Haw. Code R. § 18-235-29-04

Current through November, 2024

Section 18-235-29-04 - Apportionment formula as applied to partnerships

(a) If a taxpayer is a partner in a partnership, and the partnership's activities and the taxpayer's activities constitute a unitary business:

(1) The taxpayer's share of the partnership's trade or business shall be combined with the taxpayer's trade or business;

(2) The property, payroll, and sales factors, or other applicable factors, of the taxpayer and the partnership shall be combined; and

(3) Intercompany items shall be eliminated, under the principles set forth in section 18-235-22-03.

Example 1: Corporation A's distributive share of income in partnership P is 20 percent. Corporation A manufactures toys which are sold in the seven western states by partnership P. Corporation A's business income for the year was $1,000,000 and partnership P's business income for the same year was $800,000. The business income of corporation A is $1,160,000 ($1,000,000 plus 20 percent of $800,000).

Example 2: The facts are the same as in Example 1. Partnership P owns a building with an original cost of $100,000 which is rented to corporation A for $12,000 per year. Corporation A shall include $20,000 (20 percent of $100,000) in its property factor because of its interest in partnership P. In addition, Corporation A shall take into account $9,600 ($12,000 less 20 percent of $12,000) of rental expense into its property factor in order to include in the property factor the rented building used in Corporation A's operation. Thus, Corporation A shall include $76,800 ($9,600 multiplied by 8, pursuant to section 235-31, HRS) for the rent paid, and $20,000 for its interest in the building through Partnership P, in its property factor, totalling $96,800 attributable to the building.

(b) If a taxpayer is a partner in a partnership, and the partnership's activities and the taxpayer's activities do not constitute a unitary business, the partnership shall allocate and apportion its income at the partnership level. The taxpayer's distributive share of the partnership's income allocated or apportioned to this State shall not be subject to further apportionment by the taxpayer.

Example: Corporation A's distributive share of income in partnership P is 20 percent. Corporation A manufactures and sells toys in the seven western states. Partnership P operates farms within and without this State. Both corporation A and partnership P earn exclusively business income, except for distributions from Partnership P. Corporation A's business income for the year is $1,000,000 and partnership P's income is $800,000 for the same year. Because corporation A and partnership P are engaged in two different trades or businesses, corporation A shall apportion its $1,000,000 income on the basis of its own apportionment formula. Partnership P shall apportion its business income of $800,000 on the basis of its own apportionment formula. Corporation A's apportionment factors are determined without regard to Partnership P's apportionment factors, and vice versa. Assume that corporation A's apportionment percentage determined under section 18-235-29-01 is 35 percent, and that partnership P's apportionment percentage is 10 percent. Partnership P's Hawaii income is 10 percent of the income from its farming business ($80,000 = 10 percent x $800,000). Corporation A is taxable in this State upon 35 percent of the income from its toy manufacturing business ($350,000 = 35 percent x $1,000,000) plus its full distributive share of the partnership income attributed to this State ($16,000 = 20 percent x $80,000), or $366,000.

Haw. Code R. § 18-235-29-04

[Eff 11/25/94] (Auth: HRS §§ 231-3(9), 235-38, 235-118) (Imp: HRS § 235-29)