HAR § 18-235-29-04 — Apportionment formula as applied to partnerships

(a) If a taxpayer is a partner in a partnership, and the partnership’s activities and the taxpayer’s activities constitute a unitary business: (1) The taxpayer’s share of the partnership’s trade or business shall be combined with the taxpayer’s trade or business; (2) The property, payroll, and sales factors, or other applicable factors, of the taxpayer and the partnership shall be combined; and (3) Intercompany items shall be eliminated, under the principles set forth in section 18-235-22- 03. Example 1: Corporation A’s distributive share of income in partnership P is 20 per cent. Corporation A manufactures toys which are sold in the seven western states by partnership P. Corporation A ’s business income for the year was $1,000,000 and partnership P’s business income for the same year was $800,000. The business income of corporation A is $1,160,000 ($1,000,000 plus 20 per cent of $800,000). Example 2: The facts are the same as in Example 1. Partnership P owns a building with an original cost of $100,000 which is rented to corporation A for $12,000 per year. Corporation A shall include $20,000 (20 per cent of $100,000) in its property factor because of its interest in partnership P . In addition, Corporation A shall take into account $9,600 ($12,000 less 20 per cent of $12,000) of rental expense into its property factor in order to include in the property factor the rented building used in Corporation A ’s operation. Thus, Corporation A shall include $76,800 ($9,600 multiplied by 8, pursuant to section 235-31, HRS) for the rent paid, and $20,000 for its interest in the building through Partnership P , in its property factor, totalling $96,800 attributable to the building. (b) If a taxpayer is a partner in a partnership, and the partnership’s activities and the taxpayer’s activities do not constitute a unitary business, the partnership shall allocate and apportion its income at the partnership level. The taxpayer’s distributive share of the partnership’s income allocated or apportioned to this State shall not be subject to further apportionment by the taxpayer. HRS §235-29 HRS §235-29