Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 232
                                     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. 232 entitled: 


begs leave to report as follows:

     The purpose of this bill is to establish a general excise
tax structure for services similar to the structure currently in
place for goods, and thereby alleviating the "pyramiding" of the
general excise tax.

     Your Committee finds that under current general excise tax
provisions, very few services can qualify for the .5 per cent
intermediary rate.  As a result, the cost of end-products and
end-services is increased by the taxation of intermediary
services at the full general excise tax rate of 4 per cent.  This
is often referred to as the "pyramiding" of the general excise
tax.  Your Committee further finds that alleviating the problem
of "pyramiding" will help lower the cost of doing business in

    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.

                                 STAND. COM. REP. NO. 610
                                 Page 2


    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)  Providing for the gradual implementation of the
          decrease in general excise tax on intermediary services
          over a four-year period; and

     (2)  Making technical, nonsubstantive amendments for
          purposes of style and clarity.

     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. 232, as amended herein, and
recommends that it pass Second Reading in the form attached

                                 STAND. COM. REP. NO. 610
                                 Page 3

hereto as H.B. No. 232, 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