STAND. COM. REP. NO. 473

Honolulu, Hawaii

, 2023

RE: H.B. No. 798

H.D. 1

Honorable Scott K. Saiki

Speaker, House of Representatives

Thirty-Second State Legislature

Regular Session of 2023

State of Hawaii

Sir:

Your Committee on Economic Development, to which was referred H.B. No. 798 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 application of the general excise tax law with regard to gross income derived from unrelated trade or business activities of nonprofit organizations.

Your Committee received testimony in support of this measure from the Shinshu Kyokai Buddhist Temple; Aloha Harvest; Family Promise of Hawai‘i; Catholic Charities Hawai‘i; Ku‘ikahi Mediation Center; Hale Kipa, Inc.; Big Brothers Big Sisters Hawai‘i; Nā Hale O Maui; Samaritan Counseling Center Hawaii; Hawai‘i Alliance of Nonprofit Organizations; Bikeshare Hawaii; Hawaiian Humane Society; Child & Family Service; YMCA of Honolulu; Parents and Children Together; Hawai‘i Diaper Bank; American Cancer Society Cancer Action Network; Clients and Friends of Nonprofit GrowthGen; Oahu Economic Development Board; Hawai‘i Health & Harm Reduction Center; Epilepsy Foundation of Hawaii; Mental Health America of Hawai‘i; Hawai‘i Forest Industry Association; Hawai‘i Bicycling League; Maui Nui Marine Resource Council; Grow Some Good; Hawai‘i Youth Services Network; Kilinahe Foundation; Māla‘ai; The Nature Conservancy; Ma‘alaea Village Association; 501c3 Partners; and two individuals. Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

Your Committee finds that nonprofit organizations are currently exempt from federal income tax. A tax-exempt organization's fundraising activities are exempt from federal and Hawaii income taxation, except for income from unrelated trade or business activity. However, your Committee notes that unlike the federal government, income derived from activities whose primary purpose is to produce income, such as fundraising, is taxable under the state general excise tax law. This disparity places additional accounting burdens on nonprofit organizations in the State. This measure aligns the State's general excise tax exemptions with the income tax law by clarifying the type of activity that would be taxable under state law.

Your Committee has amended this measure by:

(1) Changing its effective date to June 30, 3000, 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 H.B. No. 798, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 798, H.D. 1, and be referred to your Committee on Finance.

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

____________________________

DANIEL HOLT, Chair