State Supreme Court upholds use tax

CompUSA had challenged the state’s use tax as unconstitutional since it applies only to out-of-state sellers.

In an opinion handed down Friday, the Hawaii Supreme Court’s five justices unanimously rejected CompUSA’s appeal and found that the use tax serves a legitimate state interest in leveling the economic playing field for local businesses subject to the state’s general excise tax.

Businesses pay the 4 percent GET on their gross income or gross proceeds of sales for the privilege and benefits of doing business in Hawaii, including going to state court to protect their interests. The businesses are free to pass on the tax to their customers.

The state imposes a half-percent use tax on the purchase of goods imported from businesses outside Hawaii so those businesses would enjoy less of a price advantage over Hawaii businesses that produce the same goods in Hawaii and pay the state GET.

Up until 2008, CompUSA operated two retail stores in Hawaii. The company paid the use tax on all of the goods it imported into Hawaii and paid the GET on those goods it resold to local consumers.

In 2010 CompUSA asked the state Department of Taxation to refund the $751,529 in use taxes it paid for 2006, 2007 and 2008. The company claimed that when state lawmakers changed the use tax law in 2004, they made it unconstitutional. The state rejected CompUSA’s refund request. Friday’s opinion upholds the rejection.

Before the 2004 change, the state could levy the use tax on goods imported or purchased for use in Hawaii from a seller not subject to the state’s GET. In response to a January 2004 Hawaii Supreme Court opinion, state lawmakers amended the law to have the tax also apply to the sale and delivery of goods from out-of-state sellers who do not pay Hawaii’s GET. The Supreme Court had exempted from the use tax a North Carolina business that sold books to the Hawaii State Library because the business did not purchase or import the books.

The CompUSA brand name, which was sold to Systemax Inc. in 2008 as part of the company’s liquidation, disappeared for good in 2012.