Haw. Code R. § 18-235-38-03 - Special rules; sales factor
(a) Where
substantial amounts of gross receipts arise from an occasional sale of a fixed
asset used in the regular course of the taxpayer's trade or business, those
gross receipts shall be excluded from the sales factor. For example, gross
receipts from the sale of a factory or plant will be excluded.
(b) Insubstantial amounts of gross receipts
arising from occasional transactions or activities may be excluded from the
sales factor unless their exclusion would materially affect the amount of
income apportioned to this State. For example, the taxpayer ordinarily may
include in or exclude from the sales factor gross receipts from transactions
such as the sale of office furniture or business motor vehicles.
(c) In subsections (a) and (b), a transaction
qualifying as a casual sale as defined in section
237-1, HRS, and
section 18-237-1 shall be considered an occasional transaction.
(d) Where the income producing activity in
respect to business income from intangible personal property can be readily
identified, the income is included in the denominator of the sales factor and,
if the income producing activity occurs in this State, in the numerator of the
sales factor as well. For example, usually the income producing activity can be
readily identified in respect to interest income received on deferred payments
on sales of tangible property (section 18-235-35-01(a)(1)) and income from the
sale, licensing, or other use of intangible personal property (section
18-235-37-01(b)(4)).
(e) Where
business income from intangible property cannot readily be attributed to any
particular income producing activity of the taxpayer, the income cannot be
assigned to the numerator of the sales factor for any state and shall be
excluded from the denominator of the sales factor. For example, where business
income in the form of dividends received on stock, royalties received on
patents or copyrights, or interest received on bonds, debentures, or government
securities results from the mere holding of the intangible personal property by
the taxpayer, the dividends and interest shall be excluded from the denominator
of the sales factor. Income from a foreign affiliate as defined in section
18-235-38.5-02, including dividends from a foreign affiliate and interest paid
on intercompany loans, shall be excluded from the denominator of the sales
factor.
(f) Where gains and losses
on the sale of liquid assets are not excluded from the sales factor by other
provisions under this section, such gains or losses shall be treated as
provided in this subsection. This subsection does not provide rules relating to
the treatment of other receipts produced from holding or managing such assets.
If a taxpayer holds liquid assets in connection with one or more treasury
functions of the taxpayer, and the liquid assets produce business income when
sold, exchanged or otherwise disposed, the overall net gain from those
transactions for each treasury function for the tax period is included in the
sales factor. For purposes of this subsection, each treasury function will be
considered separately.
(1) For purposes of
subsection (f), a "liquid asset" is an asset (other than functional currency or
funds held in bank accounts) held to provide a relatively immediate source of
funds to satisfy the liquidity needs of the trade or business. "Liquid assets"
include foreign currency (and trading positions therein) other than functional
currency used in the regular course of the taxpayer's trade or business;
marketable instruments (including stocks, bonds, debentures, options, warrants,
futures contracts, etc.); and mutual funds which hold such liquid assets. An
instrument is considered marketable if it is traded in an established stock or
securities market and is regularly quoted by brokers or dealers in making a
market. Stock in a corporation which is unitary with the taxpayer, or which has
a substantial business relationship with the taxpayer is not considered
marketable stock.
(2) For purposes
of subsection (f), a "treasury function" is the pooling and management of
liquid assets for the purpose of satisfying the cash flow needs of the trade or
business, such as providing liquidity for a taxpayer's business cycle,
providing a reserve for business contingencies, business acquisitions, etc. A
taxpayer principally engaged in the trade or business of purchasing and selling
instruments or other items included in the definition of liquid assets set
forth herein is not performing a treasury function with respect to income so
produced.
(3) For purposes of
subsection (f), "overall net gain" refers to the total net gain from all
transactions incurred at each treasury function for the entire tax period, not
the net gain from a specific transaction.
Example 1: A taxpayer manufactures various gift items. Because of seasonal variations, the taxpayer must keep liquid assets available for later inventory acquisitions. Because the manufacturer wants to obtain a return on available funds, the manufacturer acquires liquid assets, which are held and managed in this State. The net gain resulting from all gains and losses on the sale of the liquid assets for the tax year will be reflected in the denominator of the sales factor and in the numerator of this State.
Example 2: A stockbroker acts as a dealer or trader for its own account in its ordinary course of business. Some of the instruments sold are liquid assets. This subsection does not operate to classify those sales as attributable to a treasury function.
Notes
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