Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 2 - DIVISION OF INCOME FOR TAX PURPOSES › Section 18-235-33-01 - Payroll factor; in general

Current through June, 2024
(a) The payroll
				factor of the apportionment formula for each trade or business of the taxpayer
				shall include the total amount paid by the taxpayer in the regular course of
				its trade or business for compensation during the tax period.
(b) The total amount paid to employees is
				determined with reference to the taxpayer's accounting method. If the taxpayer
				has adopted the accrual method of accounting, all compensation properly accrued
				shall be deemed to have been paid. Notwithstanding the taxpayer's method of
				accounting, at the election of the taxpayer, compensation paid to employees may
				be included in the payroll factor by use of the cash method if the taxpayer is
				required to report such compensation under that method for unemployment
				compensation purposes.
(c) The
				compensation of any employee on account of activities which are connected with
				the production of nonbusiness income shall be excluded from the
				factor.
Example 1:
The taxpayer uses some of its
				  employees in the construction of a storage building which, upon completion, is
				  used in the regular course of the taxpayer's trade or business. The wages paid
				  to those employees are treated as a capital expenditure by the taxpayer. The
				  amount of those wages is included in the payroll factor.
Example 2:
The taxpayer owns various securities
				  which it holds as an investment separate and apart from its trade or business.
				  The management of the taxpayer's investment portfolio is the only duty of X, an
				  employee. The salary paid to X is excluded from the payroll factor.
(d) As used in sections
				235-33
				and
				235-34,
				HRS, and the rules interpreting these sections:
"Compensation" means wages, salaries, commissions, and any
				  other form of remuneration paid to employees for personal services. Payments
				  made to an independent contractor or any other person not properly classifiable
				  as an employee are excluded. Only amounts paid directly to employees are
				  included in the payroll factor. Amounts considered paid directly include the
				  value of board, rent, housing, lodging, and other benefits or services
				  furnished to employees by the taxpayer in return for personal services provided
				  that the amounts constitute income to the recipient under the Internal Revenue
				  Code. In the case of employees not subject to the Internal Revenue Code, such
				  as those employed in foreign countries, the determination of whether benefits
				  or services would constitute income to the employees shall be made as though
				  the employees were subject to the Internal Revenue Code.
"Employee" means
(1)
				any officer of a corporation, or
(2) any individual who, under the usual
				common-law rules applicable in determining the employer-employee relationship,
				has the status of an employee. Generally, a person will be considered to be an
				employee if the person is included by the taxpayer as an employee for purposes
				of the payroll taxes imposed by the Federal Insurance Contributions Act,
				Internal Revenue Code chapter 21; except that, since certain individuals are
				employees under the Federal Insurance Contributions Act who would not be
				employees under the usual common-law rules, it may be established that a person
				who is included as an employee for purposes of the Federal Insurance
				Contributions Act is not an employee for purposes of this subchapter.