Hawaii Instructions for Schedules O & P

Instructions for Schedules O & P
Instructions Schs. O & P (Form N-30), Rev 2020, Instructions for Schedules O and P (Form N-30)
INSTRUCTIONS
SCHS. O & P (FORM N-30)	
(REV. 2020)
	

	

STATE OF HAWAII — DEPARTMENT OF TAXATION

INSTRUCTIONS FOR SCHEDULES O AND P (FORM N-30)
ALLOCATION AND APPORTIONMENT OF INCOME

Corporations who qualify and elect to report and pay income tax on the basis of a percentage of gross sales made during the tax year, as provided in Article III,
section 2 of the Multistate Tax Compact, Chapter 255, Hawaii Revised Statutes (HRS), and section 235-71(e), HRS, Hawaii Income Tax Law, need not use Schedules
O and P but must use and file Short Form N-310, copies of which may be obtained by contacting the Department of Taxation, or at tax.hawaii.gov.

CHANGES YOU SHOULD NOTE
Act 96, Sessions Laws of Hawaii 2019 This act amends the rules for sourcing the sales
factor for net income tax to impose market-based
sourcing for sales of intangibles and services to
the extent it is used in the State. Applies to taxable years beginning after December 31, 2019.
GENERAL INSTRUCTIONS
Corporations which must file Allocation and
Apportionment of Income Schedules O and P,
Form N-30:
Every corporation carrying on a business
within and without Hawaii must file Allocation
and Apportionment of Income Schedules O and
P, Form N-30, unless the corporation qualifies
and elects to use Short Form N-310. See Part
II Uniform Division of Income for Tax Purposes,
Chapter 235, HRS, and Subchapter 2, Title 18,
Chapter 235, Hawaii Administrative Rules.
A foreign corporation carrying on a trade or
business within Hawaii and subject to tax will be
entitled to exclude from the measure of the tax
that portion of its income less related expenses
which is attributable to sources without Hawaii.
A domestic corporation will exclude from the
measure of the tax that portion of its income
and related expenses attributable to sources in
another jurisdiction provided that such income is
subjected to an income tax by such other jurisdiction. A foreign corporation shall be deemed to
be carrying on a trade or business within Hawaii
if its net income is subject to the taxing jurisdiction of Hawaii by reason of its engaging in activities in Hawaii, or causing transactions to be conducted in Hawaii with the object of gain, profit, or
economic benefit, whether or not such activities
or transactions are in, or connected with, interstate or foreign commerce.
Only those entities which are located in any
of the states of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, or
any Territory or Possession of the United States
shall be considered and included as part of the
unitary business. Accordingly, only the business
income of those domestic entities shall be considered and included in the apportionment of
income. Where a business is deemed to be unitary, the taxpayer shall be required to file a combined return and the combined income shall be
apportioned to the State of Hawaii based upon
the factors of property, payroll and sales. See
Tax Information Release No. 97-2 (Revised) for
more information.
A unitary business is a business carried on
by a group of entities that includes the taxpayer
where there are flows of value among the entities resulting from (1) functional integration, (2)
centralization of management, or (3) economies
of scale. Generally, if the operation of a business
within Hawaii is integrated with, is dependent on,
or contributes to the operation of the business
outside Hawaii, the entire business is unitary in
character. A unitary group is a group of entities
carrying on a unitary business, but does not include (1) any foreign affiliate of the taxpayer; or

(2) any entity that is not related to the taxpayer
within the meaning of IRC section 267(b) and (c).
A foreign affiliate of a taxpayer is a person, other
than the taxpayer, if no part of the business income of the person is subject to federal income
tax under the Internal Revenue Code of 1986,
as amended, whether or not the person and the
taxpayer are owned or controlled directly or indirectly by the same interests.
The following instructions set forth in general
the adjustments to be made to arrive at the taxable income of a corporation carrying on a unitary business within and without Hawaii. They do
not purport to set forth each and every adjustment to be made. Specific questions should be
submitted in writing for rulings.
DIRECTIONS FOR COMPLETING
SCHEDULE O ADJUSTMENTS FOR HAWAII
TAXABLE INCOME
Question (f). Explain with references to the
laws or regulations of another state any inconsistencies in the determination of non-business
income and in the denominators of the factors
due to a difference in state laws or regulations.
Show the amount of inconsistency on a stateby-state basis. Corporations that change the way
the following items were treated in prior year tax
returns must disclose the nature and extent of
these changes on a separate sheet as an attachment to Schedule O. Disclose any changes
to:

•	

classification of income as business or
non-business income;

•	

valuation of property or inclusion of
property in the property factor;

•	

determination of the amount of
compensation paid used in the payroll
factor; or

•	

inclusion of gross receipts in the sales
factor.
Disclose only inconsistencies in the denominators of the three factors that materially affect
the apportionment percentage.
Line 1. Enter here the amount of taxable
income shown on Hawaii Form N-30, Schedule
J, line 1.
Line 2. Enter here the dividends from N-30,
Schedule C, line 11.
Line 3. Enter deductions taken for federal
tax purposes but not allowable or allowable only
in part, for Hawaii tax purposes.
Line 4. Enter here the deduction for charitable contributions included on line 1. The Hawaii deduction for charitable contributions will be
taken on line 35.
Line 5.  Other adjustments. List all other additions here.
Line 7. Enter here the amount of dividends
received included on Form N-30, page 1, line 8.
Line 8. Enter here any interest received
on obligations of the United States included on
Form N-30, page 1, line 8.

Line 9. Enter here other deductions or adjustments.
ADJUSTMENTS TO ARRIVE AT UNITARY
BUSINESS INCOME SUBJECT TO TAX
After Hawaii adjustments, the following deductions or exclusions must be made to arrive
at unitary business income. Dividends, interest,
royalties, nonunitary business income, rents,
and capital gains and losses which are not an
integral part of the unitary operations, are to be
allocated specifically according to location or situs of property or according to the domicile of
the taxpayer.
Line 12. Enter here the non-business or
nonunitary dividends included on Form N-30,
page 1, line 8, and included on line 2 above.
Lines 13, 14, and 15. Enter the net amount
from interest, royalties, and nonunitary business
income (including rentals). If the related expenses exceed the total of each such income, no deduction may be claimed.
Line 20. Enter here the net loss from business, other than unitary business, including rentals.
Line 21. Enter here the net loss, other than
those from sales of depreciable property, resulting from the sale or exchange of assets not connected with unitary business. Losses on sales of
depreciable property are considered to be part
of the unitary business.
Line 24. From Schedule P (Apportionment
Formula) line 5, enter the average percent and
multiply the amount shown on line 23 by this average percent. This is the apportioned income
from the unitary business subject to Hawaii income tax.
Line 26. Enter the portion of line 24, if any,
that is net capital gain attributable to the unitary
business. Also, enter the amount on line 26, if
any, on Form N-30, page 2, Schedule J, line 13.
INCOME WHOLLY ATTRIBUTABLE TO
HAWAII
Foreign and domestic corporations must allocate to Hawaii all gains (or losses) resulting
from the sale or exchange of real estate and
other tangible assets which have a tax situs in
Hawaii. The amount of net capital gain as shown
on Schedule O, page 2, line 31(b) is taxed at the
rate of 4%. Income from nonunitary business
activities conducted within Hawaii, royalties and
rentals from property owned within Hawaii, and
intangibles having a business situs in Hawaii
must be allocated to Hawaii.
Allocation of capital gains and losses. Capital
gains and losses from the sales of real property
located in Hawaii are allocable to Hawaii.
Capital gains and losses from the sales of
tangible personal property are allocable to Hawaii if: (1) The property had a situs in Hawaii at
the time of the sale; or (2) The taxpayer’s commercial domicile is in Hawaii and the taxpayer
is not taxable in the state in which the property
had a situs.

INSTRUCTIONS — SCHS. O & P (FORM N-30)
(REV. 2020)		
Except in the case of the sale of a partnership interest, capital gains and losses from the
sales of intangible property are allocable to Hawaii if the taxpayer’s commercial domicile is in
Hawaii.
Gain or loss from the sale of a partnership
interest is allocable to Hawaii in the ratio of the
original cost of the partnership tangible personal
property in Hawaii to the original cost of partnership tangible personal property everywhere,
determined at the time of the sale. If more than
fifty percent of the value of a partnership’s assets consists of intangibles, gain or loss from the
sale of the partnership interest shall be allocated
to Hawaii in accordance with the sales factor of
the partnership for its first full tax period immediately preceding its tax period during which the
partnership interest was sold.
Line 28. Enter here the gain (or loss) from
the sale of real estate and other tangible assets
not connected with the unitary business.
Line 29. Enter here royalties from property
not used in the unitary business.
Line 30. Enter here the net profit (or loss)
from business other than the unitary business
(including rental property) operated on a separate accounting basis.
Line 31(b). Enter the amount of net capital
gain wholly attributable to Hawaii. Also, enter the
total of lines 31(b) and 26, on Form N-30, page
2, Schedule J, line 13.
Line 32. Enter here income from intangible
personal property. Add back Hawaii allocated,
non-business or nonunitary income and dividends.
Line 35. The Hawaii contribution deduction
is computed by multiplying the total contributions
by the Hawaii allocation percentage determined
on Schedule P. The amount of the deduction is
limited to 10% of the Hawaii taxable income on
line 38 of Schedule O as adjusted per IRC section 170(b)(2), i.e., net operating losses, capital
losses, contributions, dividend deduction, etc.
Line 36. Enter here any net operating loss as
determined in accordance with section 235-7(d),
HRS, and/or any net operating loss purchased
from a qualified high technology business.
DIRECTIONS FOR COMPLETING
SCHEDULE P APPORTIONMENT FORMULA
In filing this schedule, include only items related to, or connected with, the income reported
on Schedule O, line 23. Thus, since this line
does not include income or losses from intangible personal property, and rental of, sale or
other disposition of property not connected with
the unitary business, such property should not
be included in the property factor of the formula,
and income therefrom should not be included
in the sales factor. Likewise, salaries, wages, or
other compensation of officers and employees,
whose services were not performed in produc-

ing the income reported on Schedule O, line 23,
should not be included.
If this is a return for a combined group of corporations, compute the factors on this schedule
for the combined group and attach a worksheet
showing the requested information for each
member in the group. If this is a separate return
for a member of a combined group, enter the
group’s factor information in column (a) and the
member’s Hawaii factor information in column
(b). Attach a worksheet showing the requested
information for each member in the group. Also
attach a list of the names, addresses and the
Federal Employer Identification Numbers for all
entities included in the combined group.
PROPERTY FACTOR
The property factor is a fraction, the numerator of which is the average value of the corporation’s real and tangible personal property owned
or rented and used in Hawaii during the tax period and the denominator of which of which is the
average value of all the corporation’s real and
tangible personal property owned or rented and
used during the tax period. Property owned by
the corporation is valued at its original cost. The
average value of property shall be determined by
averaging the values at the beginning and ending of the tax period. The use of monthly values
may be required if necessary, to properly reflect
the average value of the corporation’s property.
Real property situated, and tangible personal
property permanently located, in Hawaii on the
last day of the taxable year if actually used in the
unitary business, should be listed as within Hawaii. In determining the situs of movables, such
as equipment used in Hawaii part of the year
and in another jurisdiction part of the year, the
value of such property shall be assigned to a location within and without Hawaii on the basis of
approximate average time of such usage. In the
case of properties leased or rented, the value
of the leasehold interest or rented property shall
be included in the property factor. The values of
leasehold interests and other leased or rented
properties are obtained by multiplying the net
annual rent paid by 8. Where property is rented
for less than a twelve-month period, the rent paid
for the actual period of rental shall constitute the
annual rental rate for the tax period.
PAYROLL FACTOR
Salaries, wages, commissions, and other
compensation for personal services paid during the taxable year to officers and employees
in connection with the unitary business should
be entered as within Hawaii if the services are
actually performed here, regardless of where
payment is made or control exercised.
SALES FACTOR
Gross sales or receipts attributable to and
derived from the taxpayer’s unitary business
operations shall be the gross sales or gross receipts less returns and allowances. In the case

Page 2
of tangible personal property there shall be attributable to Hawaii all sales of such property:
(A)	delivered to a purchaser at a point within
Hawaii regardless of the f.o.b. point or
where the sale was consummated,
(B)	 shipped to a purchaser situated at a point
within Hawaii regardless of the f.o.b. point
or where the sale was consummated, and
(C)	 delivered to a purchaser at a point outside
Hawaii or shipped to a purchaser at a point
outside Hawaii, if such point is located in
a jurisdiction in which the taxpayer is not
doing business and the sale was made on
an order secured or received by an office
or branch in Hawaii or a representative
residing or stationed in Hawaii.
In the case of sales of other than tangible
personal property, there shall be included,
in addition to amounts includible under rules
prescribed on the sale of tangible personal
property above, all sales or receipts from:
(A)	 property located and contracts performed in
Hawaii, irrespective of the place where the
contract is made,
(B)	 communications transmitted from a point in
Hawaii,
(C)	 intangible property used in Hawaii,
(D)	 services used or consumed in Hawaii,
(E)	 all other activities engaged in or transactions
conducted in Hawaii.
USE OF FACTORS
All business income shall be apportioned to
this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three (sections
235-29 and 255-1, HRS). If the denominator of
the property factor, payroll factor, or sales factor
is zero, the denominator of the fraction in section
235-29, HRS, is reduced by the number of factors with a zero denominator, and the numerator
of that fraction shall not include any factor with a
zero denominator.
MODIFICATION OF FACTORS FOR CERTAIN
LINES OF BUSINESS
A taxpayer carrying on the business of air
or sea transportation service, construction
contracting, publishing, and radio or television
broadcasting may derive income partly from
sources within and partly from sources without
Hawaii. Such a taxpayer is required to use the
factors as modified under Department of Taxation Administrative Rules, section 18-235-38-06.