STAND. COM. REP. NO. 86

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 833
                                     




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Higher Education, to which was referred
H.B. No. 833 entitled: 

     "A BILL FOR AN ACT RELATING TO THE UNIVERSITY OF HAWAII,"

begs leave to report as follows:

     The purpose of this bill is to treat sales of tangible
personal property to the University of Hawaii as wholesale sales
under the general excise tax.

     The current general excise tax law assesses the retail rate
of four per cent on sellers of tangible personal property to the
University of Hawaii even when that property will be resold.
Generally, if the wholesale rate is applicable, it means that at
some point the value of the property will be subject to the four
per cent rate.  But, because the university is not a licensed
seller and not subject to taxation under the general excise tax,
the law does not allow the vendors to pay the wholesale rate of
one-half of one per cent.  On the other hand, when the university
imports the goods it will resell from out-of-state, the value of
those goods are not subject to the use tax because the
university, as a state instrumentality, is exempt from the use
tax.  Ironically, if the university purchases items from local
vendors, a four per cent tax is added on, but if the university
imported those same items, the four per cent tax would not apply.
The effect of this state law is to put the local vendors at a
disadvantage.

 
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                                 STAND. COM. REP. NO. 86
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     Your Committee received testimony in support of this measure
from the University of Hawaii, and in opposition from the
Department of Taxation.  The Tax Foundation of Hawaii submitted
comments.

     Your Committee finds that despite the fact that four per
cent will not be collected on the goods for resale sold to the
University of Hawaii, it is in the best interest of the State to
assist the university and its students by doing everything
possible to keep the costs of education from escalating.
Treating these sales to the university as wholesale will begin to
whittle away some of the growing costs and in addition will put
local vendors on a more even playing field with out-of-state
competitors.

     As affirmed by the record of votes of the members of your
Committee on Higher Education that is attached to this report,
your Committee is in accord with the intent and purpose of H.B.
No. 833 and recommends that it pass Second Reading and be
referred to the Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Higher Education,



                                   ______________________________
                                   DAVID MORIHARA, Chair

 
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