Opinion ID: 1208714
Heading Depth: 1
Heading Rank: 2

Heading: Division of Income Joint Venture Theory.

Text: In 1971, Hawaiian Telephone entered into two separate agreements with the General Telephone Directory Company (Directory Company) for the publication and sale of directory advertising in the telephone directories and for the publication and rental of street address directories. In the tax court, Taxpayer argued that, by virtue of these agreements, it and the Directory Company operated as joint venturers during the periods in question and, therefore, it should not be liable for taxes on the entire amounts of directory revenues collected. [9] To the contrary, it asserted that it should be allowed to exclude from gross income those portions of the directory revenues that were payable to the Directory Company pursuant to the 1971 agreements. In upholding the assessments of the Director of Taxation based on the entire amounts of directory revenues collected by Taxpayer, the tax appeal court determined that the agreements between Hawaiian Telephone and the Directory Company did not evidence the requisite intention to be partners or joint venturers. On its appeal to this court, Taxpayer contends that the court below erred in denying it partnership status for tax purposes. Had the challenged assessments been levied pursuant to Hawaii income tax law, [10] it may have been to Taxpayer's advantage to be recognized as a partner or joint venturer. For purposes of income tax, partnerships are not subject to taxation per se, but rather only the persons carrying on the business as partners are liable for income tax in their separate or individual capacities. That is, no income tax liability accrues to the partnership itself as a result of income from partnership business, although each partner is taxed on his or her distributive share of partnership income. See HRS § 235-60 (1976). What Taxpayer fails to recognize, however, is that the principles applicable to the income tax law are not necessarily relevant to questions arising under general excise tax law. The Hawaii general excise tax law provides for the imposition of an annual privilege tax on persons on account of their business and other activities in the State measured by the application of certain prescribed rates against values of products, gross proceeds of sales or gross income. HRS § 237-13 (Supp. 1979). Because person is defined, for general excise tax purposes, to include partnerships and joint ventures, see HRS § 237-1(2) (1976), the partnership or joint venture itself is liable for excise tax on gross income stemming from partnership or venture business. Therefore, contrary to what occurs under the income tax law, neither partnership nor joint venture revenues are passed through to the individual partners or venturers. [11] In light of the foregoing analysis, we conclude that any general excise tax levied against Taxpayer based on the entire amounts of directory revenues collected by it would have been proper regardless of whether such revenues were earned in its individual capacity or whether such revenues were earned by the alleged joint ventures. Even if we were to acknowledge that Hawaiian Telephone and the Directory Company were in fact joint venturers for the purpose of engaging in the activities described herein, the former would at the very least be jointly liable for taxes payable by the joint ventures in accordance with partnership law. [12] See HRS § 425-115(b) (1976).