STAND. COM. REP. NO. 404-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 2604
                                     H.D. 1




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

Sir:

     Your Committee on Economic Development and Business
Concerns, to which was referred H.B. No. 2604 entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this bill is to:

     (1)  Impose the use tax on contracting imported for resale
          or use in Hawaii;

     (2)  Provide pyramiding relief from the general excise tax
          for the sale of amusements;

     (3)  Provide a lower public service company (PSC) tax rate
          on telecommunications services and transportation
          services that are resold; and

     (4)  Make technical amendments to Acts 70 and 71, Session
          Laws of Hawaii (SLH) 1999.

     Act 70, SLH 1999, exempted contracting and services exported
out of state from the General Excise Tax (GET) and imposed the
use tax on imported services.  While Act 70 addressed services,
contracting was inadvertently excluded.  Among other things, this
bill corrects this oversight by subjecting contracting imported
into the State to the use tax.


 
 
 
                                 STAND. COM. REP. NO. 404-00
                                 Page 2

 
     Act 71, SLH 1999, provided for a phased-in reduction of the
GET on services so that by 2006, the four percent GET rate will
be reduced to 0.5 percent.  In addition, Act 71 expanded the
treatment of intermediary sales by treating all intermediary
services as wholesale sales.

     The Department of Taxation (DOTAX) submitted testimony in
support of this bill, but recommended as amendment.  The Consumer
Advocate, the Tax Foundation of Hawaii, GTE Hawaiian Telephone,
AT&T, and Honolulu Freight Service submitted comments on the
bill.

     Your Committee recognizes the concerns raised regarding the
pyramiding of tax on freight forwarders and encourages the
freight forwarders and DOTAX to continue dialogue on the concerns
raised.

     Your Committee has amended this bill by:

     (1)  Changing the PSC tax percentage amounts for public
          utilities engaged in the business of selling
          telecommunication services to persons who resell these
          products or services form 0.5 to 5.5 percent; and

     (2)  Making technical, nonsubstantive amendments to conform
          to drafting conventions and for clarity and style.

     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 H.B. No. 2604, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as H.B. No. 2604, H.D. 1, and be referred to the Committee
on Finance.

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



                                   ______________________________
                                   ROBERT N. HERKES, Chair