Honolulu, Hawaii
                                                   , 1999

                                 RE: S.B. No. 1583
                                     S.D. 2
                                     H.D. 2

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


     Your Committee on Finance, to which was referred S.B. No.
1583, S.D. 2, H.D. 1, entitled: 


begs leave to report as follows:

     The purpose of this bill is to promote and support the
growth and development of high technology industries in Hawaii.

     The Hawaii Island Technology Association, the Estate of
James Campbell, and the Department of Education testified in
support of this bill.  The High Technology Development
Corporation, the Department of Business, Economic Development,
and Tourism, the Department of Labor and Industrial Relations,
and the University of Hawaii testified in support of the intent
of this bill.  The Department of Taxation, the Tax Foundation of
Hawaii, and a member of the public commented on this bill.

     Your Committee has amended this bill by:

     (1)  Amending the definition of "qualified high technology
          business" to mean that:

          (A)  The majority activity of the business is
               performing qualified research in Hawaii; and

          (B)  The business receives most of its income from
               qualified research expenses, provided that the
               income is received from:

                                 STAND. COM. REP. NO. 1845
                                 Page 2


               (i)  Products sold from, manufactured, or produced
                    in Hawaii; or

               (ii) Services performed in Hawaii;

     (2)  Changing the term "qualified research expenses" to
          "qualified research" and redefining the term to match
          section 41(d) of the Internal Research Code, except
          that the term will not include expenses for research
          conducted outside Hawaii;

     (3)  Amending the proposed Hawaii Internet Tax Freedom Act

          (A)  Specifying that the location of a server in Hawaii
               by any person, will not of itself subject that
               person to any tax in Hawaii;

          (B)  Deleting the January 1, 2002 repeal date; and

          (C)  Adding conforming language throughout the bill;

     (4)  Deleting language in section 17, that finds that all of
          Hawaii's students must have equal access to the

     (5)  Adding a new legislative findings section (section 28)
          on the need to exempt individuals and Hawaii qualified
          high technology businesses from taxation on royalties
          arising out of those businesses or any other source;

     (6)  Adding a tax exemption on royalties arising from "other
          sources" to expand the exemption beyond royalties
          derived or arising from qualified high technology

     (7)  Adding a new part which assists in the creation of
          opportunities for high technology companies through the
          creation of tax credits for investing in high
          technology businesses and increasing research

     (8)  Changing the effective date to taxable years beginning
          after December 31, 1999 for:

          (A)  The tax exemption for stock options for qualified
               high technology businesses;

                                 STAND. COM. REP. NO. 1845
                                 Page 3

          (B)  The tax exemption for royalties arising from
               qualified high technology businesses or other
               sources; and

          (C)  The tax credits for high technology business
               investment and increasing research activities;


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

     As affirmed by the record of votes of the members of your
Committee on Finance that is attached to this report, your
Committee is in accord with the intent and purpose of S.B. No.
1583, S.D. 2, H.D. 1, as amended herein, and recommends that it
pass Third Reading in the form attached hereto as S.B. No. 1583,
S.D. 2, H.D. 2.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Finance,

                                   DWIGHT Y. TAKAMINE, Chair