Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 231
                                     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. 231 entitled: 


begs leave to report as follows:

     The purpose of this bill is to reduce the tax imposed on
certain business taxpayers by:
     (1)  Reducing the income tax rate for corporations,
          regulated investment companies, and real estate
          investment trusts by fifty per cent and changing the
          tax brackets to reflect a lowest tax bracket for
          incomes of $50,000 and less;

     (2)  Reducing the alternative tax for corporations by fifty
          per cent;

     (3)  Reducing the franchise tax by fifty per cent; and

     (4)  Reducing the alternative tax under the franchise tax by
          fifty per cent.

     Your Committee finds that reducing the taxes paid by certain
business taxpayers will help to ease the tax burden of local
businesses as well as attract business to the State.

    Your Committee has considered numerous tax proposals,
including this bill.  Of these proposals, your Committee intends

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                                 Page 2

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:

    (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:

     (1)  Reducing the franchise tax rate to four and seventy-two
          one hundredths per cent, rather than three and ninety-
          six one hundredths per cent to reflect a decrease only
          in that portion of the tax that serves as a substitute
          for the income tax; and

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                                 Page 3

     (2)  Adjusting the calculation of the alternative tax for
          corporations so that the reduced rate applies only to
          income from the portion of the taxable year falling
          after the bill's effective date.

     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. 231, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as H.B. No. 231, H.D. 1, and be referred to the Committee
on Finance.

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

                                   ROBERT N. HERKES, Chair