Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 47
                                        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. 47 entitled: 


begs leave to report as follows:

     The purpose of this measure is to reduce the taxation of
activities in the health care industry.

     The Healthcare Association of Hawaii submitted testimony in
support of the measure.  The Department of Taxation submitted
testimony supporting efforts to ease the tax burden on the health
care industry.  The Tax Foundation of Hawaii submitted comments.

     The health care industry is considered by some to be the
third largest industry in Hawaii.  Unlike other businesses,
however, it is undergoing structural changes that expose it to
the general excise tax where the tax was not previously paid.
The old structure of a nonprofit hospital performing all health
care and nonhealth care but related functions is no longer
viable.  Hospitals are spinning off nonhealth care functions such
as bill collection.  They are entering into partnerships and
joint ventures with health plans and doctors.  Health care plans
are entering into agreements with health care providers.

     Many of these changes in structure or reformations result in
the imposition of the general excise tax on what may have been
tax exempt income to a nonprofit operation.  The imposition of
the general excise tax on these reformations may have several

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results, none of them beneficial to the public.  First, the
reformation may go ahead resulting in the imposition of the
general excise tax and increased health care costs to the public.
Second, much time and research may be put in to avoid the general
excise tax.  This may result in a less efficient formation and
the higher costs of forming it.  The public then pays the higher
cost of avoiding the general excise tax and the inefficient
formation which results.

     Your Committee believes that it is time to address the
problems caused by the general excise tax in the health care
industry.  Your Committee notes that Senate Bill No. 638
addresses many of the provisions of this measure that deal with
reducing the pyramiding of the general excise tax.  Thus, those
provisions, sections 237-B to 237-E and 237-G have been deleted
from the measure.  Definitions that relate only to those
provisions are also deleted.  Amendments to sections 237-24.3 and
238-1, Hawaii Revised Statutes, dealing with tangible personal
property also have been deleted.

     Your Committee believes that the amended measure dealing
with the formation of health plan providers receiving income from
a health care plan and income received by health plan joint
ventures and their exemption from the general excise tax will
greatly assist the health care industry to compete on a level
playing field with its mainland counterparts.  In addition, the
exemption from the general excise or use tax for health care
facilities for the purchase of prescription drugs and prosthetic
devices continues the legislature's attempts to reduce the cost
of health care to our residents.  

     Your Committee notes that the revenues lost from this
amended measure are very little.  The joint ventures addressed by
this amended measure are not in existence due to the tax, thus
there is no revenue loss.  The revenue loss from the exemption of
prescription drugs and prosthetic devices is very little.

     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. 47, as amended herein, and recommends that it pass Third
Reading in the form attached hereto as S.B. No. 47, S.D. 1.

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                                 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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