(a) Scope. This
section sets forth the application of the provisions of chapter 237, HRS,
relating to the imposition of the general excise tax on fees and commissions
received by a person who serves as a fiduciary such as, but not limited to, a
director, trustee, executor, administrator, custodian, or guardian. The purpose
of this subsection is to clarify for purposes of chapter 237, HRS, those fees
and commissions derived from the performance of fiduciary services which are
more than casual transactions. This subsection, therefore, does not apply to
those persons who, by practice or profession, serve as fiduciaries such as
attorneys and accountants who are taxed under section
237-13(8),
HRS, and those persons engaged in business as fiduciary companies under the
provisions of chapter 402, HRS.
(b)
Imposition of tax; rate of tax. Section
237-13, HRS,
levies a general excise tax against persons on account of their business and
other activities in the State measured by the application of rates against
gross income. Fees and commissions received by fiduciaries such as, but not
limited to, directors, trustees, executors, administrators, custodians, or
guardians may be taxed by section
237-13(6), (8), or
(10), HRS, respectively, as follows:
(1) Section
237-13(6),
HRS, imposes a tax equal to four percent of the gross income upon every person
engaging or continuing within the State in any service business or
calling.
(2) Section
237-13(8),
HRS, imposes a tax equal to four percent of the gross income upon every person
engaging or continuing within the State in the practice of a
profession.
(3) Section
237-13(10),
HRS, imposes a tax equal to four percent of the gross income upon every person
engaging or continuing within the State in any business, trade, activity,
occupation, or calling not otherwise specifically included in section
237-13,
HRS.
(c) Determination
as to taxable activity.
(1) In ascertaining
whether a person is engaged in the activity of a fiduciary, it is immaterial
whether the appointment was solicited; whether there is a generally recognized
market for the services; whether the income was necessary for the person's
livelihood; whether the primary purpose was to accommodate friends; or any
other subjective considerations. The activity shall be deemed to be engaged in
with the object of economic gain or benefit where the person renders the
service and accepts in return therefore a normal and usual compensation for the
rendition of such service.
(2)
Section
237-24(6),
HRS, shall not apply to the fees or commissions received by a person who
renders services in the capacity of a fiduciary.
(3) A person is deemed to be engaged in a
trade or business as a fiduciary within the meaning of chapter 237, HRS, upon
the person's appointment thereto, performance of duties, and the receipt of
fees if such person:
(A) Serves as a
fiduciary in four or more of each or combination of any of the following
capacities during the taxable year: director of a corporation, trustee of a
trust, executor of an estate, or any other fiduciary; or
(B) Receives fees or commissions in an
aggregate amount of more than $1,200 in a taxable year for the performance of
the person's duties as fiduciary.
(4) Application of the principles cited in
this subsection may be illustrated by the following examples:
Example 1: A, an engineer, serving as a
director of two corporations, as a trustee of a trust, and as an executor of an
estate during the taxable year and who received fees and commissions therefrom
shall be deemed to be engaged in business within the meaning of chapter 237,
HRS.
Example 2: B, a contractor, serving as a
director of two corporations, one of which is a nonprofit religious corporation
for which no fees were received, as a trustee of a trust, and as an executor of
an estate during the taxable year and who received fees and commissions in the
amount of $1,000 per year for services as a director, trustee, and as an
executor shall not be deemed to be engaged in the business within the meaning
of chapter 237, HRS.
Example 3: D, a chemist, serving as a trustee
of a trust and as an executor of one estate during the taxable year and who
received an aggregate amount of $1,300 therefrom, and who in addition to the
foregoing, received $500 in fees as a director of a corporation during the
taxable year for directors' meetings held outside the State of Hawaii shall be
deemed to be engaged in business within the meaning of chapter 237, HRS.
Example 4: F, a lawyer and an accountant, is
not engaged in private practice but is employed by a corporation as a full-time
lawyer and an accountant. Serving as a director of the abovementioned
corporation and another corporation during the taxable year, F received an
aggregate amount of $1,000 therefrom in the taxable year. The directors' fees
received by F shall not be deemed from engaging in business within the meaning
of chapter 237, HRS, inasmuch as F's activities and fees therefrom are not
within the provisions of paragraph (3)(A).
