STAND. COM. REP. NO. 2138

Honolulu, Hawaii

RE: S.B. No. 2399

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 S.B. No. 2399 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, Chamber of Commerce of Hawaii, Kohala Coast Resort Association and one individual.

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

Your Committee finds that while existing law provides a general excise tax exemption for aircraft servicing and maintenance, it does not exempt the sale of material, parts, or tools to an aircraft carrier from the general excise tax. Your Committee further finds, however, that complementary use tax law explicitly exempts from the use tax imports of these parts from an out-of-state seller, creating a competitive balance in favor of out-of-state sellers. This measure will correct this imbalance and ensure competitiveness with other states by providing a general excise tax exemption for the sale of material, parts, or tools that are used for aircraft service and maintenance or for the construction of an aircraft service and maintenance facility.

Your Committee notes the concern raised by the Department of Taxation that the Department will need sufficient time for form and instruction changes and notification to taxpayers regarding the general excise tax exemption for aircraft service and maintenance. Your Committee further notes the concern raised by the Tax Foundation of Hawaii that a definition of "licensed aircraft carrier" is needed to clarify which aircraft carriers qualify for the general excise tax exemption. Therefore, amendments to this measure are necessary to address these concerns.

Your Committee has amended this measure by:

(1) Inserting a definition of "licensed aircraft carrier" for the taxation purposes;

(2) Inserting a delayed effective date of January 1, 2027; and

(3) Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

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 S.B. No. 2399, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2399, 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,

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LORRAINE R. INOUYE, Chair