STAND. COM. REP. NO. 2664

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2716
                                        S.D. 1




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

Sir:

     Your Committee on Ways and Means, to which was referred S.B.
No. 2716 entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to protect the seller, for
general excise tax purposes, from a purchaser's tax liability due
to the purchaser's mistaken claim to a wholesale general excise
tax rate instead of the four per cent rate.

     Testimony in support of the measure was received from
Hagadone Printing and Pacific Printing Industries.  The
Department of Taxation opposed the measure as received by your
Committee due to the measure's sweeping implications and
ambiguous impact.  The Tax Foundation provided comments on the
measure.

     Your Committee finds that businesses in Hawaii collect the
general excise tax on the sale of their goods or services to
other businesses.  The amount of the tax collected is dependent
on the purchaser's tax status and is either at the wholesale rate
of one-half of one percent, or four percent of the amount
transacted.  To verify that a purchaser is a wholesaler, a
certificate prescribed by the Department of Taxation is presented
by the purchaser to the seller.

     If, however, a purchaser mistakenly represents itself as a
wholesaler and the seller pays less than the prescribed four

 
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                                   STAND. COM. REP. NO. 2664
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percent rate, the purchaser is obligated to pay the seller the
difference in the taxes due.  But if the purchaser defaults or
goes out of business and fails to pay the full amount owed, the
seller is held responsible for the purchaser's tax liability.

     Based on the concerns of the Department of Taxation, your
Committee has amended the measure by deleting its substance and
inserting provisions that more directly address the problem at
hand.  Specifically, your Committee has:

     (1)  Deleted the findings and purpose section;

     (2)  Added two sections to the bill that amend section
          237-4(a), and 238-2, Hawaii Revised Statutes, to
          specify that the one-half percent tax rate applies in
          cases where a sale of goods or services by a printer to
          a publisher of magazines containing advertisements
          occurs, and whereby the publisher is under contract
          with the advertisers to distribute a minimum number of
          magazines to the public or defined segment of the
          public with or without charge; and

     (3)  Amending the effective date to state that upon
          approval, the measure shall apply to gross income or
          gross proceeds received after June 30, 2000.

     As affirmed by the record of votes of the members of your
Committee on Ways and Means that is attached to this report, your
Committee is in accord with the intent and purpose of S.B.
No. 2716, as amended herein, and recommends that it pass Second
Reading in the form attached hereto as S.B. No. 2716, S.D. 1, and
be placed on the calendar for Third Reading.

                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,



                                 ________________________________
                                 CAROL FUKUNAGA, Co-Chair



                                 ________________________________
                                 ANDREW LEVIN, Co-Chair

 
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