HAR § 18-235-4-05 — Corporations; domestic and foreign

(a) Domestic corporations, including professional and nonprofit corporations, are subject to tax on Hawaii source income. Domestic corporations also are subject to tax on out-of-state income that is not taxable in another jurisdiction. (b) Income from business activity within and without Hawaii that is taxable in another jurisdiction shall be apportioned under the Uniform Division of Income for Tax Purposes Act, sections 235-21 to 235-39, HRS. A domestic corporation is subject to tax in Hawaii on income that is allocated or apportioned to any jurisdiction in which that corporation is not taxable. Example 1: Corporation X, a Hawaii corporation, is actively engaged in selling farm equipment in Hawaii and State A. Both Hawaii and State A impose a net income tax but State A exempts corporations engaged in selling farm equipment. Corporation X is taxable in both Hawaii and State A. Corporation X is not subject to tax in Hawaii on income that is allocated or apportioned to State A. Example 2: The facts are the same as in Example 1, except that State A may not impose a net income tax on Corporation X because of Public Law No. 86-272, 15 U.S.C. sections 381-384. Corporation X is taxable in Hawaii and is not taxable in State A. Corporation X is subject to tax in Hawaii on income that is allocated or apportioned to State A. (c) Foreign corporations are subject to tax on Hawaii source income and are not subject to tax on out-of- state income. (d) For rules relating to corporations for which an election under section 1362 (with respect to S corporations), IRC, is in effect, see section 18-235-122. (e) For the election available under the Multistate Tax Compact to a foreign corporation whose only activities within the State consist of sales, see section 18-235-4-03(c). (f) For rules used to determine the source of income, see section 18-235-4-08.