STAND. COM. REP. NO. 932-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: S.B. No. 2221
                                     S.D. 1
                                     H.D. 1




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

Sir:

     Your Committees on Energy and Environmental Protection and
Agriculture and Economic Development and Business Concerns, to
which was referred S.B. No. 2221, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO ETHANOL,"

beg leave to report as follows:

     The purpose of this bill is to create an ethanol producers
income tax credit to encourage private sector investment in
Hawaii-based ethanol production facilities.

     Currently, it is costly to develop new infrastructure to
produce ethanol from agricultural crops or byproducts and
municipal solid waste.  Incentives are needed to stimulate
private sector investments required to develop this type of
business opportunity in Hawaii.  There is also a need to mitigate
some of the deleterious effects of fossil fuel combustion.  These
goals may be accomplished by providing tax credits to ethanol
production facilities in Hawaii.  Your Committee also recognizes
that job creation, environmental benefits, and economic
opportunities resulting from this tax incentive will far outweigh
the costs.

     Testimony in support of this bill was submitted by E D & F
Man Alcohol Inc., Hawaiian Commercial & Sugar Company, the Hawaii
Renewable Energy Alliance, the Worldwide Energy Group, the Aina
Institute, the Kauai Renewable Energy Hui, a member of the Kauai
County Council, the Sierra Club, Kauai Group, Life of the Land,

 
 
                                 STAND. COM. REP. NO. 932-00
                                 Page 2

 
and several individuals.  The Department of Business, Economic
Development, and Tourism supported the intent of this bill.  The
Department of Taxation, the Western States Petroleum Association,
and the Tax Foundation of Hawaii offered comments.

     Upon further consideration, your Committee has amended this
bill by deleting its substance and inserting provisions found in
H.B. No. 2204, H.D. 2, which passed out of the House of
Representatives earlier this session after public hearings before
this Committee as well as the Committee on Finance.  As amended,
this measure is similar to the Senate draft except that this
bill:

     (1)  Deletes provisions:

          (a)  Relating to the filing of claims for a tax credit;
               and

          (b)  Authorizing the Director of Taxation to adopt
               rules;

          and

     (2)  Adds a provision limiting the eligibility for the
          credit for a maximum period of ten years beginning from
          the first taxable year in which the credit is claimed.

     Your Committee has further amended this bill by specifying
that the amount of the credit shall be forty cents per gallon of
qualifying ethanol production of fuel grade ethanol produced at a
qualifying ethanol production facility.

     While acting favorably on this measure because of the
significant economic and energy self-sufficiency benefits to the
State, your Committee respectfully requests the Committee on
Finance to address concerns relating to:

     (1)  The basis for a per-gallon tax credit;

     (2)  The probable range of the credits to be allowed
          (revenue loss); and

     (3)  Cash refund for credit in excess of net income
          liability.


 
 
 
 
                                 STAND. COM. REP. NO. 932-00
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     As affirmed by the records of votes of the members of your
Committees on Energy and Environmental Protection and Agriculture
and Economic Development and Business Concerns that are attached
to this report, your Committees are in accord with the intent and
purpose of S.B. No. 2221, S.D. 1, as amended herein, and
recommend that it pass Second Reading in the form attached hereto
as S.B. No. 2221, S.D. 1, H.D. 1, and be referred to the
Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committees on Energy and
                                   Environmental Protection and
                                   Agriculture and Economic
                                   Development and Business
                                   Concerns,

                                   
                                   
                                   
                                   
                                   ______________________________
                                   HERMINA M. MORITA, Chair
                                   
                                   
                                   
                                   
______________________________     ______________________________
ROBERT N. HERKES, Chair            FELIPE P. ABINSAY, JR., Chair