Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 588, S.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to exempt from the general excise tax certain payments received by a professional employment organization retroactive to taxable years beginning after December 31, 2000.

Your Committee finds that the measure would exempt amounts received by a professional employment organization from a client company that is disbursed for employee wages and benefits for assigned employees who provide services for the client company. Under the measure, only the management fee paid by the client company to the professional employment organization would be subject to the general excise tax. The Department of Taxation estimated annual revenue loss to the State at $6,700,000.

Your Committee notes that during the earlier hearing before the Committee on Labor, the ILWU Local 142 raised concern over the linkage of the term "assigned employee" to the term "leased employee" as defined in section 414(n) of the Internal Revenue Code of 1986, as amended. Section 2 of this measure states that the two terms have the same meaning. According to the ILWU, the use of leased employees is problematic in that there is a question as to which company actually employs the assigned worker, and in the case of larger professional employment organizations who maintain places of business in other states, whether federal or home state employment standards apply.

Your Committee wishes to note its intention to have this bill proceed with the understanding that representatives on both sides of the issue will continue to work together to address the concerns raised in the ILWU's testimony.

Upon further consideration, your Committee has amended the bill by changing the effective date to July 1, 2050, to make the bill defective in order to promote continuing discussion.

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. 588, S.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 588, S.D. 2.