STAND. COM. REP. NO. 1425

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: S.B. No. 638
                                     S.D. 1
                                     H.D. 1
                                     



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

Sir:

     Your Committee on Economic Development and Business
Concerns, to which was referred S.B. No. 638, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this bill is to relieve the effect of
pyramiding of the general excise tax (GET).  Specifically, this
bill will expand the GET treatment of intermediary sales of
services by treating all intermediary services as wholesale sales
whether the sale is service-to-service, service-to-goods, or
service-to-contracting transactions.

     The Chamber of Commerce, the Honolulu Japanese Chamber of
Commerce, the Hawaii Association of Realtors, Jas. W. Glover,
Ltd., the Building Industry Association of Hawaii, Hidano
Construction, Inc., the Hawaii Business Roundtable, the Small
Business Economic Revival Force, the Native Hawaiian Chamber of
Commerce, the Hawaii Business League, the Hawaii Farm Bureau, the
National Federation of Independent Business Hawaii, the Hawaii
Society of Certified Public Accountants, the Tax Section of the
Hawaii State Bar Association, and Structural Pest Control, Inc.,
testified in support of this bill.  The Department of Taxation
testified in support of the intent of the measure.  The Tax
Foundation of Hawaii commented on the bill.

     Your Committee finds that the pyramiding aspect of the GET
creates a non-uniform burden, encourages business integration,

 
 
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makes competition with most out-of-state markets difficult,
substantially balloons business costs, and prohibits shifting the
entire tax burden to the customer in competitive markets.
Adopting a scheme for services that is similar to the wholesale
tax for goods will provide some tax relief for service businesses
which are responsible for a large part of the gross state
product.

     Since this new tax rate will be made over a number of years,
this measure will accomplish its goal of reducing the tax burden
on businesses while ensuring that the State can adjust
accordingly to the loss of revenue.

     Your Committee has amended this measure by:

     (1)  Lowering the actual tax rate by .5 percent per year
          rather than providing for an equivalent deduction;

     (2)  Designating "transient accommodations" as a discrete
          class of activity apart from "services", similar to the
          treatment of contracting, so that the lower tax rate
          will apply to services-to-transient accommodations
          rental transactions; and

     (3)  Providing for goods-to-transient accommodations rental
          transactions in the use tax law. 

     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 S.B. No. 638, S.D. 1, as amended herein,
and recommends that it pass Second Reading in the form attached
hereto as S.B. No. 638, S.D. 1, 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
                                   Concerns,



                                   ______________________________
                                   ROBERT N. HERKES, Chair