Rev. Rul. 63-7

Advice has been requested whether the so-called `privilege' tax imposed in the State of Hawaii upon certain retailing activities may be excluded from the sales price for purposes of computing the Federal retailers excise tax.

The pertinent provisions relating to the privilege tax imposed in the State of Hawaii under section 117-14.6(b) of the amendment to Chapter 117 of the Revised Laws of Hawaii, 1955, added by section 3, subsection (u) of Act 1 of the Special Session of 1957, effective July 1, 1957, are set forth in Revenue Ruling 58-564, C.B. 1958-2, 79, which holds that, for purposes of computing taxable income, the privilege tax constitutes a `State or local' sales tax within the meaning of section 164(c)(2) of the Internal Revenue Code of 1954. Under the provisions of section 15 of The Admission Act, Public Law 86-3, 73 Stat. 4, all territorial laws in force in the Territory of Hawaii at the time of its admission into the Union are continued in force in the State of Hawaii.

For purposes of the Federal retailers excise tax, section 4051 of the Code provides that in determining the price for which an article is sold, there shall be excluded, if stated as a separate charge, the amount of any retail sales tax imposed by any State or Territory or political subdivision of the foregoing, or the District of Columbia, whether the liability for such tax is imposed on the vendor or the vendee.

Section 320.7(b)(2) of Regulations 51, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides as follows:

This exclusion relates to State or local taxes imposed with respect to the sale of the article, regardless of whether the vendor or the vendee is liable for payment of the tax. However, it does not include other levies, as, for example, a State income tax payable by a retailer upon the net profits derived from his operations.

In view of the foregoing, the `privilege' tax imposed upon certain retailing activities in the State of Hawaii is considered to be a State or local `retail sales tax' as contemplated by section 4051 of the Code. Therefore, it is held that the amount of that tax may be excluded in determining the price for which an article is sold for purposes of computing the Federal retailers excise tax , provided it is stated as a separate charge. See Revenue Ruling 57-329, C.B. 1957-2, 716, which sets forth certain conditions under which state or local taxes are considered to be stated as a separate charge.