STAND. COM. REP. NO. 1668

Honolulu, Hawaii

RE: H.B. No. 796

H.D. 1

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 796, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO TAX CREDITS,"

begs leave to report as follows:

The purpose and intent of this measure is to encourage efficacy in the State's income taxation system by requiring new income tax credits to include a five-year sunset provision or a gradual reduction over a three-year period.

Your Committee received testimony in support of this measure from two individuals.

Your Committee received testimony in opposition to this measure from the Honolulu Film Office, Democratic Party of Hawaii Education Caucus, Democratic Party of Hawaii Labor Caucus, Hawaii Children's Action Network Speaks!, IATSE Local 665, Island Film Group, Pride at Work - Hawaii, SAG-AFTRA Hawaii Local, and numerous individuals.

Your Committee received comments on this measure from the Department of Business, Economic Development, and Tourism; Department of Taxation; Catholic Charities Hawaii; Tax Foundation of Hawaii; and one individual.

Your Committee finds that the impact of changes to the state tax code are not always apparent at the time that the change is first enacted. Specifically, it is often difficult to precisely predict how effectively a new income tax credit may accomplish its policy goal or what adverse impact the tax credit may have on the State's ability to collect revenue. Accordingly, this measure requires that any income tax credit established or renewed after December 31, 2025, either expire after five years or be reduced by one third each year after the fifth year of the credit.

Your Committee has amended this measure by:

(1) Clarifying that the measure shall also apply to income tax credits in existence on December 31, 2025;

(2) Exempting certain income tax credits from the measure; and

(3) Specifying the taxable years to which the measure applies.

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 H.B. No. 796, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 796, H.D. 1, 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