Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 375
                                     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. 375 entitled: 


begs leave to report as follows:

    The purpose of this bill is to foster Hawaii's economic
growth by exempting the exportation of professional services from
the general excise tax.

    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:

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

                                 STAND. COM. REP. NO. 612
                                 Page 2

    (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.

     Under current law, section 237-29.5, Hawaii Revised
Statutes, provides a general excise tax exemption for sales of
goods, but not services, that are shipped out of the State.  Your
Committee finds that exempting exported services from the general
excise tax would allow Hawaii service providers to be more
competitive in the global market as they will not have to pass on
the four percent tax to their out-of-state customers.

     Upon further consideration, your Committee has amended this
bill by deleting its substance and inserting the contents of H.B.
No. 1199, a similar administration bill that was also heard by
your Committee.  As amended, this measure:

     (1)  Exempts exported services from the GET; and

     (2)  Imposes a use tax on imported services to not only
          level the playing field between the local service
          providers and out-of-state providers, but compensates
          for the revenue loss caused by the GET exemption.

     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. 375, as amended herein, and

                                 STAND. COM. REP. NO. 612
                                 Page 3

recommends that it pass Second Reading in the form attached
hereto as H.B. No. 375, 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