STAND. COM. REP. NO. 1088-22

Honolulu, Hawaii

, 2022

RE: S.B. No. 3201

S.D. 1

H.D. 1

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 S.B. No. 3201, S.D. 1, 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 nonprofit organizations.

Your Committee received testimony in support of this measure from the Hawai‘i Alliance of Nonprofit Organizations; Hawai‘i Pacific Health; Catholic Charities Hawai‘i; Hawaii Children's Action Networks Speak!; HT Hayashi Foundation; Kua‘āina Ulu ‘Auamo; Big Brothers Big Sisters Hawaii; Hawaii Substance Abuse Coalition; Hawaii Youth Services Network; Hawai‘i Arts Alliance; Ho‘ōla Nā Pua; The Institute for Human Services, Inc.; Hawai‘i Forest Industry Association; Molokai Arts Center; Outrigger Duke Kahanamoku Foundation; Association of Fundraising Professionals Aloha Chapter; Hawaiian Humane Society; Kaua‘i Habitat for Humanity, Inc.; Hawai‘i State Coalition Against Domestic Violence; North Kohala Community Resource Center; Samaritan Counseling Center Hawaii; Habitat for Humanity Maui; Nā Hale O Maui, a Community Land Trust; and one individual. Your Committee received comments on this measure from the Department of Taxation, Department of Budget and Finance, 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.

Your Committee has amended this measure by:

(1) Changing the effective date to October 18, 2050, to encourage further discussion; and

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

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 S.B. No. 3201, S.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3201, S.D. 1, H.D. 1, and be referred to your Committee on Consumer Protection & Commerce.

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

____________________________

SEAN QUINLAN, Chair