SB2741

SECTION 1. The legislature finds that recent statewide research on food insecurity indicates that the State continues to experience one of the highest household food insecurity rates in the nation, with approximately one-third of households reporting difficulty obtaining enough food and significantly higher rates in certain counties. Farmers and ranchers throughout the State face extraordinarily high operating costs, including costs associated with inputs, land, transportation, energy, and labor. The structure of the general excise tax (GET) imposes additional burdens on Hawaii's agricultural producers because the GET is pyramided, meaning it is applied at multiple stages of production, processing, distribution, and retail.

The legislature further finds that although direct farm‑gate sales of certain raw agricultural products may be exempt under existing law, most producers who participate in modern supply chains incur GET at several points along the path from seed to final sale, including purchases of seeds, soil amendments, fertilizer, feed, equipment, supplies, packaging, and contracted services; sales to processors, distributors, or wholesalers; and retail sales to consumers. As a result, products grown in Hawaii may carry an effective tax burden significantly higher than the nominal four per cent rate, with cumulative GET impacts sometimes reaching five to eight per cent or more of the final retail price. This places locally grown products at a competitive disadvantage relative to imported goods that benefit from lower production costs and do not experience the State's general excise tax structure.

The legislature believes that these cumulative tax effects hinder growth in the State's agricultural sector, limit farmers' ability to reinvest in their operations, constrain expansion of diversified agriculture, and impede the State's goals for food security, agricultural resilience, and reduced dependence on imported food. Removing the GET from Hawaii-grown food at all stages of the supply chain will reduce production and distribution costs for farmers and value-added food producers; improve price competitiveness for locally grown foods; strengthen rural economies and small farms; reduce grocery costs for households statewide; and advance statewide food security, resilience, and self-sufficiency goals.

Therefore, the purpose of this Act is to phase in a general excise tax exemption for locally grown food.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237- Exemption for locally produced food. (a) Beginning July 1, 2026, there shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter, all of the value or gross proceeds arising from:

(1) The sale of fresh, unprocessed produce by farmers, ranchers, or agricultural producers;

(2) The sale of fresh, unprocessed local proteins, including beef, pork, poultry, seafood, aquaculture products, eggs, and dairy products, by farmers, ranchers, fishers, aquaculture operations, or agricultural producers;

(3) The sale of fresh, unprocessed produce and fresh, unprocessed local proteins by processors, wholesalers, and distributors; and

(4) The retail sale for home consumption of fresh, unprocessed produce and fresh, unprocessed local proteins.

(b) Beginning July 1, 2028, in addition to all products exempted from this chapter by subsection (a), there shall be exempted from, and excluded from the measure of, the taxes imposed by this chapter all the value or gross proceeds arising from all locally produced food, including:

(1) All locally produced proteins, including beef, pork, poultry, seafood, aquaculture products, eggs, and dairy products, regardless of form or level of processing;

(2) All locally grown fruits, vegetables, and staple crops;

(3) Other foods grown, raised, caught, or produced within the State; and

(4) Value-added local food products; provided that the majority of agricultural inputs by weight or volume are locally grown, raised, or caught.

(d) The department, in consultation with the department of agriculture and biosecurity, shall adopt rules pursuant to chapter 91 to:

(1) Certify producers and qualifying products pursuant to subsections (a) and (b);

(2) Establish standards for determining the local content of value-added products;

(3) Implement labeling or disclosure requirements to ensure consumer transparency; and

(4) Establish procedures to verify wholesale, processing, and retail compliance.

(e) The department may adopt rules pursuant to chapter 91 necessary to effectuate the purposes of this section.

(f) For the purposes of this section:

"Fresh, unprocessed local proteins" means locally produced beef, pork, poultry, seafood, aquaculture products, eggs, or dairy products that:

(1) Contain no added salt, sugar, oils, fats, marinades, brines, or preservatives;

(2) Have not been cooked, cured, smoked, canned, or otherwise processed; and

(3) Are in their raw, whole, or minimally handled state.

"Fresh, unprocessed produce" means whole fruits and vegetables grown in Hawaii that contain no added salt, sugar, oils, fats, or other additives and that have not been cooked, canned, pickled, preserved, or subjected to value-added processing. "Fresh, unprocessed produce" shall align with the standards described pursuant to section 141-13.

"Locally produced food" means any food or agricultural product grown, raised, caught, produced, or cultivated within the State, including but not limited to fruits, vegetables, staple crops, beef, pork, poultry, seafood, aquaculture products, eggs, and dairy products.

"Retail sale for home consumption" means the sale of food intended for off-premises consumption and does not include prepared foods taxed under section 237-13(2)(C).

"Value-added local food product" means a food item primarily composed of locally produced agricultural ingredients and processed, milled, packaged, or otherwise prepared within the State."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2026.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2741
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII