Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 1 - GENERAL PROVISIONS › Section 18-235-4-08 - Source of income

Current through June, 2024
(a) Income derived
				from real or tangible personal property is sourced at the place where the
				property is owned, namely the place where the property has its situs. If
				tangible personal property is owned and used in different locations, income
				from the property shall be allocated as provided in section
				235-25,
				HRS.
(b) Income from intangible
				property, such as interest and dividends, is sourced at the place of the
				owner's domicile unless the property has acquired a business situs at another
				place, in which event the income is sourced at that place. Intangible property
				has a business situs in this State if it is employed as capital in this State
				or the possession and control of the property has been localized in this
				State.
Example 1:
A corporation owns stocks, bonds,
				  and other intangible personal property. It pledges the property in Hawaii as
				  security for the payment of indebtedness, taxes, and other expenses incurred in
				  connection with a business in this State. The pledged property has a business
				  situs in Hawaii.
Example 2:
A corporation maintains a branch
				  office here and opens a bank account on which the agent in charge of the branch
				  office may draw for the payment of expenses in connection with the activities
				  in this State. The bank account has a business situs in Hawaii.
Example 3:
The corpus of a trust contains
				  United States Treasury bills, bank certificates of deposit, and shares of
				  preferred and common stock. The trustee of the trust, a Hawaii corporation,
				  exclusively holds, controls, and administers the corpus of the trust. The
				  trustee is permitted broad discretion to invest trust income and accumulations
				  and is responsible for the collection and disbursement of any income generated
				  by the trust assets. The property forming the corpus of the trust has a
				  business situs in Hawaii. Thus, the trust's income is Hawaii source income;
				  however, the exclusion in section
				  235-4.5,
				  HRS, may apply in some cases.
(c)
				Income from an interest in real property, such as a leasehold, has its situs
				where the real property is located. The situs of the purchaser's interest under
				a contract for the sale of real property is where the real property is
				located.
(d) Income from a trade or
				business is sourced at the place where the trade or business is carried
				on.
(e) Income from the performance
				of personal services has its source at the place where the services are
				performed.
(f) A gain or loss on
				the sale or other disposition of property has its source at the place where the
				property was owned, that is, where it had its situs, at the time of the sale or
				other disposition. This rule applies whenever gain or loss is considered as
				resulting from the sale or other disposition of the underlying property,
				irrespective of where the contract for the sale or other disposition of the
				property was made. Thus, if property is disposed of on the installment method,
				the portion of any installment payment that represents gross profit is income
				that has its source at the place where the underlying property had its situs at
				the time of disposition.
Example:
Y is the vendor on an agreement of
				  sale for real property on Kauai. In 1994, Y sells Y's interest to S and
				  realizes a gain of $5,000 under section 453B (with respect to gain or loss on
				  disposition of installment obligations), IRC. Under section 453B, IRC, the gain
				  is considered to be from the sale or exchange of the property in respect of
				  which the installment obligation was received. Thus, because the underlying
				  property is located in Hawaii, the $5,000 is Hawaii source
				  income.