Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 235 - INCOME TAX LAW
Subchapter 2 - DIVISION OF INCOME FOR TAX PURPOSES
Section 18-235-37-01 - Sales factor; sales other than sales of tangible personal property in this State
Current through August, 2024
(a) Section 235-37, HRS, provides for the inclusion in the numerator of the sales factor of gross receipts from transactions other than sales of tangible personal property (including transactions with the United States Government). Under this section, gross receipts are attributed to this State if the income producing activity which gave rise to the receipts is performed wholly within this State. Also, gross receipts are attributed to this State if, with respect to a particular item of income, the income producing activity is performed within and without this State but the greater proportion of the income producing activity is performed in this State, based on costs of performance.
(b) As used in this section:
"Costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.
"Income producing activity" applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profit. Income producing activity does not include transactions and activities performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor. Accordingly, income producing activity includes but is not limited to the following:
The mere holding of intangible personal property is not, of itself, an income producing activity.
(c) Receipts (other than from sales of tangible personal property) in respect to a particular income producing activity are in this State if:
(d) The following are special rules for determining when receipts from the income producing activities described below are in this State:
Example: Taxpayer is the owner of ten rental motor vehicles. During the year, the total of the days during which each motor vehicle was present in this State was fifty days. The receipts attributable to the use of each of the motor vehicles in this State are a separate item of income and shall be determined as follows:
Example 1: Taxpayer, a road show, gave theatrical performances at various locations in State X and in this State during the tax period. All gross receipts from performances given in this State are attributed to this State.
Example 2: The taxpayer, a public opinion survey corporation, conducted a poll by means of its employees in State X and in this State for the sum of $9,000. The project required six hundred employee hours to obtain the basic data and prepare the survey report. Two hundred of the six hundred employee hours were expended in this State. The receipts attributable to this State are $3,000:
