STAND. COM. REP. NO. 96

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 1178
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred S.B. No. 1178 entitled: 

     "A BILL FOR AN ACT RELATING TO THE GENERAL EXCISE TAXATION
     OF RELATED ENTITIES,"

begs leave to report as follows:

     The purpose of this measure is to clarify the term "related
entities" for the purpose of identifying transactions exempt from
the general excise tax.

     The Department of Taxation presented testimony in support of
the measure.  The Tax Foundation of Hawaii submitted comments on
the measure, but was not present at the hearing.

     Current tax law allows for an exemption from the general
excise tax for transactions between related entities, and defines
"related entities" as an affiliated group of corporations, a
controlled group of corporations, and entities connected through
ownership of at least eighty per cent of the total value of each
entity.  

     Your Committee finds that there is a loophole in the law as
some taxpayers have been claiming a tax exemption despite the
absence of a common ownership between the affiliated entities
based upon eighty per cent of the entities' total voting power.
This measure clarifies and tightens up the law by adopting the
federal tax code standard for consolidated returns that requires
commonality in ownership based upon eighty per cent value and

 
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                                   STAND. COM. REP. NO. 96
                                   Page 2


eighty per cent voting power.  The measure also provides that a
group or combination of entities that constitute a "unitary
business" for income tax purposes comes within the meaning of
"related entities".

     Your Committee has made technical, nonsubstantive amendments
to this measure, and added missing statutory language.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 1178, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as S.B.
No. 1178, S.D. 1, and be referred to the Committee on Ways and
Means.

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



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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