Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Transportation, Military Affairs and Government Operations, to which was referred H.B. No. 1685, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to exempt from the general excise tax amounts received as rent for the rental or leasing of aircraft or aircraft engines used for interstate transportation of people or goods.

Your Committee received testimony in support of this measure from Hawaiian Airlines. The Department of Taxation and the Department of Budget and Finance submitted testimony in opposition to this measure. The Tax Foundation of Hawaii provided comments.

Your Committee recognizes that Hawaii's unique geography makes economical intraisland air transportation essential to both residents and visitors. Although this measure proposes a general excise tax exemption for gross income received from leasing aircraft and aircraft engines to carriers engaged in interstate air transportation, the purpose section makes clear that intrastate air carriers are the intended beneficiaries. Your Committee supports the intent of this measure, to subsidize local airlines that provide a valuable service to the people of this State.

Your Committee amended this measure by replacing its contents with the contents of Senate Bill No. 751, S.D. 1 (S.B. No. 751). S.B. No. 751 has a similar intent, to subsidize the operations of local air carriers.

However, rather than providing an exemption from the general excise tax, S.B. No. 751 provides a separate tax credit, in an amount to be determined by your Committee on Ways and Means. S.B. No. 751 also reserves the credit for aircraft and engines that are "stage 3 compliant" under federal noise reduction regulations. Due to the frequency of intraisland flights and the proximity of our airports to residential neighborhoods, your Committee finds that the State has a compelling interest in encouraging intraisland carriers to use quieter planes.

As affirmed by the record of votes of the members of your Committee on Transportation, Military Affairs and Government Operations that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1685, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1685, H.D. 1, S.D. 1, and be referred to the Committee on Ways and Means.