Haw. Code R. § 18-235-96

Current through September, 2024

Section 18-235-96 - Returns by persons making payments

(a) Return of information; payments of $600 or more.

(1) General rule. Except as provided in subsection (c), every person engaged in a trade or business in Hawaii or having a place of business in Hawaii shall make an information return for the calendar year with respect to payments made by the taxpayer during the year in the course of the taxpayer's trade or business to another person, of fixed or determinable:

(A) Salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more;

(B) Interest, rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more, except as provided in subsection (h); or

(C) Foreign items, as defined in this subsection, aggregating $600 or more.

The return required by this paragraph shall be made on federal Form 1099 or on forms as prescribed by the department. Transmittal Form N-196 shall accompany all submissions of federal Form 1099 or other information returns required under this section on forms as prescribed by the department. A separate return of information shall be furnished for each person to whom payments of $600 or more are made.

(2) Definitions. As used in this section:

"Persons engaged in a trade or business" includes not only those persons engaged in a trade or business for gain or profit, but also organizations exempt from income tax, as set forth in section 235-9, HRS, and in paragraph (7). These rules apply only to payments made in the course of trade or business; hence, payments made by a person outside the course of a trade or business, such as payments made for personal expenses, are excluded.

"Fixed or determinable income" means income which is fixed as to when it is paid, and the amounts are definite and predeterminable. Income is determinable whenever there is a basis of calculation by which the payment amount may be ascertained and need not be paid annually or at regular intervals. For these purposes, the fact that the payments may be increased or decreased in accordance with the trade or business activity, such as payments made to a salesperson who is paid on a commission basis, does not make the payments any less determinable.

"Foreign item" means any interest derived from the bonds of a foreign country or of a nonresident corporation, organized and existing under the laws of a foreign country, not having a fiscal agent or paying agent in Hawaii, or any dividends upon stock of such corporation.

"Domestic corporation", "foreign corporation", "resident estate", and "resident trust" shall be defined as set forth in section 235-1, HRS.

(3) Types of payments included. Payments which must be reported pursuant to this rule, include:

(A) Sums paid in respect of life insurance, endowment, or annuity contracts unless:

(i) The payment is made in respect of a life insurance or endowment contract upon the death of the insured and is not required to be reported by these rules;

(ii) The payment is made upon surrender or lapse of a policy which was purchased and paid for by the insured; or

(iii) The payment is made in the form of a pension for past services performed and which qualifies for exclusion from gross income under section 235-7, HRS, and this rule.

(B) Fees paid to attorneys, physicians, and members of other professions for professional services rendered if the fees are paid by persons engaged in the course of a trade or business.

(C) The fair market value of prizes and awards which are includable in gross income under section 74, IRC, when paid in the course of a trade or business.

(4) Payment in property other than cash. If any payment required to be reported under this section is made in property other than cash, the fair market value of the property at the time of payment shall be the amount reported on the return of information.

(5) When payment deemed made. For reporting purposes, an amount is deemed paid when it is credited or set apart for the recipient without any substantial limitation or restriction as to the time, manner, or condition upon which payment is to be made. The recipient must be able to draw on the payment at any time, and retain control and disposition over the payment.

(6) Payments made by State or any political subdivision thereof. Informational returns on payments made by the State or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing, shall be filed by the officer or employee of the State or political subdivision, or of such agency or instrumentality having control over the payments or the officer or employee designated to make the return.

(b) Return of information; payments to employees.

(1) In general. Wages, as defined in section 235-61, HRS, of $600 or more paid to an employee shall be reported on Form HW-2. Payments made in property other than cash of $600 or more shall be reported on federal Form 1099 or on forms prescribed by the department. Where a total of $600 or more is paid to an employee and the payment consists of wages and property other than cash, the wages shall be reported on Form HW-2 and the cash value of the property shall be reported on federal Form 1099 or on forms prescribed by the department. Where property other than cash is received by an employee in the course of a trade or business, the cash value of the property received (except for items excludable from gross income such as meals and lodging furnished for the convenience of the employer, or that which is excludable under section 235-7, HRS) shall be reported on federal Form 1099 or on forms prescribed by the department. For example, if a payment of $700 was made to an employee and $400 represents wages subject to withholding under section 235-61, HRS, and the remaining $300 represents compensation not subject to withholding, the $400 must be reported on Form HW-2 and the $300 must be reported on federal Form 1099 or on forms prescribed by the department.

(2) Distribution under employees' trust and annuity plans. In general, pursuant to section 235-7, HRS, and section 18-235-7, distributions to a beneficiary under a stock bonus, pension, profit-sharing, or annuity plan are not subject to state income taxation. Those portions of the distributions which are attributable to employee contributions, however, shall be included in the beneficiary's gross income if the distributions to the beneficiary are $600 or more for the calendar year. The distributions shall be reported on federal Form 1099 or on forms prescribed by the department.

(c) Payments for which no return of information is required. Payments of the following character need not be reported on information returns to the department:

(1) Payments of income required to be reported on Forms HW-14, HW-2, and HW-3;

(2) Payments by a broker or by the broker's customer;

(3) Payments of any type made to corporations (except payments made by corporations organized under chapter 421, HRS, to their members which are corporations);

(4) Payments of bills for merchandise, telegrams, telephone, freight, storage, and similar charges;

(5) Payments of rent made to real estate agents (but the agent is subject to the requirements under subsection (a)(1)(B));

(6) Payments representing earned income for personal services rendered outside the State, made to an individual who is a nonresident, as defined in section 235-1, HRS;

(7) Payments representing earned income for personal services rendered outside the State, made to an individual who takes up residence in Hawaii after attaining the age of sixty-five years prior to July 1, 1976;

(8) Salaries and profits paid or distributed by a partnership to the individual partners;

(9) Payments of commissions to general agents of fire insurance companies or other companies insuring property, unless the general agents are the actual payers of the commission, then payments are subject to the requirements under subsection (a)(1)(B);

(10) Any advances, reimbursements, or charges for traveling and other business expenses of an employee which are submitted to an employer in a written statement, identifying the type and amount of the expense;

(11) Amounts paid as an allowance or reimbursement for traveling or other bona fide ordinary and necessary expenses, including an allowance for meals and lodging or a per diem allowance in lieu of subsistence, as set forth in federal Treasury Regulation 1.6041-3(m); or

(12) Payments of interest coupons payable to bearer.

(d) Returns of information; foreign items. If $600 or more of foreign items, as defined in subsection (a) is paid in any calendar year to an individual who is a resident of Hawaii, to a fiduciary of a resident estate or resident trust (as defined in section 235-1, HRS) or to a resident partnership (any member of which is a resident of Hawaii) an information return shall be filed on federal Form 1099 or on forms prescribed by the department, setting forth the amount of such items. The forms shall be filed by any person who accepts the item for collection as a matter of business or for profit, such as a bank as defined in section 241-1, HRS.

As used in this subsection, "collection" includes:

(1) payment of the foreign item in cash;

(2) the crediting of the account of the person presenting the foreign item; or

(3) the tentative crediting of the account of the person presenting the foreign item until the amount of the foreign item is received by the bank or collecting agent from abroad for the purpose of transmitting them abroad for deposits.

(e) Information as to actual owner. When a person receiving a payment, subject to the reporting requirements of this section, is not the actual owner of the income received, the name and address of the actual owner shall be furnished upon demand of the person paying the income. In default of compliance with such demand, the payee becomes liable for the penalties provided in section 235-105(c), HRS.

(f) Time and place for filing; information to be reported. Forms required to be filed and information to be reported under this section for any calendar year shall be filed on or before February 28 of the following year with the director of taxation or designee for the taxation district in which the payer's principal place of business is located. The name and address of the person making the payment and the name and address of the recipient of the payment shall be stated on federal Form 1099 or on forms prescribed by the department.

(g) Return of information; payments of dividends.

(1) Filing requirement of return. Every domestic corporation (including cooperative associations organized under chapter 421, HRS, any association subject to chapter 407, HRS, or a bank as defined in section 241-1, HRS) or foreign corporation engaged in a trade or business within Hawaii, having an office or place of business, or a fiscal or paying agent in Hawaii, and which pays dividends or makes distributions of $10 or more during the calendar year (other than distributions in liquidation), to any shareholder who is an individual resident of Hawaii, a fiduciary of a resident estate or resident trust, or to a resident partnership (any member of which is a resident of Hawaii), shall file an information return for the calendar year setting forth the amount of such payments for the calendar year. A separate return of information shall be filed on federal Form 1099 or on forms as prescribed by the department for each shareholder, showing the name and address of the payer and the shareholder, and the amount paid. These returns shall be accompanied by a transmittal form as prescribed by the department.

(2) Nontaxable or partly nontaxable distributions. In the case of a distribution which is made from a depletion or depreciation reserve, or which is deemed by the corporation to be nontaxable or partly nontaxable to its shareholders, the corporation shall report the information on forms as prescribed by the department.

(3) Information as to actual owners.

(A) In general. When the person receiving a payment is not the actual owner of the income received, the name and address of the actual owner or payee shall be furnished upon demand of the person paying the income. In default of compliance with such demand, the payee becomes liable for the penalties provided in section 235-105(c), HRS. Dividends on stock are the income of the record owner of the stock. If a record owner of stock, who is not the actual owner, receives dividends on such stock, the record owner shall disclose the name and address of the actual owner or payee, the name of the issuing corporation, the number of shares of stock held by the actual owner or payee, and the amount of dividends received with respect to such stock during the calendar year to the department of taxation. Unless disclosure of the information is made, the record owner will be held liable for any tax assessed against the dividends. A separate form shall be filed by the record owner for each of the stockholdings of each actual owner for whom the record holder acts as nominee. However, where the record owner is a banking institution, trust company, or brokerage firm engaged in such trade or business in Hawaii or having a place of business in Hawaii, provided it maintains such records as will permit a prompt substantiation of each payment of dividends made to the actual owner, it may file the prescribed forms for each actual owner for whom it acts as nominee and report thereon the amount of dividends paid to the actual owner (without itemization as to the issuing company, class of stock, etc.).

(B) Exceptions. The filing of information returns under this subsection is not required if:

(i) The record owner is required to file a fiduciary return on Form N-40;

(ii) The actual owner or payee is a nonresident individual, or is a partnership not engaged in a trade or business in Hawaii, or does not have a place of business in Hawaii;

(iii) The record owner is a banking institution, a trust company, or a brokerage firm which prepares the individual income tax return of the actual owner, provided the record owner verifies the preparation of the income tax return;

(iv) The record owner is a nominee of a banking institution or trust company exercising trust powers, and the banking institution or trust company is required to file a fiduciary return on Form N-40 which reflects the name and address of the actual owner or payee;

(v) The actual owner is an organization exempt from taxation under chapter 235, HRS; or

(vi) The record owner is a banking institution or trust company exercising trust powers, or a nominee thereof, and the actual owner is an organization exempt from taxation under chapter 235, HRS.

(4) Time and place for filing returns. Forms required to be filed and information to be reported under this section, for any calendar year, shall be filed on or before February 28 of the following year with the director of taxation or designee for the taxation district in which the payer's principal place of business is located.

(h) Return of information as to certain payments of interest. As provided in section 6049, IRC, and the regulations thereunder, returns shall be filed by the payer of interest totaling $10 or more.

(i) Substitute forms. For purposes of this section, returns of information may be reported on federal Form 1099 or on forms prescribed by the department. Only commercially printed substitutes or other forms which comply with the requirements of the Internal Revenue Service may be substituted for federal Form 1099.

(j) Penalties for failure to file information returns. Every person who fails to file the information returns as required by section 235-96, HRS, and this section, shall be liable for the penalties provided in section 235-105(c), HRS.

Haw. Code R. § 18-235-96

[Eff 2/16/82; am 6/28/93] (Auth: HRS §§ 231-3(9), 235-96, 235-118) (Imp: HRS § 235-96)