Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 1177
                                        S.D. 1

Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


     Your Committee on Ways and Means, to which was referred S.B.
No. 1177 entitled: 


begs leave to report as follows:
     The purpose of this measure is to clarify general excise tax
rates for sales of bulk condiments or single-serving packets, for
sales of disposable nonrefundable containers, and the treatment
of professional services.

     Your Committee received testimony in support of this measure
from the Department of Taxation, Legislative Information Services
of Hawaii and Hawaii Food Industry, and one individual.  The Tax
Foundation of Hawaii submitted comments.

     Your Committee finds that under Hawaii Administrative Rules,
Section 18-237-4-01.01, sales to an eating or drinking retailer
of any tangible personal property that is used to contain food or
beverages sold at retail, and of bulk condiments are subject to
the general excise tax at the wholesale rate of one-half percent.
However, the rules do not allow the wholesale rate for
prepackaged, single-serving packets of condiments, unless the
packets are resold for a separate charge.

     Your Committee further finds that since customers in eating
establishments usually prefer to add their own selection and
quantity of condiments, the retailer supplies it separately for
the customer's convenience.  Whether the retailer supplies these

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condiments in bulk containers or in separate packages, should be
irrelevant for tax purposes.  The Department of Taxation,
however, may not amend the rules to address this concern of
Hawaii's food industry without the amendment to Section 237-4,
Hawaii Revised Statutes, as proposed in this measure.

     Your Committee has amended this measure to delete Section 2,
which would have clarified the intermediary services rate for
professionals, as this issue has been addressed in S.B. No. 638,
S.D. 1, as reported out by your Committee.

     As affirmed by the record of votes of the members of your
Committee on Ways and Means that is attached to this report, your
Committee is in accord with the intent and purpose of S.B.
No. 1177, as amended herein, and recommends that it pass Second
Reading in the form attached hereto as S.B. No. 1177, S.D. 1, and
be placed on the calendar for Third Reading.

                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,

                                 CAROL FUKUNAGA, Co-Chair

                                 ANDREW LEVIN, Co-Chair

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