Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 742 entitled:

begs leave to report as follows:

The purpose of this measure is to exempt government-owned public utilities from public service company tax assessments.

The Consumer Advocate and County of Kauai testified in support of this measure. The Department of Taxation testified in opposition to the measure. The Tax Foundation of Hawaii, Kauai Island Utility Cooperative, and an individual submitted comments on the measure.

The county of Kauai (County) is currently considering the feasibility of acquiring Kauai Electric, Inc. Presently, no utility company is owned by the State or one of its political subdivisions. The County's potential acquisition of a public utility that is subject to the public service company tax in lieu of general excise and real property taxes raises a question as to whether the County, as owner of a public utility, would be subject to the public service company tax.

This measure clarifies the question of the County's potential tax liability by exempting a public utility owned by the State or a political subdivision of the State from the definition of "public utility" under chapter 239, Hawaii Revised Statutes, the public service company tax law.

Your Committee finds that the issue of exempting government-owned public utilities from the public service company tax raises concerns of fiscal impact and fairness, and that these matters merit further consideration. Accordingly, your Committee has amended this measure by inserting an effective date of July 1, 2050, to facilitate ongoing discussions on this issue.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 742, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 742, S.D. 1, and be referred to the Committee on Ways and Means.