HAR § 18-235-23-03 — When a state has jurisdiction to subject a taxpayer to a net income tax

(a) The second test, that of section 235-23(2), HRS, applies if the taxpayer’s business activity is sufficient to give the state jurisdiction to impose a net income tax by reason of that business activity under the Constitution and statutes of the United States. Jurisdiction to tax is not present where the state is prohibited from imposing the tax by reason of the provisions of Public Law 86-272, 15 U.S.C. sections 381-384. (b) For a state that is a foreign country or a political subdivision of a foreign country, the determination of whether the state has jurisdiction to subject the taxpayer to a net income tax shall be made as though the jurisdictional standards applicable to a state of the United States applied in that state. If jurisdiction is otherwise present, that state is not considered as being without jurisdiction by reason of the provisions of a treaty between that state and the United States. Example: Corporation X is actively engaged in manufacturing farm equipment in State A and in foreign country B. Both State A and foreign country B impose a net income tax but foreign country B exempts corporations engaged in manufacturing farm equipment. Corporation X is subject to the jurisdiction of State A and foreign country B.