STAND. COM. REP. NO. 461

Honolulu, Hawaii

RE:    S.B. No. 1356

       S.D. 1

Honorable Shan S. Tsutsui

President of the Senate

Twenty-Sixth State Legislature

Regular Session of 2011

State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred S.B. No. 1356 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose and intent of this measure is to increase fairness in tax administration by prohibiting the imposition of multiple penalties on certain tax underpayments.

Specifically, this measure prohibits the imposition of more than one penalty for tax violations attributable to more than one of the following: false and fraudulent tax statements, substantial understatement or misstatements of tax, and erroneous claims for tax refunds or credits.

     Your Committee received testimony in support of this measure from Frederick D. Pablo, Interim Director, Department of Taxation; and Peter L. Fritz.  Comments on the measure were received from the Tax Foundation of Hawaii.

     Your Committee finds that Act 166, Session Laws of Hawaii 2009, established tax penalties similar to federal penalties for tax underpayments.  However, unlike the federal law, Act 166 did not prohibit the stacking of tax underpayment penalties.  This means that Hawaii taxpayers may be subject to penalties imposed under multiple tax underpayment violations for a single act.  Your Committee finds that this measure promotes the fair application of these penalties by prohibiting the imposition of multiple penalties for one applicable violation.

     Your Committee has amended this measure by:

     (1)  Adding wilful failure to collect and pay over tax (section 231-36.4, Hawaii Revised Statutes) to the violations under this measure for which penalties cannot be stacked; and

     (2)  Making technical, nonsubstantive amendments for clarity, consistency, and style.

     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. 1356, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1356, S.D. 1, and be placed on the calendar for Third Reading.

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

____________________________

DAVID Y. IGE, Chair