STAND. COM. REP. NO.1163

Honolulu, Hawaii

, 2001

RE: H.B. No. 502

H.D. 2

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Labor, to which was referred H.B. No. 502, H.D. 2, entitled:

"A BILL FOR AN ACT RELATING TO PROFESSIONAL EMPLOYMENT ORGANIZATIONS,"

begs leave to report as follows:

The purpose of this measure is to exempt from the general excise tax (GET) certain payments received by a professional employment organization (PEO) retroactive to taxable years beginning after December 31, 2000.

Testimony in support of the measure was received from numerous small businesses and PEOs. The Department of Taxation testified and took no position on the measure. The Hawaii State AFL-CIO and the Department of Budget and Finance opposed the passage of the measure while the Department of Labor and Industrial Relations had serious concerns and recommended the bill be filed. The Tax Foundation submitted comments.

Your Committee finds that the measure would exempt amounts received by a PEO from a client company that is disbursed for employee wages and benefits for assigned employees who provide services for the client company. Under the measure, only the management fee paid by the client company to the PEO would be subject to the GET. The Department of Taxation estimated annual revenue loss to the State at $6.7 million.

Your Committee amended the measure by:

(1) Amending section 235-61(a)(3), Hawaii Revised Statutes, to clarify the tax withholding procedures as they relate to PEOs;

(2) Clarifying that the enforcement powers of the Department of Labor and Industrial Relations shall not be diminished by the enactment of the tax exemptions provided in this measure;

(3) Clarifying that the Department of Labor and Industrial Relations shall utilize its usual practices and procedures when investigating and verifying allegations of a contracting employer or PEO excluding any employee rights or benefits required by law; and

(4) Amending the effective date from "…July 1, 2010, and shall apply to taxable years beginning after December 31, 2000." to "…July 1, 2010, and shall apply to gross income or gross proceeds received after December 31, 2001.

Your Committee believes that the amended measure will benefit employers, particularly those in the small business sector, while still protecting the rights and benefits of employees.

As affirmed by the record of votes of the members of your Committee on Labor that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 502, H.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 502, H.D. 2, S.D. 1, and be referred to the Committee on Ways and Means.

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

____________________________

BOB NAKATA, Chair