Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 2567 entitled:

begs leave to report as follows:

The purpose of this bill is to conform the Tax Code to the federal Mobile Telecommunications Sourcing Act (MTSA), which was signed into law on July 28, 2000, and takes effect on August 1, 2002.

Testimony in support of this bill was received from the Department of Taxation, AT&T Wireless, Verizon Wireless, and VoiceStream Wireless. Comments were provided by the Tax Foundation of Hawaii.

Your Committee finds that MTSA provides a new method of sourcing the income of home service providers (mobile cellular phone companies) and also simplifies their tax reporting. State legislation is necessary to implement MTSA.

Prior to enactment of MTSA, the states applied the income sourcing method established by the U.S. Supreme Court in Goldberg v. Sweet, 488 U.S. 252 (1989) for purposes of taxing home service providers. Under Goldberg, a state was permitted to tax interstate telecommunications if a call either originated or terminated in that state and was also charged to a service address in that state. This method was not easily applied because it is difficult to identify the precise location from which a wireless call originates or terminates.

MTSA establishes a simpler method of sourcing wireless industry income. Under MTSA, all wireless calls are sourced to the subscriber's residential or business address, whichever is the place of primary use. MTSA is a uniform method for sourcing wireless services that may be adopted by all states. This bill adopts the MTSA sourcing method.

This bill also provides a simplified tax filing system for home service providers. Under current state law, home service providers must pay public service company taxes on intrastate calls and general excise taxes on interstate calls. This bill allows a home service provider to elect to pay the general excise tax on all of its income, regardless of whether it is intra- or interstate in nature.

Your Committee finds that language in this bill creates ambiguity with respect to when the MTSA sourcing method will apply. Specifically, provisions relating to the home service provider election may be interpreted to prevent the MTSA method from applying to gross income received from interstate phone calls until July 1, 2004, rather than August 1, 2002, the date the federal MTSA law becomes effective.

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. 2567, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 2567, H.D. 1, and be referred to the Committee on Finance.