STAND. COM. REP. NO. 170-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 2182
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Economic Development and Business
Concerns, to which was referred H.B. No. 2182 entitled: 

     "A BILL FOR AN ACT RELATING TO THE GENERAL EXCISE TAX,"

begs leave to report as follows:

     The purpose of this bill is to reduce the pyramiding effect
of the general excise tax (GET) by providing a GET exemption for
manufacturers on the sale of their products for resale at
wholesale.

     Industry Network Corporation, Kilauea Bakery, Palama Meat
Co., Inc., the Hawaii Food Manufacturers Association, and Hawaii
Beef Packers, Inc. testified in support of this measure.  The
Department of Taxation (DOTAX) also testified in support of this
measure, but indicated that the bill will not accomplish its
intended purpose.  Comments were submitted by the Tax Foundation
of Hawaii, the Meat and Poultry Association of Hawaii, and Island
Plastic Bags, Inc.

     Your Committee notes that under current law, the gross
proceeds derived by a Hawaii manufacturer from the sale of
tangible personal property for resale at wholesale is subject to
the GET at the 0.5 percent rate.  The GET is imposed on the
manufacturer at the wholesale rate and is in lieu of the GET at
the 0.5 percent rate on the "manufacturing" activity under
section 237-13(1), Hawaii Revised Statutes (HRS).  This bill
amends section 237-29.55, HRS, to provide a GET exemption on the

 
 
 
                                 STAND. COM. REP. NO. 170-00
                                 Page 2

 
gross proceeds from the sale of tangible personal property for
resale at wholesale by Hawaii manufacturers.

     According to DOTAX, this bill will not accomplish its
intended purpose as the proposed "wholesaling" exemption will
trigger the GET at the 0.5 percent rate on the "manufacturing"
activity, which would offset the exemption provided in the bill.

     Accordingly, your Committee has amended this bill by:

     (1)  Carrying out the intended purpose of the bill by
          specifying that sales by a manufacturer or producer
          under the sale of tangible personal property for resale
          at wholesale exemption, are not subject to the GET on
          manufacturers for the privilege of manufacturing or
          producing in the State; and

     (2)  Making technical, nonsubstantive amendments for
          clarity.

     As affirmed by the record of votes of the members of your
Committee on Economic Development and Business Concerns that is
attached to this report, your Committee is in accord with the
intent and purpose of H.B. No. 2182, as amended herein, and
recommends that it pass Second Reading in the form attached
hereto as H.B. No. 2182, H.D. 1, and be referred to the Committee
on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Economic
                                   Development and Business
                                   Concerns,



                                   ______________________________
                                   ROBERT N. HERKES, Chair