Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2006

State of Hawaii

Sir:

Your Committee on Transportation and Government Operations, to which was referred H.B. No. 487, H.D. 1, S.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure, as received, is to allow counties to obtain taxpayer information from the State.

The purpose of this measure, as amended, is to exempt, from the general excise tax and use tax, the aviation fuel purchased in a foreign trade zone for use by common carriers in inter-island and intra-island transportation.

Your Committee received testimony in support of this measure from Hawaiian Airlines, Aloha Airlines, the International Association of Machinist Union-Local Lodge 1979, Air Line Pilots Association, Chamber of Commerce of Hawaii, and Hawaii State Council of Machinists. Comments were received from the Department of Taxation, State Foreign Trade Zone Administrator, and Tax Foundation of Hawaii.

Your Committee finds that as an island state, air transportation is vital to the lives of Hawaii's resident population and the economic well-being of the State. Over the past few years, the passenger air carriers serving Hawaii have been impacted financially by the dramatic increases in jet fuel. This has caused bankruptcy and reorganization of inter-island carriers.

The single largest cost to the airlines is fuel, over which the airlines have no control, and there are no alternatives to jet fuel. According to testimony, every penny change in the price of fuel affects inter-island airlines by approximately $1,000,000.

Your Committee believes the inter-island carriers need and deserve a reprieve from state taxes on fuel. However, your Committee is concerned that the tax savings will not necessarily be realized by residents in lower fares. Therefore, your Committee urges the airlines to accommodate residents by lowering air fares, which would also stimulate travel.

Your Committee has amended this measure by deleting its contents and inserting provisions to exempt from the general excise tax and use tax, the aviation fuel purchased in a foreign trade zone for use by common carriers in inter-island and intra-island transportation.

As affirmed by the record of votes of the members of your Committee on Transportation and Government Operations that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 487, H.D. 1, S.D. 1, as amended herein, and recommends that it be referred to the Committee on Ways and Means, in the form attached hereto as H.B. No. 487, H.D. 1, S.D. 2.