Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Economic Development, to which was referred S.B. No. 1215 entitled:

begs leave to report as follows:

The purpose of this measure is to exempt from the imposition of the general excise tax, amounts received after December 31, 1999, as grants in the form of reimbursements for expenditures from an economic development program sponsored by a federal, state, county, or nonprofit organization.

Your Committee received testimony supporting this measure from the Hawaii Aquaculture Association and Ceatech Hawaii. The Department of Taxation took no position on this measure but submitted comments.

Your Committee finds that recipients of grants, particularly agricultural and aquacultural grants, are inequitably taxed under general excise tax law. Generally, pursuant to the terms of grants for projects, grantees are required to expend their own moneys for all grant-sponsored project expenditures. The grantee likely paid for the general excise tax assessment passed on by the seller. Invoices and receipts for these expenditures are then submitted to the granting agency for reimbursement. Testimony on this measure indicates that upon receipt of the reimbursement, the Department of Taxation requires the grantee to pay general excise tax on the amount. The Department of Taxation cites section 237-20, Hawaii Revised Statutes, as providing an exemption for certain reimbursements received by a business. However, additional clarification is necessary to address the specific problem discussed above. Your Committee finds that this measure provides for appropriate and equitable incentives for economic development but defers to your Committee on Ways and Means to further consider the taxation implications.

Your Committee has amended this measure by:

As affirmed by the record of votes of the members of your Committee on Economic Development that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1215, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1215, S.D. 1, and be referred to the Committee on Ways and Means.