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 S.B. No. 1687 entitled:

begs leave to report as follows:

The purpose of this measure is to clarify that reimbursements for salaries, wages, and benefits between related entities that have reorganized their business structures for the purpose of facilitating the establishment of employee stock ownership plans are exempt from the State's general excise tax.

In addition, the measure also expands the definitions contained in section 237-24.7, Hawaii Revised Statutes, relating to additional amounts not taxable, of "management company" and an "employee" of a management company to include business entities that provide medical services.

Your Committee finds that in Hawaii, the reorganization of a business structure to establish an employee stock ownership plan is often hampered due to the imposition of the general excise tax on the reimbursements for salaries, wages, and benefits between related entities. This measure removes an obstacle that otherwise makes it financially difficult to allow employees to take an ownership interest in a company.

Your Committee has amended the measure by:

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 S.B. No. 1687, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 1687, S.D. 1.