Hawaii – Related Entity Exemption

SALT Report 1738 – The Hawaii Department of Taxation issued guidance regarding the related entity exemption from general excise tax. Hawaii provides an exemption under § 237-23.5(a), HRS which states that the general excise tax does not apply to amounts received, charged, or attributable to services furnished by one related entity to another related entity.

The statute defines related entities as, “[t]hose entities connected through ownership of at least 80% of the total value and at least 80% of the total voting power of each such entity (or combination thereof), including partnerships, associations, trusts, S corporations, nonprofit corporations, limited liability partnerships, or limited liability companies.”

The related entity exemption applies to legal and accounting services, computer software and hardware, information technology services, database management, and managerial and administrative services that are performed by an employee, officer, manager, or certain other persons in the person’s capacity as an employee, officer, or manager of one of the related entities. The exemption extends to the costs attributable to any of the mentioned services.

For Further Information:

Hawaii Department of Taxation – Ruling No. 2012-13