Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Transportation, Military Affairs and Government Operations, to which was referred S.B. No. 2390 entitled:

begs leave to report as follows:

The purpose of this measure is to establish a general excise tax (GET) exemption for amounts derived from contracting by a contractor for commercial construction projects.

Your Committee received testimony in support of this measure from the General Contractors Association of Hawaii, the Hawaii Hotel Association, the Hawaii Pest Control Association, and the Waikiki Improvement Association. Testimony in opposition to this measure was submitted by the Department of Taxation and the Department of Budget and Finance. The Tax Foundation of Hawaii submitted comments.

Your Committee finds that the economy of the State of Hawaii relies heavily on the tourism industry, and that the competition for tourist dollars worldwide is increasing every day. Therefore, your Committee agrees that the State should be looking for ways to bolster that economic sector.

Your Committee further finds that this measure will induce and assist commercial establishments to upgrade existing structures and also to begin new construction. Although your Committee recognizes that this measure will cost the State somewhat in the short term, in the long term the State will benefit from better facilities and increased visitor arrivals.

Your Committee amended this measure to include fumigators and pest control operators within the definition of "contractor," thus enabling those businesses to qualify for the tax exemption. Your Committee finds that fumigation services, particularly pre-treatment of soil, are a construction activity that should qualify for this exemption.

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 S.B. No. 2390, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2390, S.D. 1, and be referred to the Committee on Ways and Means.