STAND. COM. REP. NO. 2602

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2131
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred
S.B. No. 2131 entitled: 

     "A BILL FOR AN ACT RELATING TO FEDERAL CONSTRUCTION,"

begs leave to report as follows:

     The purpose of this measure is to provide a general excise
tax exemption for Hawaii's subcontractors to help them compete
with mainland federal subcontractors who do not pay the general
excise tax.  This measure also clarifies the definition of
contractors in chapter 444, Hawaii Revised Statutes, by including
all contractors working in the State directly or indirectly for
the federal government who are subsequently subject to licensing
and other provisions of chapter 444, Hawaii Revised Statutes.

     Testimony in support of this measure was received from the
General Contractors Association of Hawaii, the Hawaii
Electricians Market Enhancement Program Fund, and the
Construction Industry Legislative Organization.  Comments on this
measure were received from the Department of Taxation, the
Subcontractors Association of Hawaii, and the Tax Foundation of
Hawaii.

     Your Committee supports the intent of this measure to
provide relief and support for the construction industry,
however, the measure as it stands contains problems with
statutory construction and poses potential constitutional
questions.  Therefore, your Committee has amended this measure
by:

 
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                                   STAND. COM. REP. NO. 2602
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     (1)  Deleting the general excise tax exemption;

     (2)  Setting forth a federal contractor construction tax
          credit equaling amounts paid by subcontractors in
          general excise taxes on federal construction contracts
          and by general contractors equal to the general excise
          tax paid on the first $20 million on federal
          construction contracts;

     (3)  Adding the definition of federal construction contract
          to mean any construction contract entered into with the
          United States or instrumentality thereof, excluding
          national financial banks and scientific contracts
          exempt from the general excise tax;

     (4)  Adding the definition of federal general contractor to
          mean a licensed general contractor who enters into a
          federal construction contract as the general
          contractor;

     (5)  Adding a definition of federal subcontractor to mean a
          licensed subcontractor who enters into a federal
          construction contract as a subcontractor with a general
          contractor who has contracted with the United States or
          instrumentality thereof;

     (6)  Providing that a credit under this measure may be
          carried over and applied in subsequent years; and

     (7)  Requiring the director of taxation to prepare any
          necessary forms with respect to the credit allowed in
          this section.

     Your Committee finds that enacting this type of credit will
assist the State in working with our congressional delegation and
federal contracting agencies to require a state tax clearance
prior to entering into federal contracts with contractors.  Such
a tax clearance requirement will level the playing field for
local contractors who currently pay the general excise tax.

     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 is in accord with the intent and purpose of
S.B. No. 2131, as amended herein, and recommends that it pass
Second Reading in the form attached hereto as S.B. No. 2131,
S.D. 1, and be placed on the calendar for Third Reading.


 
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                                   STAND. COM. REP. NO. 2602
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                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,



                                 ________________________________
                                 CAROL FUKUNAGA, Co-Chair



                                 ________________________________
                                 ANDREW LEVIN, Co-Chair

 
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