STAND. COM. REP. NO. 749
RE: S.B. No. 394
Honorable Ronald D. Kouchi
President of the Senate
Thirtieth State Legislature
Regular Session of 2019
State of Hawaii
Your Committee on Ways and Means, to which was referred S.B. No. 394 entitled:
"A BILL FOR AN ACT RELATING TO TAXATION,"
begs leave to report as follows:
The purpose and intent of this measure is to amend the way Hawaii taxes multistate businesses.
More specifically, this measure apportions business income by using only the taxpayer's sales factor, rather than the average of the taxpayer's property, payroll, and sales factors.
Your Committee received comments on this measure from the Department of Taxation and the Tax Foundation of Hawaii.
Your Committee finds that, for income tax purposes, most states including Hawaii have adopted the Uniform Division of Income for Tax Purposes Act (UDITPA). Under UDITPA, codified under state law as part II of chapter 235, Hawaii Revised Statutes, a taxpayer is required to compute a property factor, which is a fraction representing the amount of property in Hawaii versus elsewhere; a payroll factor, which is a fraction measuring Hawaii payroll; and a sales factor, a fraction which measures Hawaii sales. The amount of net income apportioned to Hawaii is then the net income from operations everywhere multiplied by the average of the property, payroll, and sales factors. Your Committee further finds that some states have amended their versions of UDITPA to disregard the property and payroll factors, and apportion business income based solely on a taxpayer's sales factor.
Your Committee has amended this measure by:
(1) Inserting provisions from S.B. No. 1270 to adopt market-based sourcing for the sale of services and intangible property for purposes of apportioning income under the Uniform Division of Income for Tax Purposes Act; and
(2) Changing the effective date to July 1, 2050, to facilitate further discussion on the measure.
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. 394, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 394, S.D. 1, and be placed on the calendar for Third Reading.
Respectfully submitted on behalf of the members of the Committee on Ways and Means,
DONOVAN M. DELA CRUZ, Chair