STAND. COM. REP. NO. 358

Honolulu, Hawaii

RE:    S.B. No. 704

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fourth State Legislature

Regular Session of 2007

State of Hawaii

Madam:

     Your Committee on Economic Development and Taxation, to which was referred S.B. No. 704 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to provide additional tax exemptions for persons with disabilities.

     Specifically, this measure exempts up to $2,000 of income received by a trust whose sole beneficiary is blind, deaf, or disabled, from the general excise tax and limits any general excise tax (GET) collected from these trusts to 0.5%.

     The Department of Taxation (Department) and the Tax Foundation of Hawaii submitted comments.

     Your Committee finds that trusts whose sole beneficiaries are blind, deaf, or disabled, should be treated the same with regard to the general excise tax as the business income of blind, deaf, or disabled individuals.

     Your Committee has received a revenue impact statement from the Department that indicates an annual revenue loss of $150,000. 

     In its methodology, the Department used data from the HIP Individual Report 2004, which notes a total of fifty disabled resident returns reporting estates and trusts incomes of $4.3 million.  By applying the current GET rate of 4%, total GET collected from disabled residents amounts to $171,000.  Assuming all disabled resident returns qualify for the $2,000 exemption, the total taxable income comes to $4.2 million.  By applying the 0.5% GET rate proposed in this measure, the total GET collected from disabled residents would be $21,000.  The Department did not have data on estates and trusts income received by part-year residents and non-residents who are disabled.

     As affirmed by the record of votes of the members of your Committee on Economic Development and Taxation that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 704 and recommends that it be referred to the Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Economic Development and Taxation,

____________________________

CAROL FUKUNAGA, Chair