STAND. COM. REP. NO. 1326-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: S.B. No. 2938
                                     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 Committee on Finance, to which was referred S.B. No.
2938, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO CONFORMITY OF THE HAWAII
     INCOME TAX LAW TO THE INTERNAL REVENUE CODE,"

begs leave to report as follows:

     The purpose of this bill is to assure continued state
conformity with federal income tax law and to minimize taxpayers'
confusion in complying with both state and federal income tax law
by, among other things:

     (1)  Conforming the state income tax law to the Internal
          Revenue Code (IRC), amended as of December 31, 1999, as
          it applies to the determination of gross income,
          adjusted gross income, ordinary income and loss, and
          taxable income;

     (2)  Providing for confidentiality privileges relating to
          taxpayer communications; and

     (3)  Ensuring that if Congress repeals or terminates the
          research tax credit in IRC section 41, state law will
          continue to allow the credit to be claimed for tax
          years beginning before January 1, 2006.
 

 
 
 
 
                                 STAND. COM. REP. NO. 1326-00
                                 Page 2

 
     The Department of Taxation submitted testimony in favor of
this bill.  The Tax Foundation of Hawaii submitted comments on
this bill.

     Your Committee has amended this bill by:

     (1)  Correcting a reference in the title of the new section
          from IRC section 7518 to IRC section 7525; and

     (2)  Making technical, nonsubstantive amendments for
          clarity, consistency, and style.

     As affirmed by the record of votes of the members of your
Committee on Finance that is attached to this report, your
Committee is in accord with the intent and purpose of S.B. No.
2938, S.D. 1, as amended herein, and recommends that it pass
Second Reading in the form attached hereto as S.B. No. 2938, S.D.
1, H.D. 1, and be placed on the calendar for Third Reading.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Finance,



                                   ______________________________
                                   DWIGHT Y. TAKAMINE, Chair