Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection, and Housing, to which was referred S.B. No. 1453 entitled:

begs leave to report as follows:

The purpose of this measure is to authorize the imposition of the public service company tax on a private sewer company or facility.

The Department of Taxation, County of Kauai, and Hawaii State Association of Counties testified in support of this measure.

Currently, all public utilities, except private sewer companies, are subject to a public service company (PSC) tax on their gross income, in lieu of payment of the state general excise tax and county real property taxes. Pursuant to Act 64, Session Laws of Hawaii 2001, the counties share in a portion of the PSC taxes in exchange for giving up their rights to impose a real property tax on public service companies.

A recent decision by the state tax appeals court held that revenues earned by private sewer companies are not subject to the PSC tax because this income is not specifically included under the definition of "gross income" under the PSC tax law. Under this interpretation, the counties stand to sustain an aggregate annual loss of approximately $300,000 in PSC tax revenues.

This measure corrects the omission in the PSC tax law by amending the definition of "gross income" to include gross income from the operation of a private sewer company or facility. Your Committee finds that this measure supports a more equitable system of taxation by requiring private sewer companies to pay the same tax that is assessed against other sewage and wastewater treatment companies.

Your Committee has amended this measure by making technical amendments to insert missing statutory language and to reflect preferred drafting style.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1453, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1453, S.D. 1, and be referred to the Committee on Ways and Means.