Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Health, to which was referred S.B. No. 1687 entitled:

begs leave to report as follows:

The purpose of this measure is to create an exemption from the general excise tax for a management company that contracts to provide managerial and operational services to related companies that engage in the provision of medical services in order to facilitate the creation of an employee stock ownership plan.

The Legislative Information Services of Hawaii submitted testimony in support of this measure. The Tax Foundation of Hawaii and the Department of Taxation submitted comments.

Your Committee finds that taxation of reimbursements for salaries, wages, and benefits between related entities when they must reorganize their business structure to establish an employee stock ownership plan for the benefit of their employees often blocks the creation of employee stock ownership plans in Hawaii. As the Legislative Information Services of Hawaii testified, this measure removes an obstacle that otherwise makes it financially impossible to allow employees to take ownership of a company. Employee stock ownership plans benefit the overall economy by increasing employee morale and strengthening the companies that establish such plans.

As affirmed by the record of votes of the members of your Committee on Health that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1687 and recommends that it pass Second Reading and be referred to the Committee on Ways and Means.