STAND. COM. REP. NO. 2141

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2289
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred S.B. No. 2289 entitled: 

     "A BILL FOR AN ACT RELATING TO PREPAID TELEPHONE CALLING
     SERVICE,"

begs leave to report as follows:

     The purpose of this measure is to clarify that the sale of
prepaid telephone calling cards are subject to taxation under the
general excise tax law as tangible personal property.

     The Department of Taxation, AT&T, and GTE Hawaiian Telephone
submitted testimony in support of the measure.

     Currently, telephone carriers charge consumers public
service company taxes and general excise taxes when a prepaid
calling card is used for local, intrastate, interstate, and
international calling service.  Since carriers generally do not
know the retail price of the card being used by the caller, its
tax calculations are imprecise.  Further, since the public
service company tax is applied only when the card is used, the
State receives such revenues only to the extent the card is used,
and no public service company tax revenues are realized on unused
cards or unused portions of a card.

     Additionally, some retailers in the State charge consumers
general excise tax on the sale of prepaid calling cards.
Therefore, some consumers using prepaid calling cards are taxed
twice, when the card is purchased and when the card is used.  

 
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                                   STAND. COM. REP. NO. 2141
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     This measure, by clarifying that prepaid telephone calling
services are taxable at the point of sale, allows for simplified
and more precise tax calculations and eliminates the imposition
of multiple taxes on consumers purchasing and using a calling
card in the State.  Further, the State's receipt of tax revenues
would not be dependent upon calling card usage.  Finally, by
adopting this measure,  Hawaii would be in conformity with thirty
states and the District of Columbia which tax prepaid telephone
calling services service at the point of sale.  

     Your Committee has amended this measure by:

     (1)  Clarifying that all prepaid telephone calling services
          are taxable under the general excise tax law, in lieu
          of taxation under the public service company tax law;
          and

     (2)  Providing that the measure applies to gross income and
          gross proceeds on sales of prepaid telephone calling
          services received after August 31, 2000, to enable the
          Department of Taxation sufficient time to educate
          affected businesses about the new law.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 2289, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as S.B.
No. 2289, S.D. 1, and be referred to the Committee on Ways and
Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Commerce and
                                   Consumer Protection,



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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