Hawaii: Bills Presented to Governor Would Adopt Corporate Tax Changes

There are three corporate income tax bills pending signature in Hawaii that would adopt fairly significant changes to the state’s corporate income tax laws. Senate Bill 495 would establish an economic nexus threshold for income tax purposes for taxable years beginning after December 31, 2019. Specifically, the bill would create a presumption that a person lacking physical presence in the state is “systematically and regularly engaging in business in the State” if, during the current or preceding calendar year, the person (1) engaged in 200 or more business transactions with persons in Hawaii, or (2) had gross income attributable to in-state sources that equaled or exceeded $100,000, or for persons doing business both within and without Hawaii, the person had a Hawaii sales factor numerator that equaled or exceeded $100,000.  Senate Bill 394 would adopt market-based sourcing rules under which receipts from intangibles would be sourced to where the intangible property is used and service receipts would be sourced to Hawaii to the extent the service was used or consumed in the state. Finally, Senate Bill 301 would add IRC section 857(b)(2)(B) to the list of federal IRC  provisions that are inoperative for Hawaii purposes and would disallow certain REITs a deduction for dividends paid. All of these changes would be applicable for tax years beginning after December 31, 2019. Please stay tuned to TWIST for future legislative updates.