Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 188
                                     H.D. 1

Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


     Your Committee on Economic Development and Business
Concerns, to which was referred H.B. No. 188 entitled: 


begs leave to report as follows:

    The purpose of this bill, as received, is to exempt from
general excise tax:

    (1)  Goods and services exported out of the state; and

    (2)  Amounts prohibited from state taxation by the
         Constitution of the United States or federal law.

    Your Committee has considered numerous tax proposals,
including this bill.  Of these proposals, your Committee intends
to report out a package of bills for further discussion and
consideration by the Committee on Finance.  These bills along
with H.B. No. 377, H.D. 1 (Relating to Economic Development), and
H.B. No. 136, H.D. 1 (Relating to Taxation), comprise the House
Tax Package for Economic Development.  The aim of this package is
to improve Hawaii's long-term economic viability.

    Your Committee has examined these proposals from the
standpoint of economic development and finds that the following
proposals are most promising for the industries targeted,
benefits offered, and long-term investment strategies they hope
to promote:

                                 STAND. COM. REP. NO. 607
                                 Page 2

    (1)  H.B. No. 119:         Capital goods investment tax

    (2)  H.B. No. 188, H.D. 1: Tax restructuring to establish a
                               sales tax;

    (3)  H.B. No. 231, H.D. 1: Corporate tax reduction;

    (4)  H.B. No. 232, H.D. 1: Wholesale services tax reduction;

    (5)  H.B. No. 375, H.D. 1: GET exemption for exported
                               professional services; and

    (6)  H.B. No. 838:         GET waiver for employee leasing

    Your Committee, however, recognizes that these proposals may
have negative short-term revenue consequences.  Therefore, in
this economic climate, adoption of some or all of the proposals
may not be feasible.  Although the proposals are promising long-
term strategies, the State may not now be in a position to
shoulder the burden of the short-term effects.

    Your Committee respectfully defers to the Committee on
Finance on the fiscal impact of these measures as it develops a
fiscal policy that unites appropriate tax policies with viable
government efficiency reforms in preparing the State Budget.

     Your Committee has amended this bill by deleting its
contents and adding provisions to restructure the tax system over
a five year period.  Specifically, this bill will establish a
retail sales tax in place of the general excise and income taxes
which will be repealed.  The bill also requires the state
departments and agencies to analyze methods to provide their own
funding through fees for goods and services.

     As affirmed by the record of votes of the members of your
Committee on Economic Development and Business Concerns that is
attached to this report, your Committee is in accord with the
intent and purpose of H.B. No. 188, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as H.B. No. 188, H.D. 1, and be referred to the Committee
on Finance.

                                 STAND. COM. REP. NO. 607
                                 Page 3

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Economic
                                   Development and Business

                                   ROBERT N. HERKES, Chair