DAVID Y. IGE

LINDA CHU TAKAYAMAGOVERNORDIRECTORDOUGLAS S. CHINDAMIEN A. ELEFANTE

LIEUTENANT GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII
DEPARTMENT OF TAXATION830 PUNCHBOWL STREET, ROOM 221
HONOLULU, HAWAII 96813
http://tax.hawaii.gov/
Phone: (808) 587-1530 / Fax: (808) 587-1584
Email: Tax.Rules.Office@hawaii.gov

September 7, 2018

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2017-07(AMENDED)
Re:Public Service Company and Franchise Tax Requirements

This Tax Announcement amends and supersedes Announcement 2017-07, previously
issued on July 31, 2017, describing the obligations of public service companies subject to thepublic service company (PSC) tax under chapter 239, Hawaii Revised Statutes (HRS) and banks
or other financial corporations subject to the franchise tax under chapter 241, HRS. Taxpayers
subject to the PSC and franchise tax should review the requirements outlined in this Tax
Announcement and ensure their processes are satisfactory.
I.

Chapters 239 and 241, HRS, in general.

Every public utility, as defined in section 239-2, HRS, is liable for the PSC tax imposedby chapter 239, HRS. The PSC tax is levied on the gross income of a public utility that isderived from its business. The PSC tax is in lieu of the general excise tax imposed by chapter
237, HRS.
Every bank or other financial corporation is liable for the tax under chapter 241, HRS,
commonly referred to as the franchise tax. The franchise tax is in lieu of the income and general
excise taxes imposed by chapters 235 and 237, HRS, respectively. The franchise tax is imposedon a taxpayer’s net income, as calculated under section 241-4, HRS.
II.

Filing and payment requirements under chapters 239 and 241, HRS.
General ruleReturns and payments of PSC and franchise tax are due by the 20th day of the 4th monthafter the close of each taxable year. However, there are many special rules applicable to PSC
and franchise tax that taxpayers must be aware of.

Department of Taxation Announcement No. 2017-07 (Amended)
September 7, 2018
Page 2 of 4First and second years of business
Any taxpayer subject to PSC or franchise tax that is in its first or second year of doing
business must file estimated returns and make estimated payments.
In its first year of business, the taxpayer must file an initial return by the 20th day of the3rd month following the first month of business. The tax due with the initial return shall bebased on an estimate of the gross income for the first year. The taxpayer must then file anamended return, based on the actual gross income for the first year, by the 20th day of the 4thmonth following the close of the first taxable year of business.
In the second year of business, another estimated return and estimated payment are due.
The estimated return and payment are due by the 20th day of the 4th month following the closeof the first taxable year of business and shall be based on an estimate of the gross income for thesecond year. The taxpayer must then file an amended return, based on the actual gross income
for the second year, by the 20th day of the 4th month following the close of the second taxable
year of business.
Taxpayers making estimated returns and payments in either their first or second years ofbusiness are required to pay at the time the return is due, in quarterly installments, or in monthly
installments. The rules regarding payment due dates and frequencies for taxpayers’ first andsecond years will be the same as those for taxpayers’ third and subsequent years.
Third and subsequent years of business
Beginning in the third year of business, PSC and franchise tax returns and payments are
not based on estimates, but rather, are based on the gross income for the previous year. Returns
are due by the 20th day of the 4th month following the close of the previous taxable year. An
amended return is generally not required. Payments are due by the 20th day of the 4th monthfollowing the close of the previous taxable year or based on the payment schedules described
below. 1Taxpayers whose tax liability is $100,000 or less may elect to pay at the time the return isdue or in four equal installments, each due on the 20th day of the 4th, 6th, 9th, and 12th months
following the close of the previous taxable year. For calendar year taxpayers, these dates are
April 20, June 20, September 20, and December 20.
If a taxpayer’s tax liability exceeds $100,000 for the taxable year, the taxpayer must payin 12 equal installments. These monthly installments are due on the 10th day of each successivemonth following the close of the previous taxable year. Taxpayers should note that first fourmonthly payments, each equal to one-twelfth (1/12) of the tax liability for the current year, will
be due before the deadline to file the return. Taxpayers should therefore determine their tax
1Note, however, that different rules apply for taxpayers subject to the franchise tax in their finalyear of business. See HRS § 241-1(h).

Department of Taxation Announcement No. 2017-07 (Amended)
September 7, 2018
Page 3 of 4

liability for the current year (which is based on gross income for the previous year) as soon as
possible after the close of the previous tax year to avoid interest and penalties for underpayment.
Notwithstanding the allowance of installment payments, if any quarterly or monthly
installment is not paid by its due date, the Department has the authority to require immediatepayment of the entire balance of the tax on ten days’ notice. The authority to accelerateinstallment payments for noncompliance applies to the first, second, and all subsequent years ofbusiness.
III.

Applicable penalties and interest

All applicable penalties and interest for PSC and franchise tax will be assessed by theDepartment, including:
••
•
•
•

Late file penalty (HRS § 231-39(b)(1));
Penalty for failure to pay due to negligence or fraud (HRS § 23139(b)(2)(A),(B));
Timely file late pay penalty (HRS § 231-39(b)(3));
Electronic funds transfer (EFT) penalty (HRS § 231-9.9); andInterest (HRS § 231-39(b)(4)).

Penalties and interest on PSC and franchise tax are programmed into the Department’s
computer system and will be automatically assessed if triggered. Taxpayers should note that theamended returns due after the close of the first and second years of doing business, discussed
above, are required returns with due dates. As such, these returns can generate late file andtimely file late pay penalties of their own. For instance, if a taxpayer fails to file its amended
return by the 20th day of the 4th month following the close of its initial year of business, a latefile penalty will be automatically assessed.

Example 1:
A calendar year taxpayer subject to EFT who is not in its first two years ofbusiness files a return on April 21 and reports a $120,000 tax liability. The
taxpayer failed to make any monthly installment payments. The taxpayer will beassessed a late file penalty of $2,000 (5% of the outstanding tax balance of$40,000), an EFT penalty of $800 (2% of the outstanding tax balance of $40,000),
and interest on the $40,000.

Example 2:
A calendar year taxpayer subject to EFT who is not in its first two years ofbusiness makes payments of $9,000 each on January 10, February 10, March 10,and April 10. The taxpayer files a return on April 20 and reports a $120,000 tax

Department of Taxation Announcement No. 2017-07 (Amended)
September 7, 2018
Page 4 of 4

liability. The taxpayer will be assessed an EFT penalty of $80 (2% of theoutstanding tax balance of $4,000) and interest on the $4,000. If the taxpayer
fails to pay the outstanding tax balance within 60 days from April 20, the taxpayer
will also be subject to the timely file late pay penalty.

PSC and Franchise tax forms and instructions are available on the Department’s website
at tax.hawaii.gov. For additional information, please contact the Rules Office by phone at (808)587-1530 or by email at tax.rules.office@hawaii.gov.

LINDA CHU TAKAYAMA
Director of Taxation