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Hawaii tax changes impact nexus, sourcing, partnerships, and more

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July 2019


Numerous legislative enactments have altered the tax landscape of Hawaii. Specifically, SB 495 adopts economic nexus provisions for state income tax purposes; SB 394 adopts market-based sourcing for sales of other than tangible personal property; SB 1360 requires partnerships and other entities to withhold tax from nonresident partners/members; and SB 1130 updates the state’s IRC conformity date.  SB301, which would have disallowed the dividend paid deduction for REITs, was vetoed by the governor.

The takeaway

Numerous states recently have enacted transaction nexus thresholds for determining sales and use tax nexus in the wake of the Wayfair v. South Dakota Supreme Court decision.  The trend toward adopting a transaction nexus threshold may continue for determining income tax nexus.

With the retroactive application of the pass-through withholding requirement in SB 1360, partnerships, estates, and trusts should review their income from Hawaii sources to determine whether any estimated tax payments may be required for the 2019 tax year. Further, for any asset managers with significant limited partner investments from Hawaii-based investors, the impact of these new rules should be modeled to determine if a Hawaii pass-through withholding liability or corporate liability now exists at the Management Company level.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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