Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 235 - INCOME TAX LAW
Subchapter 2 - DIVISION OF INCOME FOR TAX PURPOSES
Section 18-235-21-02 - Two or more businesses of a single taxpayer

Universal Citation: HI Admin Rules 18-235-21-02

Current through August, 2024

(a) A taxpayer may have more than one trade or business. In such cases, it is necessary to determine the business income attributable to each separate trade or business. The income of each business then is apportioned by an apportionment formula which takes into consideration the instate and outstate factors which relate to the trade or business the income of which is being apportioned.

Example: The taxpayer is a conglomerate with three operating divisions. One division is engaged in manufacturing aerospace items for the federal government. Another division is engaged in growing coffee products. The third division produces and distributes motion pictures for theaters and television. Each division operates independently; there is no strong central management. Each division operates in this State as well as in other states. In this case, it is fair to conclude that the taxpayer is engaged in three separate trades or businesses. Accordingly, the amount of business income attributable to the taxpayer's trade or business activities in this State is determined by applying an appropriate apportionment formula to the business income of each separate trade or business.

(b) The determination of whether the activities of the taxpayer constitute a single trade or business or more than one trade or business will turn on the facts in each case. In general, the activities of the taxpayer will be considered a single business if there is evidence to indicate that the segments under consideration are integrated with, dependent upon, or contribute to each other. The following factors are considered to be good indicia of a single trade or business, and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a single trade or business:

(1) A taxpayer is generally engaged in a single trade or business when all of its activities are in the same general line. For example, a taxpayer which only operates a chain of retail grocery stores will almost always be engaged in a single trade or business.

(2) A taxpayer is almost always engaged in a single trade or business when its various divisions or segments are engaged in different steps in a large, vertically structured enterprise. For example, a taxpayer which explores for and mines copper ores; concentrates, smelts and refines the copper ores; and fabricates the refined copper into consumer products is engaged in a single trade or business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the taxpayer's executive offices.

(3) A taxpayer which might otherwise be considered as engaged in more than one trade or business is properly considered as engaged in one trade or business when there is a strong central management, coupled with the existence of centralized departments for such functions as financing, advertising, research, or purchasing. Thus, some conglomerates may properly be considered as engaged in only one trade or business when the central executive officers are normally involved in the operations of the various divisions and there are centralized offices which perform for the divisions the normal matters which a truly independent business would perform for itself, such as accounting, personnel, insurance, legal, purchasing, advertising, or financing.

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