HB1795 HSCR352-02

 

STAND. COM. REP. NO.352-02

Honolulu, Hawaii

February 12, 2002

RE: H.B. No. 1795

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committees on Economic Development and Business Concerns and Labor and Public Employment, to which was referred H.B. No. 1795 entitled:

"A BILL FOR AN ACT RELATING TO PROFESSIONAL EMPLOYMENT ORGANIZATIONS,"

beg leave to report as follows:

The purpose of this bill is to:

(1) Exempt from the general excise tax (GET), amounts received by a professional employment organization (PEO) that is disbursed by the PEO for employee wages, salaries, and other benefits for assigned employees at a client company; and

(2) Declare that assigned employees of a PEO working at a client company shall have the same rights as employees of the client company.

KilaKila Employment Service, National Federation of Independent Business – Hawaii, Ronald Heller, Altres, Inc., ProSERVICE HAWAII Inc., Sunrise Country Market, and JS Services, Inc. testified in support of this measure. The Department of Budget and Finance submitted testimony in opposition of this measure. The Department of Taxation and the Tax Foundation of Hawaii commented on this measure.

PEOs contract with employers, particularly small employers, to distribute payroll to the employers' employees as well as to take responsibility for making all their work-related payments, including but not limited to temporary disability insurance, unemployment insurance, workers' compensation, union dues, health benefit fees, etc. PEOs also provide a wide range of services that, based on the testimony presented before your Committees, substantially aids small businesses to meet their legal obligations to the government as well as to their employees.

Your Committees find that the income transfer of payroll is essentially a pass through. PEOs cannot exercise jurisdiction over payroll funds but merely distributes them. The GET imposed on these funds are far in excess of the charge PEOs make for the services they provide. Your Committees find that it is not a good policy to impose the tax on the transfer of payroll and payroll-related funds between an employer and a PEO.

Your Committees also conclude that this bill establishes a tax exemption to eliminate double taxation.

Your Committees understand that there is a compelling economic need to promote and facilitate small businesses in Hawaii and the growth of the PEO industry will contribute to the growth of our economy.

As affirmed by the records of votes of the members of your Committees on Economic Development and Business Concerns and Labor and Public Employment that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 1795 and recommend that it pass Second Reading and be referred to the Committee on Finance.

 

Respectfully submitted on behalf of the members of the Committees on Economic Development and Business Concerns and Labor and Public Employment,

 

____________________________ SCOTT K. SAIKI, Chair

____________________________ LEI AHU ISA, Chair