STAND. COM. REP. NO. 2153

Honolulu, Hawaii

RE: S.B. No. 2890

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 Judiciary and Commerce, Consumer Protection, and Health, to which was referred S.B. No. 2890 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

beg leave to report as follows:

The purpose and intent of this measure is to:

(1) Amend the general excise tax law by adding a definition for "marketplace provider"; and

(2) Provide that a person with no physical presence in the State shall be considered to be engaged in business in the State if, in any year, the person has gross receipts attributable to transactions in the State totaling $100,000 or more.

Your Committees received testimony in support of this measure from the Retail Merchants of Hawaii, thirteen local business owners, and one individual. Your Committees received comments on this measure from the Department of the Attorney General, Department of Taxation, Tax Foundation of Hawaii, and Chamber of Commerce Hawaii.

Your Committees find that internet-based businesses located outside of Hawaii that sell goods and services to persons located in the State are frequently exempt from the general excise tax. This puts local businesses at a significant competitive disadvantage and harms the economy of the State. This measure will ensure that internet-based businesses who generate sufficient income from the business of Hawaii's residents are taxed on that income by the State.

Your Committees have heard testimony expressing concerns that this measure is ambiguous as to whether it applies only to the internet-based seller of goods and services or to the third-party "marketplace provider" as well as the seller. Your Committees find that this issue raises concerns that merit further consideration and requests that your Committee on Ways and Means further examine this concern raised by the testifiers on this measure.

Your Committees have amended this measure by:

(1) Providing that a person shall be considered to be engaged in business in the State if the person has gross receipts attributable to transactions in the State totaling $100,000 or more in the current or immediately preceding calendar year instead of any year; and

(2) Inserting an effective date of July 1, 2035, to encourage further discussion.

As affirmed by the records of votes of the members of your Committees on Judiciary and Commerce, Consumer Protection, and Health that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 2890, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 2890, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committees on Judiciary and Commerce, Consumer Protection, and Health,

________________________________ ROSALYN H. BAKER, Chair

________________________________ BRIAN T. TANIGUCHI, Chair