to a business taxable under one or more of the preceding
paragraphs or other provisions of this chapter, as to any gross income thereof
not taxed thereunder as gross income or gross proceeds of sales or by taxing an
equivalent value of products, unless specifically exempted.
"

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SECTION
5
.
�
Section
237-8.6, Hawaii Revised Statutes, is amended by amending subsection (a) to read
as follows:

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"
(a)
�
The county surcharge
on state tax, upon the adoption of county ordinances and in accordance with the
requirements of section 46-16.8, shall be levied, assessed, and collected as
provided in this section on all gross proceeds and gross income taxable under
this chapter.
�
No county shall [
set
]
:

����
(1)
�
Set
the
surcharge on state tax at a rate greater than one-half per cent of all gross
proceeds and gross income taxable under this chapter[
.
]
; and

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(2)
�
Beginning
January 1, 2027, impose a surcharge on gross proceeds or gross income arising
from the sale of groceries or nonprescription drugs or wholesale transactions
involving groceries or nonprescription drugs.

All
provisions of this chapter shall apply to the county surcharge on state
tax.
�
With respect to the surcharge, the
director of taxation shall have all the rights and powers provided under this
chapter.
�
In addition, the director of
taxation shall have the exclusive rights and power to determine the county or
counties in which a person is engaged in business and, in the case of a person
engaged in business in more than one county, the director shall determine,
through apportionment or other means, that portion of the surcharge on state
tax attributable to business conducted in each county.
"

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SECTION 6.
�
Statutory material to be repealed is
bracketed and stricken.
�
New statutory
material is underscored.

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SECTION 7.
�
This Act shall take effect on July 1, 2026.

INTRODUCED BY:

_____________________________

Report Title:

General
Excise Tax; Groceries: Nonprescription Drugs; Reduced Rate; Exemptions;
Wholesale; County Surcharge

Description:

Beginning 1/1/2027, establishes a yearly reduction in the
general excise tax rate on groceries and nonprescription drugs on a tiered schedule,
until 1/1/2034 and thereafter, when a full general excise tax exemption
applies.
�
Beginning 1/1/2028, provides a
general excise tax exemption on the wholesale sale of groceries and
nonprescription drugs.
�
Beginning
1/1/2027, prohibits the counties from imposing a county surcharge on groceries
and nonprescription drugs.

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