HAR § 18-235-22-03 — Combined reporting method; combined return

(a) As used in this section: “Combined business income” means the business income of all members of a unitary group from the unitary business. “Combined reporting method” means the accounting method of determining the portion of the business income of a unitary group that is attributable to the taxpayer’s activity in this State with respect to that unitary business. “Combined return” means a single return that is filed to reflect the income of all taxpayers in a unitary group, but does not mean a consolidated return. “Designated member” means the member of a group that is designated, pursuant to subsection (d)(3)(B), to represent the group for tax matters relating to a combined return. “Group” means a unitary group as defined in section 18-235-22-01. (b) In the combined reporting method, nonbusiness income shall be allocated for each entity separately under sections 235-24 to 235-28, HRS, the same as if there were no group; and the combined business income of the group is apportioned with reference to the income from, and the property, payroll, and sales factors of, the entire unitary business just as would be done if the business had been conducted by one entity rather than a group. This method is different from a consolidated return, which is a taxing method in which two or more corporations are treated as one taxpayer. (See section 18-235-92(d).) In apportioning combined business income: (1) Transactions between members of the group relating to the unitary business, such as intercompany dividends, royalties, interest payments, sales, and rentals, shall be eliminated in computing combined business income and the property, payroll, and sales factors of each taxpayer in the group. (2) For each taxpayer in a group, the numerators of the property, payroll, and sales factors shall be those of the taxpayer, and the denominators of the factors shall be those of the group. (3) The business income attributable to the unitary business of each taxpayer in a group shall be the combined business income multiplied by the average of the taxpayer’s property, payroll, and sales factors. (4) The tax, deductions, credits, and allowances of each member of the group shall be computed separately. Credits, loss carrybacks, or loss carryovers of a group member shall not be applied against the income or Hawaii tax liability of any other group member because of the combined reporting method. (c) Each taxpayer in a group shall use the combined reporting method to determine its income unless the department permits it to do otherwise under section 235-38, HRS. For purposes of this section, a group of domestic corporations electing to file a consolidated return under section 235-92(2), HRS, shall be treated as one taxpayer. (d) Each taxpayer in a group shall file a separate return reporting its share of the combined business income or loss of the unitary business, and shall compute its tax, credits, deductions, and allowances separately, except as provided in this subsection. (1) The department shall permit a combined return to be filed for all of the taxpayers in a group, except when: (A) Not all of the taxpayers in the group are using the same apportionment formula; (B) Not all of the taxpayers in the group have the same taxable year; or (C) The department determines that such a return would prejudice the interests of the State. (2) If a group includes a taxpayer that is also a member of another unitary group (one with a separate line of business), the department may allow a combined return to be filed for all of the taxpayers in both groups. (3) An application to file a combined return shall contain: HRS §235-22 HRS §235-22 §18-235-22-03 (A) The names, federal employer identification numbers, and Hawaii general excise tax identification numbers (if applicable) of all group members; (B) A statement appointing one member as the designated member, and granting power of attorney to the designated member to represent the group for all tax matters related to the combined return; (C) The agreement of all group members to be jointly and severally liable for all taxes, penalties, interest, and additions to tax of the group; and (D) The agreement of all group members that a combined return shall be filed for all group members for any year in which any group member had gross income subject to taxation under chapter 235, HRS; and that the designated member, for itself and as agent for all group members, consents to the jurisdiction of the courts of this State solely for purposes of enforcing any summons or subpoena under section 231-7 or 235-108, HRS, for records, testimony, or other evidence pertinent to any combined return of the group. (4) Once permission to file a combined return is granted, the group shall continue to file a combined return until the department grants written permission to discontinue filing combined returns. An application to discontinue filing combined returns shall be submitted by the designated member at least ninety days prior to the filing due date of the combined return, including extensions of time. The application shall state the reasons for discontinuing filing combined returns. (5) An application to change which members of the group are included in a group’s combined return shall contain the items set forth in paragraph (3) with respect to the group after the proposed change. (6) If a group files a combined return, the group also shall file and pay estimated tax on a combined basis until permission to discontinue filing combined returns is received from the department. (7) Use of a combined return shall not affect the applicability of other provisions of chapter 235, HRS, to the taxpayers separately. For example, unless otherwise authorized by law or these rules, each taxpayer in a group is separately liable for filing withholding tax returns and payments. Furthermore, the tax liability of each taxpayer in a group shall be computed separately, unless otherwise authorized by law or these rules. (e) If a taxpayer is using the combined reporting method and the taxable year of any group member is not identical with that of the taxpayer: (1) In using the combined reporting method, the taxpayer shall convert the income, property, payroll, and sales factors of the group member to correspond to the taxpayer’s taxable year. Where this procedure results in using the business income and apportionment factors of an entity whose income year has not yet closed, the taxpayer shall make an estimate based on available information and amend the return not later than the date on which the group member’s return is due (including extensions). Example: Corporation T operates on a calendar year basis and conducts a unitary business with Corporation U, which operates with a September 30 year end. T is employing the combined reporting method (but is not filing a combined return) with U. T, in computing combined business income for 1993, shall include 9/12 of U’s income for the year ending September 30, 1993, and 3/12 of U’s estimated income for the year ending September 30, 1994. In computing T’s property, payroll, and sales factors, a similar computation shall be performed on U’s property, payroll, and sales factor denominators. If no extensions are given, T shall file its return on April 20, 1994, and shall amend its return no later than January 20, 1995, the same time U’s return is due for the year ending September 30, 1994, with a revised apportionment computation using U’s actual income and U’s actual property, payroll, and sales factor denominators. (2) Alternatively, and provided that the combined business income or apportionment factors are not materially distorted, the taxpayer may elect to include the income, property, payroll, and sales for the group member’s taxable year that ends within the taxable year of the taxpayer. (f) Where a taxpayer is authorized to use an apportionment formula other than that set forth in section 235-29, HRS, references in this section to the property, payroll, and sales factors instead shall refer to the factors in the apportionment formula that are being used by the taxpayer; and references to property, payroll, and sales shall instead refer to the components of factors in the apportionment formula that are being used by the taxpayer.