Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 1224 entitled:

begs leave to report as follows:

The purpose of this measure is to require the Department of Taxation not to collect or refund amounts of less than $1.

Your Committee has amended the bill by removing its contents and replacing it with provisions that establish a method to tax electronic commerce.

As amended, the bill requires the Department of Taxation to work with designees appointed by the President of the Senate and the Speaker of the House of Representatives regarding the Streamlined Sales Tax Project.

Specifically, the bill requires the Department and the designees to:

(2) Draft policy recommendations to resolve these issues;

(3) Conduct informational briefings; and

(4) Report back to the Legislature.

The bill also repeals the Streamlined Sales and Use Tax Advisory Council and provides an appropriation of an unspecified amount for each year of the fiscal biennium for the purposes of the bill.

Your Committee finds that in 2003, the State lost approximately $115,000,000 in state and local revenue because of an inability to collect taxes from electronic commerce transactions. Those estimates increase to approximately $200,000,000 by the year 2008.

In response to this data, the Legislature enacted chapter 255D, Hawaii Revised Statutes, the Hawaii Simplified Sales and Use Tax Administration Act. The Act, essentially directed the Department of Taxation to enter into streamlined sales and use tax agreements with other states to simplify and modernize the administration of sales and use taxes. The modernization included, among other things, preventing the widespread nonpayment of taxes from electronic commerce transactions. The Department of Taxation, however, was also required to consult with an Advisory Council that was to be appointed by the Governor.

As of this date, the Governor has yet to appoint any members to that Council, which in effect, prevents the Department of Taxation from performing its duties under chapter 255D, Hawaii Revised Statutes.

To address this problem, this bill repeals the provision relating to the Council. The bill also requires the President of the Senate and the Speaker of the House of Representatives to appoint designees to work with the Department of Taxation on this matter to provide the input that the council would have otherwise provided.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1224, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1224, S.D. 1, and be placed on the calendar for Third Reading.