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 S.B. No. 2885, S.D. 2, entitled:

begs leave to report as follows:

The purpose of this bill is to provide that a wireless telecommunications provider may reasonably segregate taxable income according to whether the income is subject to:

so long as the segregation method does not conflict with rules adopted by the Department of Taxation (DOTAX).

Testimony in support of this measure was submitted by AT&T, Sprint PCS, Verizon Wireless, and Oceanic Communications. Verizon Hawaii testified in support of the intent of this bill. DOTAX and the Tax Foundation of Hawaii provided comments.

Your Committee finds that the telecommunications industry is rapidly changing and that the quickly converging technology is erasing historical distinctions between cable television, the telephone, and the Internet. The metamorphosis of the industry has caused once separate bills for different types of telecommunications services to be bundled and billed together under a single package. Telecommunications service providers bundle interstate, intrastate, and international telecommunications services and charge one rate, while these types of services are subject to different taxes. This has caused uncertainty in the application of existing state and local taxing schemes.

Your Committee concludes that telecommunications service providers should be allowed to reasonably segregate taxable income. This will reduce regulatory burdens on providers and allow accurate taxation without changing a provider's tax obligations.

However, to address concerns raised by DOTAX, your Committee has amended this measure:

Technical, nonsubstantive amendments have also been made for clarity and consistency.

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 S.B. No. 2885, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2885, S.D. 2, H.D. 1, and be referred to the Committee on Finance.