Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Third Special Session of 2001

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 6 entitled:

begs leave to report as follows:

The purpose of this measure is to impose the general excise tax rather than the public service company tax on transportation service providers in the State beginning October 1, 2001.

Transportation service providers include airlines, motor carriers, common carriers by water, and contract carriers other than motor carriers currently taxed under chapter 239, Hawaii Revised Statutes.

Your Committee received favorable testimony from the Departments of Taxation and Transportation and the Chamber of Commerce of Hawaii. Comments were also submitted by the Tax Foundation of Hawaii.

Your Committee finds that recent terrorist attacks on New York and Washington D.C. have had a devastating rippling effect on our local tourism industry and the State's economy. Many businesses that service tourists throughout the State are facing bankruptcy with record employee lay-off as potential tourists from around the world refuse to travel by air.

One segment of the tourism industry that is suffering from the decrease in tourist traffic is the transportation services sector. This bill provides relief to transportation service providers by allowing these companies to pay the general excise tax instead of the public service company tax.

Currently, transportation service providers pay the public service company tax that is assessed, based on a company's prior year's income. This bill would allow providers to instead pay a general excise tax, which is assessed based on income made during the current year. Since both taxes are based on four per cent of a company's earned income, there is no difference in the assessment of taxes. However, allowing providers to pay taxes based on their current income, which reflects the downturn in the tourism industry, will assist providers who would otherwise have had to pay taxes on a presumably more profitable prior year.

The bill also preserves a special tax benefit which providers currently enjoy under the public service company law that allows a provider to divide income with another provider when transportation services are divided between the providers.

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 concurs with the intent and purpose of S.B. No. 6 and recommends that it pass Second Reading and be placed on the calendar for Third Reading.