(a) Except as
otherwise specifically provided, a financial institution whose business
activity is taxable both within and without this State shall allocate and
apportion its net income as provided in this section. All items of nonbusiness
income (income which is not includable in the apportionable income tax base)
shall be allocated pursuant to the provisions of part II of chapter 235, HRS. A
financial institution organized under the laws of a foreign country, the
Commonwealth of Puerto Rico, or a territory or possession of the United States
whose effectively connected income (as defined under the Internal Revenue Code)
is taxable both within this State and within another state, other than the
state in which it is organized, shall allocate and apportion its net income as
provided in this section.
(b) All
business income (income which is includable in the apportionable income tax
base) shall be apportioned to this State by multiplying such income by the
apportionment percentage. The apportionment percentage is determined by adding
the taxpayer's receipts factor (as described in section
18-241-4-03), property
factor (as described in section
18-241-4-04), and payroll factor (as described
in section
18-241-4-05) together and dividing the sum by three. If one of the
factors is missing, the two remaining factors are added and the sum is divided
by two. If two of the factors are missing, the remaining factor is the
apportionment percentage. A factor is missing if its denominator is
zero.
(c) Each factor shall be
computed according to the method of accounting (cash or accrual basis) used by
the taxpayer for the taxable year.
(d) If the allocation and apportionment
provisions of sections
18-241-4-01 to
18-241-4-05 do not fairly represent the
extent of the taxpayer's business activity in this State, the taxpayer may
petition for or the department of taxation may require, in respect to all or
any part of the taxpayer's business activity, if reasonable:
(1) Separate accounting;
(2) The exclusion of any one or more of the
factors;
(3) The inclusion of one
or more additional factors which will fairly represent the taxpayer's business
activity in this State; or
(4) The
employment of any other method to effectuate an equitable allocation and
apportionment of the taxpayer's income.
(e) The income that is subject to tax under
chapter 241, HRS, only includes income that may be subject to taxation by the
State under the Constitution and laws of the United States. The rules in
sections
18-241-4-01 to
18-241-4-05:
(1) Do
not apply to any taxpayer which, under applicable federal law, may not be
subjected to tax under chapter 241, HRS; and
(2) Shall not be construed as the
department's interpretation of applicable federal law.
Example: H, a financial institution domiciled in
Hawaii, makes a loan secured by Hawaii real property. F, a financial
institution domiciled in a foreign country, purchases a participation in that
loan. F has no offices, employees, agents, or other presence in Hawaii, and
engages in no other activity in Hawaii. H continues to administer the loan.
Under applicable federal constitutional principles, F does not have sufficient
nexus with Hawaii to support state taxation of any of F's income. Although
section 18-241-4-03(d)(1)
states that the numerator of the receipts factor includes interest from loans
(including participations) that are secured by Hawaii real property, no part of
F's income from the participation is subject to tax under chapter 241,
HRS.
