STAND. COM. REP. NO. 3278

Honolulu, Hawaii

RE: H.B. No. 1688

H.D. 1

S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

Your Committee on Transportation, to which was referred H.B. No. 1688, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO A GENERAL EXCISE TAX EXEMPTION FOR AIRCRAFT MAINTENANCE,"

begs leave to report as follows:

The purpose and intent of this measure is to provide a general excise tax exemption for the sale of material, parts, or tools used for aircraft service and maintenance or for the construction of an aircraft service and maintenance facility.

Your Committee received testimony in support of this measure from Alaska Airlines and Hawaiian Airlines, Kohala Coast Resort Association, and Chamber of Commerce Hawaii.

Your Committee received testimony in opposition to this measure from one individual.

Your Committee received comments on this measure from the Department of Taxation, Tax Foundation of Hawaii, and one individual.

Your Committee finds that recently, the Hawaii Intermediate Court of Appeals issued a decision interpreting existing statute that created a loophole that resulted in incentivizing the purchase of aircraft parts outside of the State, even when qualified local vendors are available. Closing this loophole is necessary to restore fairness and consistency in the State's tax policy. This measure restores parity between local and out-of-state purchases and aligns the general excise tax with the complementary use tax framework.

Your Committee has amended this measure by making it effective on January 1, 2027.

As affirmed by the record of votes of the members of your Committee on Transportation that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1688, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1688, H.D. 1, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Transportation,

________________________________

LORRAINE R. INOUYE, Chair