JOSH GREEN, M.D.

GARY S. SUGANUMASYLVIA LUKEKRISTEN M.R. SAKAMOTO

DIRECTOR OF TAXATIONGOVERNOR

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAI’IDEPARTMENT OF TAXATION
Ka 'Oihana 'Auhau

P.O. BOX 259
HONOLULU, HAWAI’I 96809

PHONE NO: (808) 587-1530
FAX NO: (808) 587-1584

March 6, 2024

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2024-01
RE:

Temporary Administrative Rules Related to Pass-Through Entity (PTE) Taxation

Under its authority in section 231-10.7, Hawaii Revised Statutes (HRS), the Departmentof Taxation (Department) recently promulgated Temporary Administrative Rules for sections 18235-200-01 to 18-235-200-09, Hawaii Administrative Rules (HAR). The Temporary Rules are
effective February 16, 2024, and will expire on August 16, 2025.
These Rules are designed to implement and administer Hawaii's new PTE tax and credit
established by Act 50, Session Laws of Hawaii (SLH) 2023; they also contain several examples
to help explain how the tax and credit will apply under these Temporary Rules. The Department
will be issuing these Temporary Rules as proposed rules for formal HAR adoption, subject to theprocedural requirements of chapters 91 and 201M, HRS, to include conducting a public hearing
and providing the opportunity for public input.
A copy of the Temporary Rules is attached to this announcement and can also be viewed
on the Department's website at https://tax.hawaii.gov/legal/taxlawandrules/. Forms andinstructions are available on the Department's website at https://tax.hawaii.gov/forms/.
If you have any questions about this Tax Announcement or the Department's
implementation of Act 50 (SLH 2023), you may contact the Administrative Rules Office byemailing tax.rules.office@hawaii.gov or by calling (808) 587-1530.

GARY S. SUGANUMA
Director of Taxation

Attached: Temporary HAR §§ 18-235-200-01 to 18-235-200-09

TEMPORARY ADMINISTRATIVE RULES
THESE ADMINISTRATIVE RULES ARE TEMPORARY RULES ISSUED
PURSUANT TO SECTION 231-10.7; HAWAII REVISED STATUTES.
AS TEMPORARY RULES, THESE ADMINISTRATIVE RULES BECOME
EFFECTIVE SEVEN DAYS AFTER PUBLIC NOTICE IS ISSUED.
THESE TEMPORARY ADMINISTRATIVE RULES TAKE EFFECT ONFebruary 16, 2024.
TEMPORARY ADMINISTRATIVE RULES ARE EFFECTIVE FOR
EIGHTEEN MONTHS. THESE TEMPORARY ADMINISTRATIVE RULES
WILL EXPIRE ON
August 16, 2025.
PERMANENT ADMINISTRATIVE RULES, SUBJECT TO THE
PROCEDURAL REQUIREMENTS OF CHAPTER 91, HAWAII REVISEDSTATUTES (THE HAWAII ADMINISTRATIVE PROCEDURES ACT),ARE SIMULTANEOUSLY BEING PROPOSED FOR FORMAL ADOPTION.

DEPARTMENT OF TAXATIONAmendments to Chapter 18-235,
Hawaii Administrative Rules
Effective:February 16, 2024
SUMMARY

1. §18-235-200-01 through §18-235-200-09 are added.

§18-235-200-01 Pass-through entity election.
(a)An election for pass-through entity taxation must be
made on or before the due date prescribed for thefiling of the schedule for the taxable year asprovided in section 18-235-200-05, including any
extensions thereof.
(blFailure to timely make an election on theform prescribed by the director shall constitute a
waiver of the election of pass-through entity taxation
for the taxable year.
[Eff 1/1/24](Auth: HRS§231-10.7; Act 50, SLH 2023)(Imp: Act 50, SLH 2023,§2)§18-235-200-02
Electronic filing.
(a)All
returns, schedules, statements, and other documents
required to be filed under chapter 235, HRS, andchapter 18-235, HAR, shall be filed electronically byan electing pass-through entity for the taxable year
in which an election for pass-through entity taxation
is made.
(b)
The date of filing shall be the date thereturn, schedule, statement, or other document is
successfully transmitted to the department in the form
and manner prescribed by the director.
(c)Failure by an electing pass-through entity toelectronically file as required in this section shallresult in the cancellation of the electio~ of passthrough entity taxation for the taxable year.
(d) The director may exempt any electing passthrough entity from the requirements in this section.
[Eff 1/1/24](Auth: HRS §231-10.7; Act 50, SLH 2023)(Imp: Act 50, SLH 2023, §2)§18-235-200-03 E1ectronic funds transfer.
(a)
All payments required to be remitted by an electing
pass-through entity under chapter 235, HRS, andchapter 18-235, HAR, shall be made by electronic fundstransfer for the taxable year in which an election forpass-through entity taxation is made.
(b)
The date of payment shall be the date thefunds are deposited with the State.
(c)
Failure by an electing pass-through entity tosubmit payment by electronic funds transfer as
required in this section shall result in thecancellation of the election of pass-through entity
taxation for the taxable year.
(d)
The director may exempt any electing passthrough entity from the requirements in this section.
[Eff 1/1/24](Auth: HRS §231-10.7; Act 50, SLH 2023)(Imp: Act 50, SLH 2023, §2)

SlS-235-200-04
Estimated pass-through entity taxpayments.
(a)
For tax years beginning after
December 31, 2023, each electing pass-through entity
shall transmit payment of the estimated tax for thecurren~ taxable year as follows:(1)
One-quarter of the estimated tax shall be
paid on or before the twentieth day of thefourth month of the taxable year;(2) One-quarter of the estimated tax shall be
paid on or before the twentieth day of thesixth month of the taxable year;(3) One-quarter of the estimated tax shall bepaid on or before the twentieth day of theninth month of the taxable year; and(~) One-quarter of the estimated tax shall bepaid on or before the twentieth day of thefirst month following the close of thetaxable year.
(b)
The penalties provided in section 235-97(f),HRS, shall apply to any underpayment of estimated tax
provided in this section.
[Eff 1/1/24](Auth: HRS§231-10. 7; Act 50, SLH 2023)(Imp: HRS 235-97; Act50, SLH 2023, §2}2

§18-235--200-·05 P.ass=through entity tax: pa-,:,i>!nent;
scbedul.e of pa.ss=through antit.y ta:ll: paid,(a)Eachelecting pass-through entity shall file with thedepartment a schedule detailing each member's share of
the pass-through entity tax paid, on a form prescribedby the director, on or before the twentieth day of thefourth month following the close of the taxable year.
The schedule shall be accompanied by pa,/1nent of thebalance of the tax for the taxable year.
(b)
Each electing pass-through entity shaJ.l begranted an automatic six-month extension for thefiling of the schedule; provided the conditions in
section 18-2 35,-98, including payment of the properly
estimated tax liability on or before the due dateprescribed for the filing of the schedule insubsection (a), are met.
(c) Amendments to the schedule shall not beallowed after the due date prescribed in this section,
incJuding any extensions thereof.
(d)
The department may, in its discretion,
cancel the election for pass-through entity taxation
if an electing pass-through entity fails to file theschedule within the time provided for in this section.

Ex~ple 1:
Partnershipl, a calendar-year taxpayer,
pays the properly estimated taJ{ liability on
April 20 followin9 the close of the taxyear.
On October 20, Partnershipl makes anelection for pass-through entity taxationand files the required schedule.
On
November 1, Partnershipl discovers that
there were additional distributive shares ofincome owed to its rnerobers for which :it
failed to report and pay PTE tax.
Partnership! will not owe additional passthrough entity tax on the additional
distributive shares of income and may notamend the schedule of pass-through entity
tax to report the additional distributive
shares of :income, Partne.rshipl must,3

however, report the additional distributive
shares of income on its income tax return.
[Eff 1/1/24 J (Auth: HRS §231-10. 7; Act 50,SLH 2023) (Imp: Act 50, SLH 2023, §2)§18-235-200-06

Refund of pass-through entity tax.

Any claim for refund of the pass-through entity tax
shall be filed by the electing pass-through entity, on
a form prescribed by the director, on or before thedue date prescribed for the filing of the schedule ofpass-through entity tax provided in section 18-235200-05, including any extensions thereof; provided
that if the amount of pass-through entity tax paid byan electing pass-through entity exceeds the amountclaimed on the schedule required to be filed under
section 18-235-200-05, any claim for refund of theoverpayment shall be filed within the time prescribedby section 235-111, HRS.
E,xULple 1 :Partn~rshipl, a calendar year taxpayer,
pays $25,000, the properly estimated tax
liability, on April 20 following the closeof the tax year.
On October 20,
Partnershipl makes an election for passthrough entity taxation and fiiea therequired schedule, which details eachmember's share of the $25,000 pass-throughentity tax paid.
On November 1,Partnershipl attempts to amend the schedule
to decrease the amount of pass-throughentity tax from $25,000 to $20,000 andrequests a $5,000 refund.
Partnershipl may
not amend the schedule and may not receive
the $5,000 refund, as the amended scheduleand refund claim were not timely filed by
October 20.

4Bxamp1ra2:

Partnership2, a calendar-year taxpayer,
pays $30,000, the properly estimated tax

liability, on April 20 following the closeof the tax year.
On Octobor 20,
Partnership2 makes an election for passt~rough entity taxation and files therequired schedule.
The schedule details
each member's share of $25,000 of the passt:1r'ough entity tax paid.
On November 1,PartnerBhip2 requests a refund of $5,000 fort~e overpayment of pass-through entity tax
paid.
Partnership2 may receive a refund of$5,000 because the refund claim was timely
f~led within the time prescribed by section
235-111 1 HRS.

Partnership3, a calendar-year taxpayer,

makes estimated tax payments throughout theyear and pays the properJ.y estimated tax
liability on April 20 followirnJ the close oft~e tax year.
Partnership3 does not make anelection for pass-through entity taxation.
Or: NovEnn.ber 1,, Pa:rtnership3 requests a refundof thE.' cistimate::,d tax paymont,3 m:ade,

Becaw3ePartnership3 did not make an election forpass-through entity taxation, section 18235-200-06, HAR, does not apply.
Partnership3 may receive a refund of theestimated tax payments made; provided therequest is made within the time prescribed bysection 235-111,HRS.

[Eff1/1/24]

HRS §231-10. 7; Act 50, SLH 2023)
Act 50, SLH 2023, §2).5(Auth:(Imp:§18-235-200-07 Pt.~~s-t:hrough enti t3r ta:.n: t:::s:·ecli t;
allowed..
(a)
Each member of an electing pass·through entity whose distributive share or guaranteed
payment of Hawaii taxable income is subject to thepass-through entity tax may claim a nonrefundable
income tax credit equal to the member's share of passthrough entity taxes paid.
For the purposes of thissubsection, the amount of pass-through entity taxes
paid does not include any amounts paid as penalties orinteresto(b)
No credit may be claimed by any indirectmember of an electir19 pass-through ,sntity unless thedirect member of the electing pass--through entity, of
which the indirect member is a member, files aschedule detailing each member's share of the passthroug~ entity tax paid, on a form prescribed by thedirector, on or before the due date prescribed :for thefiling of the direct member's return under chapter
235, HRS, including any extensions.

PTEl, a pass-through entity whose
members include Inclj,ridual A,

P'l'E:2,and P'l'E3,

makes an election for pass-through entity
taxation, timely files the requiredschedule, and timely pays the pass-throughentity tax.
PTE2, a pass-throug~ entity
wt.ose me.mbe:r:13 include: Indi v.idua.l B andI~dividual C, does not elect pass-througher:tH:y taxation and does not file a scheduledetailing each menilier 1 s share of the passthrough entity tax paid.
PTE3, a passthrough entity whose members include
Individual D and Individual E, does notelect pass-through entity taxation, buttimely files a schedule detailing eachmember's share of the pass-through entity
tax paid.
Individual A may claim a credit
or pass-through entity taxes paid by PTEl.
Individual B and Indi vidua.1 C may not claim E1
6credit for pass-through entity taxes paid byPTEl because PTE2 did not file the requiredschedule.
Individual D and Individual E may
claim a credit for pass- through entity
taxes paid by PTEl because PTE3 filed therequired schedule.
[Eff 1/1/24] (Auth:HRS §231-10.7; Act 50, SLH 2023)(Imp: Act50, SLH 2023, §2)§18-235-200-08 Credit for substantially similartaxes paid to another state or to the District ofCo1umbia.
A taxpayer claiming the credit for the pro

rata share of taxes paid to another state or to theDistrict of Columbia on income of any partnership or S
corporation of which the taxpayer is a member shallattach to the taxpayer's income tax return for thetaxable year a copy of the pass-through entity's tax
return filed in the other state or District ofColumbia and all available schedules showing thetaxpayer s share of taxes paid.
[Eff 1/1/24] (Auth:HRS §231-10. 7; Act 50, SLH 2023)(Imp: Act 50, sLJ
2023, §2)
I

§18-235-200-09 Income tax oredits; ordering oforedit o.laim.s.
In the offsetting of a taxpayer's

income tax liability, tax credits shall be applied in
the following order:(1) Tax credits that may be refunded or paid to a
taxpayer who has no income tax liability;(2) Nonrefundable tax credits that may not becarried forward; and(3) Nonrefundable tax credits that may be used asa credit against taxes in subsequent years
until exhausted.
[Eff 1/1/24](Auth: HRS§231-10. 7; Act 50, SLH 2023)(Imp: Act 50,
SLH 2023, §2)7