HAR § 18-235-23-02 — When a taxpayer is subject to a tax under section 235-23(1), HRS

(a) A taxpayer is subject to one of the taxes specified in section 235-23(1), HRS, if it carries on business activity in a state and the state imposes such a tax on that activity. Any taxpayer which asserts that it is subject to one of the taxes specified in section 235-23(1), HRS, in another state shall furnish to the department upon its request evidence to support that assertion. The department may request that such evidence include proof that the taxpayer has filed the requisite tax return in the other state and has paid any taxes imposed under the law of the other state; the taxpayer’s failure to produce that proof may be taken into account in determining whether the taxpayer in fact is subject to one of the taxes specified in section 235-23(1), HRS, in the other state. The federal income tax imposed under chapter 1 of the federal Internal Revenue Code is not one of the taxes specified in section 235-23(1), HRS. (b) If the taxpayer voluntarily files and pays one or more of those taxes when not required to do so by the laws of that state or pays a minimal fee for qualification, organization, or the privilege of doing business in that state, but (1) Does not actually engage in business activity in that state; or (2) Does actually engage in some business activity, not sufficient for nexus, and the minimum tax bears no relationship to the taxpayer’s business activity in that state, the taxpayer is not subject to one of the taxes specified in section 235-23(1), HRS. Example: State A has a corporation franchise tax measured by net income for the privilege of doing business in that state. Corporation X files a return and pays the $50 minimum tax, although it carries on no business activity in State A. Corporation X is not taxable in State A. (c) The concept of taxability in another state is based upon the premise that every state in which the taxpayer is engaged in business activity may impose an income tax even though every state does not do so. In states which do not, other types of taxes may be imposed as a substitute for an income tax. Therefore, only those taxes which may be considered as basically revenue raising rather than regulatory measures shall be considered in determining whether the taxpayer is subject to one of the taxes specified in section 235-23(1), HRS, in another state. HRS §235-22 HRS §235-22 HRS §235-23 HRS §235-23 §18-235-23-03 Example 1: State A requires all nonresident corporations which qualify or register in State A to pay to the Secretary of State an annual license fee or tax for the privilege of doing business in the state regardless of whether the privilege is in fact exercised. The amount paid is determined according to the total authorized capital stock of the corporation; the rates are progressively higher by bracketed amounts. The statute sets a minimum fee of $50 and a maximum fee of $500. Failure to pay the tax bars a corporation from utilizing the state courts for enforcement of its rights. State A also imposes a corporation income tax. Nonresident Corporation X is qualified in State A and pays the required fee to the Secretary of State but does not carry on any business activity in State A (although it may utilize the courts of State A). Corporation X is not taxable in State A. Example 2: Same facts as Example 1, except that Corporation X is subject to and pays the corporation income tax. Payment is prima facie evidence that Corporation X is subject to the net income tax of State A and is taxable in State A. Example 3: State B requires all nonresident corporations qualified or registered in State B to pay to the Secretary of State an annual permit fee or tax for doing business in the state. The base of the fee or tax is the sum of (1) outstanding capital stock, and (2) surplus and undivided profits. The fee or tax base attributable to State B is determined by a three factor apportionment formula. Nonresident Corporation X which operates a plant in State B, pays the required fee or tax to the Secretary of State. Corporation X is taxable in State B. Example 4: State A has a corporation franchise tax measured by net income for the privilege of doing business in that state. Corporation X files a return based upon its business activity in the state but the amount of computed liability is less than the minimum tax. Corporation X pays the minimum tax. Corporation X is subject to State A ’s corporation franchise tax.