STAND. COM. REP. NO. 113-22

Honolulu, Hawaii

, 2022

RE: H.B. No. 1960

Honorable Scott K. Saiki

Speaker, House of Representatives

Thirty-First State Legislature

Regular Session of 2022

State of Hawaii

Sir:

Your Committee on Economic Development, to which was referred H.B. No. 1960 entitled:

"A BILL FOR AN ACT RELATING TO NONPROFIT ORGANIZATIONS,"

begs leave to report as follows:

The purpose of this measure is to clarify the general excise tax exemption for unrelated trade or business activities of certain nonprofit organizations.

Your Committee received testimony in support of this measure from Hawai‘i Children's Action Network Speaks!, Hawaii Youth Services Network, The Queen's Health System, Hawai‘i Health & Harm Reduction Center, Mental Health America of Hawaii, Hawai‘i Alliance of Nonprofit Organizations, Read To Me International Foundation, Parents And Children Together, Hawai‘i Pacific Health, H.T. Hayashi Foundation, Big Brothers Big Sisters Hawaii, Grow Some Good, Mana Maoli, Hawaiian Humane Society, Guide Dogs of Hawai‘i, and one individual. Your Committee received comments on this measure from the Department of Budget and Finance, Department of Taxation, and Tax Foundation of Hawaii.

Your Committee finds that nonprofit organizations are currently exempt from federal income tax. Similar to the federal government, Hawaii provides a general excise tax exemption for income generated by a nonprofit organization's charitable activities. However, your Committee notes that unlike the federal government, Hawaii taxes activities that are used to produce income, even though the income may be in the furtherance of exempt activities, such as fundraisers. This measure aligns the State's general excise tax exemptions with the federal income tax code by clarifying the type of activity that would be taxable under state law.

As affirmed by the record of votes of the members of your Committee on Economic Development that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1960 and recommends that it pass Second Reading and be referred to your Committee on Consumer Protection & Commerce.

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

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SEAN QUINLAN, Chair