Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 203 entitled:

begs leave to report as follows:

The purpose of this bill is to amend two subsections of the General Excise Tax (GET) law that allow insurance agents and real estate agents to split commissions for GET purposes, and travel agencies or tour packagers and tourism related service providers to split the gross proceeds from the sale of the tourism related service. The amendments made by this bill are intended to allow travel agents, like insurance and real estate agents, to split commissions and pay GET only on the commissions they actually receive.

Testimony in support of this bill was submitted by the Hawaii Chapter of the American Society of Travel Agents, Kobayashi Travel Service, and TTS Tour Shop. Tax Foundation of Hawaii provided comments. The Department of Taxation testified in opposition to this bill.

Presently, when two travel agents are involved in a single sales transaction and desire to apportion the full commission based on an agreed-upon percentage, each agent must pay the four percent GET tax on the entire commission, as well as on the portion of the commission that they ultimately receive. This results in double taxation.

The section amended by this bill provides that insurance and real estate agents are not subject to this form of taxation and are allowed to practice "commission splitting," where each agent pays GET on the proportional amount of the commission they receive. Your Committee understands that there is a growing travel industry practice of sharing a commission between two or more travel agents.

Your Committee finds that the double taxation imposed on travel agents who split commissions is unfair, and that travel agents should be included with insurance and real estate agents as persons who are subject to the GET only in an amount proportional to the commission they actually receive.

Your Committee has amended this bill by making technical, nonsubstantive changes for purposes of clarity, consistency, and style.

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 203, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 203, H.D. 1, and be referred to the Committee on Finance.