STAND. COM. REP. NO. 2642

Honolulu, Hawaii

RE: S.B. No. 2508

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Twenty-Ninth State Legislature

Regular Session of 2018

State of Hawaii

Sir:

Your Committees on Ways and Means and Judiciary, to which was referred S.B. No. 2508 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

beg leave to report as follows:

The purpose and intent of this measure is to improve the collection of taxes by creating a nexus standard for taxing businesses domiciled outside the State on their business activities in Hawaii.

Your Committees received testimony in support of this measure from the Retail Merchants of Hawaii.

Your Committees received comments on this measure from the Department of Taxation and the Tax Foundation of Hawaii.

Your Committees find that local businesses are required to collect and remit the general excise tax on goods and services sold to consumers in Hawaii. However, businesses located outside the State are not required to collect this tax when they sell goods to Hawaii residents, which places local businesses at a disadvantage by effectively making goods sold by local businesses more expensive. Your Committees believe that this measure will foster fairness in competition by requiring certain out-of-state businesses to collect and remit state taxes.

Your Committees have amended this measure by:

(1) Limiting application of the measure to the general excise tax, rather than to all state taxes;

(2) Amending the measure so that it applies to "persons lacking physical presence in the State", rather than "businesses domiciled outside the State";

(3) Clarifying the time period to be used when determining if a person is engaging in business in the State;

(4) Deleting provisions that would have authorized the remitting of taxes on a basis other than monthly;

(5) Establishing a threshold of $100,000 of gross income from in-state sales for determining if a person is engaging in business in the State; and

(6) Deleting all instances of the term "entity".

As affirmed by the records of votes of the members of your Committees on Ways and Means and Judiciary that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2508, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2508, S.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committees on Ways and Means and Judiciary,

________________________________ BRIAN T. TANIGUCHI, Chair

________________________________ DONOVAN M. DELA CRUZ, Chair