STAND. COM. REP. NO. 735

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 1178
                                        S.D. 2




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred S.B.
No. 1178, S.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO THE GENERAL EXCISE TAXATION
     OF RELATED ENTITIES,"

begs leave to report as follows:

     The purpose of this measure is to clarify the term "related
entities" for the purpose of identifying transactions exempt from
the general excise tax.

     Testimony in support of the measure was received from the
Department of Taxation and the Tax Foundation of Hawaii submitted
comments on the measure.

     Current tax law allows for an exemption from the general
excise tax for transactions between related entities, and defines
"related entities" as an affiliated group of corporations, a
controlled group of corporations, and entities connected through
ownership of at least eighty per cent of the total value of each
entity.  

     Your Committee is in accord with the findings of your
Committee on Commerce and Consumer Protection.  There is a
loophole in the law which has allowed some taxpayers to claim a
tax exemption despite the absence of a common ownership between
the affiliated entities based upon eighty per cent of the
entities' total voting power.  This measure clarifies the law by
adopting the federal tax code standard for consolidated returns.

 
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                                   STAND. COM. REP. NO. 735
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This standard requires commonality in ownership based upon eighty
per cent value and eighty per cent voting power.  The measure
also provides that a group or combination of entities that
constitute a "unitary business" for income tax purposes comes
within the meaning of "related entities".

     Your Committee has made a technical, nonsubstantive
amendment to this measure to reflect preferred drafting style.

     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. 1178, S.D. 1, as amended herein, and recommends that it pass
Third Reading in the form attached hereto as S.B. No. 1178,
S.D. 2.

                                 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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