STAND. COM. REP. NO. 162-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 2876
                                     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. 2876 entitled: 

     "A BILL FOR AN ACT RELATING TO GENERAL EXCISE TAX,"

begs leave to report as follows:

     The purpose of this bill is to allow contractors to pay the
general excise tax (GET) on a cash basis, provided the contractor
notifies the Department of Taxation (DOTAX) of the basis upon
which the GET is to be reported.

     The Construction Industry Legislative Organization, the
Sheet Metal Contractors Association, the General Contractors
Association of Hawaii, Alakai Mechanical Corporation, Associated
Builders and Contractors, Inc., the Plumbing and Mechanical
Contractors Association of Hawaii, the Building Industry
Association of Hawaii, Hidano Construction, Inc., and Hawaii
Surety Association testified in support of this measure.  DOTAX
submitted comments on this measure and indicated that it is not
opposed to this measure.  Comments were also submitted by the Tax
Foundation of Hawaii and the Subcontractors Association of
Hawaii.

     Your Committee notes that while contractors may use special
accounting methods for long-term contracts for federal and state
income tax purposes, only cash and accrual methods can be used
for GET purposes.  Contractors using the percentage of completion
method or the completed contract method must use the accrual
method of reporting the GET unless the contractor can justify

 
 
                                 STAND. COM. REP. NO. 162-00
                                 Page 2

 
using the cash method of accounting.  Under the accrual method of
accounting, contractors report their income and pay the GET even
though their payment may be delayed because the rights to payment
have been established.  This bill will allow contractors to
report on a cash basis.

     Your Committee has amended this bill by:

     (1)  Clarifying that the taxpayer may report on a cash
          basis, rather than deal on a cash basis;

     (2)  Specifying that the bill shall apply to general excise
          taxes on gross proceeds or gross income arising after
          January 1, 2001; and

     (3)  Making technical, nonsubstantive amendments 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. 2876, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as H.B. No. 2876, 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