STAND. COM. REP. NO.4

Honolulu, Hawaii

, 2003

RE: S.B. No. 33

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Tourism, to which was referred S.B. No. 33 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

The purpose of this measure is to exempt from the General Excise Tax (GET) amounts received by a management contractor from the State that are used solely for the operational costs of a State facility.

Your Committee received testimony in support of this measure from the Hawaii Tourism Authority, the Management Contractor and General Manager of the Hawaii Convention Center, Paul Louie & Associates, Inc., and the Tax Foundation of Hawaii. The Department of Taxation submitted testimony taking no position on this measure.

Your Committee finds that this measure offers significant cost efficiencies for the State. Under existing law, when a state agency contracts with a private entity to provide management services for a state facility, the private entity pays the GET on the entire amount of funds received from the State, even if a portion of those funds is used to operate the facility itself.

As a result, the contract amount often must include additional funds to cover the costs of paying the GET. Your Committee finds this situation to be inefficient and unnecessarily burdensome and duplicative. Funds paid by a state agency under a contract that are used solely to pay for the operational costs of a state facility are used for the benefit of the State, and inure no benefit to the Management Contractor. Consequently, your Committee finds no reason to subject those funds to the GET.

Conversely, amounts paid by a state agency to a private entity that constitute a management fee or income for the contractor are rightly subject to the GET.

Your Committee finds that exempting from the GET amounts used by a contractor solely for the operational costs of a state facility is sound public policy and will result in significant cost savings for state agencies awarding contracts.

In most cases, your Committee believes that "operational costs" will be easily segregated for exemption from the GET. For example, SMG Hawaii is the management agency contracted by the Hawaii Tourism Authority to manage the Convention Center. Under the contract, SMG receives a management fee, and all other funds paid by the State are used to operate the Convention Center. Your Committee intends the GET exemption to apply to all portions of funds not retained by the management company as a management fee or income.

As affirmed by the record of votes of the members of your Committee on Tourism that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 33 and recommends that it pass Second Reading and be referred to the Committee on Ways and Means.

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

____________________________

DONNA MERCADO KIM, Chair