SB3194

SECTION 1. The legislature finds that a healthy inter-island airline industry is vital to the State's economy. Hawaii's inter-island airlines continue to face severe financial challenges. Fuel costs in particular have skyrocketed and grown volatile in recent years. In fact, for most airlines, the cost of fuel has surpassed labor as the leading operating cost.

Airline fuel that is purchased in a foreign-trade zone and used by airlines traveling out of the State of Hawaii is exempt from general excise and use taxes, however, airlines on intrastate flights are not exempt. To the extent that these general excise and use taxes apply to intrastate flights, they only exacerbate the economic problems that are faced by airlines operating within Hawaii.

The legislature finds that the effect of providing common carriers with an exemption from general excise and use taxes for fuel purchased from a foreign trade zone and used for inter-island flights would be to create a level playing field for all airlines.

The purpose of this Act is to exempt common carriers that fly inter-island routes from up to $3,800,000 of general excise and use taxes on fuel purchased for inter-island transportation.

SECTION 2. Section 237-24.75, Hawaii Revised Statutes, is amended to read as follows:

"§237-24.75 Additional exemptions. In addition to the amounts exempt under section 237-24, this chapter shall not apply to:

(1) Amounts received as a beverage container deposit collected under chapter 342G, part VIII;

(2) Amounts received by the operator of the Hawaii convention center for reimbursement of costs or advances made pursuant to a contract with the Hawaii tourism authority under section 201B‑7[~~[; and]~~];

[[](3) Amounts received[]] by a professional employment organization from a client company equal to amounts that are disbursed by the professional employment organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to assigned employees at a client company; provided that this exemption shall not apply to a professional employment organization upon failure of the professional employment organization to collect, account for, and pay over any income tax withholding for assigned employees or any federal or state taxes for which the professional employment organization is responsible. As used in this paragraph, "professional employment organization", "client company", and "assigned employee" shall have the meanings provided in section 373K-1[.]; and

(4) Amounts aggregating not more than $95,000,000 received annually from sales of aviation fuel, as defined in section 243-1, categorized as privileged foreign merchandise, non-privileged foreign merchandise, domestic merchandise, or zone-restricted merchandise, that is admitted into a foreign-trade zone under chapter 212 and is made directly to or is used by a common carrier for consumption or use in air transportation between islands in the State."

SECTION 3. Section 238-3, Hawaii Revised Statutes, is amended by amending subsection (g) to read as follows:

"(g) The tax imposed by this chapter shall not apply to [~~any~~]:

(1) Any intoxicating liquor as defined in chapter 244D and cigarettes and tobacco products as defined in chapter 245, imported into the State and sold to any person or common carrier in interstate commerce, whether ocean-going or air, for consumption out-of-state by the person, crew, or passengers on the shipper's vessels or airplanes[.]; and

(2) Purchases aggregating not more than $95,000,000 annually of aviation fuel, as defined in section 243‑1, categorized as privileged foreign merchandise, non‑privileged foreign merchandise, domestic merchandise, or zone-restricted merchandise, that is admitted into a foreign-trade zone under chapter 212 and is made directly to or is used by a common carrier for consumption or use in air transportation between islands in the State."

SECTION 4. (a) There is established a joint legislative study group to review and track the effects of this Act on the inter-island airline industry, including the profitability and sustainability of the airlines and cost of travel and shipping to residents. The study group shall also examine the loss of revenue to the State.

(b) The study group shall be exempt from chapter 92, Hawaii Revised Statutes.

(c) The members of the study group shall be appointed by the president of the senate and the speaker of the house of representatives. The chairs of the senate committee on transportation and international affairs, or similar committee, and the house committee on transportation, or similar committee, shall serve as co-chairs of the study group. Members of the group shall also include:

(1) The director of transportation or the director's designee;

(2) The director of taxation or the director's designee; and

(3) One representative from each airline providing inter-island service.

(d) Members of the study group shall receive no additional compensation for their services.

(e) The study group shall be established by November 5, 2008, and shall cease to exist on November 2, 2010.

(f) The study group shall submit findings, including a recommendation concerning the extension of this Act or to make this Act permanent, to the legislature not later than twenty days prior to the convening of the regular session of 2011.

SECTION 5. This Act shall not be construed to imply that any law in effect prior to the effective date of this Act is inconsistent with this Act.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2008, and shall be repealed on December 31, 2010; provided that sections 237‑24.75 and 238-3, Hawaii Revised Statutes, are reenacted in the form in which they read on the day before the effective date of this Act.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	3194
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII