STAND. COM. REP. NO. 3428

Honolulu, Hawaii

RE:    H.B. No. 2540

       H.D. 1

       S.D. 1

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fourth State Legislature

Regular Session of 2008

State of Hawaii

Madam:

     Your Committee on Ways and Means, to which was referred H.B. No. 2540, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to provide an income tax and general excise tax exemption for certain federally tax exempt companies that provide potable water.

     Your Committee received testimony supporting this measure from the Hawaii Society of Certified Public Accountants, Horwath Kam and Company, Napuu Water Inc., and two individuals.  The Department of Taxation and the Tax Foundation of Hawaii submitted comments.

     Your Committee finds that federally tax exempt companies that provide potable water in rural communities provide a service that would otherwise be provided by government.  To support these companies, this measure provides needed state tax relief to ensure the continued operation and supply of potable water in these rural communities.

     Your Committee has amended the measure by changing the effective date to upon approval and changing the applicable taxable years to begin after December 31, 2050, to ensure consideration in conference committee of potential financial and tax issues that may impact this measure.

     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 H.B. No. 2540, H.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as H.B. No. 2540, H.D. 1, S.D. 1.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

____________________________

ROSALYN H. BAKER, Chair