STAND. COM. REP. NO. 894-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: S.B. No. 2706
                                     S.D. 1
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committees on Transportation and Economic Development
and Business Concerns, to which were referred S.B. No. 2706, S.D.
1, entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

beg leave to report as follows:

     The purpose of this bill is to clarify the applicability of
the general excise tax (GET) to offshore aircraft leasing
companies by:

     (1)  Preventing the retroactive assessment and collection of
          the GET on aircraft rentals; and

     (2)  Providing an exemption from the imposition of the GET
          on future rentals of aircraft.

     This measure also clarifies the use tax exemption to exempt
the use of aircraft engaged in, or imported, purchased, leased,
rented, or otherwise acquired for commercial transportation for
compensation, hire of passengers, goods, or other tangible
personal property between points in this State or between a point
in this State and a point outside this State.

     Hawaiian Airlines and Hawaiian Airlines Master Executive
Council of the Air Line Pilots Association supported this bill.
The Department of Taxation, Aloha Airlines, and the Tax
Foundation of Hawaii submitted comments.

 
 
                                 STAND. COM. REP. NO. 894-00
                                 Page 2

 

     Your Committees find that this bill addresses the Department
of Taxation's audits of lessors of aircraft and aircraft engines
to local airlines.  According to the Department of Taxation, the
companies that leased aircraft and aircraft engines to local
airlines owe the State approximately $20,500,000 in back GET.

     Your Committees note that a similar bill, H.B. No. 2794,
H.D. 3, passed the House after public hearings in the Committees
on Transportation, Economic Development and Business Concerns,
and Finance this session.  Your Committees have amended this bill
by deleting its contents and inserting the provisions of H.B. No.
2794, H.D. 3.  As amended, this bill:

     (1)  Provides a GET exemption for any amounts received as
          rent for the rental or leasing of aircraft or aircraft
          engines used for interisland air transportation of
          passengers and goods; and

     (2)  Clarifies the use tax exemption to exempt the
          acquisition or importation of any aircraft or aircraft
          engine by any lessee or renter engaged in interstate
          transportation.

     Your Committee have also deleted the definition for
"interstate air transportation" and made other technical,
nonsubstantive amendments for purposes of clarity and style.

     As affirmed by the records of votes of the members of your
Committees on Transportation and Economic Development and
Business Concerns that are attached to this report, your
Committees are in accord with the intent and purpose of S.B. No.
2706, S.D. 1, as amended herein, and recommend that it pass
Second Reading in the form attached hereto as S.B. No. 2706, S.D.
1, H.D. 1, and be referred to the Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committees on Transportation
                                   and Economic Development and
                                   Business Concerns,

                                   
                                   
                                   
                                   
______________________________     ______________________________
ROBERT N. HERKES, Chair            KENNETH T. HIRAKI, Chair