HAR § 18-235-29-03 — Apportionment for installment sales

(a) Income from installment sales shall be apportioned on the basis of the apportionment percentage for the year of sale. This is because installment sale income is reported at least in part in a year other than the year in which the sale took place, and apportionment of installment sale income on the basis of the factors in the years other than the year of sale would result in that income being apportioned by activities that had no connection with the earning of the income. (b) This rule applies whether or not the income from the sale was included in the sales factor for the year of sale. Example: X is doing business in states A and B, and this State. In 1988, the taxpayer sold a plant in state A and realized a $500,000 gain on the sale which is properly classified as business income under section 18-235-21-03(c). The taxpayer elects to report on the installment method. Under applicable federal principles (section 453, IRC, as operative under chapter 235, HRS), the gain is recognized in two equal installments in 1989 and 1990. The taxpayer’s apportionment percentages are as follows: Taxable Year Apportionment Percentage 1988 11% 1989 1% 1990 32% In 1989, X’s apportioned business income includes $250,000 (gain recognized in 1989) x 11 per cent (apportionment factor for year of sale) = $27,500. In 1990, X’s apportioned business income includes $250,000 (gain recognized in 1990) x 11 per cent (apportionment factor for year of sale) = $27,500.