HAR § 18-235-4-06 — INCOME T AX LAW §18-235-4-06 Resident and nonresident estates, trusts, and beneficiaries

(a) As used in this section: “Beneficiary” includes an heir, legatee, devisee, and any person to whom income of a trust is attributed under section 671 (with respect to trust income, deductions, and credits attributable to grantors and others as substantial owners), IRC. “Beneficiary’s share of income” means that portion of the income of an estate or trust: (1) that the beneficiary is required to include in income under subchapter J (with respect to estates, trusts, beneficiaries, and decedents), IRC; or (2) that is attributed to the beneficiary under section 671, IRC. “Resident beneficiary” means a beneficiary who is a “resident person” within the meaning of section 235-68(a), HRS. (b) An estate or trust shall report its gross income from whatever source derived, each beneficiary’s share of income, and each beneficiary’s share of Hawaii source income if: (1) It is a resident estate or trust, as defined in section 235-1, HRS; (2) Any of its beneficiaries is a resident beneficiary; or (3) Any part of its income is attributed to a resident beneficiary under section 671, IRC. (c) An estate or trust not described in subsection (b) shall report all Hawaii source income, and also shall report each beneficiary’s share of Hawaii source income. (d) An estate or trust shall determine Hawaii source income by allocation and apportionment under the Uniform Division of Income for Tax Purposes Act, sections 235-21 to 235-39, HRS, if: (1) The estate or trust derives income from business activity both within and without the State, (2) The estate’ s or trust’s business activity is taxable in both this State and another jurisdiction, and (3) The income is not derived from the rendering of purely personal services. Otherwise, an estate or trust shall determine Hawaii source income by allocation and separate accounting pursuant to section 235-5, HRS, and section 18-235-5-02. (e) A resident estate or trust is taxable on income from whatever source derived, whether or not the administration of the estate or trust is principal, ancillary, or carried on in this State. A resident estate or trust shall not exclude or deduct any income allocated or apportioned to another jurisdiction under the Uniform Division of Income for Tax Purposes Act, sections 235-21 to 235-39, HRS. If a resident estate or trust has out-of-state income that is taxable in another jurisdiction, a tax credit may be allowed under section 235-55, HRS, and section 18-235-55. (f) A nonresident estate or trust is taxable on Hawaii source income and is not taxable on out-of-state income. (g) A beneficiary is subject to tax on that beneficiary’s share of income as if the beneficiary had received that income directly, and had directly incurred any deductions allowable under subsection (h), whether or not the estate or trust is a resident, and whether or not the estate or trust is required to file a return. (1) A resident beneficiary is subject to tax upon that beneficiary’s share of income from whatever source derived. (2) A nonresident beneficiary (or a beneficiary taking up residence in the State after attaining the age of sixty-five years but before July 1, 1976) is subject to tax upon that beneficiary’s share of Hawaii source income. If a nonresident beneficiary of a resident trust derives income from intangibles, see section 235-4.5, HRS. (h) In computing an estate’ s or trust’s Hawaii adjusted gross income or taxable income, or any beneficiary’s share of Hawaii source income, deductions shall be allowed only to the extent permitted by section 235- 5(c), HRS, and section 18-235-5-03. (i) The recipient of income in respect of a decedent is subject to tax as if the decedent had received that income directly, and had directly incurred any deductions, losses, or credits allowable to the recipient under section 691 (with respect to recipients of income in respect of decedents), IRC. In computing a recipient’s allowable deductions, see section 235-5(c), HRS, and section 18-235-5-03. Thus, if the decedent were a resident at the time of death, the recipient, whether or not a resident, is subject to tax upon the income whether or not it is Hawaii source income.