STAND. COM. REP. NO. 331

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 1649
                                     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 Consumer Protection and Commerce, to which
was referred H.B. No. 1649 entitled: 

     "A BILL FOR AN ACT RELATING TO THE CONVEYANCE TAX,"

begs leave to report as follows:

     The purpose of this bill, as received, is to exempt from the
conveyance tax on transfers of real property, the conveyance of
real property or any interest therein:

     (1)  Owned by an individual or business entity, to a
          business entity owned in whole or part by the
          transferor, or vice versa;

     (2)  Owned by a business entity, to its shareholders,
          partners, or members, in connection with the
          dissolution or liquidation of the business entity; and

     (3)  In any document executed in connection with the
          conversion of a general or limited partnership to a
          limited liability company, or vice versa.

     Your Committee received testimony in support of this bill
from Outrigger Enterprises, Inc., stating that under current law,
partnerships taking advantage of the limited liability
organizational structure authorized under recently enacted law,
would have to pay the conveyance tax on the partnership's
transfer of real estate to the new limited liability company.  By
removing the conveyance tax on this type of transfer, the bill

 
 
                                 STAND. COM. REP. NO. 331
                                 Page 2

 
would encourage Hawaii's businesses to convert to, and operate in
the most efficient organizational form possible.  It would also
help to change the perception that it is difficult to do business
in Hawaii.

     The Department of Taxation (Department) was not opposed to
the bill, stating that in the absence of statistics on the types
of transfers contemplated, the Department felt that the exemption
would have minimal impact on conveyance tax revenues.  However,
the Department did express the concern that loopholes in the bill
could be exploited to allow tax-free transfers of real property
outside of the context of transfers for the purpose of converting
from one business operational form to another.

     Your Committee has amended this bill to remove the loopholes
identified by the Department, by:

     (1)  Removing paragraphs 15 and 16 from the original
          amendments to the bill, including the definition of
          "business entity" which is relevant only to the deleted
          paragraphs;

     (2)  Retaining language specifically exempting real property
          conveyances in connection with conversions of general
          or limited partnerships to limited liability companies,
          and vice versa; and

     (3)  Including corporations in the group of business
          entities allowed tax free real property transfers when
          converting from one business operational form to
          another.

     As affirmed by the record of votes of the members of your
Committee on Consumer Protection and Commerce that is attached to
this report, your Committee is in accord with the intent and
purpose of H.B. No. 1649, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
1649, H.D. 1, and be referred to the Committee on Finance.


                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Consumer
                                   Protection and Commerce,



                                   ______________________________
                                   RON MENOR, Chair