STAND. COM. REP. NO. 2653

Honolulu, Hawaii

RE: S.B. No. 2514

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Twenty-Ninth State Legislature

Regular Session of 2018

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 2514 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

The purpose and intent of this measure is to promote fairness in tax administration by subjecting any person selling tangible personal property, products transferred electronically, or services for delivery into the State to title 14, Hawaii Revised Statutes, and the general excise tax law; provided that in the previous or current calendar year:

(1) The person has realized $5,000 in gross revenue; or

(2) The person has two hundred or more separate transactions.

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

Your Committee received testimony in opposition to this measure from one individual.

Your Committee received comments on this measure from the Department of the Attorney General, Department of Taxation, and Tax Foundation of Hawaii.

Your Committee finds that many businesses that maintain a physical presence in the State operate on narrow profit margins. These businesses are required to pay the general excise tax on goods sold and services provided at their locations. However, because online merchants are not required to collect the general excise tax on internet sales to customers in Hawaii, local brick-and-mortar stores are at a competitive disadvantage with online merchants. Your Committee finds that this measure will ensure fair competition among all businesses, regardless of location, that sell goods and services to residents of the State.

Your Committee has amended this measure by:

(1) Limiting the application of the measure to the general excise tax law, rather than all taxes in title 14, Hawaii Revised Statutes;

(2) Clarifying that, for purposes of determining whether a person is doing business in the State, a transaction will be evaluated on whether the intangible property or service is used or consumed in the State, rather than whether the intangible property or service is transferred or delivered in the State;

(3) Changing from $5,000 to $100,000 the threshold of gross receipts or gross proceeds from sales that would qualify as engaging in business in the State; and

(4) Removing provisions requiring persons meeting the thresholds provided by the measure to "follow all procedures and requirements of law", and instead clarifying that these persons are engaging in business in the State for purposes of complying with the general excise tax law.

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. 2514, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2514, 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,

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DONOVAN M. DELA CRUZ, Chair