February 17, 1999
Contact:Rep. Robert Herkes
Phone:(808) 586-6530


The House Committee on Economic Development & Business Concerns (EDB) is expected to advance for further discussion a bill that would scrap the current General Excise Tax (GET) system in favor of a sales tax on goods and services, according to Rep. Robert Herkes, committee chair.

Herkes (D - Puna, Kau) said the measure, HB188, is part of an integrated tax package designed to stimulate economic activity for the short- and long-term. The committee will meet tomorrow at 8:15 a.m. in Room 325 at the State Capitol.

Out of the 40-plus tax bills evaluated by the committee, Herkes said this carefully crafted package of eight bills is a "cohesive, business-oriented combination" that would accelerate Hawaii's movement toward a strong, diverse and sustainable economy.

"We acknowledge that these measures collectively will have an impact on the overall fiscal policies and budget of the State," Herkes said. "However, our committee's overriding concern this session is to move in the direction of support for our struggling business community. We will therefore present this package to the Finance Committee for consideration."

Rep. Nathan Suzuki (D - Moanalua, Moanalua Valley, Salt Lake), committee member and chair of the Finance Committee's Subcommittee on Taxation, said he will continue the discussion with Finance Committee members in looking at the tax package in terms of the overall financial plan.

Each of six of the bills handled by EDB sets different goals in terms of taxation and investment attraction, and the impact of each would be felt either immediately, in the medium-term, or after several years, according to Herkes.

A summary of the bills is as follows:

HB232, HD1 Alleviates the "pyramiding effect" of the GET on intermediary services at the wholesale level over a four-year period. Decreases by 1 percent in each of the first three years starting from the current 4 percent, down to 0.5 percent in Year 4 and thereafter.

HB375, HD1 Exempts professional services delivered out-of-state from paying the GET. The measure also seeks to persuade Hawaii-based professional service companies doing business abroad to maintain offices in Hawaii and to encourage other professional service firms to locate in Hawaii.
     The bill also would impose a use tax on services performed in Hawaii by out-of-state companies. Besides providing more equity for Hawaii companies, the use tax would help to compensate for the GET exemption on exported professional services.

HB231, HD1 Reduces by 50 percent the income tax rate on corporations, regulated investment companies, real estate investment trusts, the alternative tax for corporations, franchises, and the alternative franchise tax.

HB119 Increases tax credits for capital goods to encourage outside investment as well as to stimulate local businesses to invest in equipment and technology to become more competitive. The credit would be applied as follows:

HB838 Waives the GET on direct, pass-through costs for employee leasing companies.

HB188, HD1 Phases out the GET and Personal Income Tax over a period of years and replaces them with a single sales tax on goods and services.
     Also calls for a restructuring of state government by identifying departments which can be self-supporting. Those departments, such as the Department of Transportation and the Department of Commerce and Consumer Affairs, would receive zero or partial support from the State General Fund.

"This bill (HB188, HD1) is perhaps the single most sweeping approach to reforming our complex tax system, to helping business by eliminating pyramiding, and to protect the consumer from hidden taxes," Herkes said. "It moves us from an income-based tax system to consumption-based. In other words, you pay taxes on what you consume."

Herkes said the effects of this bill would be significant. Among other things it would:

And in industries where regulation is needed and is the best public policy, let the companies themselves pay for the cost of regulation, he said.

The two other bills which round out the package previously were heard and approved by the Tourism Committee. They are:

HB377, HD1 Provides tax incentives for high tech companies and encourages more high tech investment in the State.

HB136, HD1 Provides tax incentives to encourage construction in hotel/resort districts to ensure that Hawaii continues to be a competitive and desirable visitor destination.

"From the beginning, the House Majority members have been focused on the need for action to revitalize our economy. The Economic Development & Business Concerns Committee firmly believes that this package of bills will provide the stimuli to attract desirable investment and enhance our business environment," Herkes said.