Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 237 - GENERAL EXCISE TAX LAW
Subchapter 2 - LICENSES; TAX; EXEMPTIONS
Section 18-237-16.5-01 - Definitions

Universal Citation: HI Admin Rules 18-237-16.5-01
Current through November, 2023

For purposes of sections 18-237-16.5-02 to 18-237-16.5-07, unless the context otherwise requires:

"Lease" means the rental of real property under an instrument in writing by which one conveys real property for a specified term and for a specified consideration, and includes the written extension or renegotiation of a lease, and any holdover tenancy.

"Lessee" means one who holds real property under a lease, and includes a sublessee. A lessee or sublessee includes a sublessor subject to both the tax and applicable deduction under section 237-16.5, HRS, provided real property or space is conveyed by a sublease.

"Lessor" means one who conveys real property by a lease, and includes a sublessor. A lessor does not include a person who is not subject to the taxes imposed by chapter 237, HRS, or a person whose gross proceeds or gross income from leasing the real property or space is not taxable under chapter 237, HRS.

Example 1: L leases unimproved Hawaii real property X to A. A then subleases real property X and A's improvements (e.g., Building Y) to B. Finally, B subleases real property X and Building Y to C. Assume that L, A and B are taxable under chapter 237, HRS, on their respective rental income from real property X and Building Y. L, A, and B are lessors. A, B, and C are lessees.

"Personal services" means services that are unrelated to the "operation of the property" (as the term is defined in section 514A-3, HRS) such as secretarial services, messenger services, and receptionist services because the services directly benefit the lessee's real property or space rather than the common elements of the real property or space.

"Real property or space" means the area actually rented and used by the Lessee, including common elements as defined in section 514A-3, HRS. Real property or space does not include the use of tangible personal property or the bundling of "personal services," or both; such items instead being subject to tax on other business as provided in section 237-13(10), HRS. If a sublease does not specifically include the use of tangible personal property or the receipt of personal services, it is presumed that the sublessor is subject to the tax and is allowed the sublease deduction under section 237-16.5, HRS. If it is determined that the real property or space includes tangible personal property or the bundling of personal services or both, the real property or space shall instead be subject to tax on other business under section 237-13(10), HRS, unless the sublessor complies with section 18-237-16.5-07 by providing proof satisfactory to the department of taxation of the portion subject to the tax and sublease deduction under section 237-16.5, HRS.

Example 2: Assume the same facts as Example 1 above except that sublessor B subleases real property X and Building Y to C and the written sublease to C does not specifically include the use of tangible personal property by C or the receipt of personal services by C. B is presumed to be subject to tax under section 237-16.5, HRS, and qualifies for the sublease deduction. If the department of taxation; however, later determines that the "sublease" includes the use of tangible personal property or receipt of personal services or both, all of B's income will be subject to tax on other business under section 237-13(10), HRS, unless B complies with section 18-237-16.5-07 by providing proof satisfactory to the department of taxation of the portion which is subject to tax under section 237-16.5, HRS, and qualifies for the sublease deduction. The remaining portion of the gross income attributable to tangible personal property, personal services, or both shall be subject to tax on other business under 237-13(10), HRS.

"Sublease" includes the rental of real property which is held under a lease and is made in a written document by which one conveys real property for a specified term and for a specified consideration. A sublease includes the written extension or renegotiation of a sublease, any holdover tenancy under the written sublease, multiple subleases of portions of the real property, and any number of successive subleases of the same real property or portions thereof.

"Sublessee" means one who holds real property under a sublease.

"Sublessor" means one who conveys real property by sublease under a lease. A sublessor includes a lessee subject to both the tax and applicable deduction as determined under section 237-16.5, HRS, provided a sublease is conveyed.

[Eff 10/01/98] (Auth: HRS §§ 231-3(9), 237-8) (Imp: HRS § 237-16.5)

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