HAR § 18-237-13-06.05 — Tax on service business; fees and commissions received by a director, trustee, executor, or other fiduciary

(a) Scope. This section sets forth the application of the provisions of chapter 237, HRS, relating to the imposition of the general excise tax on fees and commissions received by a person who serves as a fiduciary such as, but not limited to, a director, trustee, executor, administrator, custodian, or guardian. The purpose of this subsection is to clarify for purposes of chapter 237, HRS, those fees and commissions derived from the performance of fiduciary services which are more than casual transactions. This subsection, therefore, does not apply to those persons who, by practice or profession, serve as fiduciaries such as attorneys and accountants who are taxed under section 237-13(8), HRS, and those persons engaged in business as fiduciary companies under the provisions of chapter 402, HRS. (b) Imposition of tax; rate of tax. Section 237-13, HRS, levies a general excise tax against persons on account of their business and other activities in the State measured by the application of rates against gross income. Fees and commissions received by fiduciaries such as, but not limited to, directors, trustees, executors, administrators, custodians, or guardians may be taxed by section 237-13(6), (8), or (10), HRS, respectively, as follows: (1) Section 237-13(6), HRS, imposes a tax equal to four per cent of the gross income upon every person engaging or continuing within the State in any service business or calling. (2) Section 237-13(8), HRS, imposes a tax equal to four per cent of the gross income upon every person engaging or continuing within the State in the practice of a profession. (3) Section 237-13(10), HRS, imposes a tax equal to four per cent of the gross income upon every person engaging or continuing within the State in any business, trade, activity, occupation, or calling not otherwise specifically included in section 237-13, HRS. (c) Determination as to taxable activity. (1) In ascertaining whether a person is engaged in the activity of a fiduciary, it is immaterial whether the appointment was solicited; whether there is a generally recognized market for the services; whether the income was necessary for the person’s livelihood; whether the primary purpose was to accommodate friends; or any other subjective considerations. The activity shall be deemed to be engaged in with the object of economic gain or benefit where the person renders the service and accepts in return therefore a normal and usual compensation for the rendition of such service. (2) Section 237-24(6), HRS, shall not apply to the fees or commissions received by a person who renders services in the capacity of a fiduciary. (3) A person is deemed to be engaged in a trade or business as a fiduciary within the meaning of chapter 237, HRS, upon the person’s appointment thereto, performance of duties, and the receipt of fees if such person: (A) Serves as a fiduciary in four or more of each or combination of any of the following capacities during the taxable year: director of a corporation, trustee of a trust, executor of an estate, or any other fiduciary; or (B) Receives fees or commissions in an aggregate amount of more than $1,200 in a taxable year for the performance of the person’s duties as fiduciary. (4) Application of the principles cited in this subsection may be illustrated by the following examples: Example 1: A, an engineer, serving as a director of two corporations, as a trustee of a trust, and as an executor of an estate during the taxable year and who received fees and commissions therefrom shall be deemed to be engaged in business within the meaning of chapter 237, HRS. HRS §237-13(6) §18-237-13-06.11 Example 2: B, a contractor, serving as a director of two corporations, one of which is a nonprofit religious corporation for which no fees were received, as a trustee of a trust, and as an executor of an estate during the taxable year and who received fees and commissions in the amount of $1,000 per year for services as a director, trustee, and as an executor shall not be deemed to be engaged in the business within the meaning of chapter 237, HRS. Example 3: D, a chemist, serving as a trustee of a trust and as an executor of one estate during the taxable year and who received an aggregate amount of $1,300 therefrom, and who in addition to the foregoing, received $500 in fees as a director of a corporation during the taxable year for directors’ meetings held outside the State of Hawaii shall be deemed to be engaged in business within the meaning of chapter 237, HRS. Example 4: F, a lawyer and an accountant, is not engaged in private practice but is employed by a corporation as a full-time lawyer and an accountant. Serving as a director of the abovementioned corporation and another corporation during the taxable year, F received an aggregate amount of $1,000 therefrom in the taxable year. The directors’ fees received by F shall not be deemed from engaging in business within the meaning of chapter 237, HRS, inasmuch as F’s activities and fees therefrom are not within the provisions of paragraph (3)(A).