STAND. COM. REP. NO. 1424

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: S.B. No. 44
                                     S.D. 1
                                     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 Economic Development and Business
Concerns, to which was referred S.B. No. 44, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this bill is to foster Hawaii's economic
growth by:

     (1)  Exempting exported services from the general excise tax
          (GET); and

     (2)  Imposing a use tax on imported services to not only
          level the playing field between the local service
          providers and out-of-state providers, but to compensate
          for the revenue loss caused by the GET exemption on
          exported services.

     The Department of Business, Economic Development, and
Tourism, the Hawaii Association of Realtors, the Building
Industry Association of Hawaii, Hidano Construction, Inc., and
Structural Pest Control, Inc., testified in support of this
measure.  The Department of Taxation testified in support of the
intent of the bill.  The Tax Foundation of Hawaii commented on
the bill.

     Your Committee finds that exempting exported services from
the GET will increase Hawaii's attractiveness to firms providing

 
 
                                 STAND. COM. REP. NO. 1424
                                 Page 2

 
professional services such as engineers, architects, urban
planners, and others.  Not only will this make Hawaii's firms
competitive with foreign and other U.S. firms, it will also be a
disincentive for Hawaii firms to open offices out-of-state to
avoid paying the general excise tax.  Instead, this tax exemption
will keep service firms in Hawaii, bringing in work from overseas
and creating jobs for local residents.

     The imposition of the use tax on imported services will
enable Hawaii's businesses to compete with foreign and U.S.
mainland businesses, which do not pay a comparable tax, on a more
equal footing.  It will also help make up for any loss to the
state from the GET exemption on exported services.

     Your Committee has amended this bill by:

     (1)  Adding a definition of "service business or calling" to
          include professions in the GET provisions;

     (2)  Replacing the definition of "services" with a
          definition of "service business or calling" in Chapter
          238, Hawaii Revised Statutes, (Use Tax) to conform to
          the term and definition used in Chapter 237, HRS,
          (GET);

     (3)  Adding a provision for a 0 percent use tax rate on
          imported services to mirror the 0 percent rate for
          imports of tangible personal property;

     (4)  Exempting the cost of overhead from the use tax on
          imported services; and

     (5)  Including a 1/2 percent tax on services imported or
          purchased by a contractor that become an identifiable
          element of the finished work or project.

     As affirmed by the record of votes of the members of your
Committee on Economic Development and Business Concerns that is
attached to this report, your Committee is in accord with the
intent and purpose of S.B. No. 44, S.D. 1, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as S.B. No. 44, S.D. 1, H.D. 1, and be referred to the
Committee on Finance.


 
 
 
 
 
                                 STAND. COM. REP. NO. 1424
                                 Page 3

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



                                   ______________________________
                                   ROBERT N. HERKES, Chair