Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 2 - DIVISION OF INCOME FOR TAX PURPOSES › Section 18-235-38-03 - Special rules; sales factor

Current through June, 2024
(a) Where
				substantial amounts of gross receipts arise from an occasional sale of a fixed
				asset used in the regular course of the taxpayer's trade or business, those
				gross receipts shall be excluded from the sales factor. For example, gross
				receipts from the sale of a factory or plant will be excluded.
(b) Insubstantial amounts of gross receipts
				arising from occasional transactions or activities may be excluded from the
				sales factor unless their exclusion would materially affect the amount of
				income apportioned to this State. For example, the taxpayer ordinarily may
				include in or exclude from the sales factor gross receipts from transactions
				such as the sale of office furniture or business motor vehicles.
(c) In subsections (a) and (b), a transaction
				qualifying as a casual sale as defined in section
				237-1, HRS, and
				section 18-237-1 shall be considered an occasional transaction.
(d) Where the income producing activity in
				respect to business income from intangible personal property can be readily
				identified, the income is included in the denominator of the sales factor and,
				if the income producing activity occurs in this State, in the numerator of the
				sales factor as well. For example, usually the income producing activity can be
				readily identified in respect to interest income received on deferred payments
				on sales of tangible property (section 18-235-35-01(a)(1) ) and income from the
				sale, licensing, or other use of intangible personal property (section
				18-235-37-01(b)(4) ).
(e) Where
				business income from intangible property cannot readily be attributed to any
				particular income producing activity of the taxpayer, the income cannot be
				assigned to the numerator of the sales factor for any state and shall be
				excluded from the denominator of the sales factor. For example, where business
				income in the form of dividends received on stock, royalties received on
				patents or copyrights, or interest received on bonds, debentures, or government
				securities results from the mere holding of the intangible personal property by
				the taxpayer, the dividends and interest shall be excluded from the denominator
				of the sales factor. Income from a foreign affiliate as defined in section
				18-235-38.5-02, including dividends from a foreign affiliate and interest paid
				on intercompany loans, shall be excluded from the denominator of the sales
				factor.
(f) Where gains and losses
				on the sale of liquid assets are not excluded from the sales factor by other
				provisions under this section, such gains or losses shall be treated as
				provided in this subsection. This subsection does not provide rules relating to
				the treatment of other receipts produced from holding or managing such assets.
				If a taxpayer holds liquid assets in connection with one or more treasury
				functions of the taxpayer, and the liquid assets produce business income when
				sold, exchanged or otherwise disposed, the overall net gain from those
				transactions for each treasury function for the tax period is included in the
				sales factor. For purposes of this subsection, each treasury function will be
				considered separately.
(1) For purposes of
				subsection (f), a "liquid asset" is an asset (other than functional currency or
				funds held in bank accounts) held to provide a relatively immediate source of
				funds to satisfy the liquidity needs of the trade or business. "Liquid assets"
				include foreign currency (and trading positions therein) other than functional
				currency used in the regular course of the taxpayer's trade or business;
				marketable instruments (including stocks, bonds, debentures, options, warrants,
				futures contracts, etc.); and mutual funds which hold such liquid assets. An
				instrument is considered marketable if it is traded in an established stock or
				securities market and is regularly quoted by brokers or dealers in making a
				market. Stock in a corporation which is unitary with the taxpayer, or which has
				a substantial business relationship with the taxpayer is not considered
				marketable stock.
(2) For purposes
				of subsection (f), a "treasury function" is the pooling and management of
				liquid assets for the purpose of satisfying the cash flow needs of the trade or
				business, such as providing liquidity for a taxpayer's business cycle,
				providing a reserve for business contingencies, business acquisitions, etc. A
				taxpayer principally engaged in the trade or business of purchasing and selling
				instruments or other items included in the definition of liquid assets set
				forth herein is not performing a treasury function with respect to income so
				produced.
(3) For purposes of
				subsection (f), "overall net gain" refers to the total net gain from all
				transactions incurred at each treasury function for the entire tax period, not
				the net gain from a specific transaction.